MEDICAL PROPERTIES TRUST, INC.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-32559
Medical Properties Trust,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Maryland
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20-0191742
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer Identification
No.)
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1000 Urban Center Drive, Suite 501
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Birmingham, AL
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35242
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(Address of Principal Executive
Offices)
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(Zip Code)
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(205) 969-3755
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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 Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment of this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of shares of the Registrants
common stock, par value $0.001 per share (Common
Stock), held by non-affiliates of the Registrant as of
June 30, 2007 was approximately $655,917,760. For purposes
of the foregoing calculation only, all directors and executive
officers of the Registrant have been deemed affiliates.
As of March 13, 2008, 53,710,574 shares of the
Registrants Common Stock were outstanding.
Portions of the Registrants definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 22,
2008 are incorporated by reference into Part III,
Items 10 through 14 of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
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PART I |
| ITEM 1. Business |
| ITEM 1A. Risk Factors |
| ITEM 1B. Unresolved Staff Comments |
| ITEM 2. Properties |
| ITEM 3. Legal Proceedings |
| ITEM 4. Submission of Matters to a Vote of Security Holders |
PART II |
| ITEM 5. Market for Registrants Common Equity, Related Stockholder Matter, and Issuer Purchases of Equity Securities |
| ITEM 6. Selected Financial Data |
| ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations |
| ITEM 7A Quantitative and Qualitative Disclosures about Market Risk |
| ITEM 8. Financial Statements and Supplementary Data |
Consolidated Balance Sheets |
Consolidated Statements of Operations |
Consolidated Statements of Stockholders Equity For the Years Ended December 31, 2007, 2006 and 2005 |
Consolidated Statements of Cash Flows |
Notes To Consolidated Financial Statements |
| ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
| ITEM 9A. Controls and Procedures |
Report of Independent Registered Public Accounting Firm |
| ITEM 9B. Other Information |
PART III |
| ITEM 10. Directors, Executive Officers and Corporate Governance |
| ITEM 11. Executive Compensation |
| ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
| ITEM 13. Certain Relationships and Related Transactions, and Director Independence. |
| ITEM 14. Principal Accountant Fees and Services. |
PART IV |
| ITEM 15. Exhibits and Financial Statement Schedules. |
SIGNATURES |
SCHEDULE III -- REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION |
SCHEDULE IV -- MORTGAGE LOAN ON REAL ESTATE MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES |
INDEX TO EXHIBITS |
EX-10.57 REVOLVING CREDIT AGREEMENT |
EX-10.58 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.59 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.60 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.61 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.62 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-21.1 SUBSIDIARIES OF THE REGISTRANT |
EX-23.1 CONSENT OF KPMG LLP |
EX-23.2 CONSENT OF MOSS ADAMS LLP |
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO |
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO |
EX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO |
EX-99.1 CONSOLIDATED FINANCIAL STATEMENTS |
EX-99.2 CONSOLIDATED FINANCIAL STATEMENTS |
A WARNING
ABOUT FORWARD LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on
Form 10-K
that are subject to risks and uncertainties. These
forward-looking statements include information about possible or
assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives.
Statements regarding the following subjects, among others, are
forward-looking by their nature:
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our business strategy;
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our projected operating results;
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our ability to acquire or develop net-leased facilities;
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availability of suitable facilities to acquire or develop;
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our ability to enter into, and the terms of, our prospective
leases and loans;
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our ability to raise additional funds through offerings of our
debt and equity securities;
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our ability to obtain future financing arrangements;
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estimates relating to, and our ability to pay, future
distributions;
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our ability to compete in the marketplace;
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lease rates and interest rates;
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market trends;
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projected capital expenditures; and
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the impact of technology on our facilities, operations and
business.
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The forward-looking statements are based on our beliefs,
assumptions and expectations of our future performance, taking
into account information currently available to us. These
beliefs, assumptions and expectations can change as a result of
many possible events or factors, not all of which are known to
us. If a change occurs, our business, financial condition,
liquidity and results of operations may vary materially from
those expressed in our forward-looking statements. You should
carefully consider these risks before you make an investment
decision with respect to our common stock and other securities,
along with, among others, the following factors that could cause
actual results to vary from our forward-looking statements:
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the factors referenced in this Annual Report on
Form 10-K,
including those set forth under the sections captioned
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations;
and Our Business.
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general volatility of the capital markets and the market price
of our common stock;
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changes in our business strategy;
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changes in healthcare laws and regulations;
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availability, terms and development of capital;
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availability of qualified personnel;
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changes in our industry, interest rates or the general
economy; and
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the degree and nature of our competition.
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When we use the words believe, expect,
may, potential, anticipate,
estimate, plan, will,
could, intend or similar expressions, we
are identifying forward-looking statements. You should not place
undue reliance on these forward-looking statements. We are not
obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Except as required by law, we disclaim any obligation to update
such statements or to publicly announce the result of any
revisions to any of the forward-looking statements contained in
this Annual Report on
Form 10-K
to reflect future events or developments.
(i)
PART I
Overview
We are a self-advised real estate investment trust that
acquires, develops, leases and makes other investments in
healthcare facilities providing
state-of-the-art
healthcare services. We lease our facilities to healthcare
operators pursuant to long-term net-leases, which require the
tenant to bear most of the costs associated with the property.
We also make long-term, interest only mortgage loans to
healthcare operators, and from time to time, we also make
operating, working capital and acquisition loans to our tenants.
We were formed as a Maryland corporation on August 27, 2003
to succeed to the business of Medical Properties Trust, LLC, a
Delaware limited liability company, which was formed by one of
our founders in December 2002. We conduct substantially all of
our business through our subsidiaries, MPT Operating
Partnership, L.P., and MPT Development Services, Inc. References
in this Annual Report on
Form 10-K
to Medical Properties Trust, Medical
Properties, we, us,
our, and the Company include Medical
Properties Trust, Inc. and our subsidiaries.
Since April 2004, we have issued at various times approximately
50.7 million shares of common stock for net proceeds of
approximately $539.8 million. At March 1, 2008, we
have approximately $934.7 million invested in healthcare
real estate and related assets.
Our investment in healthcare real estate, including mortgage
loans and other loans to certain of our tenants, is considered a
single reportable segment as further discussed in our
Consolidated Financial Statements, Note 2
Summary of Significant Accounting Policies, in Part II,
Item 8 of this Annual Report on
Form 10-K.
All of our investments are located in the United States, and we
have no present plans to invest in
non-U.S. markets
in the foreseeable future.
During 2007, we:
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invested approximately $316 million in new healthcare real
estate assets;
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reduced exposure to Vibra Healthcare to 31% of total revenue
from 55% of total revenue in 2006;
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sold 12.2 million shares of common stock for net proceeds
of $179.1 million or $14.66 per share, net of underwriters
discount and offering expenses; and
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completed agreements for two new credit facilities which provide
for new borrowings of up to $262.0 million.
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Portfolio
of Properties
As of December 31, 2007, our portfolio consisted of
28 properties: 25 facilities which we own are leased to
eight tenants and the remaining in the form of mortgage loans to
two operators. Our owned facilities consisted of 12 general
acute care hospitals, 9 long-term acute care hospitals, and 4
inpatient rehabilitation hospitals. The non-owned facilities on
which we have made mortgage loans consist of general acute care
facilities. We intend to continue to focus on investments in
licensed hospitals as our primary line of business.
Outlook
and Strategy
Our strategy is to lease the facilities that we acquire or
develop to experienced healthcare operators pursuant to
long-term net leases. Alternatively, we have structured certain
of our investments as long-term, interest only mortgage loans to
healthcare operators, and we may make similar investments in the
future. The market for healthcare real estate is extensive and
includes real estate owned by a variety of healthcare operators.
We focus on acquiring and developing those net-leased facilities
that are specifically designed to reflect the latest trends in
healthcare delivery methods. These facilities include but are
not limited to: physical rehabilitation hospitals, long-term
acute care hospitals, and regional and community hospitals.
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Our
Leases and Loans
The leases for our facilities are net leases with
terms requiring the tenant to pay all ongoing operating and
maintenance expenses of the facility, including property,
casualty, general liability and other insurance coverages,
utilities and other charges incurred in the operation of the
facilities, as well as real estate taxes, ground lease rent and
the costs of capital expenditures, repairs and maintenance.
Similarly, borrowers under our mortgage loan arrangements retain
the responsibilities of ownership, including physical
maintenance and improvements and all costs and expenses. Our
leases and loans also provide that our tenants will indemnify us
for environmental liabilities. Our current leases and loans have
initial terms of 10 to 15 years and provide for annual rent
or interest escalation and, in some cases, percentage rent.
Significant
Tenants
At March 1, 2008, we have leases with eight hospital
operating companies covering 25 facilities and we have mortgage
loans to two hospital operating companies. Vibra Healthcare, LLC
(Vibra) leases eight of our facilities. Total
revenue from Vibra in 2007 was approximately $30.1 million,
or 31.3% of total revenue. We expect that the percentage of
revenue we earn from Vibra in 2008 will be substantially less
than that in 2007 because our 2007 acquisitions and our
anticipated near-term future acquisitions are expected to
diversify our portfolio by adding new tenants. Although we
expect to make additional investments in Vibra-operated
properties in the foreseeable future, we believe that our Vibra
revenue will continue to decline relative to our total revenue.
At March 1, 2008, affiliates of Prime Healthcare Services,
Inc. (Prime) lease seven of our facilities and we
have mortgage loans on two facilities owned by affiliates of
Prime. Total revenue from Prime affiliates in 2007 was
approximately $24.9 million, or 25.9% of total revenue. As
of December 31, 2007, expected annual revenue from Prime
represented 34% of total expected annual revenues. It is likely
that we will make additional investments in Prime affiliated
properties in the foreseeable future.
Environmental
Matters
Under various federal, state and local environmental laws and
regulations, a current or previous owner, operator or tenant of
real estate may be required to investigate and remediate
hazardous or toxic substances or petroleum product releases or
threats of releases. Such laws also impose certain obligations
and liabilities on property owners with respect to asbestos
containing materials. These laws may impose remediation
responsibility and liability without regard to fault, or whether
or not the owner, operator or tenant knew of or caused the
presence of the contamination. Investigation, remediation and
monitoring costs may be substantial and can exceed the value of
the property. The presence of contamination or the failure to
properly remediate contamination on a property may adversely
affect the ability of the owner, operator or tenant to sell or
rent that property or to borrow funds using such property as
collateral and may adversely impact our investment in that
property.
Generally, prior to completing any acquisition or closing any
mortgage loan, we obtain Phase I environmental assessments in
order to attempt to identify potential environmental concerns at
the facilities. These assessments are carried out in accordance
with an appropriate level of due diligence and generally include
a physical site inspection, a review of relevant federal, state
and local environmental and health agency database records, one
or more interviews with appropriate site-related personnel,
review of the propertys chain of title and review of
historic aerial photographs and other information on past uses
of the property. We may also conduct limited subsurface
investigations and test for substances of concern where the
results of the Phase I environmental assessments or other
information indicates possible contamination or where our
consultants recommend such procedures.
Competition
We compete in acquiring and developing facilities with financial
institutions, other lenders, real estate developers, other
REITs, other public and private real estate companies and
private real estate investors. Among the factors adversely
affecting our ability to compete are the following:
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we may have less knowledge than our competitors of certain
markets in which we seek to invest in or develop facilities;
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many of our competitors have greater financial and operational
resources than we have;
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our competitors or other entities may pursue a strategy similar
to ours; and
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some of our competitors may have existing relationships with our
potential customers.
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To the extent that we experience vacancies in our facilities, we
will also face competition in leasing those facilities to
prospective tenants. The actual competition for tenants varies
depending on the characteristics of each local market. Virtually
all of our facilities operate in a competitive environment, and
patients and referral sources, including physicians, may change
their preferences for healthcare facilities from time to time.
Healthcare
Regulatory Matters
The following discussion describes certain material federal
healthcare laws and regulations that may affect our operations
and those of our tenants. However, the discussion does not
address state healthcare laws and regulations, except as
otherwise indicated. These state laws and regulations, like the
federal healthcare laws and regulations, could affect our
operations and those of our tenants. Moreover, the discussion
relating to reimbursement for healthcare services addresses
matters that are subject to frequent review and revision by
Congress and the agencies responsible for administering federal
payment programs. Consequently, predicting future reimbursement
trends or changes is inherently difficult.
Ownership and operation of hospitals and other healthcare
facilities are subject, directly and indirectly, to substantial
federal, state and local government healthcare laws and
regulations. Our tenants failure to comply with these laws
and regulations could adversely affect their ability to meet
their lease obligations. Physician investment in us or in our
facilities also will be subject to such laws and regulations. We
intend for all of our business activities and operations to
conform in all material respects with all applicable laws and
regulations.
Anti-Kickback Statute. 42 U.S.C.
§1320a-7b(b),
or the Anti-Kickback Statute, prohibits, among other things, the
offer, payment, solicitation or acceptance of remuneration
directly or indirectly in return for referring an individual to
a provider of services for which payment may be made in whole or
in part under a federal healthcare program, including the
Medicare or Medicaid programs. Violation of the Anti-Kickback
Statute is a crime and is punishable by criminal fines of up to
$25,000 per violation, five years imprisonment or both.
Violations may also result in civil sanctions, including civil
penalties of up to $50,000 per violation, exclusion from
participation in federal healthcare programs, including Medicare
and Medicaid, and additional monetary penalties in amounts
treble to the underlying remuneration.
The Anti-Kickback Statute defines the term
remuneration very broadly and, accordingly, local
physician investment in our facilities could trigger scrutiny of
our lease arrangements under the Anti-Kickback Statute. In
addition to certain statutory exceptions, the Office of
Inspector General of the Department of Health and Human
Services, or OIG, has issued Safe Harbor Regulations
that describe practices that will not be considered violations
of the Anti-Kickback Statute. These include a safe harbor for
space rental arrangements which protects payments made by a
tenant to a landlord under a lease arrangement meeting certain
conditions. We intend to use our commercially reasonable efforts
to structure lease arrangements involving facilities in which
local physicians are investors and tenants so as to satisfy, or
meet as closely as possible, the conditions for the safe harbor
for space rental. We cannot assure you, however, that we will
meet all the conditions for the safe harbor, and it is unlikely
that we will meet all conditions for the safe harbor in those
instances in which percentage rent is contemplated and we have
physician investors. In addition, federal regulations require
that our tenants with purchase options pay fair market value
purchase prices for facilities in which we have physician
investment. We intend our lease agreement purchase option prices
to be fair market value; however, we cannot assure you that all
of our purchase options will be at fair market value. Any
purchase not at fair market value may present risks of challenge
from healthcare regulatory authorities. The fact that a
particular arrangement does not fall within a statutory
exception or safe harbor does not mean that the arrangement
violates the Anti-Kickback Statute. The statutory exception and
Safe Harbor Regulations simply provide a guaranty that
qualifying arrangements will not be prosecuted under the
Anti-Kickback Statute. The implication of the Anti-Kickback
Statute could limit our ability to include local physicians as
investors or tenants or restrict the types of leases into which
we may enter if we wish to include such physicians as investors
having direct or indirect ownership interests in our facilities.
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Federal Physician Self-Referral Statute. Any
physicians investing in our company or its subsidiary entities
could also be subject to the Ethics in Patient Referrals Act of
1989, or the Stark Law (codified at 42 U.S.C.
§1395nn). Unless subject to an exception, the Stark Law
prohibits a physician from making a referral to an
entity furnishing designated health
services paid by Medicare or Medicaid if the physician or
a member of his immediate family has a financial
relationship with that entity. A reciprocal prohibition
bars the entity from billing Medicare or Medicaid for any
services furnished pursuant to a prohibited referral. Financial
relationships are defined very broadly to include relationships
between a physician and an entity in which the physician or the
physicians family member has (i) a direct or indirect
ownership or investment interest that exists in the entity
through equity, debt or other means and includes an interest in
an entity that holds a direct or indirect ownership or
investment interest in any entity providing designated health
services; or (ii) a direct or indirect compensation
arrangement with the entity.
The Stark Law as originally enacted in 1989 only applied to
referrals for clinical laboratory tests reimbursable by
Medicare. However, the law was amended in 1993 and 1994 and,
effective January 1, 1995, became applicable to referrals
for an expanded list of designated health services reimbursable
under Medicare or Medicaid.
The Stark Law specifies a number of substantial sanctions that
may be imposed upon violators. Payment is to be denied for
Medicare claims related to designated health services referred
in violation of the Stark Law. Further, any amounts collected
from individual patients or third-party payors for such
designated health services must be refunded on a timely basis. A
person who presents or causes to be presented a claim to the
Medicare program in violation of the Stark Law is also subject
to civil monetary penalties of up to $15,000 per claim, civil
monetary penalties of up to $100,000 per arrangement and
possibly even exclusion from participation in the Medicare and
Medicaid programs.
Final regulations applicable only to physician referrals for
clinical laboratory services were published in August 1995. A
proposed rule applicable to physician referrals for all
designated health services was published in January 1998. In
January 2001, the Centers for Medicare & Medicaid
Services (CMS) published the Phase I final rule,
which finalized a significant portion of the 1998 proposed rule.
On March 26, 2004, CMS issued the second phase of its final
regulations addressing physician referrals to entities with
which they have a financial relationship (the Phase
II rule). The Phase II rule addresses and interprets
a number of exceptions for ownership and compensation
arrangements involving physicians, including the exceptions for
space and equipment rentals and the exception for indirect
compensation arrangements. The Phase II rule also includes
exceptions for physician ownership and investment, including
physician ownership of rural providers and hospitals. The new
regulation revised the hospital ownership exception to reflect
the 18-month
moratorium that began December 8, 2003 on physician
ownership or investment in specialty hospitals, which was
enacted in Section 507 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. The Phase II
rule became effective on July 26, 2004. The moratorium
imposed by the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 expired on June 8, 2005. However,
that moratorium was retroactively extended by the passage of the
Deficit Reduction Act of 2005 (the DRA) which
requires the Secretary of Health and Human Services to develop a
strategic and implementing plan for physician investment in
specialty hospitals that addresses the issues of the report is
due six months after the date of enactment, but this deadline
may be extended by two months. The DRA also directs CMS to
continue the moratorium on enrollment of specialty hospitals
until the earlier of the date the report is submitted or six
months after enactment of the DRA. On August 8, 2006, CMS
published the final report and the moratorium expired. However,
CMS continues to scrutinize physician investments in specialty
hospitals. CMS has stated its intention to require certain
specialty and other hospitals to provide detailed information
regarding their financial arrangements with physicians. CMS will
use this information to review those arrangements for compliance
with the Stark Law.
In those cases where physicians invest in our subsidiaries or
our facilities, we intend to fashion our lease arrangements with
healthcare providers to meet the applicable indirect
compensation exceptions under the Stark Law, however, no
assurance can be given that our leases will satisfy these Stark
Law exception requirements. Unlike the Anti-Kickback Statute
Safe Harbor Regulations, a financial arrangement which
implicates the Stark Law must meet the requirements of an
applicable exception to avoid a violation of the Stark Law. This
may lead to obstacles in permitting local physicians to invest
in our facilities or restrict the types of lease arrangements we
may enter into if we wish to include such physicians as
investors.
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State Self-Referral Laws. In addition to the
Anti-Kickback Statute and the Stark Law, state anti-kickback and
self-referral laws could limit physician ownership or investment
in us, restrict the types of leases we may enter into if such
physician investment is permitted or require physician
disclosure of our ownership or financial interest to patients
prior to referrals.
Recent Regulatory and Legislative
Developments. The DRA was signed by President
Bush on February 8, 2006, and is expected to reduce
Medicare spending by $6.0 billion over the next five years
and cut Medicaid spending by $5.0 billion over the same
time frame. A clerical error during the legislative process,
however, raises some concerns over the validity of the DRA
because the United States House of Representatives never voted
on the version approved by the Senate and ultimately signed by
the President. Legal challenges may arise as a result of this
technicality, challenging the DRA. Nonetheless, CMS has already
begun implementing portions of the DRA. Medicare Part A
pays for hospital inpatient operating and capital related costs
associated with acute care hospital inpatient stays on a
prospective basis. Pursuant to this inpatient prospective
payment system, or IPPS, CMS categorizes each patient case
according to a list of diagnosis-related groups, or DRGs. Each
DRG has an assigned payment that is based upon the expected
amount of hospital resources necessary to treat a patient in
that DRG. On August 22, 2007, CMS published a Final Rule
with comment period for IPPS for fiscal year 2008. The Final
Rule includes a 3.5% increase in payment rates, a number of
changes to the DRGs and enhancements to the voluntary quality
reporting program. Hospitals are required to submit certain
clinical data on ten quality measures in order to receive full
payment for fiscal year 2008. CMS expects aggregate payments to
IPPS hospitals to increase by $3.8 billion over the
previous year. The changes are expected to increase payment to
those hospitals treating more severely ill and costlier patients.
CMS continues to make changes to its prospective payment system
for inpatient rehabilitation facilities, or IRFs. The Final Rule
updates payment rates and modifies certain payment policies.
Under the Final Rule, approximately 1,220 IRFs will receive
increased Medicare payments of approximately $150 million.
The Final Rule also includes a 3.2% market basket increase and
increases the outlier threshold for cases with unusually high
costs from $5,534 in fiscal year 2007 to $7,362 for fiscal year
2008. In addition, the Final Rule updates the IRF prospective
payment system wage index.
On May 7, 2004, CMS issued a Final Rule to revise the
classification criterion, commonly known as the
75 percent rule, used to classify a hospital or
hospital unit as an IRF. The compliance threshold is used to
distinguish an IRF from an acute care hospital for purposes of
payment under the Medicare IRF prospective payment system. The
Final Rule implements a three-year period to analyze claims and
patient assessment data to determine whether CMS will continue
to use a compliance threshold that is lower than 75% or not. For
cost reporting periods beginning on or after July 1, 2004,
and before July 1, 2005, the compliance threshold will be
50% of the IRFs total patient population. The compliance
threshold will increase to 60% of the IRFs total patient
population for cost reporting periods beginning on or after
July 1, 2005 and before July 1, 2006, to 65% for cost
reporting periods beginning on or after July 1, 2006 and
before July 1, 2007, and to 75% for cost reporting periods
after July 1, 2007. The Deficit Reduction Act of 2005
extends the phase-in period of the 75 percent
rule for one additional year. The 60% threshold remains in
effect until June 30, 2007. In fiscal year 2007, the
threshold is 65% and beginning in fiscal year 2008, the
threshold is 75%. On December 29, 2007, President Bush
signed legislation permanently freezing at 60% the threshold
amount. Also, currently, IRFs, in addition to considering a
patients primary diagnosis, are able to consider
comorbidities for purposes of determining compliance with the
75 percent rule. However, for cost reporting periods
beginning on or after July 1, 2008, IRFs will no longer be
able to consider comorbidities when making such determinations.
On December 8, 2003, President Bush signed into law the
Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, or the Act, which contains sweeping changes to the
federal health insurance program for the elderly and disabled.
The Act includes provisions affecting program payment for
inpatient and outpatient hospital services. In total, the
Congressional Budget Office estimates that hospitals will
receive $24.8 billion over ten years in additional funding
due to the Act.
Rural hospitals, which may include regional or community
hospitals, one of our targeted types of facilities, will benefit
most from the reimbursement changes in the Act. Some examples of
these reimbursement changes include (i) providing that
payment for all hospitals, regardless of geographic location,
will be based on the same,
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higher standardized amount which was previously available only
for hospitals located in large urban areas, (ii) reducing
the labor share of the standardized amount from 71% to 62% for
hospitals with an applicable wage index of less than 1.0,
(iii) giving hospitals the ability to seek a higher wage
index based on the number of hospital employees who take
employment out of the county in which the hospital is located
with an employer in a neighboring county with a higher wage
index, and (iv) improving critical access hospital program
conditions of participation requirements and reimbursement.
Medicare disproportionate share hospital, or DSH, payment
adjustments for hospitals that are not large urban or large
rural hospitals will be calculated using the DSH formula for
large urban hospitals, up to a 12% cap in 2004 for all hospitals
other than rural referral centers, which are not subject to the
cap. The Act provides that sole community hospitals, as defined
in 42 U.S.C. §1395ww(d)(5)(D)(iii), located in rural
areas, rural hospitals with 100 or fewer beds, and certain
cancer and childrens hospitals shall receive Transitional
Outpatient Payments, or TOPs, such that these facilities will be
paid as much under the Medicare outpatient prospective payment
system, or OPPS, as they were paid prior to implementation of
OPPS. As of January 1, 2004 all TOPs for community mental
health centers and all other hospitals were otherwise
discontinued. The hold harmless TOPs provided for
under the Act will continue for qualifying rural hospitals for
services furnished through December 31, 2005 and for sole
community hospitals for cost reporting periods beginning on or
after January 1, 2004 and ending on December 31, 2005.
Hold harmless TOPs payments continue permanently for cancer and
childrens hospitals.
The Act also requires CMS to provide supplemental payments to
acute care hospitals that are located more than 25 road miles
from another acute care hospital and have low inpatient volumes,
defined to include fewer than 800 discharges per fiscal year,
effective on or after October 1, 2004. Total supplemental
payments may not exceed 25% of the otherwise applicable
prospective payment rate.
Finally, the Act assures inpatient hospitals that submit certain
quality measure data a full inflation update equal to the
hospital market basket percentage increase for fiscal years 2005
through 2007. The market basket percentage increase refers to
the anticipated rate of inflation for goods and services used by
hospitals in providing services to Medicare patients. For fiscal
year 2005, the market basket percentage increase for hospitals
paid under the inpatient prospective payment system is 3.3%. For
those inpatient hospitals that do not submit such quality data,
the Act provides for an update of market basket minus
0.4 percentage points. The DRA expands the provision of the
Act tying inpatient reimbursement to hospitals reporting
on certain quality measures. Hospitals not submitting the data
will not receive the full market basket update. The DRA requires
the Secretary of Health and Human Services to add other quality
measures to be reported on by hospitals. Beginning in fiscal
year 2007, the market basket updates for hospitals that fail to
provide the quality data will be reduced by 2%. CMS has reported
that a significant majority of hospitals will receive the full
market basket update for fiscal year 2008 because they have met
the quality reporting requirements.
The Act also imposed an 18 month moratorium limiting the
availability of the whole hospital exception, or
Whole Hospital Exception, under the Stark Law for specialty
hospitals and prohibited physicians investing in rural specialty
hospitals from invoking an alternative Stark Law exception for
physician ownership or investment in rural providers. The
moratorium began upon enactment of the Act and expired
June 8, 2005. Under the Whole Hospital Exception, the Stark
Law permits a physician to refer a Medicare or Medicaid patient
to a hospital in which the physician has an ownership or
investment interest so long as the physician maintains staff
privileges at the hospital and the physicians ownership or
investment interest is in the hospital as a whole, rather than a
subdivision of the facility. Following expiration of the
moratorium, CMS issued a statement that it will not issue
provider agreements for new specialty hospitals or authorize
initial state surveys of new specialty hospitals while it
undertakes a review of its procedures for enrolling such
facilities in the Medicare program. CMS anticipates completing
this review by January 2006. The suspension on enrollment does
not apply to specialty hospitals that submitted enrollment
applications prior to June 9, 2005 or requested an advisory
opinion about the applicability of the moratorium.
The moratorium imposed by the Act expired on June 8, 2005.
However, that moratorium was retroactively extended by the
passage of the DRA which requires the Secretary of Health and
Human Services to develop a strategic and implementing plan for
physician investment in specialty hospitals that addresses the
issues of proportionality of investment return, bona fide
investment, annual disclosure of investments, and the provision
of medical assistance (Medicaid) and charity care. The report is
due six months after the date of enactment, but this deadline
may be extended by two months. The DRA also directs CMS to
continue the moratorium on enrollment of
6
specialty hospitals until the earlier of the date the report is
submitted or six months after enactment of the DRA. The final
report was published on August 8, 2006, at which time the
moratorium expired. Despite the expiration of the moratorium,
specialty hospitals are expected to remain under heightened
scrutiny.
Any acquisition or development of specialty hospitals must
comply with the current application and interpretation of the
Stark Law. CMS may clarify or modify its definition of specialty
hospital, which may result in physicians who own interests in
our tenants being forced to divest their ownership or the
enrollment of the hospital for participation in the Medicare
Program may be delayed. Although the specialty hospital
moratorium under the Act limited, and the proposed Budget
Reconciliation Conference Agreement would have limited physician
ownership or investment in specialty hospitals as
defined by CMS, they do not limit a physicians ability to
hold an ownership or investment interest in facilities which may
be leased to hospital operators or other healthcare providers,
assuming the lease arrangement conforms to the requirements of
an applicable exception under the Stark Law. We intend to
structure all of our leases, including leases containing
percentage rent arrangements, to comply with applicable
exceptions under the Stark Law and to comply with the
Anti-Kickback Statute. We believe that strong arguments can be
made that percentage rent arrangements, when structured
properly, should be permissible under the Stark Law and the
Anti-Kickback Statute; however, these laws are subject to
continued regulatory interpretation and there can be no
assurance that such arrangements will continue to be
permissible. Accordingly, although we do not currently have any
percentage rent arrangements where physicians own an interest in
our facilities, we may be prohibited from entering into
percentage rent arrangements in the future where physicians own
an interest in our facilities. In the event we enter into such
arrangements at some point in the future and later find the
arrangements no longer comply with the Stark Law or
Anti-Kickback Statute, we or our tenants may be subject to
penalties under the statutes.
The California Department of Health Services recently adopted
regulations, codified as Sections 70217, 70225 and 70455 of
Title 22 of the California Code of Regulations, or CCR,
which establish minimum, specific, numerical licensed
nurse-to-patient
ratios for specified units of general acute care hospitals.
These regulations are effective January 1, 2004. The
minimum staffing ratios set forth in 22 CCR 70217(a) co-exist
with existing regulations requiring that hospitals have a
patient classification system in place. The licensed
nurse-to-patient
ratios constitute the minimum number of registered nurses,
licensed vocational nurses, and, in the case of psychiatric
units, licensed psychiatric technicians, who shall be assigned
to direct patient care and represent the maximum number of
patients that can be assigned to one licensed nurse at any one
time. Over the past several years many hospitals have, in
response to managed care reimbursement contracts, cut costs by
reducing their licensed nursing staff. The California
Legislature responded to this trend by requiring a minimum
number of licensed nurses at the bedside. Due to this new
regulatory requirement, any acute care facilities we target for
acquisition or development in California may be required to
increase their licensed nursing staff or decrease their
admittance rates as a result. Governor Schwarzenegger issued two
emergency regulations in an attempt to suspend the ratios in
emergency rooms and delay for three years staffing requirements
in general medical units. However, this action was appealed and
on June 7, 2005, the Superior Court overturned the two
emergency regulations. The Schwarzenegger administration
appealed that ruling; however, the Governor withdrew the appeal
in November 2005. In addition, California also recently adopted
cuts to the states Medicaid program referred to as
Medi-Cal totaling $1.6 billion. Reimbursement rates for
providers are expected to be cut by 10 percent and are
expected to produce $47.6 million in savings for the state.
Long-term care hospitals, one of the types of facilities we are
targeting, are defined generally as hospitals that have an
average Medicare inpatient length of stay greater than
25 days. On January 27, 2006, CMS published a proposed
rule provides for no increase in the Medicare payment rates for
long-term care hospitals for patient discharges between
July 1, 2006 and June 30, 2007. CMS is also proposing
to adopt the Rehabilitation, Psychiatric and Long-Term Care
(RPL) market basket to replace the excluded hospital
with capital market basket that is currently used as the measure
of inflation for calculating the annual update to the long-term
care hospital prospective payment rate. The RPL market basket is
based on the operating and capital costs of inpatient
rehabilitation facilities, inpatient psychiatric facilities, and
long-term care hospitals. CMS is also proposing to revise the
labor-related share based on the RPL market basket from 72.855%
(based on the excluded hospital with capital market basket) to
75.923%. CMS is accepting comments on the proposed rule until
March 20, 2006. We do not know whether the proposed rule
will be adopted without change.
7
The Balanced Budget Act of 1997, or BBA, mandated implementation
of a prospective payment system for skilled nursing facilities.
Under this prospective payment system, and for cost reporting
periods beginning on or after July 1, 1998, skilled nursing
facilities (SNFs) are paid a prospective payment rate adjusted
for case mix and geographic variation in wages formulated to
cover all costs, including routine, ancillary and capital costs.
In 1999 and 2000 the BBA was refined to provide for, among other
revisions, a 20% add-on for 12 high acuity non-therapy Resource
Utilization Grouping categories, or RUG categories, and a 6.7%
add-on for all 14 rehabilitation RUG categories. These
categories may expire when CMS releases its refinements to the
current RUG payment system. On August 4, 2005, CMS
published a Final Rule updating skilled nursing facility payment
rates for fiscal year 2006. The Final Rule eliminates the
temporary add-on payments that Congress directed in the Balanced
Budget Refinement Act of 1999 and introduces nine (9) new
payment categories. The Final Rule also permanently increases
rates for all RUGs to reflect variations in non-therapy
ancillary costs. Further, fiscal year 2006 payment rates include
a market basket update increase of 3.1%, a slight increase over
what had been anticipated in the Proposed Rule. In addition, the
Final Rule contains policy changes including the adoption of new
labor market area definitions which are based on the new Core
Based Statistical Areas announced by the Office of Management
and Budget, or OMB, late in 2000. The Deficit Reduction Act of
2005 reduces payments to skilled nursing faculties for certain
bad debt attributable to Medicare coinsurance for beneficiaries
who are not dual eligibles. On August 3, 2007, CMS
published a final rule regarding prospective payment system for
SNFs. Pursuant to the final rule, SNFs will receive an increase
of 3.3%, which amounts to approximately $690 million in
fiscal year 2008. The final rule also revises the SNF
market-basket, moving the base year from 1997 to 2004. On
December 29, 2007, President Bush signed legislation that
contained an extension to June 30, 2008 of the nursing home
therapy cap exception.
Beginning January 1, 2007, the Deficit Reduction Act of
2005 caps payment rates for services provided in ambulatory
surgery centers at the amounts paid for the same services in
hospital outpatient departments under the OPPS. This provision
is effective until the Secretary of Health and Human Services
establishes a revised payment system for ambulatory surgery
centers as required by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. In January 2008, CMS
proposed paying long term care hospitals approximately
$4.44 billion under the PPS for RY 2009. This includes a
proposed increase of 2.6% compared with RY 2008. Under the final
rule for RY 2008, CMS had lowered payments by 3.8%. CMS is
proposing to change the annual update schedule to coincide with
other classification systems, thus, as proposed, the RY 2009
would be effective for 15 months, from July 1, 2008
through September 30, 2009.
In addition to the legislation and regulations discussed above,
on January 12, 2005, the Medicare Payment Advisory
Committee, or MedPAC, made extensive recommendations to Congress
and the Secretary of Health and Human Services including
proposing revisions to DRG payments to more fully capture
differences in severity of illnesses in an attempt to more
equally pay for care provided at general acute care hospitals as
compared to specialty hospitals. Furthermore, MedPAC made
significant recommendations regarding paying healthcare
providers relative to their performance and to the outcomes of
the care they provided. MedPAC recommendations have historically
provided strong indications regarding future directions of both
the regulatory and legislative process.
Insurance
We have purchased general liability insurance (lessors
risk) that provides coverage for bodily injury and property
damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our
tenants. Our leases with tenants also require the tenants to
carry general liability, professional liability, all risks, loss
of earnings and other insurance coverages and to name us as an
additional insured under these policies. We believe that the
policy specifications and insured limits are appropriate given
the relative risk of loss, the cost of the coverage and industry
practice.
Employees
We have 26 employees as of March 1, 2008. We believe
that any adjustments to the number of our employees will have
only immaterial effects on our operations and general and
administrative expenses. We believe that our relations with our
employees are good. None of our employees are members of any
union.
8
Available
Information
Our website address is www.medicalpropertiestrust.com and
provides access in the Investor Relations section,
free of charge, to our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
including exhibits, and all amendments to these reports as soon
as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange
Commission. Also available on our website, free of charge, are
our Corporate Governance Guidelines, the charters of our Ethics,
Nominating and Corporate Governance, Audit and Compensation
Committees and our Code of Ethics and Business Conduct. If you
are not able to access our website, the information is available
in print free of charge to any shareholder who should request
the information directly from us at
(205) 969-3755.
RISKS
RELATED TO OUR BUSINESS AND GROWTH STRATEGY
We
were formed in August 2003 and have a limited operating history;
our management has a limited history of operating a REIT and a
public company and may therefore have difficulty in successfully
and profitably operating our business.
We were organized in 2003 and thus have a limited operating
history. We first elected REIT status for our taxable year ended
December 31, 2004. We are subject to the risks generally
associated with the formation of any new business, including
unproven business models, uncertain market acceptance and
competition with established businesses. Our management has
limited experience in operating a REIT and a public company.
Therefore, you should be especially cautious in drawing
conclusions about the ability of our management team to execute
our business plan.
We
expect to continue to experience rapid growth and may not be
able to adapt our management and operational systems to
integrate the net-leased facilities we have acquired and are
developing or those that we may acquire or develop in the future
without unanticipated disruption or expense.
We are currently experiencing a period of rapid growth. We
cannot assure you that we will be able to adapt our management,
administrative, accounting and operational systems, or hire and
retain sufficient operational staff, to integrate and manage the
facilities we have acquired and are developing and those that we
may acquire or develop. Our failure to successfully integrate
and manage our current portfolio of facilities or any future
acquisitions or developments could have a material adverse
effect on our results of operations and financial condition and
our ability to make distributions to our stockholders.
We may
be unable to access capital, which would slow our
growth.
Our business plan contemplates growth through acquisitions and
development of facilities. As a REIT, we are required to make
cash distributions, which reduce our ability to fund
acquisitions and developments with retained earnings. We are
dependent on acquisition financings and access to the capital
markets for cash to make investments in new facilities. Due to
market or other conditions, such as the dislocations in the
credit markets beginning in 2007, there may be times when we
will have limited access to capital from the equity and debt
markets. During such periods, virtually all of our available
capital will be required to meet existing commitments and to
reduce existing debt. We may not be able to obtain additional
equity or debt capital or dispose of assets on favorable terms,
if at all, at the time we need additional capital to acquire
healthcare properties on a competitive basis or to meet our
obligations. Our ability to grow through acquisitions and
developments will be limited if we are unable to obtain debt or
equity financing, which could have a material adverse effect on
our results of operations and our ability to make distributions
to our stockholders.
Dependence
on our tenants for payments of rent and interest may adversely
impact our ability to make distributions to our
stockholders.
We expect to continue to qualify as a REIT and, accordingly, as
a REIT operating in the healthcare industry, we are not
permitted by current tax law to operate or manage the businesses
conducted in our facilities.
9
Accordingly, we rely almost exclusively on rent payments from
our tenants under leases or interest payments from operators
under mortgage loans we have made to them for cash with which to
make distributions to our stockholders. We have no control over
the success or failure of these tenants businesses.
Significant adverse changes in the operations of any facility,
or the financial condition of any tenant, operator or guarantor,
could have a material adverse effect on our ability to collect
rent and interest payments and, accordingly, on our ability to
make distributions to our stockholders. Facility management by
our tenants and their compliance with state and federal
healthcare laws could have a material impact on our
tenants operating and financial condition and, in turn,
their ability to pay rent and interest to us.
It may
be costly to replace defaulting tenants and we may not be able
to replace defaulting tenants with suitable replacements on
suitable terms.
Failure on the part of a tenant to comply materially with the
terms of a lease could give us the right to terminate our lease
with that tenant, repossess the applicable facility, cross
default certain other leases and loans with that tenant and
enforce the payment obligations under the lease. The process of
terminating a lease with a defaulting tenant and repossessing
the applicable facility may be costly and require a
disproportionate amount of managements attention. In
addition, defaulting tenants or their affiliates may initiate
litigation in connection with a lease termination or
repossession against us or our subsidiaries. For example, in
connection with our termination of leases relating to the
Houston Town and Country Hospital and Medical Office Building in
late 2006, we were subsequently named as one of a number of
defendants in lawsuits filed by various affiliates of the
defaulting tenant. Resolution of these types of lawsuits in a
manner materially adverse to us may adversely affect our
financial condition and results of operations. If a
tenant-operator defaults and we choose to terminate our lease,
we then would be required to find another tenant-operator. The
transfer of most types of healthcare facilities is highly
regulated, which may result in delays and increased costs in
locating a suitable replacement tenant. The sale or lease of
these properties to entities other than healthcare operators may
be difficult due to the added cost and time of refitting the
properties. If we are unable to re-let the properties to
healthcare operators, we may be forced to sell the properties at
a loss due to the repositioning expenses likely to be incurred
by non-healthcare purchasers. Alternatively, we may be required
to spend substantial amounts to adapt the facility to other
uses. There can be no assurance that we would be able to find
another tenant in a timely fashion, or at all, or that, if
another tenant were found, we would be able to enter into a new
lease on favorable terms. Defaults by our tenants under our
leases may adversely affect the timing of and our ability to
make distributions to our stockholders.
Our
revenues are dependent upon our relationship with, and success
of, Vibra and Prime.
As of December 31, 2007, we owned 25 facilities which were
being operated by eight operators, and we had mortgage loans to
two operators. Vibra Healthcare, LLC, or Vibra, leased eight of
our facilities, representing 21.6% of the original total cost of
our operating facilities and mortgage loans as of
December 31, 2007, and affiliates of Prime Healthcare
Services, Inc. leased or mortgaged nine facilities, representing
39.6% of the original total cost of our operating facilities and
mortgage loans as of December 31, 2007. Total revenue from
Vibra and Prime, including rent, percentage rent and interest,
was approximately $30.1 million and $24.9 million,
respectively, or 31.3% and 25.9%, respectively, of total revenue
from continuing operations in the year ended December 31,
2007.
In 2007, we completed transactions with Prime for approximately
$243.0 million. We may pursue additional transactions with
Vibra or Prime in the future. Our relationship with Vibra and
Prime, and their respective financial performance and resulting
ability to satisfy their lease and loan obligations to us are
material to our financial results and our ability to service our
debt and make distributions to our stockholders. We are
dependent upon the ability of Vibra and Prime to make rent and
loan payments to us, and their failure or delay to meet these
obligations would have a material adverse effect on our
financial condition and results of operations.
Accounting
rules may require consolidation of entities to which we have
made loans and other adjustments to our financial
statements.
The Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No. 51 (ARB No. 51), in January
2003, and a further interpretation of FIN 46 in December
2003
(FIN 46-R,
and collectively FIN 46). FIN 46 clarifies
10
the application of ARB No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties, referred to as variable
interest entities. FIN 46 generally requires consolidation
by the party that has a majority of the risk
and/or
rewards, referred to as the primary beneficiary. FIN 46
applies immediately to variable interest entities created after
January 31, 2003. Under certain circumstances, generally
accepted accounting principles may require us to account for
loans to thinly capitalized companies as equity investments. The
resulting accounting treatment of certain income and expense
items may adversely affect our results of operations, and
consolidation of balance sheet amounts may adversely affect any
loan covenants.
The
bankruptcy or insolvency of our tenants under our leases could
seriously harm our operating results and financial
condition.
Some of our tenants, including North Cypress Medical Center
Operating Company, Bucks County Oncoplastic Institute, Monroe
Hospital and Vibra, are and some of our prospective tenants may
be, newly organized, have limited or no operating history and
may be dependent on loans from us to acquire the facilitys
operations and for initial working capital. Any bankruptcy
filings by or relating to one of our tenants could bar us from
collecting pre-bankruptcy debts from that tenant or their
property, unless we receive an order permitting us to do so from
the bankruptcy court. A tenant bankruptcy could delay our
efforts to collect past due balances under our leases and loans,
and could ultimately preclude collection of these sums. If a
lease is assumed by a tenant in bankruptcy, we expect that all
pre-bankruptcy balances due under the lease would be paid to us
in full. However, if a lease is rejected by a tenant in
bankruptcy, we would have only a general unsecured claim for
damages. Any secured claims we have against our tenants may only
be paid to the extent of the value of the collateral, which may
not cover any or all of our losses. Any unsecured claim we hold
against a bankrupt entity may be paid only to the extent that
funds are available and only in the same percentage as is paid
to all other holders of unsecured claims. We may recover none or
substantially less than the full value of any unsecured claims,
which would harm our financial condition.
Our
facilities are currently leased to only eight tenants, five of
which were recently organized and have limited or no operating
histories, and failure of any of these tenants and the
guarantors of their leases to meet their obligations to us would
have a material adverse effect on our revenues and our ability
to make distributions to our stockholders.
Our existing facilities are currently leased to Vibra, Post
Acute, Prime, Healthcare Partners of America (HPA), Gulf States,
North Cypress, Bucks County Oncoplastic Institute
(BCO) and Monroe Hospital or their subsidiaries or
affiliates. If any of our tenants were to experience financial
difficulties, the tenant may not be able to pay its rent. Vibra,
North Cypress, BCO and Monroe Hospital were recently organized
and have limited or no operating histories.
Our
business is highly competitive and we may be unable to compete
successfully.
We compete for development opportunities and opportunities to
purchase healthcare facilities with, among others:
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private investors;
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healthcare providers, including physicians;
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other REITs;
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real estate partnerships;
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financial institutions; and
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local developers.
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Many of these competitors have substantially greater financial
and other resources than we have and may have better
relationships with lenders and sellers. Competition for
healthcare facilities from competitors may adversely affect our
ability to acquire or develop healthcare facilities and the
prices we pay for those facilities. If we are unable to acquire
or develop facilities or if we pay too much for facilities, our
revenue and earnings growth and financial
11
return could be materially adversely affected. Certain of our
facilities and additional facilities we may acquire or develop
will face competition from other nearby facilities that provide
services comparable to those offered at our facilities and
additional facilities we may acquire or develop. Some of those
facilities are owned by governmental agencies and supported by
tax revenues, and others are owned by tax-exempt corporations
and may be supported to a large extent by endowments and
charitable contributions. Those types of support are not
available to our facilities and additional facilities we may
acquire or develop. In addition, competing healthcare facilities
located in the areas served by our facilities and additional
facilities we may acquire or develop may provide healthcare
services that are not available at our facilities and additional
facilities we may acquire or develop. From time to time,
referral sources, including physicians and managed care
organizations, may change the healthcare facilities to which
they refer patients, which could adversely affect our rental
revenues.
Our
use of debt financing will subject us to significant risks,
including refinancing risk and the risk of insufficient cash
available for distribution to our stockholders.
As of December 31, 2007, we had $480.5 million of debt
outstanding. As of March 1, 2008, we have approximately
$402.7 million of debt outstanding. We may borrow from
other lenders in the future, or we may issue debt securities in
public or private offerings and our organizational documents do
not limit the amount of debt we may incur.
Most of our current debt is, and we anticipate that much of our
future debt will be,
non-amortizing
and payable in balloon payments. Therefore, we will likely need
to refinance at least a portion of that debt as it matures.
There is a risk that we may not be able to refinance
then-existing debt or that the terms of any refinancing will not
be as favorable as the terms of the then-existing debt. If
principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new
equity capital or sales of facilities, our cash flow may not be
sufficient to repay all maturing debt in years when significant
balloon payments come due. Additionally, we may incur
significant penalties if we choose to prepay the debt.
Failure
to hedge effectively against interest rate changes may adversely
affect our results of operations and our ability to make
distributions to our stockholders.
As of December 31, 2007, we had approximately
$220.8 million in variable interest rate debt ($142.8
million at March 1, 2008). We may seek to manage our
exposure to interest rate volatility by using interest rate
hedging arrangements that involve risk, including the risk that
counterparties may fail to honor their obligations under these
arrangements, that these arrangements may not be effective in
reducing our exposure to interest rate changes and that these
arrangements may result in higher interest rates than we would
otherwise have. Moreover, no hedging activity can completely
insulate us from the risks associated with changes in interest
rates. Failure to hedge effectively against interest rate
changes may materially adversely affect our results of
operations and our ability to make distributions to our
stockholders.
Most
of our current tenants have, and prospective tenants may have,
an option to purchase the facilities we lease to them which
could disrupt our operations.
Most of our current tenants have, and some prospective tenants
will have, the option to purchase the facilities we lease to
them. We cannot assure you that the formulas we have developed
for setting the purchase price will yield a fair market value
purchase price. Any purchase not at fair market value may
present risks of challenge from healthcare regulatory
authorities.
In the event our tenants and prospective tenants determine to
purchase the facilities they lease either during the lease term
or after their expiration, the timing of those purchases will be
outside of our control and we may not be able to re-invest the
capital on as favorable terms, or at all. Our inability to
effectively manage the turn-over of our facilities could
materially adversely affect our ability to execute our business
plan and our results of operations.
12
RISKS
RELATING TO REAL ESTATE INVESTMENTS
Our
real estate and mortgage investments are and will continue to be
concentrated in healthcare facilities, making us more vulnerable
economically than if our investments were more
diversified.
We have acquired and have developed and have made mortgage
investments in and expect to continue acquiring and developing
and making mortgage investments in healthcare facilities. We are
subject to risks inherent in concentrating investments in real
estate. The risks resulting from a lack of diversification
become even greater as a result of our business strategy to
invest in healthcare facilities. A downturn in the real estate
industry could materially adversely affect the value of our
facilities. A downturn in the healthcare industry could
negatively affect our tenants ability to make lease or
loan payments to us and, consequently, our ability to meet debt
service obligations or make distributions to our stockholders.
These adverse effects could be more pronounced than if we
diversified our investments outside of real estate or outside of
healthcare facilities.
Our
facilities may not have efficient alternative uses, which could
impede our ability to find replacement tenants in the event of
termination or default under our leases.
All of the facilities in our current portfolio are and all of
the facilities we expect to acquire or develop in the future
will be net-leased healthcare facilities. If we or our tenants
terminate the leases for these facilities or if these tenants
lose their regulatory authority to operate these facilities, we
may not be able to locate suitable replacement tenants to lease
the facilities for their specialized uses. Alternatively, we may
be required to spend substantial amounts to adapt the facilities
to other uses. Any loss of revenues or additional capital
expenditures occurring as a result could have a material adverse
effect on our financial condition and results of operations and
could hinder our ability to meet debt service obligations or
make distributions to our stockholders.
Illiquidity
of real estate investments could significantly impede our
ability to respond to adverse changes in the performance of our
facilities and harm our financial condition.
Real estate investments are relatively illiquid. Our ability to
quickly sell or exchange any of our facilities in response to
changes in economic and other conditions will be limited. No
assurances can be given that we will recognize full value for
any facility that we are required to sell for liquidity reasons.
Our inability to respond rapidly to changes in the performance
of our investments could adversely affect our financial
condition and results of operations.
Development
and construction risks could adversely affect our ability to
make distributions to our stockholders.
We have completed development and construction of four
facilities which are now in operation. We expect to develop
additional facilities in the future. Our development and related
construction activities may subject us to the following risks:
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we may have to compete for suitable development sites;
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our ability to complete construction is dependent on there being
no title, environmental or other legal proceedings arising
during construction;
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we may be subject to delays due to weather conditions, strikes
and other contingencies beyond our control;
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we may be unable to obtain, or suffer delays in obtaining,
necessary zoning, land-use, building, occupancy healthcare
regulatory and other required governmental permits and
authorizations, which could result in increased costs, delays in
construction, or our abandonment of these projects;
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we may incur construction costs for a facility which exceed our
original estimates due to increased costs for materials or labor
or other costs that we did not anticipate; and
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we may not be able to obtain financing on favorable terms, which
may render us unable to proceed with our development activities.
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We expect to fund our development projects over time. The time
frame required for development and construction of these
facilities means that we may have to wait years for a
significant cash return. In addition, our tenants may not be
able to obtain managed care provider contracts in a timely
manner or at all. Because we are required to make cash
distributions to our stockholders, if the cash flow from
operations or refinancings is not sufficient, we may be forced
to borrow additional money to fund distributions. We cannot
assure you that future development projects will not be subject
to delays and cost overruns. Risks associated with our
development projects may reduce anticipated rental revenue which
could affect the timing of, and our ability to make,
distributions to our stockholders.
Our
facilities may not achieve expected results or we may be limited
in our ability to finance future acquisitions, which may harm
our financial condition and operating results and our ability to
make the distributions to our stockholders required to maintain
our REIT status.
Acquisitions and developments entail risks that investments will
fail to perform in accordance with expectations and that
estimates of the costs of improvements necessary to acquire and
develop facilities will prove inaccurate, as well as general
investment risks associated with any new real estate investment.
We anticipate that future acquisitions and developments will
largely be financed through externally generated funds such as
borrowings under credit facilities and other secured and
unsecured debt financing and from issuances of equity
securities. Because we must distribute at least 90% of our REIT
taxable income, excluding net capital gain, each year to
maintain our qualification as a REIT, our ability to rely upon
income from operations or cash flow from operations to finance
our growth and acquisition activities will be limited.
Accordingly, if we are unable to obtain funds from borrowings or
the capital markets to finance our acquisition and development
activities, our ability to grow would likely be curtailed,
amounts available for distribution to stockholders could be
adversely affected and we could be required to reduce
distributions, thereby jeopardizing our ability to maintain our
status as a REIT.
Newly-developed or newly-renovated facilities do not have the
operating history that would allow our management to make
objective pricing decisions in acquiring these facilities The
purchase prices of these facilities will be based in part upon
projections by management as to the expected operating results
of the facilities, subjecting us to risks that these facilities
may not achieve anticipated operating results or may not achieve
these results within anticipated time frames.
If we
suffer losses that are not covered by insurance or that are in
excess of our insurance coverage limits, we could lose
investment capital and anticipated profits.
We have purchased general liability insurance (lessors
risk) that provides coverage for bodily injury and property
damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our
tenants. Our leases generally require our tenants to carry
general liability, professional liability, loss of earnings, all
risk and extended coverage insurance in amounts sufficient to
permit the replacement of the facility in the event of a total
loss, subject to applicable deductibles. However, there are
certain types of losses, generally of a catastrophic nature,
such as earthquakes, floods, hurricanes and acts of terrorism,
which may be uninsurable or not insurable at a price we or our
tenants can afford. Inflation, changes in building codes and
ordinances, environmental considerations and other factors also
might make it impracticable to use insurance proceeds to replace
a facility after it has been damaged or destroyed. Under such
circumstances, the insurance proceeds we receive might not be
adequate to restore our economic position with respect to the
affected facility. If any of these or similar events occur, it
may reduce our return from the facility and the value of our
investment.
Capital
expenditures for facility renovation may be greater than
anticipated and may adversely impact rent payments by our
tenants and our ability to make distributions to
stockholders.
Facilities, particularly those that consist of older structures,
have an ongoing need for renovations and other capital
improvements, including periodic replacement of furniture,
fixtures and equipment. Although our leases require our tenants
to be primarily responsible for the cost of such expenditures,
renovation of facilities involves certain risks, including the
possibility of environmental problems, construction cost
overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation
and the emergence of unanticipated competition from other
facilities. All of these factors could adversely impact rent and
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loan payments by our tenants, could have a material adverse
effect on our financial condition and results of operations and
could adversely affect our ability to make distributions to our
stockholders.
All of
our healthcare facilities are subject to property taxes that may
increase in the future and adversely affect our
business.
Our facilities are subject to real and personal property taxes
that may increase as property tax rates change and as the
facilities are assessed or reassessed by taxing authorities. Our
leases generally provide that the property taxes are charged to
our tenants as an expense related to the facilities that they
occupy. As the owner of the facilities, however, we are
ultimately responsible for payment of the taxes to the
government. If property taxes increase, our tenants may be
unable to make the required tax payments, ultimately requiring
us to pay the taxes. If we incur these tax liabilities, our
ability to make expected distributions to our stockholders could
be adversely affected.
As the
owner and lessor of real estate, we are subject to risks under
environmental laws, the cost of compliance with which and any
violation of which could materially adversely affect
us.
Our operating expenses could be higher than anticipated due to
the cost of complying with existing and future environmental and
occupational health and safety laws and regulations. Various
environmental laws may impose liability on a current or prior
owner or operator of real property for removal or remediation of
hazardous or toxic substances. Current or prior owners or
operators may also be liable for government fines and damages
for injuries to persons, natural resources and adjacent
property. These environmental laws often impose liability
whether or not the owner or operator knew of, or was responsible
for, the presence or disposal of the hazardous or toxic
substances. The cost of complying with environmental laws could
materially adversely affect amounts available for distribution
to our stockholders and could exceed the value of all of our
facilities. In addition, the presence of hazardous or toxic
substances, or the failure of our tenants to properly manage,
dispose of or remediate such substances, including medical waste
generated by physicians and our other healthcare tenants, may
adversely affect our tenants or our ability to use, sell or rent
such property or to borrow using such property as collateral
which, in turn, could reduce our revenue and our financing
ability. We have obtained on all facilities we have acquired or
developed or on which we have made mortgage loans and intend to
obtain on all future facilities we acquire Phase I environmental
assessments. However, even if the Phase I environmental
assessment reports do not reveal any material environmental
contamination, it is possible that material environmental
contamination and liabilities may exist of which we are unaware.
Although the leases for our facilities and our mortgage loans
generally require our operators to comply with laws and
regulations governing their operations, including the disposal
of medical waste, and to indemnify us for certain environmental
liabilities, the scope of their obligations may be limited. We
cannot assure you that our tenants would be able to fulfill
their indemnification obligations and, therefore, any material
violation of environmental laws could have a material adverse
affect on us. In addition, environmental and occupational health
and safety laws are constantly evolving, and changes in laws,
regulations or policies, or changes in interpretations of the
foregoing, could create liabilities where none exists today.
Our
interests in facilities through ground leases expose us to the
loss of the facility upon breach or termination of the ground
lease and may limit our use of the facility.
We have acquired interests in three of our facilities, at least
in part, by acquiring leasehold interests in the land on which
the facility is located rather than an ownership interest in the
property, and we may acquire additional facilities in the future
through ground leases. As lessee under ground leases, we are
exposed to the possibility of losing the property upon
termination, or an earlier breach by us, of the ground lease.
Ground leases may also restrict our use of facilities. Our
current ground lease in Marlton, New Jersey limits use of the
property to operation of a 76 bed rehabilitation hospital. Our
current ground lease for the facility in San Antonio limits
use of the property to operation of a comprehensive
rehabilitation hospital, medical research and education and
other medical uses and uses reasonably incidental thereto. These
restrictions and any similar future restrictions in ground
leases will limit our flexibility in renting the facility and
may impede our ability to sell the property.
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RISKS
RELATING TO THE HEALTHCARE INDUSTRY
Reductions
in reimbursement from third-party payors, including Medicare and
Medicaid, could adversely affect the profitability of our
tenants and hinder their ability to make rent payments to
us.
Sources of revenue for our tenants and operators may include the
federal Medicare program, state Medicaid programs, private
insurance carriers and health maintenance organizations, among
others. Efforts by such payors to reduce healthcare costs will
likely continue, which may result in reductions or slower growth
in reimbursement for certain services provided by some of our
tenants. In addition, the failure of any of our tenants to
comply with various laws and regulations could jeopardize their
ability to continue participating in Medicare, Medicaid and
other government-sponsored payment programs.
The healthcare industry continues to face various challenges,
including increased government and private payor pressure on
healthcare providers to control or reduce costs. We believe that
our tenants will continue to experience a shift in payor mix
away from
fee-for-service
payors, resulting in an increase in the percentage of revenues
attributable to managed care payors, government payors and
general industry trends that include pressures to control
healthcare costs. Pressures to control healthcare costs and a
shift away from traditional health insurance reimbursement have
resulted in an increase in the number of patients whose
healthcare coverage is provided under managed care plans, such
as health maintenance organizations and preferred provider
organizations. In addition, due to the aging of the population
and the expansion of governmental payor programs, we anticipate
that there will be a marked increase in the number of patients
relying on healthcare coverage provided by governmental payors.
These changes could have a material adverse effect on the
financial condition of some or all of our tenants, which could
have a material adverse effect on our financial condition and
results of operations and could negatively affect our ability to
make distributions to our stockholders.
A significant number of our tenants operate long-term acute care
hospitals, or LTACHs. The United States Department of Health and
Human Services, Centers for Medicare and Medicaid Services, or
CMS, recently proposed a 0.71 percent increase to the LTACH
prospective payment system rates for 2008. However, in light of
concerns raised by an analysis of recent LTACH case mix data,
CMS also proposed a budget neutrality requirement for annual
payment updates.
In addition to the proposed payment changes, CMS is proposing
changes to its policy known as the 25 percent
rule. That rule takes into account the percentage of
patients that were admitted to the LTACH from its co-located
host hospital (usually a general acute care hospital). Under the
current policy, if an LTACH that is a hospital-within-a-hospital
or satellite facility that has more than a certain percentage
(generally 25 percent) of its discharges admitted from the
co-located host hospital for the cost reporting period, then the
payment to the LTACH would be adjusted downward. CMS adopted a
final rule that extends the 25 percent rule and implements
a payment adjustment for LTACH and satellites (including
grandfathered facilities) that applies to Medicare discharges
that were admitted from a referring hospital that is not
co-located with it. Implementation of the 25 percent rule
will extend over a three year period,. For cost reporting
periods beginning on or after July 1, 2007 and before
July 1, 2008 (the first transition year), the threshold is
no less than the lesser of 75 percent or the percentage of
Medicare discharges that had been admitted to the LTACH or
satellite facility during its RY 2005 cost reporting period from
that referring hospital. CMS will continue to explore
implementing a recommendation from MedPAC to develop facility
and patient level criteria for LTACHs. If adopted as proposed,
these changes could have a material adverse effect on the
financial condition of some of our tenants, which could have a
material adverse effect on our financial condition and results
of operations and could negatively affect our ability to make
distributions to our stockholders.
The
healthcare industry is heavily regulated and existing and new
laws or regulations, changes to existing laws or regulations,
loss of licensure or certification or failure to obtain
licensure or certification could result in the inability of our
tenants to make lease payments to us.
The healthcare industry is highly regulated by federal, state
and local laws, and is directly affected by federal conditions
of participation, state licensing requirements, facility
inspections, state and federal reimbursement policies,
regulations concerning capital and other expenditures,
certification requirements and other such laws, regulations and
rules. In addition, establishment of healthcare facilities and
transfers of operations of healthcare facilities are subject to
regulatory approvals not required for establishment of or
transfers of other types of
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commercial operations and real estate. Sanctions for failure to
comply with these regulations and laws include, but are not
limited to, loss of or inability to obtain licensure, fines and
loss of or inability to obtain certification to participate in
the Medicare and Medicaid programs, as well as potential
criminal penalties. The failure of any tenant to comply with
such laws, requirements and regulations could affect its ability
to establish or continue its operation of the facility or
facilities and could adversely affect the tenants ability
to make lease payments to us which could have a material adverse
effect on our financial condition and results of operations and
could negatively affect our ability to make distributions to our
stockholders. In addition, restrictions and delays in
transferring the operations of healthcare facilities, in
obtaining new third-party payor contracts including Medicare and
Medicaid provider agreements, and in receiving licensure and
certification approval from appropriate state and federal
agencies by new tenants may affect our ability to terminate
lease agreements, remove tenants that violate lease terms, and
replace existing tenants with new tenants. Furthermore, these
matters may affect a new tenants ability to obtain
reimbursement for services rendered, which could adversely
affect their ability to pay rent to us and to pay principal and
interest on their loans from us.
Our
tenants are subject to fraud and abuse laws, the violation of
which by a tenant may jeopardize the tenants ability to
make lease and loan payments to us.
The federal government and numerous state governments have
passed laws and regulations that attempt to eliminate healthcare
fraud and abuse by prohibiting business arrangements that induce
patient referrals or the ordering of specific ancillary
services. In addition, the Balanced Budget Act of 1997
strengthened the federal anti-fraud and abuse laws to provide
for stiffer penalties for violations. Violations of these laws
may result in the imposition of criminal and civil penalties,
including possible exclusion from federal and state healthcare
programs. Imposition of any of these penalties upon any of our
tenants could jeopardize any tenants ability to operate a
facility or to make lease and loan payments, thereby potentially
adversely affecting us.
In the past several years, federal and state governments have
significantly increased investigation and enforcement activity
to detect and eliminate fraud and abuse in the Medicare and
Medicaid programs. In addition, legislation has been adopted at
both state and federal levels which severely restricts the
ability of physicians to refer patients to entities in which
they have a financial interest. It is anticipated that the trend
toward increased investigation and enforcement activity in the
area of fraud and abuse, as well as self-referrals, will
continue in future years and could adversely affect our
prospective tenants and their operations, and in turn their
ability to make lease and loan payments to us.
Vibra has accepted, and prospective tenants may accept, an
assignment of the previous operators Medicare provider
agreement. Vibra and other new-operator tenants that take
assignment of Medicare provider agreements might be subject to
federal or state regulatory, civil and criminal investigations
of the previous owners operations and claims submissions.
While we conduct due diligence in connection with the
acquisition of such facilities, these types of issues may not be
discovered prior to purchase. Adverse decisions, fines or
recoupments might negatively impact our tenants financial
condition.
Certain
of our lease arrangements may be subject to fraud and abuse or
physician self-referral laws.
Local physician investment in our operating partnership or our
subsidiaries that own our facilities could subject our lease
arrangements to scrutiny under fraud and abuse and physician
self-referral laws. Under the Stark Law, and regulations adopted
thereunder, if our lease arrangements do not satisfy the
requirements of an applicable exception, that noncompliance
could adversely affect the ability of our tenants to bill for
services provided to Medicare beneficiaries pursuant to
referrals from physician investors and subject us and our
tenants to fines, which could impact their ability to make lease
and loan payments to us. On March 26, 2004, CMS issued
Phase II final rules under the Stark Law, which, together
with the 2001 Phase I final rules, set forth CMS current
interpretation and application of the Stark Law prohibition on
referrals of designated health services, or DHS. These rules
provide us additional guidance on application of the Stark Law
through the implementation of bright-line tests,
including additional regulations regarding the indirect
compensation exception, but do not eliminate the risk that our
lease arrangements and business strategy of physician investment
may violate the Stark Law. Finally, the Phase II rules
implemented an
18-month
moratorium on physician ownership or investment in specialty
hospitals imposed by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. The moratorium
imposed by the
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Medicare Prescription Drug, Improvement and Modernization Act of
2003, or MMA, expired on June 8, 2005. However, that
moratorium was retroactively extended by the passage of the
Deficit Reduction Act of 2005, or the DRA, which requires the
Secretary of Health and Human Services to develop a strategic
and implementing plan for physician investment in specialty
hospitals that addresses the issues of proportionality of
investment return, bona fide investment, annual disclosure of
investments, and the provision of medical assistance (Medicaid)
and charity care. The final report was published on
August 8, 2006, at which time the moratorium expired.
However, we expect that specialty hospitals will continue to be
closely scrutinized by Congress and various federal and state
agencies. Further, despite the expiration of the specialty
hospital moratorium, in its final report, CMS expressed its
intention to (i) revise the Medicare payment system to
address incentives to physician investors; (ii) require
disclosure of physician investment and compensation
arrangements; (iii) continue to enforce the fraud and abuse
laws; and (iv) continue to enforce prior violations of the
MMA moratorium. We intend to use our good faith efforts to
structure our lease arrangements to comply with these laws;
however, if we are unable to do so, this failure may restrict
our ability to permit physician investment or, where such
physicians do participate, may restrict the types of lease
arrangements into which we may enter, including our ability to
enter into percentage rent arrangements. On September 7,
2007, CMS published Phase III regulations which modify
certain aspects of the Stark Law regulations. Subsequently, the
effective dates of a portion of those regulations was extended.
In addition, CMS proposed additional changes to existing Stark
Law regulations as part of the IPPS regulations.
State
certificate of need laws may adversely affect our development of
facilities and the operations of our tenants.
Certain healthcare facilities in which we invest may also be
subject to state laws which require regulatory approval in the
form of a certificate of need prior to initiation of certain
projects, including, but not limited to, the establishment of
new or replacement facilities, the addition of beds, the
addition or expansion of services and certain capital
expenditures. State certificate of need laws are not uniform
throughout the United States and are subject to change. We
cannot predict the impact of state certificate of need laws on
our development of facilities or the operations of our tenants.
In addition, certificate of need laws often materially impact
the ability of competitors to enter into the marketplace of our
facilities. Finally, in limited circumstances, loss of state
licensure or certification or closure of a facility could
ultimately result in loss of authority to operate the facility
and require re-licensure or new certificate of need
authorization to re-institute operations. As a result, a portion
of the value of the facility may be related to the limitation on
new competitors. In the event of a change in the certificate of
need laws, this value may markedly decrease.
RISKS
RELATING TO OUR ORGANIZATION AND STRUCTURE
Maryland
law and Medical Properties charter and bylaws contain
provisions which may prevent or deter changes in management and
third-party acquisition proposals that you may believe to be in
your best interest, depress the price of Medical Properties
common stock or cause dilution.
Medical Properties charter contains ownership limitations
that may restrict business combination opportunities, inhibit
change of control transactions and reduce the value of Medical
Properties common stock. To qualify as a REIT under the Internal
Revenue Code of 1986, as amended, or the Code, no more than 50%
in value of Medical Properties outstanding stock, after
taking into account options to acquire stock, may be owned,
directly or indirectly, by five or fewer persons during the last
half of each taxable year. Medical Properties charter
generally prohibits direct or indirect ownership by any person
of more than 9.8% in value or in number, whichever is more
restrictive, of outstanding shares of any class or series of our
securities, including Medical Properties common stock.
Generally, Medical Properties common stock owned by affiliated
owners will be aggregated for purposes of the ownership
limitation. The ownership limitation could have the effect of
delaying, deterring or preventing a change in control or other
transaction in which holders of common stock might receive a
premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in
their best interests. The ownership limitation provisions also
may make Medical Properties common stock an unsuitable
investment vehicle for any person seeking to obtain, either
alone or with others as a group, ownership of more than 9.8% of
either the value or number of the outstanding shares of Medical
Properties common stock.
Medical Properties charter and bylaws contain provisions
that may impede third-party acquisition proposals that may be in
your best interests. Medical Properties charter and bylaws
also provide that our directors may only
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be removed by the affirmative vote of the holders of two-thirds
of Medical Properties common stock, that stockholders are
required to give us advance notice of director nominations and
new business to be conducted at our annual meetings of
stockholders and that special meetings of stockholders can only
be called by our president, our board of directors or the
holders of at least 25% of stock entitled to vote at the
meetings. These and other charter and bylaw provisions may delay
or prevent a change of control or other transaction in which
holders of Medical Properties common stock might receive a
premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in
their best interests.
We
depend on key personnel, the loss of any one of whom may
threaten our ability to operate our business
successfully.
We depend on the services of Edward K. Aldag, Jr., R.
Steven Hamner, Emmett E. McLean, Michael G. Stewart and William
G. Mc Kenzie to carry out our business and investment strategy.
If we were to lose any of these executive officers, it may be
more difficult for us to locate attractive acquisition targets,
complete our acquisitions and manage the facilities that we have
acquired or developed. Additionally, as we expand, we will
continue to need to attract and retain additional qualified
officers and employees. The loss of the services of any of our
executive officers, or our inability to recruit and retain
qualified personnel in the future, could have a material adverse
effect on our business and financial results.
Our
UPREIT structure may result in conflicts of interest between
Medical Properties stockholders and the holders of our
operating partnership units.
We are organized as an UPREIT, which means that we hold our
assets and conduct substantially all of our operations through
an operating limited partnership, and may issue operating
partnership units to third parties. Persons holding operating
partnership units would have the right to vote on certain
amendments to the partnership agreement of our operating
partnership, as well as on certain other matters. Persons
holding these voting rights may exercise them in a manner that
conflicts with the interests of our stockholders. Circumstances
may arise in the future, such as the sale or refinancing of one
of our facilities, when the interests of limited partners in our
operating partnership conflict with the interests of our
stockholders. As the sole member of the general partner of the
operating partnership, Medical Properties has fiduciary duties
to the limited partners of the operating partnership that may
conflict with fiduciary duties Medical Properties officers
and directors owe to its stockholders. These conflicts may
result in decisions that are not in your best interest.
TAX RISKS
ASSOCIATED WITH OUR STATUS AS A REIT
Loss
of our tax status as a REIT would have significant adverse
consequences to us and the value of Medical Properties common
stock.
We believe that we qualify as a REIT for federal income tax
purposes and have elected to be taxed as a REIT under the
federal income tax laws commencing with our taxable year that
began on April 6, 2004 and ended on December 31, 2004.
The REIT qualification requirements are extremely complex, and
interpretations of the federal income tax laws governing
qualification as a REIT are limited. Accordingly, there is no
assurance that we will be successful in operating so as to
qualify as a REIT. At any time, new laws, regulations,
interpretations or court decisions may change the federal tax
laws relating to, or the federal income tax consequences of,
qualification as a REIT. It is possible that future economic,
market, legal, tax or other considerations may cause our board
of directors to revoke the REIT election, which it may do
without stockholder approval.
If we lose or revoke our REIT status, we will face serious tax
consequences that will substantially reduce the funds available
for distribution because:
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we would not be allowed a deduction for distributions to
stockholders in computing our taxable income; therefore we would
be subject to federal income tax at regular corporate rates and
we might need to borrow money or sell assets in order to pay any
such tax;
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we also could be subject to the federal alternative minimum tax
and possibly increased state and local taxes; and
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unless we are entitled to relief under statutory provisions, we
also would be disqualified from taxation as a REIT for the four
taxable years following the year during which we ceased to
qualify.
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As a result of all these factors, a failure to achieve or a loss
or revocation of our REIT status could have a material adverse
effect on our financial condition and results of operations and
would adversely affect the value of our common stock.
Failure
to make required distributions would subject us to
tax.
In order to qualify as a REIT, each year we must distribute to
our stockholders at least 90% of our REIT taxable income,
excluding net capital gain. To the extent that we satisfy the
distribution requirement, but distribute less than 100% of our
taxable income, we will be subject to federal corporate income
tax on our undistributed income. In addition, we will incur a 4%
nondeductible excise tax on the amount, if any, by which our
distributions in any year are less than the sum of (1) 85%
of our ordinary income for that year; (2) 95% of our
capital gain net income for that year; and (3) 100% of our
undistributed taxable income from prior years.
We may be required to make distributions to stockholders at
disadvantageous times or when we do not have funds readily
available for distribution. Differences in timing between the
recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us
to borrow money or sell assets to pay out enough of our taxable
income to satisfy the distribution requirement and to avoid
corporate income tax and the 4% excise tax in a particular year.
In the future, we may borrow to pay distributions to our
stockholders and the limited partners of our operating
partnership. Any funds that we borrow would subject us to
interest rate and other market risks.
Complying
with REIT requirements may cause us to forego otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of our stock. In order to meet these tests, we may be
required to forego attractive business or investment
opportunities. Overall, no more than 20% of the value of our
assets may consist of securities of one or more taxable REIT
subsidiaries, and no more than 25% of the value of our assets
may consist of securities that are not qualifying assets under
the test requiring that 75% of a REITs assets consist of
real estate and other related assets. Further, a taxable REIT
subsidiary may not directly or indirectly operate or manage a
healthcare facility. For purposes of this definition a
healthcare facility means a hospital, nursing
facility, assisted living facility, congregate care facility,
qualified continuing care facility, or other licensed facility
which extends medical or nursing or ancillary services to
patients and which is operated by a service provider that is
eligible for participation in the Medicare program under
Title XVIII of the Social Security Act with respect to the
facility. Thus, compliance with the REIT requirements may limit
our flexibility in executing our business plan.
Loans
to our tenants could be recharacterized as equity, in which case
our rental income from that tenant might not be qualifying
income under the REIT rules and we could lose our REIT
status.
In connection with the acquisition of the Vibra Facilities, our
taxable REIT subsidiary made a loan to Vibra in an aggregate
amount of approximately $41.4 million to acquire the
operations at the Vibra Facilities. As of March 1, 2008,
that loan had been reduced to approximately $29.4 million.
Our taxable REIT subsidiary also made a loan of approximately
$6.2 million to Vibra and its subsidiaries for working
capital purposes, which has been paid in full. The acquisition
loan bears interest at an annual rate of 10.25%. Our operating
partnership loaned the funds to our taxable REIT subsidiary to
make these loans. The loan from our operating partnership to our
taxable REIT subsidiary bears interest at an annual rate of
9.25%.
Our taxable REIT subsidiary has made and will make loans to
tenants to acquire operations or for other purposes. The
Internal Revenue Service, or IRS, may take the position that
certain loans to tenants should be treated as equity interests
rather than debt, and that our rental income from such tenant
should not be treated as qualifying income for purposes of the
REIT gross income tests. If the IRS were to successfully treat a
loan to a particular tenant as equity interests, the tenant
would be a related party tenant with respect to our
company and the rent that we receive from the tenant would not
be qualifying income for purposes of the REIT gross income
tests. As a result, we could lose our REIT status. In addition,
if the IRS were to successfully treat a particular loan as
interests held by our operating partnership rather than by our
taxable REIT subsidiary, we could fail the 5% asset test, and if
the IRS further successfully treated the loan as other than
straight debt, we could fail the 10% asset test with respect to
such interest. As a result of the failure of either test, could
lose our REIT status, which would subject us to corporate level
income tax and adversely affect our ability to make
distributions to our stockholders.
20
RISKS
RELATED TO AN INVESTMENT IN OUR COMMON STOCK
The
market price and trading volume of our common stock may be
volatile.
The market price of our common stock may be highly volatile and
be subject to wide fluctuations. In addition, the trading volume
in our common stock may fluctuate and cause significant price
variations to occur. If the market price of our common stock
declines significantly, you may be unable to resell your shares
at or above your purchase price.
We cannot assure you that the market price of our common stock
will not fluctuate or decline significantly in the future. Some
of the factors that could negatively affect our share price or
result in fluctuations in the price or trading volume of our
common stock include:
|
|
|
|
|
actual or anticipated variations in our quarterly operating
results or distributions;
|
|
|
|
changes in our funds from operations or earnings estimates or
publication of research reports about us or the real estate
industry;
|
|
|
|
increases in market interest rates that lead purchasers of our
shares of common stock to demand a higher yield;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
adverse market reaction to any increased indebtedness we incur
in the future;
|
|
|
|
additions or departures of key management personnel;
|
|
|
|
actions by institutional stockholders;
|
|
|
|
local conditions such as an oversupply of, or a reduction in
demand for, rehabilitation hospitals, long-term acute care
hospitals, ambulatory surgery centers, medical office buildings,
specialty hospitals, skilled nursing facilities, regional and
community hospitals, womens and childrens hospitals
and other single-discipline facilities;
|
|
|
|
speculation in the press or investment community; and
|
|
|
|
general market and economic conditions.
|
Future
sales of common stock may have adverse effects on our stock
price.
We cannot predict the effect, if any, of future sales of common
stock, or the availability of shares for future sales, on the
market price of our common stock. Sales of substantial amounts
of common stock, or the perception that these sales could occur,
may adversely affect prevailing market price for our common
stock. We may issue from time to time additional common stock or
units of our operating partnership in connection with the
acquisition of facilities and we may grant additional demand or
piggyback registration rights in connection with these
issuances. Sales of substantial amounts of common stock or the
perception that these sales could occur may adversely affect the
prevailing market price for our common stock. In addition, the
sale of these shares could impair our ability to raise capital
through a sale of additional equity securities.
An
increase in market interest rates may have an adverse effect on
the market price of our securities.
One of the factors that investors may consider in deciding
whether to buy or sell our securities is our distribution rate
as a percentage of our price per share of common stock, relative
to market interest rates. If market interest rates increase,
prospective investors may desire a higher distribution or
interest rate on our securities or seek securities paying higher
distributions or interest. The market price of our common stock
likely will be based primarily on the earnings that we derive
from rental income with respect to our facilities and our
related distributions to stockholders, and not from the
underlying appraised value of the facilities themselves. As a
result, interest rate fluctuations and capital market conditions
can affect the market price of our common stock. In addition,
rising interest rates would result in increased interest expense
on our variable-rate debt, thereby adversely affecting cash flow
and our ability to service our indebtedness and make
distributions.
21
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
None
At December 31, 2007, our portfolio consisted of
28 properties: 25 facilities which we own are leased
to eight tenants with the remainder in the form of mortgage
loans to two operators, totaling an aggregate of approximately
3.3 million square feet and 3,453 licensed beds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Percentage of
|
|
|
Total
|
|
State
|
|
Revenue
|
|
|
Total Revenue
|
|
|
Investment
|
|
|
California
|
|
$
|
41,835,572
|
|
|
|
43.4
|
%
|
|
$
|
501,016,031
|
|
Colorado
|
|
|
1,398,953
|
|
|
|
1.5
|
%
|
|
|
9,502,455
|
|
Indiana
|
|
|
5,289,316
|
|
|
|
5.5
|
%
|
|
|
50,211,656
|
|
Kentucky
|
|
|
6,886,681
|
|
|
|
7.2
|
%
|
|
|
45,595,371
|
|
Louisiana
|
|
|
2,222,137
|
|
|
|
2.3
|
%
|
|
|
17,562,684
|
|
Massachusetts
|
|
|
4,551,598
|
|
|
|
4.7
|
%
|
|
|
29,934,621
|
|
New Jersey
|
|
|
6,299,852
|
|
|
|
6.5
|
%
|
|
|
41,569,113
|
|
Oregon
|
|
|
1,866,904
|
|
|
|
1.9
|
%
|
|
|
24,447,351
|
|
Pennsylvania
|
|
|
5,749,929
|
|
|
|
6.0
|
%
|
|
|
45,515,767
|
|
Texas
|
|
|
20,186,421
|
|
|
|
21.0
|
%
|
|
|
158,307,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,287,363
|
|
|
|
100.0
|
%
|
|
$
|
923,662,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
Type of Property
|
|
Properties
|
|
|
Square Feet
|
|
|
Licensed Beds
|
|
|
Community Hospital
|
|
|
15
|
|
|
|
2,383,434
|
|
|
|
2,623
|
|
Long-term Acute Care Hospital
|
|
|
9
|
|
|
|
594,238
|
|
|
|
567
|
|
Rehabilitation Hospital
|
|
|
4
|
|
|
|
335,492
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
3,313,164
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3.
|
Legal
Proceedings
|
None.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
22
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matter,
and Issuer Purchases of Equity Securities
|
Medical Properties common stock is traded on the New York
Stock Exchange under the symbol MPW. The following
table sets forth the high and low sales prices for the common
stock for the periods indicated, as reported by the New York
Stock Exchange Composite Tape, and the distributions declared by
us with respect to each such period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Distribution
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
11.23
|
|
|
|
9.40
|
|
|
|
0.21
|
|
Second Quarter
|
|
|
12.50
|
|
|
|
10.25
|
|
|
|
0.25
|
|
Third Quarter
|
|
|
13.93
|
|
|
|
11.25
|
|
|
|
0.26
|
|
Fourth Quarter
|
|
|
15.65
|
|
|
|
13.12
|
|
|
|
0.27
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
16.70
|
|
|
|
14.44
|
|
|
|
0.27
|
|
Second Quarter
|
|
|
15.25
|
|
|
|
12.16
|
|
|
|
0.27
|
|
Third Quarter
|
|
|
13.88
|
|
|
|
10.86
|
|
|
|
0.27
|
|
Fourth Quarter
|
|
|
13.99
|
|
|
|
9.80
|
|
|
|
0.27
|
|
On March 13, 2008, the closing price for our common stock,
as reported on the New York Stock Exchange, was $12.08. As of
March 13, 2008, there were 82 holders of record of our
common stock. This figure does not reflect the beneficial
ownership of shares held in nominee name.
On August 1, 2007, the Company announced that its Board
authorized the Company to repurchase up to 3.0 million of
its Common Stock. The stock may be repurchased by the Company
from time to time on the open market or in privately negotiated
transactions between August 1, 2007 and July 31, 2008.
The extent to which the Company repurchases its shares and the
timing of such purchases will depend upon price, corporate and
regulatory requirements, market conditions and other corporate
considerations.
The following table provides information as of December 31,
2007 with respect to the shares of common stock repurchased by
the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total #
|
|
|
(d) Maximum
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
# of Shares
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
that May Yet
|
|
|
|
(a) Total #
|
|
|
(b) Average
|
|
|
Part of Publicly
|
|
|
be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
October 1- October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1-November 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1-December 31,
2007
|
|
|
25,000
|
|
|
$
|
10.46
|
|
|
|
25,000
|
|
|
|
2,975,000
|
|
Total
|
|
|
25,000
|
|
|
$
|
10.46
|
|
|
|
25,000
|
|
|
|
2,975,000
|
|
23
|
|
ITEM 6.
|
Selected
Financial Data
|
The following table sets forth selected financial and operating
information on a historical basis for the years ended
December 31, 2007, 2006, 2005, and 2004, and for the period
from inception (August 27, 2003) to December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
Inception
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(August 27, 2003)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
to
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
December 31, 2003
|
|
|
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
96,287,363
|
|
|
$
|
50,471,432
|
|
|
$
|
30,452,545
|
|
|
$
|
10,893,459
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
|
|
1,478,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
15,791,840
|
|
|
|
10,190,850
|
|
|
|
8,016,992
|
|
|
|
5,150,786
|
|
|
|
992,418
|
|
Interest expense
|
|
|
28,236,502
|
|
|
|
4,417,955
|
|
|
|
1,521,169
|
|
|
|
32,769
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
40,009,949
|
|
|
|
29,672,741
|
|
|
|
18,822,785
|
|
|
|
4,576,349
|
|
|
|
(1,023,276
|
)
|
Income from discontinued operations
|
|
|
1,229,690
|
|
|
|
486,957
|
|
|
|
817,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
41,239,639
|
|
|
|
30,159,698
|
|
|
|
19,640,347
|
|
|
|
4,576,349
|
|
|
|
(1,023,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common share
|
|
|
0.84
|
|
|
|
0.75
|
|
|
|
0.58
|
|
|
|
0.24
|
|
|
|
(0.63
|
)
|
Income from discontinued operations per diluted common share
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share
|
|
|
0.86
|
|
|
|
0.76
|
|
|
|
0.61
|
|
|
|
0.24
|
|
|
|
(0.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
19,312,634
|
|
|
|
1,630,435
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
|
$
|
4,576,349
|
|
|
$
|
(1,023,276
|
)
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
|
|
1,478,470
|
|
|
|
|
|
Gain on sale of real estate sold
|
|
|
(4,061,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
|
49,790,643
|
|
|
|
36,864,622
|
|
|
|
23,823,078
|
|
|
|
6,054,819
|
|
|
$
|
(1,023,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations per diluted common share
|
|
|
1.03
|
|
|
|
0.93
|
|
|
|
0.74
|
|
|
|
0.31
|
|
|
|
(0.63
|
)
|
Dividends declared per diluted common share
|
|
|
0.94
|
|
|
|
0.99
|
|
|
|
0.62
|
|
|
|
0.21
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
BALANCE SHEET DATA
|
Real estate assets at cost
|
|
$
|
657,904,249
|
|
|
$
|
558,124,367
|
|
|
$
|
337,102,392
|
|
|
$
|
151,690,293
|
|
|
$
|
166,301
|
|
Other loans and investments
|
|
|
265,758,273
|
|
|
|
150,172,830
|
|
|
|
85,813,486
|
|
|
|
50,224,069
|
|
|
|
|
|
Cash and equivalents
|
|
|
94,215,134
|
|
|
|
4,102,873
|
|
|
|
59,115,832
|
|
|
|
97,543,677
|
|
|
|
100,000
|
|
Total assets
|
|
|
1,051,660,686
|
|
|
|
744,756,745
|
|
|
|
495,452,717
|
|
|
|
306,506,063
|
|
|
|
468,133
|
|
Debt
|
|
|
480,525,166
|
|
|
|
304,961,898
|
|
|
|
65,010,178
|
|
|
|
56,000,000
|
|
|
|
100,000
|
|
Other liabilities
|
|
|
57,937,525
|
|
|
|
95,021,876
|
|
|
|
71,991,531
|
|
|
|
17,777,619
|
|
|
|
1,389,779
|
|
Minority interests
|
|
|
77,552
|
|
|
|
1,051,835
|
|
|
|
2,173,866
|
|
|
|
1,000,000
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
513,120,443
|
|
|
|
343,721,136
|
|
|
|
356,277,142
|
|
|
|
231,728,444
|
|
|
|
(1,021,646
|
)
|
Total liabilities and stockholders equity(deficit)
|
|
|
1,051,660,686
|
|
|
|
744,756,745
|
|
|
|
495,452,717
|
|
|
|
306,506,063
|
|
|
|
468,133,063
|
|
25
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We were incorporated in Maryland on August 27, 2003
primarily for the purpose of investing in and owning net-leased
healthcare facilities across the United States. We also make
real estate mortgage loans and other loans to our tenants. We
have operated as a real estate investment trust
(REIT) since April 6, 2004, and accordingly,
elected REIT status upon the filing in September 2005 of our
calendar year 2004 Federal income tax return. Our existing
tenants are, and our prospective tenants will generally be,
healthcare operating companies and other healthcare providers
that use substantial real estate assets in their operations. We
offer financing for these operators real estate through
100% lease and mortgage financing and generally seek lease and
loan terms typically for 15 years with a series of shorter
renewal terms at the option of our tenants and borrowers. We
also have included and intend to include in our lease and loan
agreements annual contractual rate increases that in the current
market range from 1.5% to 3.5%. Our existing portfolio
escalators range from 0% to 2.5%. Most of our leases and loans
also include rate increases based on the general rate of
inflation if greater than the minimum contractual increases. In
addition to the base rent, our leases require our tenants to pay
all operating costs and expenses associated with the facility.
Some leases also require our tenants to pay percentage rents
which are based on the level of those tenants net revenues
from their operations.
We selectively make loans to certain of our operators through
our taxable REIT subsidiary, which they use for acquisitions and
working capital. We consider our lending business an important
element of our overall business strategy for two primary
reasons: (1) it provides opportunities to make
income-earning investments that yield attractive risk-adjusted
returns in an industry in which our management has expertise,
and (2) by making debt capital available to certain
qualified operators, we believe we create for our company a
competitive advantage over other buyers of, and financing
sources for, healthcare facilities. For purpose of Statement of
Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, we conduct business operations in one segment.
At December 31, 2007, our portfolio consisted of
28 properties: 25 healthcare facilities which we own are
leased to eight tenants with the remainder in the form of
mortgage loans secured by interests in health care real estate.
We had one acquisition loan outstanding, the proceeds of which
our tenant used for the acquisition of six hospital operating
companies. The facilities we owned and the facilities that
secured our mortgage loans were in ten states, had a carrying
cost of approximately $820.2 million (including the
balances of our mortgage loans) and comprised approximately
78.0% of our total assets. Our acquisition and other loans of
approximately $85.1 million represented approximately 8.1%
of our total assets. We do not expect such non-mortgage loans at
any time to exceed 20% of our total assets. We also had cash and
temporary investments of approximately $94.2 million that
represented approximately 9.0% of our total assets. Subsequent
to December 31, 2007, we used approximately
$83.0 million of such cash to repay our revolving credit
facilities.
Our revenues are derived from rents we earn pursuant to the
lease agreements with our tenants and from interest income from
loans to our tenants and other facility owners. Our tenants and
borrowers operate in the healthcare industry, generally
providing medical, surgical and rehabilitative care to patients.
The capacity of our tenants to pay our rents and interest is
dependent upon their ability to conduct their operations at
profitable levels. We believe that the business environment of
the industry segments in which our tenants operate is generally
positive for efficient operators. However, our tenants
operations are subject to economic, regulatory and market
conditions that may affect their profitability. Accordingly, we
monitor certain key factors, changes to which we believe may
provide early indications of conditions that may affect the
level of risk in our lease and loan portfolio.
Key factors that we consider in underwriting prospective tenants
and borrowers and in monitoring the performance of existing
tenants and borrowers include the following:
|
|
|
|
|
the historical and prospective operating margins (measured by a
tenants earnings before interest, taxes, depreciation,
amortization and facility rent) of each tenant or borrower and
at each facility;
|
|
|
|
the ratio of our tenants and borrowers operating
earnings both to facility rent and to facility rent plus other
fixed costs, including debt costs;
|
26
|
|
|
|
|
trends in the source of our tenants or borrowers
revenue, including the relative mix of Medicare,
Medicaid/MediCal, managed care, commercial insurance, and
private pay patients; and
|
|
|
|
the effect of evolving healthcare regulations on our
tenants and borrowers profitability.
|
Certain business factors, in addition to those described above
that directly affect our tenants and borrowers, will likely
materially influence our future results of operations. These
factors include:
|
|
|
|
|
trends in the cost and availability of capital, including market
interest rates, that our prospective tenants may use for their
real estate assets instead of financing their real estate assets
through lease structures;
|
|
|
|
unforeseen changes in healthcare regulations that may limit the
opportunities for physicians to participate in the ownership of
healthcare providers and healthcare real estate;
|
|
|
|
reductions in reimbursements from Medicare, state healthcare
programs, and commercial insurance providers that may reduce our
tenants profitability and our lease rates; and
|
|
|
|
competition from other financing sources.
|
At March 1, 2008, we had 26 employees. Over the next
12 months, we expect to add four to six additional
employees.
Critical
Accounting Policies
In order to prepare financial statements in conformity with
accounting principles generally accepted in the United States,
we must make estimates about certain types of transactions and
account balances. We believe that our estimates of the amount
and timing of lease revenues, credit losses, fair values and
periodic depreciation of our real estate assets, stock
compensation expense, and the effects of any derivative and
hedging activities have significant effects on our financial
statements. Each of these items involves estimates that require
us to make subjective judgments. We rely on our experience,
collect historical and current market data, and develop relevant
assumptions to arrive at what we believe to be reasonable
estimates. Under different conditions or assumptions, materially
different amounts could be reported related to the accounting
policies described below. In addition, application of these
accounting policies involves the exercise of judgment on the use
of assumptions as to future uncertainties and, as a result,
actual results could materially differ from these estimates. Our
accounting estimates include the following:
Revenue Recognition. Our revenues, which are
comprised largely of rental income, include rents that each
tenant pays in accordance with the terms of its respective lease
reported on a straight-line basis over the initial term of the
lease. Since some of our leases provide for rental increases at
specified intervals, straight-line basis accounting requires us
to record as an asset, and include in revenues, straight-line
rent that we will only receive if the tenant makes all rent
payments required through the expiration of the term of the
lease.
Accordingly, our management must determine, in its judgment, to
what extent the straight-line rent receivable applicable to each
specific tenant is collectible. We review each tenants
straight-line rent receivable on a quarterly basis and take into
consideration the tenants payment history, the financial
condition of the tenant, business conditions in the industry in
which the tenant operates, and economic conditions in the area
in which the facility is located. In the event that the
collectibility of straight-line rent with respect to any given
tenant is in doubt, we are required to record an increase in our
allowance for uncollectible accounts or record a direct
write-off of the specific rent receivable, which would have an
adverse effect on our net income for the year in which the
reserve is increased or the direct write-off is recorded and
would decrease our total assets and stockholders equity.
At that time, we stop accruing additional straight-line rent
income.
Our development projects normally allow us to earn what we term
construction period rent. We record the accrued
construction period rent as a receivable and as deferred revenue
during the construction period. We recognize earned revenue on
the straight-line method as the construction period rent is paid
to us by the lessee/operator, usually beginning when the
lessee/operator takes physical possession of the facility.
We make loans to certain tenants and from time to time may make
construction or mortgage loans to facility owners or other
parties. We recognize interest income on loans as earned based
upon the principal amount
27
outstanding. These loans are generally secured by interests in
real estate, receivables, the equity interests of a tenant, or
corporate and individual guarantees. As with straight-line rent
receivables, our management must also periodically evaluate
loans to determine what amounts may not be collectible.
Accordingly, a provision for losses on loans receivable is
recorded when it becomes probable that the loan will not be
collected in full. The provision is an amount which reduces the
loan to its estimated net receivable value based on a
determination of the eventual amounts to be collected either
from the debtor or from the collateral, if any. At that time, we
discontinue recording interest income on the loan to the tenant.
Investments in Real Estate. We record
investments in real estate at cost, and we capitalize
improvements and replacements when they extend the useful life
or improve the efficiency of the asset. While our tenants are
generally responsible for all operating costs at a facility, to
the extent that we incur costs of repairs and maintenance, we
expense those costs as incurred. We compute depreciation using
the straight-line method over the estimated useful life of
40 years for buildings and improvements, five to seven
years for equipment and fixtures, and the shorter of the useful
life or the remaining lease term for tenant-owned improvements
and leasehold interests.
We are required to make subjective assessments as to the useful
lives of our facilities for purposes of determining the amount
of depreciation expense to record on an annual basis with
respect to our investments in real estate improvements. These
assessments have a direct impact on our net income because, if
we were to shorten the expected useful lives of our investments
in real estate improvements, we would depreciate these
investments over fewer years, resulting in more depreciation
expense and lower net income on an annual basis.
We have adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which
establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued
operations. SFAS No. 144 requires that the operations
related to facilities that have been sold, or that we intend to
sell, be presented as discontinued operations in the statement
of operations for all periods presented, and facilities and
related assets we intend to sell be designated as held for
sale on our balance sheet.
When circumstances such as adverse market conditions indicate a
possible impairment of the value of a facility, we review the
recoverability of the facilitys carrying value. The review
of recoverability is based on our estimate of the future
undiscounted cash flows, excluding interest charges, from the
facilitys use and eventual disposition. Our forecast of
these cash flows considers factors such as expected future
operating income, market and other applicable trends, and
residual value, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the
inability to recover the carrying value of a facility, an
impairment loss is recorded to the extent that the carrying
value exceeds the estimated fair value of the facility. We are
required to make subjective assessments as to whether there are
impairments in the values of our investments in real estate.
Purchase Price Allocation. We record
above-market and below-market in-place lease values, if any, for
the facilities we own which are based on the present value
(using an interest rate which reflects the risks associated with
the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases
and (ii) managements estimate of fair market lease
rates for the corresponding in-place leases, measured over a
period equal to the remaining non-cancelable term of the lease.
We amortize any resulting capitalized above-market lease values
as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. We amortize any
resulting capitalized below-market lease values as an increase
to rental income over the initial term and any fixed-rate
renewal periods in the respective leases. The Companys
strategy to date has been the simultaneous acquisition of
facilities and the origination of new long-term leases at market
rates. Future acquisitions, in some cases, may be for properties
with in-place leases which may require the evaluation of
above-market and below-market lease values.
We measure the aggregate value of other intangible assets to be
acquired based on the difference between (i) the property
valued with new or existing leases adjusted to market rental
rates and (ii) the property valued as if vacant.
Managements estimates of value are made using methods
similar to those used by independent appraisers (e.g.,
discounted cash flow analysis). Factors considered by management
in its analysis include an estimate of carrying costs during
hypothetical expected
lease-up
periods considering current market conditions, and costs to
execute similar leases. We also consider information obtained
about each targeted facility as a result of our pre-acquisition
due diligence, marketing, and leasing activities in estimating
the fair value of the tangible and intangible assets acquired.
In estimating carrying costs, management also includes real
estate taxes, insurance and other operating
28
expenses and estimates of lost rentals at market rates during
the expected
lease-up
periods, which we expect to range primarily from three to
18 months, depending on specific local market conditions.
Management also estimates costs to execute similar leases
including leasing commissions, legal costs, and other related
expenses to the extent that such costs are not already incurred
in connection with a new lease origination as part of the
transaction.
The total amount of other intangible assets to be acquired, if
any, is further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants lease and our overall relationship with that
tenant. Characteristics to be considered by management in
allocating these values include the nature and extent of our
existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the
tenants credit quality, and expectations of lease
renewals, including those existing under the terms of the lease
agreement, among other factors.
We amortize the value of in-place leases to expense over the
initial term of the respective leases, which are typically
15 years. The value of customer relationship intangibles is
amortized to expense over the initial term and any renewal
periods in the respective leases, but in no event will the
amortization period for intangible assets exceed the remaining
depreciable life of the building. Should a tenant terminate its
lease, the unamortized portion of the in-place lease value and
customer relationship intangibles are charged to expense.
Accounting for Derivative Financial Investments and Hedging
Activities. We account for our derivative and
hedging activities, if any, using SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and
SFAS No. 149, which requires all derivative
instruments to be carried at fair value on the balance sheet.
Derivative instruments designated in a hedge relationship to
mitigate exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash
flow hedges. We expect to formally document all relationships
between hedging instruments and hedged items, as well as our
risk-management objective and strategy for undertaking each
hedge transaction. We plan to review periodically the
effectiveness of each hedging transaction, which involves
estimating future cash flows. Cash flow hedges, if any, will be
accounted for by recording the fair value of the derivative
instrument on the balance sheet as either an asset or liability,
with a corresponding amount recorded in other comprehensive
income within stockholders equity. Amounts will be
reclassified from other comprehensive income to the income
statement in the period or periods the hedged forecasted
transaction affects earnings. Derivative instruments designated
in a hedge relationship to mitigate exposure to changes in the
fair value of an asset, liability, or firm commitment
attributable to a particular risk, which we expect to affect the
Company primarily in the form of interest rate risk or
variability of interest rates, are considered fair value hedges
under SFAS No. 133.
In 2006, we entered into derivative contracts as part of our
offering of Exchangeable Senior Notes due 2011 (the
exchangeable notes). The contracts are generally
termed capped call or call spread
contracts. These contracts are financial instruments which are
separate from the exchangeable notes themselves, but affect the
overall potential number of shares which will be issued by us to
satisfy the conversion feature in the exchangeable notes. The
exchangeable notes can be exchanged into shares of our common
stock when our stock price exceeds $16.51 per share, which is
the equivalent of 60.5566 shares per $1,000 note. The
number of shares actually issued upon conversion is equivalent
to the amount by which our stock price exceeds $16.51 times the
60.5566 conversion rate. The capped call transaction
allowed us to effectively increase that exchange price from
$16.51 to $18.94. Therefore, our shareholders would not
experience dilution of their shares from any settlement or
conversion of the exchangeable notes until the price of our
stock exceeds $18.94 per share rather than $16.51 per share.
When evaluating this transaction, we have followed the guidance
in Emerging Issues Task Force (EITF)
No. 00-19
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock. EITF
No. 00-19
requires that contracts such as this capped call
which meet certain conditions must be accounted for as permanent
adjustments to equity rather than periodically adjusted to their
fair value as assets or liabilities. We have evaluated the terms
of these contracts and have determined that this capped
call must be recorded as a permanent adjustment to
stockholders equity. We have therefore shown the premium
paid in this transaction as a one-time adjustment in the
statement of stockholders equity.
The exchangeable notes themselves also contain the conversion
feature described above. SFAS No. 133 also states that
certain embedded derivative contracts must follow
the guidance of EITF
No. 00-19
and be evaluated as
29
though they also were a freestanding derivative
contract. Embedded derivative contracts such the conversion
feature in the notes should not be treated as a financial
instrument separate from the note if it meets certain conditions
in EITF
No. 00-19.
We have evaluated the conversion feature in the exchangeable
notes and have determined that it should not be reported
separately from the debt.
Variable Interest Entities. In January 2003,
the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In December 2003,
the FASB issued a revision to FIN 46, which is termed
FIN 46(R). FIN 46(R) clarifies the application of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, and provides guidance on the
identification of entities for which control is achieved through
means other than voting rights, guidance on how to determine
which business enterprise should consolidate such an entity, and
guidance on when it should do so. This model for consolidation
applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest
or (2) the equity investment at risk is insufficient to
finance that entitys activities without receiving
additional subordinated financial support from other parties. An
entity meeting either of these two criteria is a variable
interest entity, or VIE. A VIE must be consolidated by any
entity which is the primary beneficiary of the VIE. If an entity
is not the primary beneficiary of the VIE, the VIE is not
consolidated. We periodically evaluate the terms of our
relationships with our tenants and borrowers to determine
whether we are the primary beneficiary and would therefore be
required to consolidate any tenants or borrowers that are VIEs.
Our evaluations of our transactions indicate that we have loans
receivable from two entities which we classify as VIEs. However,
because we are not the primary beneficiary of these VIEs, we do
not consolidate these entities in our financial statements.
Stock-Based Compensation. Prior to 2006, we
used the intrinsic value method to account for the issuance of
stock options under our equity incentive plan in accordance with
APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) became effective for
our annual and interim periods beginning January 1, 2006,
but had no material effect on the results of our operations.
During the years ended December 31, 2007 and 2006, we
recorded approximately $4.5 million and $3.1 million,
respectively, of expense for
share-based
compensation related to grants of restricted common stock,
deferred stock units and other
stock-based
awards. In 2006, we also granted
performance-based
restricted share awards. Because these awards will vest based on
the Companys performance, we must evaluate and estimate
the probability of achieving those performance targets. Any
changes in these estimates and probabilities must be recorded in
the period when they are changed. In 2007, the Compensation
Committee made awards which are earned only if the Company
achieves certain stock price levels, total shareholder return or
other market conditions. The 2007 awards were made pursuant to
the Companys 2007 Multi-Year Incentive Plan (MIP) adopted
by the Compensation Committee and consisted of three components:
service-based awards, core performance awards (CPRE), and
superior performance awards (SPRE). The service-based awards
vest annually and ratably over a seven-year period. We recognize
expense over the vesting period on the straight-line method for
service based awards. The CPRE and SPRE awards vest based on
what SFAS No. 123(R) terms market
conditions. Market conditions are vesting conditions which
are based on our stock price levels or our total shareholder
return (stock price and dividends) compared to an index of other
REIT stocks. The SPRE awards require additional service after
being earned, if they are in fact earned. For the CPRE awards,
the period over which the awards are earned is not fixed because
the awards provide for cumulative measures over multiple years.
SFAS No. 123(R) requires that we estimate the period
over which the awards will likely be earned, regardless of the
period over which the award allows as the maximum period over
which it can be earned. Also, because some awards have multiple
periods over which they can be earned, we must segregate
individual awards into tranches, based on their
vesting or estimated earning periods. These complexities
required us to use an independent consultant to model both the
value of the award and the various periods over which the each
tranche of an award will be earned. Our consultant used what is
termed a Monte Carlo simulation model which determines a value
and earnings periods based on multiple outcomes and their
probabilities. Beginning in 2007, we have begun recording
expense over the expected or derived vesting periods using the
calculated value of the awards. We must record expense over
these vesting periods even though the awards have not yet been
earned and, in fact, may never be earned. In some cases, if the
award is not earned, we will be required to reverse expenses
recognized in earlier periods. As a result, future stock-based
compensation expense may fluctuate based on the potential
reversal of previously recorded expense.
30
Disclosure
of Contractual Obligations
The following table summarizes known material contractual
obligations associated with investing and financing activities
as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Senior notes
|
|
|
9,630,775
|
|
|
|
19,261,550
|
|
|
|
17,825,825
|
|
|
|
156,904,466
|
|
|
|
203,622,616
|
|
Exchangeable notes
|
|
|
8,452,500
|
|
|
|
16,905,000
|
|
|
|
145,364,096
|
|
|
|
|
|
|
|
170,721,596
|
|
Revolving credit facility(1)
|
|
|
88,084,252
|
|
|
|
10,094,727
|
|
|
|
77,687,920
|
|
|
|
|
|
|
|
175,866,899
|
|
Term Note
|
|
|
5,139,626
|
|
|
|
10,144,019
|
|
|
|
67,586,331
|
|
|
|
|
|
|
|
82,869,976
|
|
Operating lease commitments(2)
|
|
|
820,886
|
|
|
|
1,675,297
|
|
|
|
1,728,843
|
|
|
|
31,001,675
|
|
|
|
35,226,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
112,128,039
|
|
|
$
|
58,080,593
|
|
|
$
|
310,193,015
|
|
|
$
|
187,906,141
|
|
|
$
|
668,307,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the balance and interest rates are those in effect at
December 31, 2007 and no principal payments are made until
the expiration of the facilities. |
|
(2) |
|
Some of our contractual obligations to make operating lease
payments are related to ground leases for which we are
reimbursed by our tenants. |
Liquidity
and Capital Resources
At December 31, 2007 we had cash and short-term investments
of approximately $94.2 million. In early January 2008 we
used approximately $83.0 million of cash to reduce the
balances under our revolving credit facilities. Subsequent to
the early January repayment, we have available under our credit
facilities approximately $120 million in borrowing
capacity. The terms of one of our credit facilities give us the
right to increase its total size from $220 million
presently to $350 million. However, any such expansion is
subject to pricing and other market conditions, and we believe
it is unlikely that lenders in the present market would commit
to additional capacity at pricing levels that we would find
acceptable.
Short-term Liquidity Requirements: We believe
that the $120 million available to us mentioned above is
sufficient to provide the resources necessary for operations,
distributions in compliance with REIT requirements and a limited
amount of acquisitions. In the event that we elect to make more
than a limited amount of acquisitions in the near term, we will
need to access additional capital. Based on current conditions
in the capital markets, we believe such capital will be
available; however, the capital markets have recently been
highly volatile and there is no assurance that we could obtain
acquisition capital at prices that we consider acceptable.
Long-term Liquidity Requirements: We believe
that cash flow from operating activities subsequent to 2007 and
available borrowing capacity will be sufficient to provide
adequate working capital and make required distributions to our
stockholders in compliance with our requirements as a REIT. To
maintain our growth plans, and because of the tax requirements
that we distribute a substantial portion of our earnings, we
will need combined access to capital. To the extent market
conditions or conditions specific to us make such capital
unavailable or unaffordable, we may be unable to execute our
growth strategies or we may be able to grow only at rates and
margins lower than what we have anticipated.
Investing
Activities
During 2007 we invested approximately $316 million, or
approximately 42% of our December 31, 2006 total assets, in
new hospital real estate assets. We received early pay-offs of
approximately $65 million in mortgage loans and
approximately $8 million in other loans. Our net increase
in assets during 2007, after consideration of the January 2008
credit facility reductions, was approximately $228 million,
or approximately 31%.
Results
of Operations
We began operations during the second quarter of 2004. Since
then, we have substantially increased our income earning
investments each year, and we expect to continue to materially
add to our investment portfolio,
31
subject to the capital markets and other conditions described in
this Annual Report on
Form 10-K.
Accordingly, we expect that future results of operations will
vary materially from our historical results. The results of
operations presented below for the year ended December 31,
2005, have been adjusted to reflect the operations of two
facilities which are recorded as discontinued operations at
December 31, 2007.
Year
Ended December 31, 2007 Compared to the Year Ended
December 31, 2006
Net income for the year ended December 31, 2007 was
$41,239,639 compared to net income of $30,159,698 for the year
ended December 31, 2006.
A comparison of revenues for the years ended December 31,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
Change
|
|
|
Base rents
|
|
$
|
54,232,567
|
|
|
|
56.3
|
%
|
|
$
|
29,806,171
|
|
|
|
59.1
|
%
|
|
$
|
24,426,396
|
|
Straight-line rents
|
|
|
11,079,704
|
|
|
|
11.5
|
%
|
|
|
5,952,442
|
|
|
|
11.8
|
%
|
|
|
5,127,262
|
|
Percentage rents
|
|
|
607,121
|
|
|
|
0.6
|
%
|
|
|
2,384,601
|
|
|
|
4.7
|
%
|
|
|
(1,777,480
|
)
|
Interest from loans
|
|
|
26,000,486
|
|
|
|
27.0
|
%
|
|
|
11,893,339
|
|
|
|
23.6
|
%
|
|
|
14,107,147
|
|
Fee income
|
|
|
4,367,485
|
|
|
|
4.6
|
%
|
|
|
434,879
|
|
|
|
0.8
|
%
|
|
|
3,932,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
96,287,363
|
|
|
|
100.0
|
%
|
|
$
|
50,471,432
|
|
|
|
100.0
|
%
|
|
$
|
45,815,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2007, was comprised
of rents (68.4%) and interest and fee income from loans (31.6%).
Our base and straight-line rents increased in 2007 due to the
acquisition of four facilities and opening of two developments
in 2007. Interest income from loans in the year ended
December 31, 2007, increased primarily due to origination
of two additional mortgage loans totaling $120,000,000 in the
first quarter of 2007 offset by the repayment of a
$40 million mortgage loan in the second quarter of 2007 and
a $25 million mortgage loan in the fourth quarter of 2007.
Our fee income increased in 2007 due to the receipt of
$3.8 million in mortgage loan pre-payment fees.
Vibra accounted for 31.3% and 55.0% of our gross revenues in
2007 and 2006, respectively. This includes percentage rents of
approximately $0.5 million and $2.4 million in 2007
and 2006, respectively. We expect that the portion of our total
revenues attributable to Vibra will decline in relation to our
total revenue, and based solely on our portfolio at
December 31, 2007, we estimate that Vibra will represent
18.5% of total revenue in 2008. At December 31, 2007,
assets leased and loaned to Vibra comprised 19.7% of our total
assets and 23.7% of our total investment.
Depreciation and amortization during the year ended
December 31, 2007 was $12,612,630, compared to $6,704,924
during the year ended December 31, 2006. All of this
increase is related to an increase in the number of rent
producing properties from 21 (cost
$437.4 million) at December 31, 2006 to 25
(cost $657.5 million) at December 31,
2007. We expect our depreciation and amortization expense to
continue to increase commensurate with our acquisition and
development activity.
General and administrative expenses during the years ended
December 31, 2007 and 2006, totaled $15,971,840 and
$10,190,850, respectively, which represents an increase of
55.0%. The increase is partially due to an increase of
approximately $1.4 million of non-cash share-based
compensation expense from stock-based awards made during 2007.
We expect non-cash share-based compensation to increase in 2008
because awards that were made in 2007 but do not vest until
certain performance hurdles are met must nonetheless be expensed
beginning in the year of the award based on our estimate of the
likelihood of achieving those performance hurdles.
Interest expense for the years ended December 31, 2007 and
2006 totaled $28,236,502 and $4,417,955, respectively. Interest
expense in 2007 and 2006 excludes interest of approximately
$1.3 million and $6.2 million, respectively, which was
capitalized as part of the cost of development projects under
construction during 2007 and 2006. Capitalized interest
decreased due to our final two developments under construction
being placed into service in April 2007, which represented
construction in process totaling $59.8 million at
December 31, 2006. Interest expense increased during 2007
due to the issuance of $263.0 million in fixed rate notes
in the second half of 2006 and the cessation of capitalization
of interest on approximately $155.3 million in development
projects that were
32
placed in service in 2006 and 2007. We expect interest expense
to increase during 2008 due to larger debt balances in 2008 than
in 2007.
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Net income for the year ended December 31, 2006 was
$30,159,698 compared to net income of $19,640,347 for the year
ended December 31, 2005.
A comparison of revenues for the years ended December 31,
2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Base rents
|
|
$
|
29,806,171
|
|
|
|
59.1
|
%
|
|
$
|
18,608,236
|
|
|
|
61.1
|
%
|
|
$
|
11,197,935
|
|
Straight-line rents
|
|
|
5,952,442
|
|
|
|
11.8
|
%
|
|
|
4,764,527
|
|
|
|
15.7
|
%
|
|
|
1,187,915
|
|
Percentage rents
|
|
|
2,384,601
|
|
|
|
4.7
|
%
|
|
|
2,259,230
|
|
|
|
7.4
|
%
|
|
|
125,371
|
|
Interest from loans
|
|
|
11,893,339
|
|
|
|
23.6
|
%
|
|
|
4,704,369
|
|
|
|
15.4
|
%
|
|
|
7,188,970
|
|
Fee income
|
|
|
434,879
|
|
|
|
0.8
|
%
|
|
|
116,183
|
|
|
|
0.4
|
%
|
|
|
318,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
50,471,432
|
|
|
|
100.0
|
%
|
|
$
|
30,452,545
|
|
|
|
100.0
|
%
|
|
$
|
20,018,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2006, was comprised
of rents (75.6%) and interest and fee income from loans (24.4%).
All of this revenue was derived from properties that we have
acquired since July 1, 2004. Our base and straight-line
rents increased in 2006 due to the acquisition of 10 facilities
and opening of two developments in 2006. Interest income from
loans in the year ended December 31, 2006, increased
primarily based on the timing and amount of the Alliance
mortgage loan made in 2005, and on the two mortgage loans made
in 2006.
Vibra accounted for 55.0% and 86.2% of our gross revenues in
2006 and 2005, respectively, This includes percentage rents of
approximately $2.4 million and $2.3 million in 2006
and 2005, respectively. In 2006, Vibra accounted for 61.5% of
our total rent revenues. We expect that the portion of our total
revenues attributable to Vibra will decline in relation to our
total revenue. At December 31, 2006, assets leased and
loaned to Vibra comprised 29.0% of our total assets and 33.4% of
our total investment.
Depreciation and amortization during the year ended
December 31, 2006 was $6,704,924, compared to $4,182,731
during the year ended December 31, 2005. The increase is
due to the timing and amount of acquisitions and developments in
2006 and 2005. We expect our depreciation and amortization
expense to continue to increase commensurate with our
acquisition and development activity.
General and administrative expenses during the years ended
December 31, 2006 and 2005, totaled $10,190,850 and
$8,016,992, respectively, which represents an increase of 27.1%.
The increase is due primarily to approximately $3.1 million
of non-cash share based compensation expense from restricted
shares and deferred stock units granted to employees, officers
and directors during 2006. We expect non-cash share based
compensation to increase in 2007 because shares that were
awarded in 2006 but do not vest until certain performance
hurdles are met must nonetheless be expensed beginning in the
year of the award based on our estimate of the likelihood of
achieving those performance hurdles.
Interest income (other than from loans) for the years ended
December 31, 2006 and 2005, totaled $515,038 and
$2,091,132, respectively. Interest income decreased due to the
timing and amount of offering proceeds temporarily invested in
short-term cash equivalent instruments in 2005.
Interest expense for the years ended December 31, 2006 and
2005 totaled $4,417,955 and $1,521,169, respectively. Interest
expense in 2006 and 2005 excludes interest of approximately
$6.2 million and $3.1 million, respectively, which was
capitalized as part of the cost of development projects under
construction during 2006 and 2005.
Discontinued
Operations
We entered into a contract for the disposition of two assets in
2006. On October 22, 2006, two of our subsidiaries
terminated their respective leases with Stealth, L.P.
(Stealth). The leases were for the hospital and
33
medical office building (MOB), respectively, operated together
by Stealth as Houston Town and County Hospital in Houston,
Texas. The leases were originally entered into in 2004, with the
lease for the hospital scheduled to expire in 2021 and that for
the MOB to expire in 2016. The leases required Stealth to make
monthly payments of rent, including annual escalations of rent,
and payments to fund repairs and improvements. The leases also
required Stealth to pay all operating expenses of the
facilities, including ad valorem taxes, insurance and utilities.
In 2006, we recorded revenue of approximately $7.4 million
from the leases and loans with Stealth. In connection with
entering into the leases with Stealth, we also made working
capital loans to Stealth in an aggregate amount, including
accrued interest and after applying offsetting credits, of
approximately $3.2 million. Subsequent to the lease
termination, we received the full proceeds of a letter of credit
issued to us by Stealth in the amount of $1.3 million,
which was used to reduce the amount outstanding under the loans.
Stealth had not obtained managed care provider contracts that we
believed were necessary for profitable operation of the hospital
along with other issues. Accordingly, and pursuant to our rights
under the leases, we terminated the leases and began
negotiations directly with other hospital systems to lease or
sell the facilities. These negotiations resulted in the ultimate
sale of the hospital and MOB in January 2007, for a sales price
of approximately $71.7 million, before expenses of the
sale. During the period from the lease termination to the date
of sale, the hospital was operated by a new third party operator
under contract to the hospital. We also made loans to the
operating company totaling approximately $4.4 million at
December 31, 2007, which we expect to recover from the net
revenues which the hospital and the MOB generated during the
interim period. The accompanying financial statements include
provisions to reduce such loans to their net realizable value.
The revenues and expenses from our leases and loans to Stealth
for the Houston Town and Country Hospital are shown in the
accompanying consolidated financial statements as discontinued
operations.
Reconciliation
of Non-GAAP Financial Measures
Investors and analysts following the real estate industry
utilize funds from operations, or FFO, as a supplemental
performance measure. While we believe net income available to
common stockholders, as defined by generally accepted accounting
principles (GAAP), is the most appropriate measure, our
management considers FFO an appropriate supplemental measure
given its wide use by and relevance to investors and analysts.
FFO, reflecting the assumption that real estate asset values
rise or fall with market conditions, principally adjusts for the
effects of GAAP depreciation and amortization of real estate
assets, which assume that the value of real estate diminishes
predictably over time.
As defined by the National Association of Real Estate Investment
Trusts, or NAREIT, FFO represents net income (loss) (computed in
accordance with GAAP), excluding gains (losses) on sales of real
estate, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint
ventures. We compute FFO in accordance with the NAREIT
definition. FFO should not be viewed as a substitute measure of
the Companys operating performance since it does not
reflect either depreciation and amortization costs or the level
of capital expenditures and leasing costs necessary to maintain
the operating performance of our properties, which are
significant economic costs that could materially impact our
results of operations.
The following table presents a reconciliation of FFO to net
income for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
|
19,640,347
|
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
Gain on sale of real estate sold
|
|
|
(4,061,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
49,790,643
|
|
|
$
|
36,864,622
|
|
|
$
|
23,823,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Per diluted share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
.86
|
|
|
$
|
.76
|
|
|
$
|
.61
|
|
Depreciation and amortization
|
|
|
.26
|
|
|
|
.17
|
|
|
|
.13
|
|
Gain on sale of real estate sold
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
1. 03
|
|
|
$
|
.93
|
|
|
$
|
.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
Policy
We have elected to be taxed as a REIT commencing with our
taxable year that began on April 6, 2004 and ended on
December 31, 2004. To qualify as a REIT, we must meet a
number of organizational and operational requirements, including
a requirement that we distribute at least 90% of our REIT
taxable income, excluding net capital gain, to our stockholders.
It is our current intention to comply with these requirements
and maintain such status going forward.
The table below is a summary of our distributions paid or
declared since January 1, 2005:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Date of Distribution
|
|
Distribution per Share
|
|
February 28, 2008
|
|
March 13, 2008
|
|
April 11, 2008
|
|
$
|
.27
|
|
August 16, 2007
|
|
September 14, 2007
|
|
October 19, 2007
|
|
$
|
.27
|
|
May 17, 2007
|
|
June 14, 2007
|
|
July 12, 2007
|
|
$
|
.27
|
|
February 15, 2007
|
|
March 29, 2007
|
|
April 12, 2007
|
|
$
|
.27
|
|
November 16, 2006
|
|
December 14, 2006
|
|
January 11, 2007
|
|
$
|
.27
|
|
August 18, 2006
|
|
September 14, 2006
|
|
October 12, 2006
|
|
$
|
.26
|
|
May 18, 2006
|
|
June 15, 2006
|
|
July 13, 2006
|
|
$
|
.25
|
|
February 16, 2006
|
|
March 15, 2006
|
|
April 12, 2006
|
|
$
|
.21
|
|
November 18, 2005
|
|
December 15, 2005
|
|
January 19, 2006
|
|
$
|
.18
|
|
August 18, 2005
|
|
September 15, 2005
|
|
September 29, 2005
|
|
$
|
.17
|
|
May 19, 2005
|
|
June 20, 2005
|
|
July 14, 2005
|
|
$
|
.16
|
|
March 4, 2005
|
|
March 16, 2005
|
|
April 15, 2005
|
|
$
|
.11
|
|
November 11, 2004
|
|
December 16, 2004
|
|
January 11, 2005
|
|
$
|
.11
|
|
We intend to pay to our stockholders, within the time periods
prescribed by the Code, all or substantially all of our annual
taxable income, including taxable gains from the sale of real
estate and recognized gains on the sale of securities. It is our
policy to make sufficient cash distributions to stockholders in
order for us to maintain our status as a REIT under the Code and
to avoid corporate income and excise taxes on undistributed
income.
|
|
ITEM 7A
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk includes risks that arise from changes in interest
rates, foreign currency exchange rates, commodity prices, equity
prices and other market changes that affect market sensitive
instruments. In pursuing our business plan, we expect that the
primary market risk to which we will be exposed is interest rate
risk.
In addition to changes in interest rates, the value of our
facilities will be subject to fluctuations based on changes in
local and regional economic conditions and changes in the
ability of our tenants to generate profits, all of which may
affect our ability to refinance our debt if necessary. The
changes in the value of our facilities would be reflected also
by changes in cap rates, which is measured by the
current base rent divided by the current market value of a
facility.
35
If market rates of interest on our variable rate debt increase
by 1%, the increase in annual interest expense on our variable
rate debt would decrease future earnings and cash flows by
approximately $1,428,000 per year. If market rates of interest
on our variable rate debt decrease by 1%, the decrease in
interest expense on our variable rate debt would increase future
earnings and cash flows by approximately $1,428,000 per year.
This assumes that the amount outstanding under our variable rate
debt remains approximately $142.8 million, the balance at
March 1, 2008.
We currently have no assets denominated in a foreign currency,
nor do we have any assets located outside of the United States.
Our exchangeable notes were initially exchangeable into
60.3346 shares of our stock for each $1,000 note. This
equates to a conversion price of $16.57 per share. This
conversion price adjusts based on a formula which considers
increases to our dividend subsequent to the issuance of the
notes in November 2006. Our dividends declared in since we sold
the exchangeable notes have adjusted our conversion price to
$16.51 per share which equates to 60.5566 shares per $1,000
note. Future changes to the conversion price will depend on our
level of dividends which cannot be predicted at this time. Any
adjustments for dividend increases until the notes are settled
in 2011 will affect the price of the notes and the number of
shares for which they will eventually be settled. At
December 31, 2007, the exchange rates are 60.5566 Company
common shares per $1,000 principal amount of the notes,
representing an exchange price of approximately $16.51 per
common share.
At the time we issued the exchangeable notes, we also entered
into a capped call or call spread transaction. The effect of
this transaction was to increase the conversion price from
$16.57 to $18.94. As a result, our shareholders will not
experience any dilution until our share price exceeds $18.94. If
our share price exceeds that price, the result would be that we
would issue additional shares of common stock. At a price of $20
per share, we would be required to issue an additional
434,000 shares. At $25 per share, we would be required to
issue an additional two million shares.
36
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited the accompanying consolidated balance sheets of
Medical Properties Trust, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the years in the three-year period ended
December 31, 2007. In connection with our audits of the
consolidated financial statements, we also have audited
financial statement schedules III and IV. These
consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Medical Properties Trust, Inc. and subsidiaries as
of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Medical Properties Trust, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 13, 2008 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
Birmingham, Alabama
March 13, 2008
37
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
69,247,711
|
|
|
$
|
33,809,594
|
|
Buildings and improvements
|
|
|
544,840,277
|
|
|
|
387,770,513
|
|
Construction in progress
|
|
|
435,110
|
|
|
|
57,432,264
|
|
Intangible lease assets
|
|
|
43,381,151
|
|
|
|
15,787,615
|
|
Mortgage loans
|
|
|
185,000,000
|
|
|
|
105,000,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
63,324,381
|
|
|
|
|
|
|
|
|
|
|
Gross investment in real estate assets
|
|
|
842,904,249
|
|
|
|
663,124,367
|
|
Accumulated depreciation
|
|
|
(20,214,219
|
)
|
|
|
(10,758,514
|
)
|
Accumulated amortization
|
|
|
(2,498,514
|
)
|
|
|
(1,297,908
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in real estate assets
|
|
|
820,191,516
|
|
|
|
651,067,945
|
|
Cash and cash equivalents
|
|
|
94,215,134
|
|
|
|
4,102,873
|
|
Interest and rent receivable
|
|
|
10,325,614
|
|
|
|
11,893,513
|
|
Straight-line rent receivable
|
|
|
23,637,435
|
|
|
|
12,686,976
|
|
Other loans
|
|
|
80,758,273
|
|
|
|
45,172,830
|
|
Other assets of discontinued operations
|
|
|
4,354,835
|
|
|
|
6,890,919
|
|
Other assets
|
|
|
18,177,879
|
|
|
|
12,941,689
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,051,660,686
|
|
|
$
|
744,756,745
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
480,525,166
|
|
|
$
|
304,961,898
|
|
Debt real estate held for sale
|
|
|
|
|
|
|
43,165,650
|
|
Accounts payable and accrued expenses
|
|
|
21,091,374
|
|
|
|
30,045,642
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
341,216
|
|
Deferred revenue
|
|
|
20,839,338
|
|
|
|
14,615,609
|
|
Lease deposits and other obligations to tenants
|
|
|
16,006,813
|
|
|
|
6,853,759
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
538,462,691
|
|
|
|
399,983,774
|
|
Minority interests
|
|
|
77,552
|
|
|
|
1,051,835
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized
10,000,000 shares; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
100,000,000 shares; issued and outstanding
52,133,207 shares at December 31, 2007 and
39,585,510 shares at December 31, 2006
|
|
|
52,133
|
|
|
|
39,586
|
|
Additional paid-in capital
|
|
|
540,501,058
|
|
|
|
356,678,018
|
|
Distributions in excess of net income
|
|
|
(27,170,405
|
)
|
|
|
(12,996,468
|
)
|
Treasury shares, at cost
|
|
|
(262,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
513,120,443
|
|
|
|
343,721,136
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,051,660,686
|
|
|
$
|
744,756,745
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed
|
|
$
|
54,839,688
|
|
|
$
|
32,190,772
|
|
|
$
|
20,867,466
|
|
Straight-line rent
|
|
|
11,079,704
|
|
|
|
5,952,442
|
|
|
|
4,764,527
|
|
Interest and fee income
|
|
|
30,367,971
|
|
|
|
12,328,218
|
|
|
|
4,820,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
96,287,363
|
|
|
|
50,471,432
|
|
|
|
30,452,545
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
General and administrative
|
|
|
15,791,840
|
|
|
|
10,190,850
|
|
|
|
8,016,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,404,470
|
|
|
|
16,895,774
|
|
|
|
12,199,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67,882,893
|
|
|
|
33,575,658
|
|
|
|
18,252,822
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
363,558
|
|
|
|
515,038
|
|
|
|
2,091,132
|
|
Interest expense
|
|
|
(28,236,502
|
)
|
|
|
(4,417,955
|
)
|
|
|
(1,521,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other (expense) income
|
|
|
(27,872,944
|
)
|
|
|
(3,902,917
|
)
|
|
|
569,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
40,009,949
|
|
|
|
29,672,741
|
|
|
|
18,822,785
|
|
Income from discontinued operations
|
|
|
1,229,690
|
|
|
|
486,957
|
|
|
|
817,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.58
|
|
Income from discontinued operations
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
47,717,026
|
|
|
|
39,537,877
|
|
|
|
32,343,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.58
|
|
Income from discontinued operations
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
For the Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Additional
|
|
|
Distributions
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
in Excess
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
of Net Income
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
26,082,862
|
|
|
|
26,083
|
|
|
|
233,626,690
|
|
|
|
(1,924,329
|
)
|
|
|
|
|
|
|
231,728,444
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,603
|
|
|
|
(10,852
|
)
|
|
|
|
|
|
|
171,751
|
|
Retirement of deferred stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(75,000
|
)
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
52,220
|
|
|
|
52
|
|
|
|
1,174,952
|
|
|
|
|
|
|
|
|
|
|
|
1,175,004
|
|
Proceeds from exercise of warrant
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
35
|
|
|
|
325,465
|
|
|
|
|
|
|
|
|
|
|
|
325,500
|
|
Issuance of common stock (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
13,175,023
|
|
|
|
13,175
|
|
|
|
124,353,652
|
|
|
|
|
|
|
|
|
|
|
|
124,366,827
|
|
Distributions declared ($.62 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,055,731
|
)
|
|
|
|
|
|
|
(21,055,731
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,640,347
|
|
|
|
|
|
|
|
19,640,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
39,345,105
|
|
|
|
39,345
|
|
|
|
359,588,362
|
|
|
|
(3,350,565
|
)
|
|
|
|
|
|
|
356,277,142
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,631
|
|
|
|
(44,381
|
)
|
|
|
|
|
|
|
267,250
|
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
240,405
|
|
|
|
241
|
|
|
|
3,068,015
|
|
|
|
|
|
|
|
|
|
|
|
3,068,256
|
|
Cost of call spread transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,289,990
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,289,990
|
)
|
Dividends declared ($.99 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,761,220
|
)
|
|
|
|
|
|
|
(39,761,220
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,159,698
|
|
|
|
|
|
|
|
30,159,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
39,585,510
|
|
|
|
39,586
|
|
|
|
356,678,018
|
|
|
|
(12,996,468
|
)
|
|
|
|
|
|
|
343,721,136
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
10,598
|
|
|
|
11
|
|
|
|
54,155
|
|
|
|
(54,166
|
)
|
|
|
|
|
|
|
|
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
299,299
|
|
|
|
298
|
|
|
|
4,483,279
|
|
|
|
|
|
|
|
|
|
|
|
4,483,577
|
|
Options exercised for cash
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
199,980
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Proceeds from offering (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
9,217,900
|
|
|
|
9,218
|
|
|
|
135,800,178
|
|
|
|
|
|
|
|
|
|
|
|
135,809,396
|
|
Proceeds from exercising forward sale agreement
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,000
|
|
|
|
43,285,448
|
|
|
|
|
|
|
|
|
|
|
|
43,288,448
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,343
|
)
|
|
|
(262,343
|
)
|
Dividends declared ($1.08 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,359,410
|
)
|
|
|
|
|
|
|
(55,359,410
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,239,639
|
|
|
|
|
|
|
|
41,239,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
52,133,307
|
|
|
$
|
52,133
|
|
|
$
|
540,501,058
|
|
|
$
|
(27,170,405
|
)
|
|
$
|
(262,343
|
)
|
|
$
|
513,120,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,172,548
|
|
|
|
8,318,303
|
|
|
|
4,567,675
|
|
Amortization of deferred financing costs
|
|
|
4,839,139
|
|
|
|
1,068,770
|
|
|
|
932,249
|
|
Straight-line rent revenue
|
|
|
(11,079,704
|
)
|
|
|
(6,876,051
|
)
|
|
|
(5,460,148
|
)
|
Share based payments
|
|
|
4,483,577
|
|
|
|
3,115,804
|
|
|
|
1,346,755
|
|
(Gain) loss from sale of real estate
|
|
|
(4,061,626
|
)
|
|
|
126,362
|
|
|
|
|
|
Deferred revenue and fee income
|
|
|
(1,157,538
|
)
|
|
|
(1,192,231
|
)
|
|
|
(270,727
|
)
|
Provision for uncollectible receivables and loans
|
|
|
1,666,827
|
|
|
|
3,313,061
|
|
|
|
|
|
Interest cost recorded as addition to debt
|
|
|
|
|
|
|
1,253,236
|
|
|
|
|
|
Rent and interest income added to loans
|
|
|
(8,893,742
|
)
|
|
|
(754,141
|
)
|
|
|
|
|
Other adjustments
|
|
|
400,425
|
|
|
|
208,310
|
|
|
|
(96,677
|
)
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivable
|
|
|
523,561
|
|
|
|
(285,717
|
)
|
|
|
(486,521
|
)
|
Other assets
|
|
|
2,450,668
|
|
|
|
(2,407,394
|
)
|
|
|
(2,312,681
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(12,854,715
|
)
|
|
|
6,982,887
|
|
|
|
4,700,558
|
|
Deferred revenue
|
|
|
566,061
|
|
|
|
107,390
|
|
|
|
1,420,030
|
|
Lease deposits and other obligations to tenants
|
|
|
5,534,497
|
|
|
|
(1,054,946
|
)
|
|
|
174,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
36,829,617
|
|
|
|
42,083,341
|
|
|
|
24,155,387
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired
|
|
|
(200,815,181
|
)
|
|
|
(121,408,474
|
)
|
|
|
(97,667,724
|
)
|
Proceeds from sale of real estate
|
|
|
68,203,041
|
|
|
|
7,642,332
|
|
|
|
|
|
Principal received on loans receivable
|
|
|
74,894,311
|
|
|
|
|
|
|
|
7,890,958
|
|
Investment in loans receivable
|
|
|
(128,986,298
|
)
|
|
|
(67,597,349
|
)
|
|
|
(45,999,178
|
)
|
Construction in progress
|
|
|
(12,165,669
|
)
|
|
|
(114,362,232
|
)
|
|
|
(78,778,843
|
)
|
Other investments
|
|
|
(1,310,936
|
)
|
|
|
(1,135,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(200,180,732
|
)
|
|
|
(296,861,522
|
)
|
|
|
(214,554,787
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
559,185,897
|
|
|
|
362,128,450
|
|
|
|
104,474,342
|
|
Payments of debt
|
|
|
(427,556,088
|
)
|
|
|
(118,607,528
|
)
|
|
|
(60,645,833
|
)
|
Deferred financing costs
|
|
|
(4,123,104
|
)
|
|
|
(1,237,947
|
)
|
|
|
(1,461,342
|
)
|
Distributions paid
|
|
|
(53,078,830
|
)
|
|
|
(36,105,732
|
)
|
|
|
(16,730,414
|
)
|
Proceeds from sale of common shares, net of offering costs
|
|
|
135,809,396
|
|
|
|
|
|
|
|
125,272,302
|
|
Sale of partnership units
|
|
|
|
|
|
|
|
|
|
|
1,137,500
|
|
Cost of call spread transactions
|
|
|
|
|
|
|
(6,289,990
|
)
|
|
|
|
|
Proceeds from forward equity sale
|
|
|
43,288,448
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(262,343
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
200,000
|
|
|
|
(122,031
|
)
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
253,463,376
|
|
|
|
199,765,222
|
|
|
|
151,971,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents for the year
|
|
|
90,112,261
|
|
|
|
(55,012,959
|
)
|
|
|
(38,427,845
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
4,102,873
|
|
|
|
59,115,832
|
|
|
|
97,543,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
94,215,134
|
|
|
$
|
4,102,873
|
|
|
$
|
59,115,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, including capitalized interest of $1,335,413 in
2007, $6,220,427 in 2006 and $3,107,966 in 2005
|
|
$
|
24,584,480
|
|
|
$
|
5,351,450
|
|
|
$
|
3,461,654
|
|
Supplemental schedule of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction period rent and interest receivable recorded as
deferred revenue
|
|
$
|
3,797,723
|
|
|
$
|
9,083,201
|
|
|
$
|
5,259,006
|
|
Real estate acquisitions and new loans receivable recorded as
lease and loan deposits
|
|
|
1,640,280
|
|
|
|
218,257
|
|
|
|
8,603,075
|
|
Real estate acquisitions and new loans receivable recorded as
deferred revenue
|
|
|
75,000
|
|
|
|
1,184,000
|
|
|
|
577,500
|
|
Construction and acquisition costs charged to loans and real
estate
|
|
|
4,971,306
|
|
|
|
1,455,395
|
|
|
|
774,479
|
|
Lease deposit applied to loan receivable
|
|
|
|
|
|
|
3,768,864
|
|
|
|
|
|
Loan receivable settled by acquisition of real estate
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
Construction in progress transferred to land and building
|
|
|
69,013,302
|
|
|
|
94,660,739
|
|
|
|
56,409,377
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred offering costs charged to proceeds from sale of common
stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
579,975
|
|
Distributions declared and paid in the following year
|
|
|
14,412,033
|
|
|
|
10,849,920
|
|
|
|
7,194,432
|
|
Other common stock transactions
|
|
|
54,475
|
|
|
|
264,302
|
|
|
|
10,904
|
|
Supplemental schedule of non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant deposits recorded in other assets
|
|
$
|
7,500,000
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
41
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Medical Properties Trust, Inc., a Maryland corporation (the
Company), was formed on August 27, 2003 under the General
Corporation Law of Maryland for the purpose of engaging in the
business of investing in and owning commercial real estate. The
Companys operating partnership subsidiary, MPT Operating
Partnership, L.P. (the Operating Partnership) through which it
conducts all of its operations, was formed in September 2003.
Through another wholly owned subsidiary, Medical Properties
Trust, LLC, the Company is the sole general partner of the
Operating Partnership.
The Companys primary business strategy is to acquire and
develop real estate and improvements, primarily for long term
lease to providers of healthcare services such as operators of
general acute care hospitals, inpatient physical rehabilitation
hospitals, long term acute care hospitals, surgery
centers, centers for treatment of specific conditions such as
cardiac, pulmonary, cancer, and neurological hospitals, and
other healthcare-oriented facilities. The Company also makes
mortgage and other loans to operators of similar facilities. The
Company manages its business as a single business segment as
defined in Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America 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.
Principles of Consolidation: Property holding
entities and other subsidiaries of which the Company owns 100%
of the equity or has a controlling financial interest evidenced
by ownership of a majority voting interest are consolidated. All
inter-company balances and transactions are eliminated. For
entities in which the Company owns less than 100% of the equity
interest, the Company consolidates the property if it has the
direct or indirect ability to make decisions about the
entities activities based upon the terms of the respective
entities ownership agreements. For these entities, the
Company records a minority interest representing equity held by
minority interests. For entities in which the Company owns less
than 100% and does not have the direct or indirect ability to
make decisions but does exert significant influence over the
entities activities, the Company records its ownership in
the entity using the equity method of accounting.
The Company periodically evaluates all of its transactions and
investments to determine if they represent variable interests in
a variable interest entity as defined by FASB Interpretation
No. 46 (revised December 2003)
(FIN 46-R),
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. If the Company
determines that it has a variable interest in a variable
interest entity, the Company determines if it is the primary
beneficiary of the variable interest entity. The Company
consolidates each variable interest entity in which the Company,
by virtue of its transactions with or investments in the entity,
is considered to be the primary beneficiary. The Company
re-evaluates its status as primary beneficiary when a variable
interest entity or potential variable interest entity has a
material change in its variable interests.
Cash and Cash Equivalents: Certificates of
deposit and short-term investments with original maturities of
three months or less and money-market mutual funds are
considered cash equivalents. Cash and cash equivalents which
have been pledged as security for letters of credit are recorded
in other assets.
Deferred Costs: Costs incurred prior to the
completion of offerings of stock or other capital instruments
that directly relate to the offering are deferred and netted
against proceeds received from the offering. Costs incurred in
connection with anticipated financings and refinancing of debt
are capitalized as deferred financing costs in other assets and
amortized over the lives of the related loans as an addition to
interest expense. For debt with defined principal re-payment
terms, the deferred costs are amortized to produce a constant
effective yield on the loan
42
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
(interest method). For debt without defined principal repayment
terms, such as revolving credit agreements, the deferred costs
are amortized on the straight-line method over the term of the
debt. Costs that are specifically identifiable with, and
incurred prior to the completion of, probable acquisitions are
deferred and, to the extent not collected from the sellers
proceeds at acquisition, capitalized upon closing. The Company
begins deferring costs when the Company and the seller have
executed a letter of intent (LOI), commitment letter or similar
document or when the Company begins incurring costs, such as for
its due diligence procedures, for the purchase of the property
by the Company. Deferred acquisition costs are expensed when
management determines that the acquisition is no longer
probable. Leasing commissions and other leasing costs directly
attributable to tenant leases are capitalized as deferred
leasing costs and amortized on the straight-line method over the
terms of the related lease agreements. Costs identifiable with
loans made to lessees are recognized as a reduction in interest
income over the life of the loan by the interest method.
Revenue Recognition: The Company receives
income from operating leases based on the fixed, minimum
required rents (base rents) and from additional rent based on a
percentage of tenant revenues once the tenants revenue has
exceeded an annual threshold (percentage rents). Rent revenue
from base rents is recorded on the straight-line method over the
terms of the related lease agreements for new leases and the
remaining terms of existing leases for acquired properties. The
straight-line method records the periodic average amount of base
rent earned over the term of a lease, taking into account
contractual rent increases over the lease term. The
straight-line method has the effect of recording more rent
revenue from a lease than a tenant is required to pay during the
first half of the lease term. During the last half of a lease
term, this effect reverses with less rent revenue recorded than
a tenant is required to pay. Rent revenue as recorded on the
straight-line method in the consolidated statement of operations
is shown as two amounts. Billed rent revenue is the amount of
base rent actually billed to the customer each period as
required by the lease. Straight-line rent revenue is the
difference between base rent revenue earned based on the
straight-line method and the amount recorded as billed base rent
revenue. The Company records the difference between base rent
revenues earned and amounts due per the respective lease
agreements, as applicable, as an increase or decrease to
straight-line rent receivable. Percentage rents are recognized
in the period in which revenue thresholds are met. Rental
payments received prior to their recognition as income are
classified as rent received in advance. The Company may also
receive additional rent (contingent rent) under some leases when
the U.S. Department of Labor consumer price index exceeds
the annual minimum percentage increase in the lease. Contingent
rents are recorded as billed rent revenue in the period received.
The Company begins recording base rent income from its
development projects when the lessee takes physical possession
of the facility, which may be different from the stated start
date of the lease. Also, during construction of its development
projects, the Company is generally entitled to accrue rent based
on the cost paid during the construction period (construction
period rent). The Company accrues construction period rent as a
receivable and deferred revenue during the construction period.
When the lessee takes physical possession of the facility, the
Company begins recognizing the accrued construction period rent
on the straight-line method over the remaining term of the lease.
Fees received from development and leasing services for lessees
are initially recorded as deferred revenue and recognized as
income over the initial term of an operating lease to produce a
constant effective yield on the lease (interest method). Fees
from lending services are recorded as deferred revenue and
recognized as income over the life of the loan using the
interest method.
Acquired Real Estate Purchase Price
Allocation: The Company allocates the purchase
price of acquired properties to net tangible and identified
intangible assets acquired based on their fair values in
accordance with the provisions of SFAS No. 141,
Business Combinations. In making estimates of fair values
for purposes of allocating purchase prices, the Company utilizes
a number of sources, including independent appraisals that may
be obtained in connection with the acquisition or financing of
the respective property and other market data. The Company also
considers information obtained about each property as a result
of its pre-acquisition due diligence, marketing and leasing
activities in estimating the fair value of the tangible and
intangible assets acquired.
43
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The Company records above-market and below-market in-place lease
values, if any, for its facilities which are based on the
present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between
(i) the contractual amounts to be paid pursuant to the
in-place leases and (ii) managements estimate of fair
market lease rates for the corresponding in-place leases,
measured over a period equal to the remaining non-cancelable
term of the lease. The Company amortizes any resulting
capitalized above-market lease values as a reduction of rental
income over the remaining non-cancelable terms of the respective
leases. The Company amortizes any resulting capitalized
below-market lease values as an increase to rental income over
the initial term and any fixed-rate renewal periods in the
respective leases. The Companys strategy to date has been
the simultaneous acquisition of facilities and the origination
of new long-term leases at market rates. Future acquisitions, in
some cases, may be for properties with in-place leases which may
require the evaluation of above-market and below-market lease
values.
The Company measures the aggregate value of other intangible
assets acquired based on the difference between (i) the
property valued with new or in-place leases adjusted to market
rental rates and (ii) the property valued as if vacant.
Managements estimates of value are made using methods
similar to those used by independent appraisers (e.g.,
discounted cash flow analysis). Factors considered by management
in its analysis include an estimate of carrying costs during
hypothetical expected
lease-up
periods considering current market conditions, and costs to
execute similar leases. Management also considers information
obtained about each targeted facility as a result of
pre-acquisition due diligence, marketing and leasing activities
in estimating the fair value of the tangible and intangible
assets acquired. In estimating carrying costs, management also
includes real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during
the expected
lease-up
periods, which are expected to range primarily from three to
eighteen months, depending on specific local market conditions.
Management also estimates costs to execute similar leases
including leasing commissions, legal and other related expenses
to the extent that such costs are not already incurred in
connection with a new lease origination as part of the
transaction.
The total amount of other intangible assets acquired, if any, is
further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants lease and our overall relationship with that
tenant. Characteristics to be considered by management in
allocating these values include the nature and extent of our
existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the
tenants credit quality and expectations of lease renewals,
including those existing under the terms of the lease agreement,
among other factors.
The Company amortizes the value of in-place leases, if any, to
expense over the initial term of the respective leases, which
range primarily from ten to 15 years. The value of customer
relationship intangibles is amortized to expense over the
initial term and any renewal periods in the respective leases,
but in no event will the amortization period for intangible
assets exceed the remaining depreciable life of the building. If
a tenant terminates its lease, the unamortized portion of the
in-place lease value and customer relationship intangibles are
charged to expense.
Real Estate and Depreciation: Depreciation is
calculated on the straight-line method over the estimated useful
lives of the related assets, as follows:
|
|
|
Buildings and improvements
|
|
40 years
|
Tenant origination costs
|
|
Remaining terms of the related leases
|
Tenant improvements
|
|
Term of related leases
|
Furniture and equipment
|
|
3-7 years
|
Real estate is carried at depreciated cost. Expenditures for
ordinary maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements which improve
and/or
extend the useful life of the asset are capitalized and
depreciated over their estimated useful lives. In accordance
with SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of
the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that
the
44
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets, including an
estimated liquidation amount, during the expected holding
periods are less than the carrying amounts of those assets.
Impairment losses are measured as the difference between
carrying value and fair value of assets. For assets held for
sale, impairment is measured as the difference between carrying
value and fair value, less cost of disposal. Fair value is based
on estimated cash flows discounted at a risk-adjusted rate of
interest. The Company classifies real estate assets as held for
sale when the Company has commenced an active program to sell
the assets, and in the opinion of the Companys management,
it is probable the asset will be sold within the next
12 months. The Company records the results of operations
from material property sales or planned sales (which include
real property, loans and any receivables) as discontinued
operations in the consolidated statements of operations for all
periods presented. Results of discontinued operations include
interest expense from debt which secures the property sold or
held for sale or which the company can otherwise reasonably
allocate to the property.
Construction in progress includes the cost of land, the cost of
construction of buildings, improvements and equipment, and costs
for design and engineering. Other costs, such as interest,
legal, property taxes and corporate project supervision, which
can be directly associated with the project during construction,
are also included in construction in progress.
Loans: Loans consists of mortgage loans,
working capital loans and other long-term loans. Interest income
from loans is recognized as earned based upon the principal
amount outstanding. Mortgage loans are secured by interests in
real property. Working capital and other long-term loans are
generally secured by interests in receivables and corporate and
individual guarantees.
Losses from Rent Receivables and Loans: A
provision for losses on rent receivables and loans is recorded
when it becomes probable that the receivable or loan will not be
collected in full. The provision is an amount which reduces the
rent or loan to its estimated net realizable value based on a
determination of the eventual amounts to be collected either
from the debtor or from the collateral, if any. At that time,
the Company discontinues recording interest income on the loan
or rent receivable from the tenant.
Net Income Per Share: The Company reports
earnings per share pursuant to SFAS No. 128,
Earnings Per Share. Basic net income per share is
computed by dividing net income available to common stockholders
by the weighted average number of common shares and contingently
issuable common shares outstanding during the period. Diluted
net income per share is computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding during the period, adjusted for the
assumed conversion of all potentially dilutive outstanding
shares, warrants and options.
Income Taxes: The Company conducts its
business as a real estate investment trust (REIT) under
Sections 856 through 860 of the Internal Revenue Code. To
qualify as a REIT, the Company must meet certain organizational
and operational requirements, including a requirement to
currently distribute to shareholders at least 90% of its
ordinary taxable income. As a REIT, the Company generally is not
subject to federal income tax on taxable income that it
distributes to its shareholders. If the Company fails to qualify
as a REIT in any taxable year, it will then be subject to
federal income taxes on its taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year during which qualification is lost, unless the Internal
Revenue Service grants the Company relief under certain
statutory provisions. Such an event could materially adversely
affect the Companys net income and net cash available for
distribution to shareholders. However, the Company intends to
operate in such a manner so that the Company will remain
qualified as a REIT for federal income tax purposes.
The Companys financial statements include the operations
of a taxable REIT subsidiary, MPT Development Services, Inc.
(MDS) that is not entitled to a dividends paid deduction and is
subject to federal, state and local income taxes. MDS is
authorized to provide property development, leasing and
management services for third-party owned properties and makes
loans to lessees and operators.
45
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Stock-Based Compensation: The Company
currently sponsors the Second Amended and Restated Medical
Properties Trust, Inc. 2004 Equity Incentive Plan (the Equity
Incentive Plan) that was established in 2004. The Company
accounts for its stock-based awards under the recognition and
measurement provisions of SFAS No. 123(R),
Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock Based
Compensation. Awards of restricted stock, stock options and
other equity-based awards with service conditions are amortized
to compensation expense over the vesting periods which range
from three to five years, using the straight-line method. Awards
of deferred stock units vest when granted and are charged to
expense at the date of grant. Awards which contain market
conditions are amortized to compensation expense over the
derived vesting periods, which correspond to the periods over
which the Company estimates the awards will be earned, which
range from two to seven years, using the straight-line method.
Awards with performance conditions are amortized using the
straight-line method over the service period in which the
performance conditions are measured, adjusted for the
probability of achieving the performance conditions.
Derivative Financial Investments and Hedging
Activities. The Company accounts for its
derivative and hedging activities using SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS Nos. 137, 138 and 149
and interpreted, which requires all derivative instruments to be
carried at fair value on the balance sheet.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management
objective and strategy for undertaking the hedge. This process
includes specific identification of the hedging instrument and
the hedge transaction, the nature of the risk being hedged and
how the hedging instruments effectiveness in hedging the
exposure to the hedged transactions variability in cash
flows attributable to the hedged risk will be assessed. Both at
the inception of the hedge and on an ongoing basis, the Company
assesses whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash
flows or fair values of hedged items. The Company discontinues
hedge accounting if a derivative is not determined to be highly
effective as a hedge or has ceased to be a highly effective
hedge. The Company is not currently a party to any derivatives
contracts that require accounting under SFAS No. 133.
Emerging Issues Task Force (EITF)
No. 00-19
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
provides guidance on the accounting and reporting for
free-standing derivative financial instruments and for embedded
derivatives which are indexed to and settled in the
Companys stock. EITF
No. 00-19
provides criteria by which certain derivative financial
instruments should be reported as liabilities or equity. It also
provides guidance as to when embedded derivatives should be
separated or bifurcated from the host instrument.
The Company follows the provisions of this EITF to account for
the conversion feature and capped call transactions
related to its debt which is exchangeable for shares of the
Companys common stock.
In December 2006, the FASB ratified the consensus reached by the
EITF regarding
EITF 00-19-2,
Accounting for Registration Payment Arrangements. The
guidance specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument
or other agreement, should be separately recognized and measured
in accordance with SFAS No. 5, Accounting for
Contingencies.
Fair Value of Financial Instruments: The
Company has various assets and liabilities that are considered
financial instruments. The Company estimates that the carrying
value of cash and cash equivalents, interest receivable and
accounts payable and accrued expenses approximates their fair
values. The Company estimates the fair value of unbilled rent
receivable based on expected payment dates, discounted at a rate
which the Company considers appropriate for such assets
considering their credit quality and maturity. The Company
estimates the fair value of loans based on the present value of
future payments, discounted at a rate which the Company
considers appropriate for such assets considering their credit
quality and maturity. The Company estimates that the carrying
value of the Companys revolving credit facility should
approximate fair value because the debt is variable rate and
adjusts daily with changes in the underlying interest rate
index. The Company determines the fair value of its
46
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
exchangeable notes based on quotes from securities dealers and
market makers. The Company estimates the fair value of its
senior notes based on the present value of future payments,
discounted at a rate which the Company considers appropriate for
such debt.
Reclassifications: Certain reclassifications
have been made to the 2006 consolidated financial statements to
conform to the 2007 consolidated financial statement
presentation. These reclassifications have no impact on
stockholders equity or net income.
New Accounting Pronouncements: The following
is a summary of recently issued accounting pronouncements which
have been issued but not adopted by the Company.
In June 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes-an interpretation
of FASB Statement No. 109 (FIN No. 48).
FIN No. 48 clarifies the accounting for uncertainty in
income taxes recognized in financial statements in accordance
with SFAS No. 109 Accounting for Income Taxes
and prescribes a recognition threshold and measurement
attribute of tax positions taken or expected to be taken on a
tax return. FIN No. 48 is effective for fiscal years
beginning after December 15, 2006. The Company adopted
FIN No. 48 on January 1, 2007. No amounts were
recorded for unrecognized tax benefits or related interest
expense and penalties as a result of the implementation of
FIN No. 48. The taxable periods ending
December 31, 2004 through December 31, 2007 remain
open to examination by the Internal Revenue Service and the tax
authorities of significant jurisdictions in which the Company
does business.
On July 25, 2007, the FASB authorized a FASB Staff Position
(the proposed FSP) that, if issued, would affect the
accounting for our exchangeable notes. If issued in the form
expected, the proposed FSP would require that the initial debt
proceeds from the sale of our exchangeable notes be allocated
between a liability component and an equity component. The
resulting debt discount would be amortized over the period the
debt is expected to be outstanding as additional interest
expense. The proposed FSP would be effective for fiscal years
beginning after December 15, 2007, and require retroactive
application. Because the proposed FSP is currently being
deliberated by the FASB and therefore subject to change, the
Company has not determined the effect of the proposed FSP on its
financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurement.
SFAS No. 157 requires prospective application for
fiscal years beginning after November 15, 2007. The Company
is currently evaluating the requirements of this statement and
has not yet determined its effect on the Companys future
acquisitions or consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
permits all entities to choose to measure eligible items at fair
value at specified election dates. SFAS 159 is effective as
of the beginning of an entitys first fiscal year that
begins after November 15, 2007. On January 1, 2008 the
Company did not elect to apply the fair value option to any
specific financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141
(Revised), Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed (including intangibles), and any
noncontrolling interest in the acquiree. SFAS No. 141R
also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. The Company
is currently evaluating the requirements of this statement and
has not yet determined its effect on the Companys future
acquisitions or consolidated financial statements.
47
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for a parent
companys noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008. The Company is currently evaluating the requirements of
this statement and has not yet determined its effect on the
Companys future acquisitions or consolidated financial
statements.
|
|
3.
|
Real
Estate and Loans Receivable
|
Acquisitions
The Company has recorded the following assets from its
acquisitions in 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
27,206,641
|
|
|
$
|
7,685,622
|
|
Buildings
|
|
|
140,039,962
|
|
|
|
101,374,559
|
|
Intangible lease assets
|
|
|
29,351,852
|
|
|
|
6,478,579
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,598,455
|
|
|
$
|
115,538,760
|
|
|
|
|
|
|
|
|
|
|
In 2007, the Company used funds from its 2007 common stock
offering and from its revolving credit facilities to fund
acquisitions and developments. In 2006, the Company used funds
from its revolving credit facility as well as Senior and
Exchangeable Notes to fund acquisitions and developments. The
Company entered into 15 year leases with the operators of
the facilities, which in certain instances were also the sellers
of the facilities. Each lease has renewal options which are
generally for three five year periods. The leases also contain
base rent escalation provisions based on the greater of a fixed
percentage or general levels of inflation.
The Company recorded amortization expense related to intangible
lease assets of approximately $1,375,776 and $727,000 in 2007
and 2006, respectively, and expects to recognize amortization
expense from existing lease intangible assets of approximately
$2.9 million in each of the next five years. Capitalized
lease intangibles have a weighted average remaining life of
approximately 13 years.
Leasing
Operations
Minimum rental payments due in future periods under operating
leases which have non-cancelable terms extending beyond one year
at December 31, 2007, are as follows:
|
|
|
|
|
2008
|
|
$
|
68,695,777
|
|
2009
|
|
|
70,079,966
|
|
2010
|
|
|
71,498,734
|
|
2011
|
|
|
72,951,777
|
|
2012
|
|
|
74,439,934
|
|
Thereafter
|
|
|
731,420,804
|
|
|
|
|
|
|
|
|
$
|
1,089,086,992
|
|
|
|
|
|
|
For the years ended December 31, 2007 and 2006, Vibra
Healthcare, LLC accounted for approximately 31% and 55%,
respectively, of the Companys total revenues from
continuing operations and affiliates of Prime Healthcare
Services, Inc. accounted for 26% and 19%, respectively of the
Companys total revenues from continuing operations.
48
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Loans
In conjunction with the Companys purchase of six
healthcare facilities in July and August 2004, the Company also
made loans aggregating $49.1 million to Vibra Healthcare,
LLC (Vibra). As of December 31, 2007, Vibra has reduced the
balance of the loans to approximately $29.5 million. The
Company has determined that Vibra is a variable interest entity.
The Company has also determined that it is not the primary
beneficiary of Vibra and, therefore, has not consolidated Vibra
in the Companys consolidated financial statements.
In 2006, the Company made two mortgage loans totaling
$65.0 million, secured by two general acute care hospitals
in California. The loans require the payment of interest only
during their 15 year terms with principal due in full at
maturity. Interest is paid monthly and increases each year based
on the annual change in the consumer price index. The loans may
be prepaid under certain specified conditions. In May 2007, the
Company received full payment on its mortgage loan on the Texas
facility and received a prepayment fee of approximately
$2.3 million. In November 2007, the Company received full
payment on its mortgage loan on a facility located in Inglewood,
California and received a prepayment fee of approximately
$1.5 million. The borrower sold the facility to an
affiliate of Prime in an unrelated transaction. The Company
subsequently purchased the facility from the Prime affiliate and
entered into a 15 year lease with the Prime affiliate.
In 2007, the Company made mortgage loans totaling
$145.0 million to affiliates of Prime, secured by interests
in Prime affiliated facilities located in California. The loans
require the payment of interest only, which escalates each year
based on changes in the consumer price index, during their
15 year terms with principal due in full at maturity. The
loans may be prepaid under certain specified conditions.
The following is a summary of debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
2007
|
|
|
2006
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
Revolving credit facilities
|
|
$
|
154,985,897
|
|
|
6.100%
|
-8.000%
|
|
|
$
|
45,996,359
|
|
|
7.800%
|
Senior unsecured notes fixed rate through July and
October, 2011, due July and October, 2016
|
|
|
125,000,000
|
|
|
7.333%
|
-7.871%
|
|
|
|
125,000,000
|
|
|
7.333%-7.871%
|
Exchangeable senior notes due November, 2011
|
|
|
134,704,269
|
|
|
6.125%
|
|
|
|
|
133,965,539
|
|
|
6.125%
|
Term loan
|
|
|
65,835,000
|
|
|
6.830%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
480,525,166
|
|
|
|
|
|
|
$
|
304,961,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, maturities are as follows:
|
|
|
|
|
2008
|
|
$
|
83,660,000
|
|
2009
|
|
|
660,000
|
|
2010
|
|
|
660,000
|
|
2011
|
|
|
360,545,166
|
|
2012
|
|
|
35,000,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
480,525,166
|
|
|
|
|
|
|
49
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In October, 2005, the Company signed a Credit Agreement for a
secured revolving credit facility to replace an existing term
loan. The agreement had a four year term and an interest rate of
the 30-day
LIBOR plus a spread ranging from 235 to 275 basis points
depending upon the Companys overall leverage ratio. The
Company terminated this Credit Agreement in November 2007 and
paid the outstanding balance in full. In addition, the Company
recorded a charge of approximately $2.6 million in
unamortized financing costs as additional interest expense for
the credit facility at the time of termination.
During the third quarter of 2006, the Company issued
$125.0 million of Senior Unsecured Notes (the
Notes). The Notes were placed in private
transactions exempt from registration under the Securities Act
of 1933, as amended, (the Securities Act). Notes
totaling $65.0 million will pay interest quarterly at a
fixed annual rate of 7.871% through July 30, 2011,
thereafter, at a floating annual rate of three-month LIBOR plus
2.30% and may be called at par value by the Company at any time
on or after July 30, 2011. The remaining Notes will pay
interest quarterly at fixed annual rates ranging from 7.333% to
7.715% through October 30, 2011, thereafter, at a floating
annual rate of three-month LIBOR plus 2.30% and may be called at
par value by the Company at any time on or after
October 30, 2011.
In November 2006, the Companys Operating Partnership
issued and sold, in a private offering, $138.0 million of
Exchangeable Senior Notes (the Exchangeable Notes).
The Exchangeable Notes will pay interest semi-annually at a rate
of 6.125% per annum (with an effective yield of 6.86%) and
mature on November 15, 2011. The Exchangeable Notes have an
initial exchange rate of 60.3346 Company common shares per
$1,000 principal amount of the notes, representing an exchange
price of approximately $16.57 per common share. The initial
exchange rate is subject to adjustment under certain
circumstances. At December 31, 2007, the exchange rates are
60.5566 Company common shares per $1,000 principal amount of the
notes, representing an exchange price of approximately $16.51
per common share. The Exchangeable Notes are exchangeable, prior
to the close of business on the second business day immediately
preceding the stated maturity date at any time beginning on
August 15, 2011 and also upon the occurrence of specified
events, for cash up to their principal amount and the
Companys common shares for the remainder of the exchange
value in excess of the principal amount. Net proceeds from the
offering of the Exchangeable Notes were approximately
$134.0 million, after deducting the initial
purchasers discount.
Concurrently with the pricing of the Exchangeable Notes, the
Operating Partnership entered into a capped call
transaction with affiliates of the initial purchasers (the
option counterparties) in order to increase the
effective exchange price of the Exchangeable Notes to $18.94 per
common share. The capped call transaction is expected to reduce
the potential dilution with respect to the Companys common
stock upon exchange of the Exchangeable Notes to the extent the
then market value per share of the Companys common stock
does not exceed $18.94 during the observation period relating to
an exchange. The Company has reserved approximately
8.3 million shares which may be issued in the future to
settle the Exchangeable Notes. The premium of $6.3 million
paid for the capped call transaction has been
recorded as a permanent reduction to additional paid in capital
in the consolidated statement of stockholders equity.
In June, 2006, the Company exercised its option to convert the
two construction loans for the West Houston Town and County
Hospital and the adjacent medical office building to
thirty-month term loans. The loans bore interest at the
thirty-day
LIBOR plus 2.50%. The loans required monthly payments of
principal and interest with maturity in December, 2008 and were
secured by mortgages on the hospital and medical office
building. On January 17, 2007, the two properties securing these
loans were sold and the loans were paid in full. Therefore,
these loans are presented as Debt real estate
held-for-sale
as of December 31, 2006. The interest rate on these loans
as of December 31, 2006 was 7.838%.
In June, 2007, the Company signed a secured revolving bank
credit facility for up to $42 million. The terms are for
five years with interest at the
30-day LIBOR
plus 1.50%. The amount available under the facility will
decrease by $800,000 per year beginning in the third year. The
facility is secured by real estate with a book value of
50
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
approximately $60.8 million at December 31, 2007. This
facility had an outstanding balance of $35.0 million at
December, 31, 2007.
In November, 2007, the Company signed a Credit Agreement for a
revolving credit facility and a term loan. The revolving credit
facility has a four-year term and has an interest rate options
of (1) the
30-day LIBOR
plus a spread ranging from 150 to 225 basis points (6.58%
at December 31, 2007) depending upon the
Companys total leverage ratio or the higher of the
prime rate or federal funds rate plus a 0.5% spread,
plus a 1% margin (8.00% at December 31, 2007). The Credit
Facility is secured by (i) the equity interests of the
Company and certain of its subsidiaries and (ii) mortgage
loans payable to the Company. The Company may borrow up to
$154.0 million under the revolving credit facility. The
Company may also request to increase the available line of
credit to a maximum of $350.0 million by May 2009 by adding
more qualified properties to the borrowing base.
This facility had an outstanding balance of $119,985,897 and
$65,835,000 on the revolving credit facility and the term loan,
respectively, at December 31, 2007. The term loan has a
four-year term and has an interest rate of the
30-day LIBOR
plus a spread of 200 basis points (6.83% at
December 31, 2007). The Company makes quarterly principal
payments of $165,000 on the term loan.
Each of these debt agreements contains financial covenants which
are typical for each of the agreements. The Company was in
compliance with all such covenants at December 31, 2007.
Earnings and profits, which determine the taxability of
distributions to shareholders, will differ from net income
reported for financial reporting purposes due to differences in
cost basis, differences in the estimated useful lives used to
compute depreciation, and differences between the allocation of
the Companys net income and loss for financial reporting
purposes and for tax reporting purposes.
Total common distributions declared were $1.08 per common share
in 2007, $0.99 per common share in 2006 and $0.62 per common
share in 2005. Of the dividends declared in 2005, $0.536168 per
common share is treated as ordinary income for federal income
tax purposes for the year ended December 31, 2005. The
remaining distribution of $.083832 is treated as ordinary income
for federal income tax purposes in the year ending
December 31, 2006. Of the dividends declared in 2006,
$0.531249 per common share is treated as ordinary income for
federal income tax purposes for the year ended December 31,
2006, $0.181671 is treated as a return of capital and $0.007080
will be treated as total capital gain, all of which is
unrecaptured Sec. 1250 gain. The remaining distribution of $0.27
is treated as income for federal income tax purposes in the year
ending December 31, 2007. Of the dividends declared in
2007, $0.681994 per common share is treated as ordinary income
for federal income tax purposes for the year ended
December 31, 2006, $0.205648 is treated as a return of
capital and $0.192358 will be treated as total gain, $0.085269
of which is unrecaptured Sec. 1250 gain. The remaining
distribution of $0.27 declared November 16, 2007, and paid
January 11, 2008, is treated as income for federal income
tax purposes in the year ending December 31, 2007.
51
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following is a reconciliation of the weighted average shares
used in net income per common share basic to the
weighted average shares used in net income per common
share assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average number of shares issued and outstanding
|
|
|
47,671,736
|
|
|
|
39,498,712
|
|
|
|
32,326,939
|
|
|
|
19,308,511
|
|
Vested deferred stock units
|
|
|
45,290
|
|
|
|
39,165
|
|
|
|
16,080
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
47,717,026
|
|
|
|
39,537,877
|
|
|
|
32,343,019
|
|
|
|
19,310,833
|
|
Restricted stock and other share based awards
|
|
|
186,406
|
|
|
|
164,099
|
|
|
|
26,115
|
|
|
|
|
|
Common stock warrant
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
19,312,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has adopted the Second Amended and Restated Medical
Properties Trust, Inc. 2004 Equity Incentive Plan (the Equity
Incentive Plan) which authorizes the issuance of common stock
options, restricted stock, restricted stock units, deferred
stock units, stock appreciation rights, performance units and
awards of interests in the Companys Operating Partnership.
The Equity Incentive Plan is administered by the Compensation
Committee of the Board of Directors. The Company has reserved
4,631,330 shares of common stock for awards under the
Equity Incentive Plan. The Equity Incentive Plan contains a
limit of 300,000 shares as the maximum number of shares of
common stock that may be awarded to an individual in any fiscal
year. Awards under the Equity Incentive Plan are subject to
forfeiture due to termination of employment prior to vesting. In
the event of a change in control of the Company, all outstanding
and unvested awards will immediately vest. The term of the
awards is set by the Compensation Committee, though Incentive
Stock Options may not have terms of more than ten years.
Forfeited awards are returned to the Equity Incentive Plan and
are then available to be re-issued as future awards.
SFAS No. 123(R), Share-Based Payment, became
effective for annual and interim periods beginning
January 1, 2006. The adoption of SFAS No. 123(R)
had no material effect on the results of operations during the
year ended December 31, 2006, nor in any prior period,
because substantially all of the Companys stock-based
compensation is in the form of restricted share and deferred
stock unit awards. The Companys policy for recording
expense from restricted share and deferred stock unit awards was
not affected by SFAS No. 123(R). Under
SFAS No. 123(R), the additional compensation expense
which the Company would have recorded for stock options in the
years ended December 31, 2006 and 2005 was not material.
A summary of option activity in 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
|
Outstanding at January 1, 2007
|
|
|
100,000
|
|
|
$
|
10.00
|
|
Awarded
|
|
|
50,000
|
|
|
$
|
12.09
|
|
Exercised
|
|
|
(20,000
|
)
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
130,000
|
|
|
$
|
10.80
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
80,000
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
52
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The Company awarded 50,000 options in 2007 and 60,000 stock
options in 2005, with estimated grant date fair values of $1.36
per option and $1.86 per option, respectively. The options
awarded in 2005 became fully vested in 2007. The options awarded
in 2007 vest annually in equal amounts over three years from the
date of award and expire in 2012. The Company uses the
Black-Scholes pricing model to calculate the fair values of the
options awarded. In 2007, the following assumptions were used to
derive the fair values: an option term of four years; expected
volatility of 28.34%; a weighted average risk-free rate of
return of 4.62%; a dividend yield of 8.93%. The intrinsic value
of options exercised in 2007 and exercisable at
December 31, 2007, is approximately $97,000 and $15,000,
respectively. At December 31, 2007, the weighted average
remaining contractual term of options exercisable and
outstanding is approximately 4.2 years and 6.0 years,
respectively.
The Compensation Committee also awarded deferred stock units in
2005 and 2006 to each of the five independent directors. These
deferred stock units vested on the date of the award and were
recorded as a non-cash expense of $267,250 and $171,750 in 2006
and 2005, respectively. Deferred stock units may be exchanged
for common stock at any time after a three year holding period
from date of grant. During the holding period, deferred stock
units do not receive cash dividends, but receive an equivalent
amount of additional deferred stock units.
The Companys stock-based awards are in the form of
service-based awards and performance-based awards. The
service-based awards vest as the employee provides the required
service over periods of three to seven years. Service based
awards are valued at the average price per share of common stock
on the date of grant. In 2006 and 2007, the Compensation
Committee made awards which vest based on the Company achieving
certain performance levels, stock price levels, total
shareholder return or comparison to peer total return indices.
The 2006 awards are based on the Company achieving levels of
total shareholder return compared to an industry index. The 2007
awards were made under the Companys 2007 Management
Incentive Plan (MIP) adopted by the Compensation Committee and
consisted of three components: service-based awards, core
performance awards (CPRE), and superior performance awards
(SPRE). The service-based awards vest annually and ratably over
a seven-year period beginning December 31, 2007 . The CPRE
awards also vests annually and ratably over the same seven-year
period contingent upon the Companys achievement of a
simple 9% annual total return to shareholders (pro-rated to 7.5%
for the first vesting period ending December 31, 2007). In
years in which the annual total return exceeds 9%, the excess
return may be used to earn CPRE awards not earned in a prior
year. SPRE awards are earned based on achievement of specified
share price thresholds during the period beginning March 1,
2007 through December 31, 2010, and will then vest annually
and ratably over the subsequent three-year period
(2011-2013).
In the event that at the end of the measurement period, no SPRE
awards have been earned based on the criteria set forth above
but the Company has performed at or above the 50th percentile of
all real estate investment trusts included in the Morgan Stanley
REIT Index in terms of total return to shareholders over the
same period, 33.334% of the SPRE awards will be earned as of
December 31, 2010. All unvested 2007 MIP awards provide for
payment of dividends and other non-liquidating distributions,
except that the SPRE awards will pay dividends at 20% of the per
share dividend amount. The 2007 MIP awards were made in the form
of restricted shares and a new class of partnership units in the
Companys Operating Partnership (LTIP units).
The LTIP units which are earned may eventually be converted, at
the Companys election, into either shares of common stock
on a
one-for-one
basis or their equivalent in cash. The Company has valued its
LTIP awards at the same per unit value as a corresponding
restricted stock award. The Companys independent valuation
consultant determined the value of the 2007 MIP awards
CPRE and SPRE components using a Monte Carlo simulation. The
following assumptions were used to derive the fair values for
the SPRE and CPRE, respectively: term 3.4 years
and 6.4 years; expected (implied) volatility 27.00% and
26.00%; risk-free rate of return 4.55% and 4.65%; and,
dividends $1.08 in 2007, $1.10 in 2008, $1.13 in
2009, and 3% annual increase thereafter through 2013. No CPRE or
SPRE awards were earned in 2007.
53
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following summarizes restricted equity awards activity in
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Based
|
|
|
Vesting Based on Market/Performance
|
|
|
|
on Service
|
|
|
Conditions
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Outstanding at January 1, 2007
|
|
|
504,679
|
|
|
$
|
10.18
|
|
|
|
105,375
|
|
|
$
|
11.60
|
|
Awarded
|
|
|
532,750
|
|
|
$
|
12.41
|
|
|
|
1,275,000
|
|
|
$
|
6.39
|
|
Vested
|
|
|
(348,914
|
)
|
|
$
|
10.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
$
|
11.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
680,515
|
|
|
$
|
11.85
|
|
|
|
1,380,375
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of stock-based awards is charged to compensation
expense over the vesting periods. In the years ended
December 31, 2007 and 2006, the Company recorded
approximately $4.5 million and $2.9 million,
respectively, of non-cash compensation expense for restricted
equity awards. The remaining unrecognized cost from restricted
equity awards at December 31, 2007, is approximately
$15.1 million and will be recognized over a weighted
average period of approximately 4.2 years. Restricted
equity awards which vested in 2007 had a value of approximately
$3.3 million on the vesting dates.
|
|
8.
|
Commitments
and Contingencies
|
Fixed minimum payments due under operating leases with
non-cancelable terms of more than one year at December 31,
2007 are as follows:
|
|
|
|
|
2008
|
|
|
820,886
|
|
2009
|
|
|
829,704
|
|
2010
|
|
|
845,593
|
|
2011
|
|
|
859,956
|
|
2012
|
|
|
868,887
|
|
Thereafter
|
|
|
31,001,675
|
|
|
|
|
|
|
|
|
$
|
35,226,701
|
|
|
|
|
|
|
The total amount to be received from non-cancellable subleases
at December 31, 2007, is approximately $16.8 million.
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, after
consultation with legal counsel, the ultimate liability, if any,
with respect to those proceedings is not presently expected to
materially affect the financial position, results of operations
or cash flows of the Company.
In the first quarter of 2007, the Company sold
12,217,900 shares of common stock at a price of $15.60 per
share, less an underwriting commission of five percent. Of the
shares sold, the underwriters borrowed from third parties and
sold 3,000,000 shares of Company common stock in connection
with forward sale agreements between the Company and affiliates
of the underwriters (the forward purchasers). The
Company did not initially receive any proceeds from the sale of
shares of Company common stock by the forward purchasers. In
December 2007, the Company settled the forward sale agreements
and received proceeds, net of underwriting commission of five
percent and other adjustments, of approximately
$43.3 million.
54
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
|
|
10.
|
Fair
Value of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Book
|
|
|
Fair
|
|
|
Book
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Cash and cash equivalents
|
|
$
|
94,215,134
|
|
|
$
|
94,215,134
|
|
|
$
|
4,102,873
|
|
|
$
|
4,102,873
|
|
Interest and other receivables
|
|
|
10,325,614
|
|
|
|
10,397,961
|
|
|
|
11,893,513
|
|
|
|
12,110,029
|
|
Straight-line rent receivable
|
|
|
23,637,435
|
|
|
|
6,725,371
|
|
|
|
12,686,976
|
|
|
|
4,995,269
|
|
Loans
|
|
|
265,758,273
|
|
|
|
293,346,951
|
|
|
|
150,172,830
|
|
|
|
173,597,486
|
|
Debt
|
|
|
480,525,166
|
|
|
|
467,890,112
|
|
|
|
304,961,898
|
|
|
|
319,113,009
|
|
Accounts payable and accrued expenses
|
|
|
21,091,374
|
|
|
|
21,091,374
|
|
|
|
30,045,642
|
|
|
|
30,045,642
|
|
|
|
11.
|
Discontinued
Operations
|
In 2006, the Company terminated leases for a hospital and
medical office building (MOB) complex and
re-possessed the real estate. In January, 2007, the Company sold
the hospital and MOB complex for a sales price of approximately
$71.7 million and recorded a gain of approximately
$4.1 million, which is reported in results from
discontinued operations. During the period from the lease
termination to the date of sale, the hospital was leased to and
operated by a third party operator under contract to the
hospital. The Company has substantially funded through loans the
working capital requirements of the operator pending the
operators collection of patient receivables from Medicare
and other third party payors. The accompanying financial
statements include provisions to reduce such loans to their
estimated net realizable value, including a $1.5 million
provision recorded .
The following table presents the results of discontinued
operations for the years ended December 31, 2007 and 2006.:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
132,411
|
|
|
$
|
7,428,770
|
|
Net income
|
|
|
1,229,690
|
|
|
|
486,957
|
|
Earnings per share basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
55
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
|
|
12.
|
Quarterly
Financial Data (unaudited)
|
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2007 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
18,058,348
|
|
|
$
|
24,591,291
|
|
|
$
|
25,678,608
|
|
|
$
|
27,959,116
|
|
Income from continuing operations
|
|
$
|
6,045,783
|
|
|
$
|
13,496,613
|
|
|
$
|
12,061,780
|
|
|
$
|
8,405,774
|
|
Income (loss) from discontinued operations
|
|
$
|
4,158,169
|
|
|
$
|
(1,985,031
|
)
|
|
$
|
(415,134
|
)
|
|
$
|
(528,314
|
)
|
Net income
|
|
$
|
10,203,952
|
|
|
$
|
11,511,582
|
|
|
$
|
11,646,646
|
|
|
$
|
7,877,460
|
|
Net income per share basic
|
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding basic
|
|
|
42,823,619
|
|
|
|
49,040,141
|
|
|
|
49,071,806
|
|
|
|
49,761,733
|
|
Net income per share diluted
|
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding diluted
|
|
|
43,070,303
|
|
|
|
49,293,328
|
|
|
|
49,371,555
|
|
|
|
50,069,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2006 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
10,757,672
|
|
|
$
|
10,909,814
|
|
|
$
|
12,915,676
|
|
|
$
|
15,888,270
|
|
Income from continuing operations
|
|
$
|
7,059,218
|
|
|
$
|
6,958,362
|
|
|
$
|
7,817,498
|
|
|
$
|
7,837,663
|
|
Income (loss) from discontinued operations
|
|
$
|
918,392
|
|
|
$
|
956,709
|
|
|
$
|
856,049
|
|
|
$
|
(2,244,193
|
)
|
Net income
|
|
$
|
7,977,610
|
|
|
$
|
7,915,071
|
|
|
$
|
8,673,547
|
|
|
$
|
5,593,470
|
|
Net income per share basic
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.14
|
|
Weighted average shares outstanding basic
|
|
|
39,428,071
|
|
|
|
39,519,695
|
|
|
|
39,529,687
|
|
|
|
39,634,127
|
|
Net income per share diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.14
|
|
Weighted average shares outstanding diluted
|
|
|
39,501,723
|
|
|
|
39,757,723
|
|
|
|
39,857,355
|
|
|
|
39,937,776
|
|
56
|
|
ITEM 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As required by
Rule 13a-15(b),
under the Securities Exchange Act of 1934, as amended, we have
carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information
required to be disclosed by the Company in the reports that the
Company files with the SEC.
Changes
in Internal Controls over Financial Reporting
There has been no change in our internal control over financial
reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
The management of Medical Properties Trust, Inc. has prepared
the consolidated financial statements and other information in
our Annual report in accordance with accounting principles
generally accepted in the United States of America and is
responsible for its accuracy. The financial statements
necessarily include amounts that are based on managements
best estimates and judgments. In meeting its responsibility,
management relies on internal accounting and related control
systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in our
financial records and to safeguard our assets from material loss
or misuse. Such assurance cannot be absolute because of inherent
limitations in any internal control system.
Management of Medical Properties Trust, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. The Companys
internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual
financial statements, management has undertaken an assessment of
the effectiveness of the Companys internal control over
financial reporting as of December 31,
57
2007. The assessment was based upon the framework described in
Integrated Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Managements assessment
included an evaluation of the design of internal control over
financial reporting and testing of the operational effectiveness
of internal control over financial reporting. We have reviewed
the results of the assessment with the Audit Committee of our
Board of Directors.
Based on our evaluation under the framework in Internal
Control Integrated Framework, management
concluded that internal control over financial reporting was
effective as of December 31, 2007. KPMG, under Auditing
Standard No. 5, does not express an opinion on
managements assessment as occurred under Auditing Standard
No. 2. Under Auditing Standard No. 5 management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. KPMGs
responsibility is to express an opinion on the effectiveness of
the Companys internal control over financial reporting
based on their audit.
58
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited Medical Properties Trust, Inc. and
subsidiaries internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Medical Properties Trust, Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Medical Properties Trust, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Medical Properties Trust, Inc. as
of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the years in the three-year period ended
December 31, 2007 and the related financial statement
schedules, and our report dated March 13, 2008, expressed
an unqualified opinion on those consolidated financial
statements and financial statement schedules.
Birmingham, Alabama
March 13, 2008
59
|
|
ITEM 9B.
|
Other
Information
|
None.
PART
III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this Item 12 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this Item 13 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services.
|
The information required by this Item 14 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Financial Statements and Financial Statement
Schedules
|
|
|
|
|
Index of Financial Statements of Medical Properties Trust,
Inc. which are included in Part II, Item 8 of this
Annual Report on
Form 10-K:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
37
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
38
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006, 2005 and 2004
|
|
|
39
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2007, 2006, 2005 and 2004
|
|
|
40
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2006, 2005 and 2004
|
|
|
41
|
|
Notes to Consolidated Financial Statements
|
|
|
42
|
|
Index of Consolidated Financial Statement Schedules
|
|
|
|
|
Schedule III Real Estate and Accumulated
Depreciation
|
|
|
66
|
|
Schedule IV Mortgage Loan on Real Estate
|
|
|
68
|
|
60
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
|
3
|
.2(2)
|
|
Registrants Amended and Restated Bylaws
|
|
3
|
.3(3)
|
|
Articles of Amendment of Registrants Second Articles of
Amendment and Restatement
|
|
4
|
.1(1)
|
|
Form of Common Stock Certificate
|
|
4
|
.2(4)
|
|
Indenture, dated July 14, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
|
4
|
.3(5)
|
|
Indenture, dated November 6, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
|
4
|
.4(5)
|
|
Registration Rights Agreement among Registrant, MPT Operating
Partnership, L.P. and UBS Securities LLC and J.P. Morgan
Securities Inc., as representatives of the initial purchasers,
dated as of November 6, 2006
|
|
10
|
.1(11)
|
|
Second Amended and Restated Agreement of Limited Partnership of
MPT Operating Partnership, L.P.
|
|
10
|
.2(6)
|
|
Amended and Restated 2004 Equity Incentive Plan
|
|
10
|
.3(7)
|
|
Form of Stock Option Award
|
|
10
|
.4(7)
|
|
Form of Restricted Stock Award
|
|
10
|
.5(7)
|
|
Form of Deferred Stock Unit Award
|
|
10
|
.6(1)
|
|
Employment Agreement between Registrant and Edward K. Aldag,
Jr., dated September 10, 2003
|
|
10
|
.7(1)
|
|
First Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated March 8, 2004
|
|
10
|
.8(1)
|
|
Employment Agreement between Registrant and R. Steven Hamner,
dated September 10, 2003
|
|
10
|
.9(1)
|
|
Amended and Restated Employment Agreement between Registrant and
William G. McKenzie, dated September 10, 2003
|
|
10
|
.10(1)
|
|
Employment Agreement between Registrant and Emmett E. McLean,
dated September 10, 2003
|
|
10
|
.11(1)
|
|
Employment Agreement between Registrant and Michael G. Stewart,
dated April 28, 2005
|
|
10
|
.12(1)
|
|
Form of Indemnification Agreement between Registrant and
executive officers and directors
|
|
10
|
.13(8)
|
|
Credit Agreement dated October 27, 2005, among MPT
Operating Partnership, L.P., as borrower, and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial
Services, Inc., as Administrative Agent and Lender, and
Additional Lenders from Time to Time a Party thereto
|
|
10
|
.14(1)
|
|
Third Amended and Restated Lease Agreement between 1300 Campbell
Lane, LLC and 1300 Campbell Lane Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.15(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between 1300 Campbell Lane, LLC and 1300 Campbell Lane Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.16(1)
|
|
Second Amended and Restated Lease Agreement between 92 Brick
Road, LLC and 92 Brick Road, Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.17(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 92 Brick Road, LLC and 92 Brick Road, Operating Company,
LLC, dated December 31, 2004
|
|
10
|
.18(1)
|
|
Ground Lease Agreement between West Jersey Health System and
West Jersey/Mediplex Rehabilitation Limited Partnership, dated
July 15, 1993
|
|
10
|
.19(1)
|
|
Third Amended and Restated Lease Agreement between
San Joaquin Health Care Associates Limited Partnership and
7173 North Sharon Avenue Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.20(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between San Joaquin Health Care Associates Limited
Partnership and 7173 North Sharon Avenue Operating Company, LLC,
dated December 31, 2004
|
|
10
|
.21(1)
|
|
Second Amended and Restated Lease Agreement between 8451 Pearl
Street, LLC and 8451 Pearl Street Operating Company, LLC, dated
December 20, 2004
|
61
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.22(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 8451 Pearl Street, LLC and 8451 Pearl Street Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.23(1)
|
|
Second Amended and Restated Lease Agreement between 4499
Acushnet Avenue, LLC and 4499 Acushnet Avenue Operating Company,
LLC, dated December 20, 2004
|
|
10
|
.24(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 4499 Acushnet Avenue, LLC and 4499 Acushnet Avenue
Operating Company, LLC, dated December 31, 2004
|
|
10
|
.25(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bucks County Hospital, L.P., Bucks County
Oncoplastic Institute, LLC, Jerome S. Tannenbaum, M.D., M.
Stephen Harrison and DSI Facility Development, LLC, dated
March 3, 2005
|
|
10
|
.26(1)
|
|
Amendment to Purchase and Sale Agreement among MPT Operating
Partnership, L.P., MPT of Bucks County Hospital, L.P., Bucks
County Oncoplastic Institute, LLC, DSI Facility Development,
LLC, Jerome S. Tannenbaum, M.D., M. Stephen Harrison and G.
Patrick Maxwell, M.D., dated April 29, 2005
|
|
10
|
.27(1)
|
|
Lease Agreement between Bucks County Oncoplastic Institute, LLC
and MPT of Bucks County, L.P., dated September 16, 2005
|
|
10
|
.28(1)
|
|
Development Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.29(1)
|
|
Funding Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.30(1)
|
|
Purchase and Sale Agreement between MPT of North Cypress, L.P.
and North Cypress Medical Center Operating Company, Ltd., dated
as of June 1, 2005
|
|
10
|
.31(1)
|
|
Contract for Purchase and Sale of Real Property between North
Cypress Property Holdings, Ltd. and MPT of North Cypress, L.P.,
dated as of June 1, 2005
|
|
10
|
.32(1)
|
|
Sublease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
|
10
|
.33(1)
|
|
Net Ground Lease between North Cypress Property Holdings, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.34(1)
|
|
Lease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
|
10
|
.35(1)
|
|
Net Ground Lease between Northern Healthcare Land Ventures, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.36(1)
|
|
Construction Loan Agreement between North Cypress Medical Center
Operating Company, Ltd. and MPT Finance Company, LLC, dated
June 1, 2005
|
|
10
|
.37(1)
|
|
Purchase, Sale and Loan Agreement among MPT Operating
Partnership, L.P., MPT of Covington, LLC, MPT of Denham Springs,
LLC, Covington Healthcare Properties, L.L.C., Denham Springs
Healthcare Properties, L.L.C., Gulf States Long Term Acute Care
of Covington, L.L.C. and Gulf States Long Term Acute Care of
Denham Springs, L.L.C., dated June 9, 2005
|
|
10
|
.38(1)
|
|
Lease Agreement between MPT of Covington, LLC and Gulf States
Long Term Acute Care of Covington, L.L.C., dated June 9,
2005
|
|
10
|
.39(1)
|
|
Promissory Note made by Denham Springs Healthcare Properties,
L.L.C. in favor of MPT of Denham Springs, LLC, dated
June 9, 2005
|
|
10
|
.40(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Redding, LLC, Vibra Healthcare, LLC and Northern
California Rehabilitation Hospital, LLC, dated June 30, 2005
|
|
10
|
.41(1)
|
|
Lease Agreement between Northern California Rehabilitation
Hospital, LLC and MPT of Redding, LLC, dated June 30, 2005
|
|
10
|
.42(1)
|
|
Amendment No. 1 to Ground Lease Agreement between National
Medical Specialty Hospital of Redding, Inc. and Ocadian Care
Centers, Inc., dated November 29, 2001
|
|
10
|
.43(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bloomington, LLC, Southern Indiana Medical Park II,
LLC and Monroe Hospital, LLC, dated October 7, 2005
|
62
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.44(1)
|
|
Lease Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.45(1)
|
|
Development Agreement among Monroe Hospital, LLC, Monroe
Hospital Development, LLC and MPT of Bloomington, LLC, dated
October 7, 2005
|
|
10
|
.46(1)
|
|
Funding Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.47(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Chino, LLC, Prime Healthcare Services, LLC, Veritas
Health Services, Inc., Prime Healthcare Services, Inc., Desert
Valley Hospital, Inc. and Desert Valley Medical Group, Inc.,
dated November 30, 2005
|
|
10
|
.48(1)
|
|
Lease Agreement among Veritas Health Services, Inc., Prime
Healthcare Services, LLC and MPT of Chino, LLC, dated
November 30, 2005
|
|
10
|
.49(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Sherman Oaks, LLC, Prime A Investments, L.L.C.,
Prime Healthcare Services II, LLC, Prime Healthcare Services,
Inc., Desert Valley Medical Group, Inc. and Desert Valley
Hospital, Inc., dated December 30, 2005
|
|
10
|
.50(1)
|
|
Lease Agreement between MPT of Sherman Oaks, LLC and Prime
Healthcare Services II, LLC, dated December 30, 2005
|
|
10
|
.51(9)
|
|
Forward Sale Agreement between Registrant and UBS AG, London
Branch, dated February 22, 2007
|
|
10
|
.52(9)
|
|
Forward Sale Agreement between Registrant and Wachovia Bank,
National Association, dated February 22, 2007
|
|
10
|
.53(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
|
10
|
.54(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
|
10
|
.55(12)
|
|
Term Loan Credit Agreement among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JP Morgan Chase Bank,
N.A. as Administrative Agent, with J.P. Morgan Securities
Inc. and KeyBank National Association, as Joint Lead Arrangers
and Bookrunners
|
|
10
|
.56(10)
|
|
First Amendment to Term Loan Agreement
|
|
10
|
.57(13)
|
|
Revolving Credit and Term Loan Agreement, dated
November 30, 2007, among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JPMorgan Chase Bank, N.A.
as Administrative Agent, with J.P. Morgan Securities Inc.
and KeyBank National Association, as Joint Lead Arrangers and
Bookrunners
|
|
10
|
.58(13)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
|
10
|
.59(13)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
|
10
|
.60(13)
|
|
First Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated September 29, 2006
|
|
10
|
.61(13)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
|
10
|
.62(13)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
|
10
|
.63(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
|
21
|
.1(13)
|
|
Subsidiaries of Registrant
|
|
23
|
.1(13)
|
|
Consent of KPMG LLP
|
|
23
|
.2(13)
|
|
Consent of Moss Adams LLP
|
63
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
31
|
.1(13)
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
31
|
.2(13)
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
32
|
(13)
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350
|
|
99
|
.1(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2006 and 2005
|
|
99
|
.2(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2007
|
|
|
|
(1) |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-11
filed with the Commission on October 26, 2004, as amended
(File
No. 333-119957). |
|
(2) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Commission on July 26, 2005. |
|
(3) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2005, filed with the
Commission on November 10, 2005. |
|
(4) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on July 20, 2006. |
|
(5) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on November 13, 2006. |
|
(6) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
September 13, 2005. |
|
(7) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on October 18, 2005. |
|
(8) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
April 14, 2007. |
|
(9) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on February 28, 2007. |
|
(10) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2007, filed with the
Commission on November 9, 2007. |
|
(11) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 6, 2007. |
|
(12) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 15, 2007. |
|
(13) |
|
Included in this
Form 10-K. |
|
(14) |
|
Since affiliates of Prime Healthcare Services, Inc. lease more
than 20% of our total assets under triple net leases, the
financial status of Prime may be considered relevant to
investors. Primes most recently available audited
consolidated financial statements (as of and for the years ended
December 31, 2006 and 2005) and Primes most recently
available financial statements (unaudited, as of and for the
period ended September 30, 2007) are attached as
Exhibit 99.1 and Exhibit 99.2, respectively, to this
Annual Report on
Form 10-K.
We have not participated in the preparation of Primes
financial statements nor do we have the right to dictate the
form of any financial statements provided to us by Prime. |
64
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.
MEDICAL PROPERTIES TRUST, INC.
R. Steven Hamner
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 13, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Edward
K. Aldag, Jr.
Edward
K. Aldag, Jr.
|
|
Chairman of the Board, President, Chief Executive Officer and
Director (Principal Executive Officer)
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Virginia
A. Clarke
Virginia
A. Clarke
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Sherry
A. Kellett
Sherry
A. Kellett
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ R.
Steven Hamner
R.
Steven Hamner
|
|
Executive Vice President, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
|
|
March 13, 2008
|
|
|
|
|
|
/s/ G.
Steven Dawson
G.
Steven Dawson
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Director
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March 13, 2008
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/s/ Robert
E. Holmes
Robert
E. Holmes, Ph.D.
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Director
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March 13, 2008
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/s/ William
G. McKenzie
William
G. McKenzie
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Vice Chairman of the Board
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March 13, 2008
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L.
Glenn Orr, Jr.
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Director
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65
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2007
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Additions Subsequent to
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Acquisition
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Date Acquired
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Initial Costs
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Carrying
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Cost at December 31, 2007
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Accumulated
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Date of
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or
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Depreciable
|
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Location
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Type of Property
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Land
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Buildings
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Improvements
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Costs
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Land
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Buildings(1)
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Total
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Depreciation
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Construction
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Placed in Service
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Life (Years)
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Bowling Green, KY
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Rehabilitation hospital
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$
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3,070,000
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|
$
|
33,570,541
|
|
|
$
|
6,500
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|
$
|
|
|
|
$
|
3,070,000
|
|
|
$
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33,577,041
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|
|
$
|
36,647,041
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|
|
$
|
2,937,553
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|
|
1991
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July 1, 2004
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40
|
|
|
|
|
|
|
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|
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|
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Thornton, CO
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Rehabilitation hospital
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2,130,000
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|
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6,013,142
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|
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1,010,973
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2,130,000
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|
|
7,024,115
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|
|
9,154,115
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|
|
517,211
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|
|
1962
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|
|
August 17, 2004
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|
40
|
|
|
|
|
|
|
|
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Fresno, CA
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Rehabilitation hospital
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1,550,000
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16,363,153
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129,953
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|
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1,550,000
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|
|
16,493,106
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|
|
18,043,106
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|
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1,434,093
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|
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1990
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July 1, 2004
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40
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|
|
|
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Marlton, NJ
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Rehabilitation hospital
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30,903,050
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54,997
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|
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|
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30,958,047
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|
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30,958,047
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|
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2,704,760
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|
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1994
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July 1, 2004
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40
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|
|
|
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New Bedford, NJ
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Long term acute care hospital
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1,400,000
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|
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19,772,169
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|
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254,645
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|
|
|
|
|
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1,400,000
|
|
|
|
20,026,814
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|
|
|
21,426,814
|
|
|
|
1,653,624
|
|
|
|
1992
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|
|
August 17, 2004
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|
40
|
|
|
|
|
|
|
|
|
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|
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Covington, LA
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Long term acute care hospital
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821,429
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10,238,246
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|
|
13,843
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|
|
|
821,429
|
|
|
|
10,252,089
|
|
|
|
11,073,518
|
|
|
|
662,027
|
|
|
|
1985
|
|
|
June 8, 2005
|
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|
40
|
|
|
|
|
|
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|
|
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Denham Springs, LA
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Long term acute care hospital
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428,571
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5,340,130
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|
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|
|
48,842
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|
|
428,571
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|
|
|
5,388,972
|
|
|
|
5,817,543
|
|
|
|
280,994
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|
|
|
1965
|
|
|
June 8, 2005
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|
40
|
|
|
|
|
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Redding, CA
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Rehabilitation hospital
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19,952,023
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|
3,435,931
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|
|
1,629,144
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|
|
|
21,758,810
|
|
|
|
23,387,954
|
|
|
|
1,251,589
|
|
|
|
1993
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|
|
June 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
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Sherman Oaks, CA
|
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Acute care general hospital
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|
|
5,290,000
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|
|
13,586,688
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|
|
|
|
|
|
|
30,721
|
|
|
|
5,290,000
|
|
|
|
13,617,409
|
|
|
|
18,907,409
|
|
|
|
682,238
|
|
|
|
1956
|
|
|
December 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
|
Bloomington, IN
|
|
Acute care general hospital
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|
|
2,456,579
|
|
|
|
31,209,055
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|
|
|
|
|
|
|
408,651
|
|
|
|
2,576,163
|
|
|
|
31,498,122
|
|
|
|
34,074,285
|
|
|
|
1,068,831
|
|
|
|
2006
|
|
|
August 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Montclair, CA
|
|
Acute care general hospital
|
|
|
1,500,000
|
|
|
|
17,419,269
|
|
|
|
|
|
|
|
41,871
|
|
|
|
1,500,000
|
|
|
|
17,461,140
|
|
|
|
18,961,140
|
|
|
|
617,731
|
|
|
|
1971
|
|
|
August 9, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
|
Long term acute care hospital
|
|
|
1,000,000
|
|
|
|
13,588,870
|
|
|
|
|
|
|
|
(52,834
|
)
|
|
|
1,000,000
|
|
|
|
13,536,036
|
|
|
|
14,536,036
|
|
|
|
450,670
|
|
|
|
2006
|
|
|
September 5, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington Beach, CA
|
|
Acute care general hospital
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
|
|
|
|
|
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
11,844,371
|
|
|
|
318,117
|
|
|
|
1965
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Palma, CA
|
|
Acute care general hospital
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
|
|
|
|
|
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
11,844,371
|
|
|
|
318,117
|
|
|
|
1971
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anaheim, CA
|
|
Acute care general hospital
|
|
|
1,875,000
|
|
|
|
21,813,742
|
|
|
|
|
|
|
|
8,273
|
|
|
|
1,875,000
|
|
|
|
21,822,015
|
|
|
|
23,697,015
|
|
|
|
636,391
|
|
|
|
1964
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luling, TX
|
|
Acute care general hospital
|
|
|
811,026
|
|
|
|
9,344,667
|
|
|
|
|
|
|
|
|
|
|
|
811,026
|
|
|
|
9,344,667
|
|
|
|
10,155,693
|
|
|
|
253,085
|
|
|
|
2003
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Antonio, TX
|
|
Rehabilitation hospital
|
|
|
|
|
|
|
10,197,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,197,664
|
|
|
|
10,197,664
|
|
|
|
276,187
|
|
|
|
1987
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria, TX
|
|
Acute care general hospital
|
|
|
624,596
|
|
|
|
7,196,605
|
|
|
|
|
|
|
|
|
|
|
|
624,596
|
|
|
|
7,196,605
|
|
|
|
7,821,201
|
|
|
|
194,908
|
|
|
|
1998
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
Acute care general hospital
|
|
|
4,757,393
|
|
|
|
56,237,712
|
|
|
|
|
|
|
|
1,259,246
|
|
|
|
5,464,103
|
|
|
|
56,790,248
|
|
|
|
62,254,351
|
|
|
|
1,478,028
|
|
|
|
2006
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bensalem, PA
|
|
Acute care general hospital
|
|
|
6,910,904
|
|
|
|
38,184,863
|
|
|
|
|
|
|
|
|
|
|
|
6,910,904
|
|
|
|
38,184,863
|
|
|
|
45,095,767
|
|
|
|
738,609
|
|
|
|
2006
|
|
|
March 19, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portland, OR
|
|
Long term acute care hospital
|
|
|
3,085,134
|
|
|
|
17,858,810
|
|
|
|
|
|
|
|
|
|
|
|
3,085,134
|
|
|
|
17,858,810
|
|
|
|
20,943,944
|
|
|
|
312,966
|
|
|
|
1963
|
|
|
April 18, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Diego, CA
|
|
Acute care general hospital
|
|
|
6,550,000
|
|
|
|
15,652,984
|
|
|
|
|
|
|
|
|
|
|
|
6,550,000
|
|
|
|
15,652,984
|
|
|
|
22,202,984
|
|
|
|
259,878
|
|
|
|
1901
|
|
|
May 9, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redding, CA
|
|
Acute care general hospital
|
|
|
1,555,092
|
|
|
|
53,862,966
|
|
|
|
|
|
|
|
|
|
|
|
1,555,092
|
|
|
|
53,862,966
|
|
|
|
55,418,058
|
|
|
|
573,257
|
|
|
|
1957
|
|
|
August 10, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
Acute care general hospital
|
|
|
3,501,549
|
|
|
|
34,529,923
|
|
|
|
|
|
|
|
|
|
|
|
3,501,549
|
|
|
|
34,529,923
|
|
|
|
38,031,472
|
|
|
|
360,046
|
|
|
|
1974
|
|
|
August 10, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inglewood, CA
|
|
Acute care general hospital
|
|
|
15,600,000
|
|
|
|
35,994,089
|
|
|
|
|
|
|
|
|
|
|
|
15,600,000
|
|
|
|
35,994,089
|
|
|
|
51,594,089
|
|
|
|
233,309
|
|
|
|
1950
|
|
|
November 1, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,792,273
|
|
|
$
|
540,644,103
|
|
|
$
|
1,457,068
|
|
|
$
|
5,194,544
|
|
|
$
|
69,247,711
|
|
|
$
|
544,840,277
|
|
|
$
|
614,087,988
|
|
|
$
|
20,214,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
COST
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
486,435,507
|
|
|
$
|
281,523,115
|
|
|
$
|
122,057,232
|
|
Acquisitions
|
|
|
167,246,603
|
|
|
|
109,060,181
|
|
|
|
102,898,770
|
|
Transfers from construction in progress
|
|
|
66,039,711
|
|
|
|
94,660,739
|
|
|
|
56,409,377
|
|
Additions
|
|
|
9,577,459
|
|
|
|
8,476,648
|
|
|
|
157,736
|
|
Dispositions
|
|
|
(115,211,292
|
)
|
|
|
(7,285,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
614,087,988
|
|
|
$
|
486,435,507
|
|
|
$
|
281,523,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
12,289,532
|
|
|
$
|
5,260,219
|
|
|
$
|
1,311,757
|
|
Depreciation
|
|
|
11,301,383
|
|
|
|
7,287,428
|
|
|
|
3,948,462
|
|
Depreciation on disposed properties
|
|
|
(3,376,696
|
)
|
|
|
(258,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
20,214,219
|
|
|
$
|
12,289,532
|
|
|
$
|
5,260,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The gross cost for federal income tax purposes is $657,469,139. |
67
SCHEDULE IV
MORTGAGE LOAN ON REAL ESTATE
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
Column D
|
|
Column E
|
|
|
Column F
|
|
|
Column G
|
|
|
Column H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to
|
|
|
|
|
|
|
Final
|
|
Periodic
|
|
|
|
|
Face
|
|
|
Carrying
|
|
|
Delinquent
|
|
|
|
Interest
|
|
|
Maturity
|
|
Payment
|
|
Prior
|
|
|
Amount of
|
|
|
Amount of
|
|
|
Principal or
|
|
Description
|
|
Rate
|
|
|
Date
|
|
Terms
|
|
Liens
|
|
|
Mortgages
|
|
|
Mortgages
|
|
|
Interest
|
|
|
Long-term first mortgage loan:
|
|
|
|
|
|
|
|
Payable in
monthly
installments
of interest
plus
principal
payable in
full at
maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Freeman Marina Hospital
|
|
|
10.0
|
%
|
|
2021
|
|
|
|
|
(2
|
)
|
|
|
40,000,000
|
|
|
|
40,000,000
|
|
|
|
(3
|
)
|
Desert Valley Hospital
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
70,000,000
|
|
|
|
70,000,000
|
|
|
|
(3
|
)
|
Chino Valley Medical Center
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
|
|
(3
|
)
|
Paradise Valley Hospital
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,000,000
|
|
|
$
|
185,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in eligible properties which serve as collateral for
our revolving credit facility. |
|
(2) |
|
There were no prior liens on loans as of December 31, 2007. |
|
(3) |
|
The mortgage loan was not delinquent with respect to principal
or interest. |
|
(4) |
|
Reconciliation of Mortgage Loans on Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
105,000,000
|
|
|
$
|
40,000,000
|
|
|
$
|
|
|
Additions during year:
|
|
|
|
|
|
|
|
|
|
|
|
|
New mortgage loans and additional advances on existing loans
|
|
|
145,000,000
|
|
|
|
65,000,000
|
|
|
|
46,000,000
|
|
Interest income added to principal
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000,000
|
|
|
|
105,000,000
|
|
|
|
46,000,000
|
|
Deductions during year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled through acquisition of real estate
|
|
|
25,000,000
|
|
|
|
|
|
|
|
6,000,000
|
|
Collection of principal
|
|
|
40,000,000
|
|
|
|
|
|
|
|
|
|
Foreclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
185,000,000
|
|
|
$
|
105,000,000
|
|
|
$
|
40,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
INDEX TO
EXHIBITS
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
3.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
3.2(2)
|
|
Registrants Amended and Restated Bylaws
|
3.3(3)
|
|
Articles of Amendment of Registrants Second Articles of
Amendment and Restatement
|
4.1(1)
|
|
Form of Common Stock Certificate
|
4.2(4)
|
|
Indenture, dated July 14, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
4.3(5)
|
|
Indenture, dated November 6, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
4.4(5)
|
|
Registration Rights Agreement among Registrant, MPT Operating
Partnership, L.P. and UBS Securities LLC and J.P. Morgan
Securities Inc., as representatives of the initial purchasers,
dated as of November 6, 2006
|
10.1(11)
|
|
Second Amended and Restated Agreement of Limited Partnership of
MPT Operating Partnership, L.P.
|
10.2(6)
|
|
Amended and Restated 2004 Equity Incentive Plan
|
10.3(7)
|
|
Form of Stock Option Award
|
10.4(7)
|
|
Form of Restricted Stock Award
|
10.5(7)
|
|
Form of Deferred Stock Unit Award
|
10.6(1)
|
|
Employment Agreement between Registrant and Edward K. Aldag,
Jr., dated September 10, 2003
|
10.7(1)
|
|
First Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated March 8, 2004
|
10.8(1)
|
|
Employment Agreement between Registrant and R. Steven Hamner,
dated September 10, 2003
|
10.9(1)
|
|
Amended and Restated Employment Agreement between Registrant and
William G. McKenzie, dated September 10, 2003
|
10.10(1)
|
|
Employment Agreement between Registrant and Emmett E. McLean,
dated September 10, 2003
|
10.11(1)
|
|
Employment Agreement between Registrant and Michael G. Stewart,
dated April 28, 2005
|
10.12(1)
|
|
Form of Indemnification Agreement between Registrant and
executive officers and directors
|
10.13(8)
|
|
Credit Agreement dated October 27, 2005, among MPT
Operating Partnership, L.P., as borrower, and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial
Services, Inc., as Administrative Agent and Lender, and
Additional Lenders from Time to Time a Party thereto
|
10.14(1)
|
|
Third Amended and Restated Lease Agreement between 1300 Campbell
Lane, LLC and 1300 Campbell Lane Operating Company, LLC, dated
December 20, 2004
|
10.15(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between 1300 Campbell Lane, LLC and 1300 Campbell Lane Operating
Company, LLC, dated December 31, 2004
|
10.16(1)
|
|
Second Amended and Restated Lease Agreement between 92 Brick
Road, LLC and 92 Brick Road, Operating Company, LLC, dated
December 20, 2004
|
10.17(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 92 Brick Road, LLC and 92 Brick Road, Operating Company,
LLC, dated December 31, 2004
|
10.18(1)
|
|
Ground Lease Agreement between West Jersey Health System and
West Jersey/Mediplex Rehabilitation Limited Partnership, dated
July 15, 1993
|
10.19(1)
|
|
Third Amended and Restated Lease Agreement between
San Joaquin Health Care Associates Limited Partnership and
7173 North Sharon Avenue Operating Company, LLC, dated
December 20, 2004
|
10.20(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between San Joaquin Health Care Associates Limited
Partnership and 7173 North Sharon Avenue Operating Company, LLC,
dated December 31, 2004
|
10.21(1)
|
|
Second Amended and Restated Lease Agreement between 8451 Pearl
Street, LLC and 8451 Pearl Street Operating Company, LLC, dated
December 20, 2004
|
10.22(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 8451 Pearl Street, LLC and 8451 Pearl Street Operating
Company, LLC, dated December 31, 2004
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
10.23(1)
|
|
Second Amended and Restated Lease Agreement between 4499
Acushnet Avenue, LLC and 4499 Acushnet Avenue Operating Company,
LLC, dated December 20, 2004
|
10.24(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 4499 Acushnet Avenue, LLC and 4499 Acushnet Avenue
Operating Company, LLC, dated December 31, 2004
|
10.25(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bucks County Hospital, L.P., Bucks County
Oncoplastic Institute, LLC, Jerome S. Tannenbaum, M.D., M.
Stephen Harrison and DSI Facility Development, LLC, dated
March 3, 2005
|
10.26(1)
|
|
Amendment to Purchase and Sale Agreement among MPT Operating
Partnership, L.P., MPT of Bucks County Hospital, L.P., Bucks
County Oncoplastic Institute, LLC, DSI Facility Development,
LLC, Jerome S. Tannenbaum, M.D., M. Stephen Harrison and G.
Patrick Maxwell, M.D., dated April 29, 2005
|
10.27(1)
|
|
Lease Agreement between Bucks County Oncoplastic Institute, LLC
and MPT of Bucks County, L.P., dated September 16, 2005
|
10.28(1)
|
|
Development Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
10.29(1)
|
|
Funding Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
10.30(1)
|
|
Purchase and Sale Agreement between MPT of North Cypress, L.P.
and North Cypress Medical Center Operating Company, Ltd., dated
as of June 1, 2005
|
10.31(1)
|
|
Contract for Purchase and Sale of Real Property between North
Cypress Property Holdings, Ltd. and MPT of North Cypress, L.P.,
dated as of June 1, 2005
|
10.32(1)
|
|
Sublease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
10.33(1)
|
|
Net Ground Lease between North Cypress Property Holdings, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
10.34(1)
|
|
Lease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
10.35(1)
|
|
Net Ground Lease between Northern Healthcare Land Ventures, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
10.36(1)
|
|
Construction Loan Agreement between North Cypress Medical Center
Operating Company, Ltd. and MPT Finance Company, LLC, dated
June 1, 2005
|
10.37(1)
|
|
Purchase, Sale and Loan Agreement among MPT Operating
Partnership, L.P., MPT of Covington, LLC, MPT of Denham Springs,
LLC, Covington Healthcare Properties, L.L.C., Denham Springs
Healthcare Properties, L.L.C., Gulf States Long Term Acute Care
of Covington, L.L.C. and Gulf States Long Term Acute Care of
Denham Springs, L.L.C., dated June 9, 2005
|
10.38(1)
|
|
Lease Agreement between MPT of Covington, LLC and Gulf States
Long Term Acute Care of Covington, L.L.C., dated June 9,
2005
|
10.39(1)
|
|
Promissory Note made by Denham Springs Healthcare Properties,
L.L.C. in favor of MPT of Denham Springs, LLC, dated
June 9, 2005
|
10.40(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Redding, LLC, Vibra Healthcare, LLC and Northern
California Rehabilitation Hospital, LLC, dated June 30, 2005
|
10.41(1)
|
|
Lease Agreement between Northern California Rehabilitation
Hospital, LLC and MPT of Redding, LLC, dated June 30, 2005
|
10.42(1)
|
|
Amendment No. 1 to Ground Lease Agreement between National
Medical Specialty Hospital of Redding, Inc. and Ocadian Care
Centers, Inc., dated November 29, 2001
|
10.43(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bloomington, LLC, Southern Indiana Medical Park II,
LLC and Monroe Hospital, LLC, dated October 7, 2005
|
10.44(1)
|
|
Lease Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
10.45(1)
|
|
Development Agreement among Monroe Hospital, LLC, Monroe
Hospital Development, LLC and MPT of Bloomington, LLC, dated
October 7, 2005
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
10.46(1)
|
|
Funding Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
10.47(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Chino, LLC, Prime Healthcare Services, LLC, Veritas
Health Services, Inc., Prime Healthcare Services, Inc., Desert
Valley Hospital, Inc. and Desert Valley Medical Group, Inc.,
dated November 30, 2005
|
10.48(1)
|
|
Lease Agreement among Veritas Health Services, Inc., Prime
Healthcare Services, LLC and MPT of Chino, LLC, dated
November 30, 2005
|
10.49(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Sherman Oaks, LLC, Prime A Investments, L.L.C.,
Prime Healthcare Services II, LLC, Prime Healthcare Services,
Inc., Desert Valley Medical Group, Inc. and Desert Valley
Hospital, Inc., dated December 30, 2005
|
10.50(1)
|
|
Lease Agreement between MPT of Sherman Oaks, LLC and Prime
Healthcare Services II, LLC, dated December 30, 2005
|
10.51(9)
|
|
Forward Sale Agreement between Registrant and UBS AG, London
Branch, dated February 22, 2007
|
10.52(9)
|
|
Forward Sale Agreement between Registrant and Wachovia Bank,
National Association, dated February 22, 2007
|
10.53(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
10.54(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
10.55(12)
|
|
Term Loan Credit Agreement among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JP Morgan Chase Bank,
N.A. as Administrative Agent, with J.P. Morgan Securities
Inc. and KeyBank National Association, as Joint Lead Arrangers
and Bookrunners
|
10.56(10)
|
|
First Amendment to Term Loan Agreement
|
10.57(13)
|
|
Revolving Credit and Term Loan Agreement, dated
November 30, 2007, among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JPMorgan Chase Bank, N.A.
as Administrative Agent, with J.P. Morgan Securities Inc.
and KeyBank National Association, as Joint Lead Arrangers and
Bookrunners
|
10.58(13)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
10.59(13)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
10.60(13)
|
|
First Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated September 29, 2006
|
10.61(13)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
10.62(13)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
10.63(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
21.1(13)
|
|
Subsidiaries of Registrant
|
23.1(13)
|
|
Consent of KPMG LLP
|
23.2(13)
|
|
Consent of Moss Adams LLP
|
31.1(13)
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
31.2(13)
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
32(13)
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
99.1(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2006 and 2005
|
99.2(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2007
|
|
|
|
(1) |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-11
filed with the Commission on October 26, 2004, as amended
(File
No. 333-119957). |
|
(2) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Commission on July 26, 2005. |
|
(3) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2005, filed with the
Commission on November 10, 2005. |
|
(4) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on July 20, 2006. |
|
(5) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on November 13, 2006. |
|
(6) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
September 13, 2005. |
|
(7) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on October 18, 2005. |
|
(8) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
April 14, 2007. |
|
(9) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on February 28, 2007. |
|
(10) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2007, filed with the
Commission on November 9, 2007. |
|
(11) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 6, 2007. |
|
(12) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 15, 2007. |
|
(13) |
|
Included in this
Form 10-K. |
|
(14) |
|
Since affiliates of Prime Healthcare Services, Inc. lease more
than 20% of our total assets under triple net leases, the
financial status of Prime may be considered relevant to
investors. Primes most recently available audited
consolidated financial statements (as of and for the years ended
December 31, 2006 and 2005) and Primes most recently
available financial statements (unaudited, as of and for the
period ended September 30, 2007) are attached as
Exhibit 99.1 and Exhibit 99.2, respectively, to this
Annual Report on
Form 10-K.
We have not participated in the preparation of Primes
financial statements nor do we have the right to dictate the
form of any financial statements provided to us by Prime. |
EX-10.57 REVOLVING CREDIT AGREEMENT
Exhibit 10.57
Execution Version
REVOLVING CREDIT AND
TERM LOAN AGREEMENT
among
MEDICAL PROPERTIES TRUST, INC.
MPT OPERATING PARTNERSHIP, L.P.,
as Borrower,
The Several Lenders from Time to Time Parties Hereto,
KEYBANK NATIONAL ASSOCIATION,
as Syndication Agent,
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
Dated as of November 30, 2007
J.P. MORGAN SECURITIES INC. AND KEYBANK NATIONAL ASSOCIATION,
as Joint Lead Arrangers and Bookrunners
TABLE OF CONTENTS
|
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Page |
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|
SECTION 1. |
|
DEFINITIONS |
|
|
1 |
|
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|
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|
|
|
|
1.1 |
|
Defined Terms |
|
|
1 |
|
|
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|
|
|
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|
1.2 |
|
Other Definitional Provisions |
|
|
22 |
|
|
|
|
|
|
|
|
SECTION 2. |
|
AMOUNT AND TERMS OF COMMITMENTS |
|
|
23 |
|
|
|
|
|
|
|
|
2.1 |
|
Term Commitments |
|
|
23 |
|
|
|
|
|
|
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|
2.2 |
|
Procedure for Term Loan Borrowing |
|
|
23 |
|
|
|
|
|
|
|
|
2.3 |
|
Repayment of Term Loans |
|
|
23 |
|
|
|
|
|
|
|
|
2.4 |
|
Revolving Commitments |
|
|
24 |
|
|
|
|
|
|
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|
2.5 |
|
Procedure for Revolving Loan Borrowing |
|
|
25 |
|
|
|
|
|
|
|
|
2.6 |
|
Swingline Commitment |
|
|
25 |
|
|
|
|
|
|
|
|
2.7 |
|
Procedure for Swingline Borrowing; Refunding of Swingline Loans |
|
|
26 |
|
|
|
|
|
|
|
|
2.8 |
|
Commitment Fees, etc |
|
|
27 |
|
|
|
|
|
|
|
|
2.9 |
|
Termination or Reduction of Revolving Commitments |
|
|
27 |
|
|
|
|
|
|
|
|
2.10 |
|
Optional Prepayments |
|
|
28 |
|
|
|
|
|
|
|
|
2.11 |
|
Mandatory Prepayments and Commitment Reductions |
|
|
28 |
|
|
|
|
|
|
|
|
2.12 |
|
Conversion and Continuation Options |
|
|
29 |
|
|
|
|
|
|
|
|
2.13 |
|
Limitations on Eurodollar Tranches |
|
|
30 |
|
|
|
|
|
|
|
|
2.14 |
|
Interest Rates and Payment Dates |
|
|
30 |
|
|
|
|
|
|
|
|
2.15 |
|
Computation of Interest and Fees |
|
|
31 |
|
|
|
|
|
|
|
|
2.16 |
|
Inability to Determine Interest Rate |
|
|
31 |
|
|
|
|
|
|
|
|
2.17 |
|
Pro Rata Treatment and Payments |
|
|
31 |
|
|
|
|
|
|
|
|
2.18 |
|
Requirements of Law |
|
|
33 |
|
|
|
|
|
|
|
|
2.19 |
|
Taxes |
|
|
34 |
|
|
|
|
|
|
|
|
2.20 |
|
Indemnity |
|
|
36 |
|
|
|
|
|
|
|
|
2.21 |
|
Change of Lending Office |
|
|
36 |
|
|
|
|
|
|
|
|
2.22 |
|
Replacement of Lenders |
|
|
37 |
|
|
|
|
|
|
|
|
2.23 |
|
Incremental Commitments |
|
|
38 |
|
i
|
|
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|
|
|
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|
|
|
|
Page |
|
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|
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|
|
|
SECTION 3. |
|
LETTERS OF CREDIT |
|
|
39 |
|
|
|
|
|
|
|
|
3.1 |
|
L/C Commitment |
|
|
39 |
|
|
|
|
|
|
|
|
3.2 |
|
Procedure for Issuance of Letter of Credit |
|
|
39 |
|
|
|
|
|
|
|
|
3.3 |
|
Fees and Other Charges |
|
|
40 |
|
|
|
|
|
|
|
|
3.4 |
|
L/C Participations |
|
|
40 |
|
|
|
|
|
|
|
|
3.5 |
|
Reimbursement Obligation of the Borrower |
|
|
41 |
|
|
|
|
|
|
|
|
3.6 |
|
Obligations Absolute |
|
|
42 |
|
|
|
|
|
|
|
|
3.7 |
|
Letter of Credit Payments |
|
|
42 |
|
|
|
|
|
|
|
|
3.8 |
|
Applications |
|
|
42 |
|
|
|
|
|
|
|
|
SECTION 4. |
|
REPRESENTATIONS AND WARRANTIES |
|
|
42 |
|
|
|
|
|
|
|
|
4.1 |
|
Financial Condition |
|
|
42 |
|
|
|
|
|
|
|
|
4.2 |
|
No Change |
|
|
43 |
|
|
|
|
|
|
|
|
4.3 |
|
Existence; Compliance with Law |
|
|
43 |
|
|
|
|
|
|
|
|
4.4 |
|
Power; Authorization; Enforceable Obligations |
|
|
44 |
|
|
|
|
|
|
|
|
4.5 |
|
No Legal Bar |
|
|
44 |
|
|
|
|
|
|
|
|
4.6 |
|
Litigation |
|
|
44 |
|
|
|
|
|
|
|
|
4.7 |
|
No Default |
|
|
44 |
|
|
|
|
|
|
|
|
4.8 |
|
Ownership of Property; Liens |
|
|
44 |
|
|
|
|
|
|
|
|
4.9 |
|
Intellectual Property |
|
|
45 |
|
|
|
|
|
|
|
|
4.10 |
|
Taxes |
|
|
45 |
|
|
|
|
|
|
|
|
4.11 |
|
Federal Regulations |
|
|
45 |
|
|
|
|
|
|
|
|
4.12 |
|
Labor Matters |
|
|
45 |
|
|
|
|
|
|
|
|
4.13 |
|
ERISA |
|
|
45 |
|
|
|
|
|
|
|
|
4.14 |
|
Investment Company Act; Other Regulations |
|
|
46 |
|
|
|
|
|
|
|
|
4.15 |
|
Subsidiaries |
|
|
46 |
|
|
|
|
|
|
|
|
4.16 |
|
Use of Proceeds |
|
|
46 |
|
|
|
|
|
|
|
|
4.17 |
|
Environmental Matters |
|
|
46 |
|
|
|
|
|
|
|
|
4.18 |
|
Accuracy of Information, etc |
|
|
47 |
|
|
|
|
|
|
|
|
4.19 |
|
Security Documents |
|
|
48 |
|
|
|
|
|
|
|
|
4.20 |
|
Solvency |
|
|
48 |
|
ii
|
|
|
|
|
|
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|
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|
|
Page |
|
|
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|
|
|
|
|
4.21 |
|
Certain Documents |
|
|
48 |
|
|
|
|
|
|
|
|
4.22 |
|
Status of Holdings |
|
|
48 |
|
|
|
|
|
|
|
|
SECTION 5. |
|
CONDITIONS PRECEDENT |
|
|
48 |
|
|
|
|
|
|
|
|
5.1 |
|
Conditions to Initial Extension of Credit |
|
|
48 |
|
|
|
|
|
|
|
|
5.2 |
|
Conditions to Each Extension of Credit |
|
|
50 |
|
|
|
|
|
|
|
|
SECTION 6. |
|
AFFIRMATIVE COVENANTS |
|
|
51 |
|
|
|
|
|
|
|
|
6.1 |
|
Financial Statements |
|
|
51 |
|
|
|
|
|
|
|
|
6.2 |
|
Certificates; Other Information |
|
|
52 |
|
|
|
|
|
|
|
|
6.3 |
|
Payment of Obligations |
|
|
53 |
|
|
|
|
|
|
|
|
6.4 |
|
Maintenance of Existence; Compliance |
|
|
53 |
|
|
|
|
|
|
|
|
6.5 |
|
Maintenance of Property; Insurance |
|
|
53 |
|
|
|
|
|
|
|
|
6.6 |
|
Inspection of Property; Books and Records; Discussions |
|
|
53 |
|
|
|
|
|
|
|
|
6.7 |
|
Notices |
|
|
53 |
|
|
|
|
|
|
|
|
6.8 |
|
Environmental Laws |
|
|
54 |
|
|
|
|
|
|
|
|
6.9 |
|
Distributions in the Ordinary Course |
|
|
54 |
|
|
|
|
|
|
|
|
6.10 |
|
Additional Collateral, etc |
|
|
55 |
|
|
|
|
|
|
|
|
6.11 |
|
Notices of Asset Sales or Dispositions |
|
|
56 |
|
|
|
|
|
|
|
|
6.12 |
|
Maintenance of Ratings |
|
|
56 |
|
|
|
|
|
|
|
|
SECTION 7. |
|
NEGATIVE COVENANTS |
|
|
56 |
|
|
|
|
|
|
|
|
7.1 |
|
Financial Condition Covenants |
|
|
56 |
|
|
|
|
|
|
|
|
7.2 |
|
Indebtedness |
|
|
58 |
|
|
|
|
|
|
|
|
7.3 |
|
Liens |
|
|
59 |
|
|
|
|
|
|
|
|
7.4 |
|
Fundamental Changes |
|
|
60 |
|
|
|
|
|
|
|
|
7.5 |
|
Disposition of Property |
|
|
60 |
|
|
|
|
|
|
|
|
7.6 |
|
Restricted Payments |
|
|
60 |
|
|
|
|
|
|
|
|
7.7 |
|
[Reserved] |
|
|
61 |
|
|
|
|
|
|
|
|
7.8 |
|
Investments |
|
|
61 |
|
|
|
|
|
|
|
|
7.9 |
|
Optional Payments and Modifications of Certain Debt Instruments |
|
|
61 |
|
|
|
|
|
|
|
|
7.10 |
|
Transactions with Affiliates |
|
|
61 |
|
|
|
|
|
|
|
|
7.11 |
|
Sales and Leasebacks |
|
|
62 |
|
iii
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
7.12 |
|
Swap Agreements |
|
|
62 |
|
|
|
|
|
|
|
|
7.13 |
|
Changes in Fiscal Periods |
|
|
62 |
|
|
|
|
|
|
|
|
7.14 |
|
Negative Pledge Clauses |
|
|
62 |
|
|
|
|
|
|
|
|
7.15 |
|
Clauses Restricting Subsidiary Distributions |
|
|
62 |
|
|
|
|
|
|
|
|
7.16 |
|
Lines of Business |
|
|
62 |
|
|
|
|
|
|
|
|
SECTION 8. |
|
EVENTS OF DEFAULT |
|
|
62 |
|
|
|
|
|
|
|
|
SECTION 9. |
|
THE AGENTS |
|
|
66 |
|
|
|
|
|
|
|
|
9.1 |
|
Appointment |
|
|
66 |
|
|
|
|
|
|
|
|
9.2 |
|
Delegation of Duties |
|
|
66 |
|
|
|
|
|
|
|
|
9.3 |
|
Exculpatory Provisions |
|
|
66 |
|
|
|
|
|
|
|
|
9.4 |
|
Reliance by Administrative Agent |
|
|
67 |
|
|
|
|
|
|
|
|
9.5 |
|
Notice of Default |
|
|
67 |
|
|
|
|
|
|
|
|
9.6 |
|
Non-Reliance on Agents and Other Lenders |
|
|
67 |
|
|
|
|
|
|
|
|
9.7 |
|
Indemnification |
|
|
68 |
|
|
|
|
|
|
|
|
9.8 |
|
Agent in Its Individual Capacity |
|
|
68 |
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9.9 |
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Successor Administrative Agent |
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68 |
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9.10 |
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Syndication Agent |
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69 |
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SECTION 10. |
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MISCELLANEOUS |
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69 |
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10.1 |
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Amendments and Waivers |
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69 |
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10.2 |
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Notices |
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70 |
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10.3 |
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No Waiver; Cumulative Remedies |
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71 |
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10.4 |
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Survival of Representations and Warranties |
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71 |
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10.5 |
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Payment of Expenses and Taxes |
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71 |
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10.6 |
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Successors and Assigns; Participations and Assignments |
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72 |
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10.7 |
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Adjustments; Set-off |
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75 |
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10.8 |
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Counterparts |
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76 |
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10.9 |
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Severability |
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76 |
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10.10 |
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Integration |
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76 |
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10.11 |
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Governing Law |
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76 |
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10.12 |
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Submission To Jurisdiction; Waivers |
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76 |
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iv
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Page |
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10.13 |
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Acknowledgements |
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77 |
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10.14 |
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Releases of Guarantees and Liens |
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77 |
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10.15 |
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Confidentiality |
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78 |
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10.16 |
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WAIVERS OF JURY TRIAL |
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78 |
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10.17 |
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USA PATRIOT Act |
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78 |
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v
SCHEDULES:
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ES
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Excluded Subsidiaries |
PBBP
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Pooled Borrowing Base Properties |
1.1A
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Commitments |
4.4
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Consents, Authorizations, Filings and Notices |
4.15
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Subsidiaries |
4.19(a)
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UCC Filing Jurisdictions |
4.23(a)
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Properties |
4.23(b)
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Borrowing Base Properties |
7.2(d)
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Existing Indebtedness |
7.3(f)
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Existing Liens |
EXHIBITS:
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A
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Form of Guarantee and Collateral Agreement |
B
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Form of Compliance Certificate |
C
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Form of Closing Certificate |
D
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Form of Assignment and Assumption |
E
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Form of Borrowing Request |
REVOLVING CREDIT AND TERM LOAN AGREEMENT (this Agreement), dated as of November
30, 2007, among MEDICAL PROPERTIES TRUST, INC., a Maryland corporation (Holdings), MPT
OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the Borrower), the several
banks and other financial institutions or entities from time to time parties to this Agreement (the
Lenders), KEYBANK NATIONAL ASSOCIATION, as syndication agent (in such capacity, the
Syndication Agent), and JPMORGAN CHASE BANK, N.A., as administrative agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1
shall have the respective meanings set forth in this Section 1.1.
ABR: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: Prime Rate
shall mean the rate of interest per annum publicly announced from time to time by JPMorgan Chase
Bank, N.A. as its prime rate in effect at its principal office in New York City (the Prime Rate not
being intended to be the lowest rate of interest charged by JPMorgan Chase Bank, N.A. in connection
with extensions of credit to debtors). Any change in the ABR due to a change in the Prime Rate or
the Federal Funds Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
ABR Loans: Loans the rate of interest applicable to which is based upon the ABR.
Adjusted NOI: for any fiscal period, the NOI (or pro rata share of NOI from any
Real Property owned by an unconsolidated Subsidiary or joint venture of the Borrower) from any Real
Property minus the Capital Expenditure Reserve net of the amount of such Capital Expenditure
Reserve provided by tenants pursuant to leases for such Real Property and adjusted to remove the
effect of recognizing rental income on a straight-line basis over the applicable lease term.
Adjustment Date: as defined in the definition of Pricing Grid.
Administrative Agent: JPMorgan Chase Bank, N.A., together with its affiliates, as
the arranger of the Commitments and as the administrative agent for the Lenders under this
Agreement and the other Loan Documents, together with any of its successors.
Affiliate: as to any Person, any other Person that, directly or indirectly, is in
control of, is controlled by, or is under common control with, such Person. For purposes of this
definition, control of a Person means the power, directly or indirectly, either to (a) vote 10%
or more of the securities having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
Agents: the collective reference to the Syndication Agent and the Administrative
Agent.
Aggregate Exposure: with respect to any Lender at any time, an amount equal to (a)
until the Funding Date, the aggregate amount of such Lenders Commitments at such time and (b)
thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lenders Term Loans
and (ii) the amount of such Lenders Revolving Commitment then in effect or, if the Revolving
Commitments have been terminated, the amount of such Lenders Revolving Extensions of Credit then
outstanding.
Aggregate Exposure Percentage: with respect to any Lender at any time, the ratio
(expressed as a percentage) of such Lenders Aggregate Exposure at such time to the Aggregate
Exposure of all Lenders at such time.
Agreement: as defined in the preamble hereto.
Applicable Margin: for each Type of Loan, the rate per annum set forth under the
relevant column heading below:
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ABR Loans |
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Eurodollar Loans |
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Revolving Loans and
Swingline Loans |
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0.75 |
% |
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1.75 |
% |
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Term Loans |
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1.00 |
% |
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2.00 |
% |
; provided, that (a) on and after the first Adjustment Date occurring after the Closing
Date, the Applicable Margin with respect to Revolving Loans and Swingline Loans will be determined
pursuant to the Pricing Grid and (b) if the Total Leverage Ratio exceeds 55%, the Applicable Margin
for Term Loans shall be 1.25% for ABR Loans and 2.25% for Eurodollar Loans, effective as of the
Adjustment Date.
Application: an application, in such form as the Issuing Lender may specify from
time to time, requesting the Issuing Lender to issue a Letter of Credit.
Approved Fund: as defined in Section 10.6(b).
Asset Sale: any Disposition of property or series of related Dispositions of any
Borrowing Base Property or any Mortgage Note included in the computation of Borrowing Base Value
(excluding any such Disposition permitted by clause (a), (b), (c) or (d) of Section 7.5) that
yields gross proceeds to any Group Member (valued at the initial principal amount thereof in the
case of non-cash proceeds consisting of notes or other debt securities and valued at fair market
value in the case of other non-cash proceeds) in excess of $500,000.
Assignee: as defined in Section 10.6(b).
-2-
Assignment and Assumption: an Assignment and Assumption, substantially in the form
of Exhibit D.
Available Revolving Commitment: as to any Revolving Lender at any time, an amount
equal to the excess, if any, of (a) such Lenders Revolving Commitment then in effect over
(b) such Lenders Revolving Extensions of Credit then outstanding; provided, that in
calculating any Lenders Revolving Extensions of Credit for the purpose of determining such
Lenders Available Revolving Commitment pursuant to Section 2.8(a), the aggregate principal amount
of Swingline Loans then outstanding shall be deemed to be zero.
Benefitted Lender: as defined in Section 10.7(a).
Board: the Board of Governors of the Federal Reserve System of the United States
(or any successor).
Borrower: as defined in the preamble hereto.
Borrowing Base NOI: for any fiscal period, the total Adjusted NOI attributable to
all Borrowing Base Properties for such period plus the net income attributable to unencumbered
Mortgage Notes included in the computation of Borrowing Base Value.
Borrowing Base Property: any Real Property that meets each of the following
criteria as of the date of determination, provided that the addition of a Borrowing Base Property
after the Closing Date shall also be subject to the requirements of Section 6.10(b):
|
1. |
|
Such Real Property is either (i) 100% fee owned or ground
leased (with a remaining term of at least 40 years and the ability to qualify
for financing under traditional long term financing terms and conditions), by
Borrower or a Guarantor or (ii) at least 51% owned by the Borrower, directly or
indirectly, so long as the Borrower controls the sale and financing of such
Real Property. |
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|
2. |
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Such Real Property is either (A) improved with one or more
completed medical buildings of a type consistent with the Borrowers business
strategy or (B) a Pre-Stabilized Asset. |
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|
3. |
|
(a) The equity interests in the owner of such Real Property are
pledged to the Administrative Agent and (b) such Real Property is not directly
or indirectly subject to any Lien (other than Liens permitted under clauses (a)
through (e) of Section 7.3) or any negative pledge agreement or other agreement
that prohibits the creation of a Lien. |
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|
4. |
|
The representations in Section 4.17 are true with respect to
such Real Property. |
|
|
5. |
|
The buildings and improvements on such Real Property are free
of material defects which would materially decrease the value of such Real
Property. |
|
|
6. |
|
Such Real Property is located in the United States. |
|
|
7. |
|
Such Real Property is subject to a triple-net lease with a
tenant, such lease is not in default after giving effect to applicable cure
periods, and such tenant is not in bankruptcy or similar insolvency
proceedings. |
-3-
Borrowing Base Value: an amount equal to the sum without duplication of (i) the
lower of the undepreciated cost or market value of those Borrowing Base Properties that are 100%
fee owned or ground leased by the Borrower or a Guarantor, plus (ii) the pro rata share of the
lower of the undepreciated cost or market value of those Borrowing Base Properties that are at
least 51% owned by the Borrower, directly or indirectly, plus (iii) the book value of unencumbered
Mortgage Notes so long as (A) the real estate securing such Mortgage Note meets the criteria for a
Borrowing Base Property (other than clauses (1), 3(a) and (7) of the definition thereof) and (B)
such Mortgage Note is not more than 60 days past due or otherwise in default after giving effect to
applicable cure periods and (C) such Mortgage Note is pledged to the Administrative Agent, plus
(iv) unrestricted cash and Cash Equivalents in excess of $10,000,000, all, except for clause (ii),
as determined on a consolidated basis in accordance with GAAP;
provided that (A) not more than 30% of Borrowing Base Value shall be attributable to
Mortgage Notes, (B) not more than 20% of Borrowing Base Value may be attributable to any single
Borrowing Base Property, (C) not more than 15% of Borrowing Base Value may be attributable to
single Borrowing Base Properties (other than Pre-Stabilized Assets) which have a Lease Coverage
Ratio below 1.5 to 1.0 or Pooled Borrowing Base Properties which have an aggregate Lease Coverage
Ratio of 1.5 to 1.0, and any Borrowing Base Property or Pooled Borrowing Base Properties which fail
to achieve such Lease Coverage Ratio for more than two consecutive quarters shall cease to be
eligible for inclusion in the calculation of Borrowing Base Value, (D) not more than 20% of
Borrowing Base Value may be attributable to Pre-Stabilized Assets (other than Credit-Enhanced
Pre-Stabilized Assets), (E) not more than 10% of Borrowing Base Value may be attributable to
Credit-Enhanced Pre-Stabilized Assets, (F) not more than 30% of Borrowing Base Value may be
attributable to Borrowing Base Properties and Mortgage Notes for which a single Person is the
tenant or obligor (and where any tenant or obligor is a joint venture in which a Person holds an
interest, only such Persons pro-rata share of the Borrowing Base Value attributable to the
Borrowing Base Property or Mortgage Note owned by such joint venture shall be counted against such
Person for purposes of this clause (F)), and (G) not more than 15% of Borrowing Base Value may be
attributable to Borrowing Base Properties that are not wholly-owned by the Borrower or a Guarantor.
Borrowing Date: any Business Day specified by the Borrower as a date on which the
Borrower requests the relevant Lenders to make Loans hereunder.
Business: as defined in Section 4.17(b).
Business Day: a day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required by law to close, provided, that with
respect to notices and determinations in connection with, and payments of principal and interest
on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in
the interbank eurodollar market.
Capital Expenditure Reserve: for any Real Property, the greater of (a) the amount
of reserves required to be provided by tenants under either the lease (or related lease
documentation) for or the Mortgage Note (or related loan documentation) secured by such Property or
(b) $1,500 per medical bed which is in service and located at such Real Property.
-4-
Capital Expenditures: for any period, with respect to any Person, the aggregate of
all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a
capital lease) of fixed or capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
Capital Lease Obligations: as to any Person, the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes
of this Agreement, the amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
Capital Stock: any and all shares, interests, participations or other equivalents
(however designated) of capital stock of a corporation, any and all equivalent ownership interests
in a Person (other than a corporation) and any and all warrants, rights or options to purchase any
of the foregoing.
Cash Equivalents: (a) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof and backed by the full
faith and credit of the United States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank
deposits having maturities of six months or less from the date of acquisition issued by any Lender
or by any commercial bank organized under the laws of the United States or any state thereof having
combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poors Ratings Services (S&P) or P-1 by Moodys Investors
Service, Inc. (Moodys), or carrying an equivalent rating by a nationally recognized
rating agency, if both of the two named rating agencies cease publishing ratings of commercial
paper issuers generally, and maturing within six months from the date of acquisition; (d)
repurchase obligations of any Lender or of any commercial bank satisfying the requirements of
clause (b) of this definition, having a term of not more than 30 days, with respect to securities
issued or fully guaranteed or insured by the United States government; (e) securities with
maturities of one year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign government, the securities
of which state, commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moodys; (f) securities with
maturities of six months or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; (g) money market mutual or similar funds that invest exclusively in assets satisfying
the requirements of clauses (a) through (f) of this definition; or (h) money market funds that (i)
comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as
amended, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have portfolio assets of at least
$5,000,000,000.
Closing Date: the date hereof.
-5-
Code: the Internal Revenue Code of 1986, as amended from time to time.
Collateral: all property of the Loan Parties, now owned or hereafter acquired, upon
which a Lien is purported to be created by any Security Document.
Commitment: as to any Lender, the sum of the Term Commitment and the Revolving
Commitment of such Lender.
Commitment Fee Rate: for any calendar quarter (a) 0.35% per annum if the average
daily amount of the aggregate Available Revolving Commitments of all Revolving Lenders for such
quarter is greater than 50% of the Total Revolving Commitments and (b) 0.20% per annum if the
average daily amount of the aggregate Available Revolving Commitments of all Revolving Lenders for
such quarter is less than or equal to 50% of the Total Revolving Commitments.
Commonly Controlled Entity: an entity, whether or not incorporated, that is under
common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group
that includes the Borrower and that is treated as a single employer under Section 414 of the Code.
Compliance Certificate: a certificate duly executed by a Responsible Officer
substantially in the form of Exhibit B.
Conduit Lender: any special purpose corporation organized and administered by any
Lender for the purpose of making Loans otherwise required to be made by such Lender and designated
by such Lender in a written instrument; provided, that the designation by any Lender of a
Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan
under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the
designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to
deliver all consents and waivers required or requested under this Agreement with respect to its
Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled
to receive any greater amount pursuant to Section 2.18, 2.19, 2.20 or 10.5 than the designating
Lender would have been entitled to receive in respect of the extensions of credit made by such
Conduit Lender or (b) be deemed to have any Commitment.
Confidential Information Memorandum: the Confidential Information Memorandum dated
October, 2007 and furnished to certain Lenders.
Continuing Directors: the directors of Holdings on the Closing Date, and each other
director, if, in each case, such other directors nomination for election or appointment to the
board of directors of Holdings is made by, or at the direction of, at least 66-2/3% of the then
Continuing Directors.
Contractual Obligation: as to any Person, any provision of any security issued by
such Person or of any agreement, instrument or other undertaking to which such Person is a party or
by which it or any of its property is bound.
-6-
Control Investment Affiliate: as to any Person, any other Person that (a) directly
or indirectly, is in control of, is controlled by, or is under common control with, such Person and
(b) is organized by such Person primarily for the purpose of making equity or debt investments in
one or more companies. For purposes of this definition, control of a Person means the power,
directly or indirectly, to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise.
Credit-Enhanced Pre-Stabilized Assets: the Pre-Stabilized Assets consisting of (a)
as of the Closing Date, (i) the Real Property known as Paradise Valley, so long as the obligations
of the tenant thereunder are guaranteed by Prime Healthcare Services, Inc. and (ii) the Real
Property known as Centinela Hospital Medical Center, so long as the obligations of the tenant
thereunder are guaranteed by Prime Healthcare Services, Inc. and (b) such other properties and
guarantors as are proposed by the Borrower and are reasonably acceptable to the Administrative
Agent. Each of such properties shall continue to be treated as a Credit-Enhanced Pre-Stabilized
Asset until the earlier of (x) such Real Property individually achieves a Lease Coverage Ratio of
at least 1.5 to 1.0, or any group of Pooled Borrowing Base Properties achieves an aggregate Lease
Coverage Ratio of 1.5 to 1.0, or (y) the 18-month anniversary of completion of construction,
redevelopment or acquisition of such Real Property, provided that such completion shall be
evidenced by (i) an officers certificate attesting to such completion in the case of construction,
or (ii) a valid license to operate and an executed lease in the case of a Pre-Stabilized Asset or
an asset that requires redevelopment or repositioning.
Default: any of the events specified in Section 8, whether or not any requirement
for the giving of notice, the lapse of time, or both, has been satisfied.
Disposition: with respect to any property, any sale, lease, sale and leaseback,
assignment, conveyance, transfer, or other disposition thereof. The terms Dispose and
Disposed of shall have correlative meanings.
Dollars and $: dollars in lawful currency of the United States.
Domestic Subsidiary: any Subsidiary of the Borrower organized under the laws of any
jurisdiction within the United States.
EBITDA: for any fiscal period for any Person, consolidated net income (or loss)
before interest, taxes, depreciation and amortization, calculated for such period on a consolidated
basis in conformity with GAAP, excluding gains and losses from extraordinary items and
non-recurring items or asset sales or write-ups/write-downs or forgiveness of indebtedness.
EBITDAR: for any fiscal period for any Person, consolidated net income (or loss)
before interest, taxes, depreciation, amortization and rent or operating lease expense, calculated
for such period on a consolidated basis in conformity with GAAP, excluding gains and losses from
extraordinary items and non-recurring items or asset sales or write-ups/write-downs or forgiveness
of indebtedness.
Environmental Laws: any and all foreign, Federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any
-7-
Governmental Authority or other Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct concerning protection of human health or
the environment, as now or may at any time hereafter be in effect.
ERISA: the Employee Retirement Income Security Act of 1974, as amended from time to
time.
Eurocurrency Reserve Requirements: for any day as applied to a Eurodollar Loan, the
aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including basic, supplemental, marginal and emergency reserves)
under any regulations of the Board or other Governmental Authority having jurisdiction with respect
thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred
to as Eurocurrency Liabilities in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
Eurodollar Base Rate: with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for
deposits in Dollars for a period equal to such Interest Period commencing on the first day of such
Interest Period appearing on Page LIBOR 01 of the Reuters screen as of 11:00 A.M., London time, two
Business Days prior to the beginning of such Interest Period. In the event that such rate does not
appear on Page LIBOR 01 of the Reuters screen (or otherwise on such screen), the Eurodollar
Base Rate shall be determined by reference to such other comparable publicly available service
for displaying eurodollar rates as may be selected by the Administrative Agent or, in the absence
of such availability, by reference to the rate at which the Administrative Agent is offered Dollar
deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of
such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency
and exchange operations are then being conducted for delivery on the first day of such Interest
Period for the number of days comprised therein.
Eurodollar Loans: Loans the rate of interest applicable to which is based upon the
Eurodollar Rate.
Eurodollar Rate: with respect to each day during each Interest Period pertaining to
a Eurodollar Loan, a rate per annum determined for such day in accordance with the following
formula (rounded upward to the nearest 1/100th of 1%):
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Eurodollar Base Rate
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1.00 Eurocurrency Reserve Requirements |
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Eurodollar Tranche: the collective reference to Eurodollar Loans the then current
Interest Periods with respect to all of which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the same day).
Event of Default: any of the events specified in Section 8, provided that
any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
Excluded Foreign Subsidiary: any Foreign Subsidiary.
-8-
Excluded Subsidiaries: the Subsidiaries of the Borrower listed on Schedule ES
attached hereto.
Existing Credit Agreement: the Credit Agreement dated as of October 27, 2005 among
the Borrower, Merrill Lynch Capital, as Administrative Agent, and the lenders party thereto, as the
same may be modified or amended or the provisions thereof waived from time to time.
Existing Term Loan Agreement: the Term Loan Credit Agreement dated as of August 9,
2007 among the Borrower, Holdings, JPMorgan Chase Bank, N.A., as Administrative Agent and the
Lenders party thereto, as amended to date.
Facility: each of (a) the Term Commitments and the Term Loans made thereunder (the
Term Facility) and (b) the Revolving Commitments and the extensions of credit made
thereunder (the Revolving Facility), and collectively, the Facilities.
Facility Indebtedness: the sum of the outstanding principal amount of the Term
Loans plus the Total Revolving Extensions of Credit.
Facility Interest Expense: for any fiscal period, the amount of Interest Expense on
Facility Indebtedness.
Federal Funds Effective Rate: for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by JPMorgan Chase Bank, N.A. from three
federal funds brokers of recognized standing selected by it.
Fee Payment Date: the first Business Day following the last day of each March,
June, September and December and the last day of the Revolving Commitment Period.
FFO: for any fiscal period, funds from operations of the Group Members as defined
in accordance with resolutions adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts as in effect from time to time; provided that FFO shall (a) be based
on net income after payment of distributions to holders of preferred partnership units in the
Borrower and distributions necessary to pay holders of preferred stock of the Company, (b) at all
times exclude (i) charges for impairment losses from property sales and (ii) non-recurring charges
and (c) from the Closing Date through the first anniversary of the Closing Date, include gains from
asset sales.
Foreign Subsidiary: any Subsidiary of the Borrower that is not a Domestic
Subsidiary.
Funding Date: the date on which the conditions precedent set forth in Section 5.1
shall have been satisfied.
-9-
Funding Office: the office of the Administrative Agent specified in Section 10.2 or
such other office as may be specified from time to time by the Administrative Agent as its funding
office by written notice to the Borrower and the Lenders.
GAAP: generally accepted accounting principles in the United States as in effect
from time to time, except that for purposes of Section 7.1, GAAP shall be determined on the basis
of such principles in effect on the date hereof and consistent with those used in the preparation
of the most recent audited financial statements referred to in Section 4.1(b). In the event that
any Accounting Change (as defined below) shall occur and such change results in a change in the
method of calculation of financial covenants, standards or terms in this Agreement, then the
Borrower and the Administrative Agent agree to enter into negotiations in order to amend such
provisions of this Agreement so as to reflect equitably such Accounting Changes with the desired
result that the criteria for evaluating the Borrowers financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made. Until such time as such
an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and
the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue
to be calculated or construed as if such Accounting Changes had not occurred. Accounting Changes
refers to changes in accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants or, if applicable, the SEC.
Governmental Authority: any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
Group Members: the collective reference to Holdings, the Borrower and their
respective Subsidiaries.
Guarantee and Collateral Agreement: the Guarantee and Collateral Agreement to be
executed and delivered by Holdings, the Borrower and each Subsidiary Guarantor, substantially in
the form of Exhibit A.
Guarantee Obligation: as to any Person (the guaranteeing person), any
obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing
Person that guarantees or in effect guarantees, or which is given to induce the creation of a
separate obligation by another Person (including any bank under any letter of credit) that
guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the
primary obligations) of any other third Person (the primary obligor) in any
manner, whether directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any property constituting
direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring the
-10-
owner of any such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying
such Guarantee Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing persons maximum reasonably anticipated liability
in respect thereof as determined by the Borrower in good faith.
Guarantors: the collective reference to Holdings and the Subsidiary Guarantors.
Holdings: as defined in the preamble hereto.
Indebtedness: of any Person at any date, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase
price of property or services (other than current trade payables incurred in the ordinary course of
such Persons business), (c) all obligations of such Person evidenced by notes, bonds, debentures
or other similar instruments, (d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), (e) all Capital Lease Obligations of such
Person, (f) all obligations of such Person, contingent or otherwise, as an account party or
applicant under or in respect of acceptances, letters of credit, surety bonds or similar
arrangements, (g) the liquidation value of all redeemable preferred Capital Stock of such Person,
(h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in
clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through
(h) above secured by (or for which the holder of such obligation has an existing right, contingent
or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned
by such Person, whether or not such Person has assumed or become liable for the payment of such
obligation, (j) all obligations under so-called forward equity purchase contracts to the extent
such obligations are not payable solely in equity interests, (k) all obligations in respect of any
so-called synthetic lease (i.e., a lease of property which is treated as an operating lease under
GAAP and as a loan for U.S. income tax purposes) and (l) such obligors liabilities, contingent or
otherwise of the type set forth in (a) through (h) above, under any joint-venture, limited
liability company or partnership agreement, and (m) for the purposes of Section 8(e) only, all
obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person shall
include the Indebtedness of any other entity (including any partnership in which such Person is a
general partner) to the extent such Person is liable therefor as a result of such Persons
ownership interest in or other relationship with such entity, except to the extent the terms of
such Indebtedness expressly provide that such Person is not liable therefor.
-11-
Insolvency: with respect to any Multiemployer Plan, the condition that such Plan is
insolvent within the meaning of Section 4245 of ERISA.
Insolvent: pertaining to a condition of Insolvency.
Intellectual Property: the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or
in equity for any infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.
Interest Expense: for any fiscal period, an amount equal to the sum of the
following with respect to all Total Indebtedness: (i) total interest expense, accrued in accordance
with GAAP, plus (ii) all capitalized interest determined in accordance with GAAP, plus (iii) the
amortization of deferred financing costs (including the Borrowers prorata share thereof for
unconsolidated Subsidiaries and joint ventures).
Interest Payment Date: (a) as to any ABR Loan (other than any Swingline Loan), the
last day of each March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day that is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day of such Interest Period, (d)
as to any Loan (other than any Revolving Loan that is an ABR Loan and any Swingline Loan), the date
of any repayment or prepayment made in respect thereof and (e) as to any Swingline Loan, the day
that such Loan is required to be repaid.
Interest Period: as to any Eurodollar Loan, (a) initially, the period commencing on
the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not later than 11:00 A.M., New York City
time, on the date that is three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a Business Day,
such Interest Period shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding Business Day;
-12-
(ii) the Borrower may not select an Interest Period under a particular Facility that
would extend beyond the Revolving Termination Date or the Term Loan Maturity Date, as the
case may be;
(iii) any Interest Period that begins on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to require a payment or
prepayment of any Eurodollar Loan during an Interest Period for such Loan.
Investments: as defined in Section 7.8.
Issuing Lender: JPMorgan Chase Bank, N.A. or any affiliate thereof, in its capacity
as issuer of any Letter of Credit.
L/C Commitment: $15,000,000.
L/C Obligations: at any time, an amount equal to the sum of (a) the aggregate then
undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount
of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.5.
L/C Participants: the collective reference to all the Revolving Lenders other than
the Issuing Lender.
Lease Coverage Ratio: for any Person or property, the ratio of EBITDAR for such
Person or property to the aggregate rent payable under leases with respect to such Person or
property for any quarter.
Lenders: as defined in the preamble hereto; provided, that unless the
context otherwise requires, each reference herein to the Lenders shall be deemed to include any
Conduit Lender.
Letters of Credit: as defined in Section 3.1(a).
Lien: any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge or other security interest or any preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
Loan: any loan made by any Lender pursuant to this Agreement.
Loan Documents: this Agreement, the Security Documents, the Notes and any
amendment, waiver, supplement or other modification to any of the foregoing.
-13-
Loan Parties: each Group Member that is a party to a Loan Document.
Majority Facility Lenders: with respect to any Facility, the holders of more than
50% of the aggregate unpaid principal amount of the Term Loans or the Total Revolving Extensions of
Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving
Facility, prior to any termination of the Revolving Commitments, the holders of more than 50% of
the Total Revolving Commitments).
Material Adverse Effect: a material adverse effect on (a) the business, property,
operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a
whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or
the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.
Materials of Environmental Concern: any gasoline or petroleum (including crude oil
or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or
wastes, defined or regulated as such in or under any Environmental Law, including asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
Moodys: as defined in the definition of Cash Equivalents.
Mortgage Note: as defined in the definition of Total Asset Value.
Mortgage Secured Indebtedness: the portion of Total Indebtedness which is secured
by a mortgage Lien on Real Property.
Multiemployer Plan: a Plan that is a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
Net Cash Proceeds: (a) in connection with any Asset Sale or any Recovery Event, the
proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by
way of deferred payment of principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received), net of attorneys fees,
accountants fees, investment banking fees, amounts required to be applied to the repayment of
Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of
such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other
customary fees and expenses actually incurred in connection therewith and net of taxes paid or
reasonably estimated to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or
sale of Capital Stock or any incurrence of Indebtedness, the cash proceeds received from such
issuance or incurrence, net of attorneys fees, investment banking fees, accountants fees,
underwriting discounts and commissions and other customary fees and expenses actually incurred in
connection therewith.
Net Operating Income (NOI): for any fiscal period, and with respect to any Real
Property, the total rental and other operating income from the operation of such Real Property
after deducting all expenses and other proper charges incurred in connection with the operation of
such Real Property during such fiscal period, including, without limitation, property operating
expenses, real estate taxes and bad debt expenses, but before payment or provision for
-14-
Total Fixed Charges, income taxes, and depreciation, amortization, and other non-cash
expenses, all as determined in accordance with GAAP. In the case of Real Property owned by
Affiliates of the Borrower which are not wholly-owned by the Borrower, Net Operating Income shall
be reduced by the amount of cash flow of such Affiliate allocated for distribution to the other
owners of such Affiliate.
Non-Excluded Taxes: as defined in Section 2.19(a).
Non-U.S. Lender: as defined in Section 2.19(d).
Notes: the collective reference to any promissory note evidencing Loans.
Obligations: the unpaid principal of and interest on (including interest accruing
after the maturity of the Loans and Reimbursement Obligations and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Administrative Agent or to any Lender, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, or any
other document made, delivered or given in connection herewith or therewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all
fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are
required to be paid by the Borrower pursuant hereto) or otherwise.
Other Taxes: any and all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment made hereunder or from
the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any
other Loan Document.
Participant: as defined in Section 10.6(c).
PBGC: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A
of Title IV of ERISA (or any successor).
Person: an individual, partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
Plan: at a particular time, any employee benefit plan that is covered by ERISA and
in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be) an employer as
defined in Section 3(5) of ERISA.
Pooled Borrowing Base Properties: the Borrowing Base Properties consisting of (a)
as of the Closing Date, those properties set forth on Schedule PBBP for which the underlying leases
relating to such properties are cross-defaulted, and (b) after the Closing Date,
-15-
such other additional or replacement Borrowing Base Properties which are reasonably acceptable
to the Administrative Agent for addition to Schedule PBBP from time to time.
Pre-Stabilized Asset: a Real Property or a Mortgage Note secured by a Real
Property, in each case where such Real Property is in the process of being constructed, redeveloped
or repositioned with one or more medical buildings of a type consistent with the Borrowers
business strategy and is proceeding to completion without undue delay. Any such Real Property or
Mortgage Note shall continue to be treated as a Pre-Stabilized Asset until the earlier of (a) such
Real Property individually achieves a Lease Coverage Ratio of at least 1.5 to 1.0, or any group of
Pooled Borrowing Base Properties of which such Real Property is a part achieves an aggregate Lease
Coverage Ratio of 1.5 to 1.0, or (b) the 18-month anniversary of completion of construction,
redevelopment or acquisition of such Real Property, provided that such completion shall be
evidenced by (i) an officers certificate attesting to such completion in the case of construction,
or (ii) a valid license to operate and an executed lease in the case of a Pre-Stabilized Asset or
an asset that requires redevelopment or repositioning.
Pricing Grid: the table set forth below.
|
|
|
|
|
|
|
|
|
Total Leverage Ratio |
|
Applicable Margin for |
|
Applicable Margin for |
|
|
Revolving Loans which are |
|
Revolving Loans which are |
|
|
Eurodollar Loans |
|
ABR Loans |
|
<40% |
|
|
1.50 |
% |
|
|
0.50 |
% |
|
³40% and <50% |
|
|
1.75 |
% |
|
|
0.75 |
% |
|
³50% and <55% |
|
|
2.00 |
% |
|
|
1.00 |
% |
|
³55% |
|
|
2.25 |
% |
|
|
1.25 |
% |
|
For the purposes of the Pricing Grid, changes in the Applicable Margin resulting from changes
in the Total Leverage Ratio shall become effective on the date (the Adjustment Date) that
is three Business Days after the date on which financial statements are delivered to the Lenders
pursuant to Section 6.1 and shall remain in effect until the next change to be effected pursuant to
this paragraph. If any financial statements referred to above are not delivered within the time
periods specified in Section 6.1, then, until the date that is three Business Days after the date
on which such financial statements are delivered, the highest rate set forth in each column of the
Pricing Grid shall apply. In addition, at all times while an Event of Default shall have occurred
and be continuing, the highest rate set forth in each column of the Pricing Grid shall apply. Each
determination of the Total Leverage Ratio pursuant to the Pricing Grid shall be made in a manner
consistent with the determination thereof pursuant to Section 7.1.
Projections: as defined in Section 6.2(b).
Properties: as defined in Section 4.17(a).
Real Property: any real property owned or ground-leased by a Group
Member.
-16-
Recourse Mortgage Secured Indebtedness: Mortgage Secured Indebtedness which is
recourse to the obligor thereunder.
Recovery Event: any settlement of or payment in respect of any property or casualty
insurance claim or any condemnation proceeding relating to any Borrowing Base Property or any
Mortgage Note included in the computation of Borrowing Base Value.
Refunded Swingline Loans: as defined in Section 2.7.
Register: as defined in Section 10.6(b).
Regulation U: Regulation U of the Board as in effect from time to time.
Reimbursement Obligation: the obligation of the Borrower to reimburse the Issuing
Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit.
Reinvestment Deferred Amount: with respect to any Reinvestment Event, the aggregate
Net Cash Proceeds received by any Group Member in connection therewith that are not applied to
prepay the Term Loans or Revolving Loans pursuant to Section 2.11(b) as a result of the delivery of
a Reinvestment Notice.
Reinvestment Event: any Asset Sale or Recovery Event in respect of which the
Borrower has delivered a Reinvestment Notice.
Reinvestment Notice: a written notice executed by a Responsible Officer stating
that no Event of Default has occurred and is continuing and that the Borrower (directly or
indirectly through a Subsidiary) intends and expects to use (a) all or a specified portion of the
Net Cash Proceeds of an Asset Sale or Recovery Event to acquire new Borrowing Base Properties or
Mortgage Notes to be included in the computation of Borrowing Base Value or (b) all or a specified
portion of the Net Cash Proceeds of a Recovery Event to repair or replace assets damaged by such
Recovery Event.
Reinvestment Prepayment Amount: with respect to any Reinvestment Event, the
Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant
Reinvestment Prepayment Date to acquire new Borrowing Base Properties or Mortgage Notes to be
included in the computation of Borrowing Base Value or to repair or replace assets damaged by a
Recovery Event, as applicable.
Reinvestment Prepayment Date: with respect to any Reinvestment Event, the earlier
of (a) the date occurring 120 days after such Reinvestment Event and (b) the date on which the
Borrower shall have determined not to, or shall have otherwise ceased to, acquire new Borrowing
Base Properties or Mortgage Notes to be included in the computation of Borrowing Base Value or
repair or replace assets damaged by a Recovery Event, as applicable, in each case with all or any
portion of the relevant Reinvestment Deferred Amount.
REIT: a domestic trust or corporation that qualifies as a real estate investment
trust under the provisions of §856, et. seq. of the Code or any successor provisions.
-17-
Reorganization: with respect to any Multiemployer Plan, the condition that such
plan is in reorganization within the meaning of Section 4241 of ERISA.
Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other
than those events as to which the thirty day notice period is waived under subsections .27, .28,
..29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.
Required Lenders: at any time, the holders of more than 66-2/3% of (a) until the
Funding Date, the Commitments then in effect and (b) thereafter, the sum of (i) the aggregate
unpaid principal amount of the Term Loans then outstanding and (ii) the Total Revolving Commitments
then in effect or, if the Revolving Commitments have been terminated, the Total Revolving
Extensions of Credit then outstanding.
Requirement of Law: as to any Person, the Certificate of Incorporation and By-Laws
or other organizational or governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
Responsible Officer: the chief executive officer, president or chief financial
officer of the Borrower, but in any event, with respect to financial matters, the chief financial
officer of the Borrower.
Restricted Payments: as defined in Section 7.6.
Revolving Commitment: as to any Lender, the obligation of such Lender, if any, to
make Revolving Loans and participate in Swingline Loans and Letters of Credit in an aggregate
principal and/or face amount not to exceed the amount set forth under the heading Revolving
Commitment opposite such Lenders name on Schedule 1.1A or in the Assignment and Assumption
pursuant to which such Lender became a party hereto, as the same may be changed from time to time
pursuant to the terms hereof, including Section 2.23. The original amount of the Total Revolving
Commitments is $154,000,000.
Revolving Commitment Period: the period from and including the Closing Date to the
Revolving Termination Date.
Revolving Extensions of Credit: as to any Revolving Lender at any time, an amount
equal to the sum of (a) the aggregate principal amount of all Revolving Loans held by such Lender
then outstanding, (b) such Lenders Revolving Percentage of the L/C Obligations then outstanding
and (c) such Lenders Revolving Percentage of the aggregate principal amount of Swingline Loans
then outstanding.
Revolving Lender: each Lender that has a Revolving Commitment or that holds
Revolving Loans.
Revolving Loans: as defined in Section 2.4(a).
-18-
Revolving Percentage: as to any Revolving Lender at any time, the percentage which
such Lenders Revolving Commitment then constitutes of the Total Revolving Commitments or, at any
time after the Revolving Commitments shall have expired or terminated, the percentage which the
aggregate principal amount of such Lenders Revolving Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Loans then outstanding, provided, that, in the
event that the Revolving Loans are paid in full prior to the reduction to zero of the Total
Revolving Extensions of Credit, the Revolving Percentages shall be determined in a manner designed
to ensure that the other outstanding Revolving Extensions of Credit shall be held by the Revolving
Lenders on a comparable basis.
Revolving Termination Date: November 8, 2010; provided that the Borrower may, by
written notice to the Administrative Agent (which shall promptly notify each of the Lenders) given
at least sixty (60) days prior to the Revolving Termination Date, extend the Revolving Termination
Date for one (1) year so long as (A) no Default or Event of Default shall have occurred and be
continuing on the date of such written notice and on the effective date of such extension, (B) each
of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of the date of such written notice and on and as of the
effective date of such extension as if made on and as of such dates, and (C) the Borrower pays an
aggregate extension fee equal to 0.25% of the then existing Revolving Commitments (to the
Administrative Agent for the ratable benefit of the Revolving Lenders).
S&P: as defined in the definition of Cash Equivalents.
SEC: the Securities and Exchange Commission, any successor thereto and any
analogous Governmental Authority.
Security Documents: the collective reference to the Guarantee and Collateral
Agreement and all other security documents hereafter delivered to the Administrative Agent granting
a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party
under any Loan Document.
Senior Exchangeable Note Indenture: the Indenture dated as of November 6, 2006
entered into by the Borrower and Holdings in connection with the issuance of the Senior
Exchangeable Notes, together with all instruments and other agreements entered into by the Borrower
or Holdings in connection therewith.
Senior Exchangeable Notes: the senior exchangeable notes of the Borrower issued
pursuant to the Senior Exchangeable Note Indenture.
Senior Note Indenture: the Indenture dated as of July 14, 2006 entered into by the
Borrower and Holdings in connection with the issuance of the Senior Notes, together with all
instruments and other agreements entered into by the Borrower or Holdings in connection therewith.
Senior Notes: the senior notes of the Borrower issued pursuant to the Senior Note
Indenture.
-19-
Single Employer Plan: any Plan that is covered by Title IV of ERISA, but that is
not a Multiemployer Plan.
Solvent: when used with respect to any Person, means that, as of any date of
determination, (a) the amount of the present fair saleable value of the assets of such Person
will, as of such date, exceed the amount of all liabilities of such Person, contingent or
otherwise, as of such date, as such quoted terms are determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater than the amount that
will be required to pay the liability of such Person on its debts as such debts become absolute and
matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital
with which to conduct its business, and (d) such Person will be able to pay its debts as they
mature. For purposes of this definition, (i) debt means liability on a claim, and (ii) claim
means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach
gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
Specified Change of Control: a Change of Control or Designated Event (or any
other defined term having a similar purpose) as defined in the Senior Note Indenture or the Senior
Exchangeable Note Indenture.
Subsidiary: as to any Person, a corporation, partnership, limited liability company
or other entity of which shares of stock or other ownership interests having ordinary voting power
(other than stock or such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such
Person. Unless otherwise qualified, all references to a Subsidiary or to Subsidiaries in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
Subsidiary Guarantor: each Subsidiary of the Borrower other than any Excluded
Foreign Subsidiary and any Excluded Subsidiary.
Swap Agreement: any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries
shall be a Swap Agreement.
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Swingline Commitment: the obligation of the Swingline Lender to make Swingline
Loans pursuant to Section 2.6 in an aggregate principal amount at any one time outstanding not to
exceed $25,000,000.
Swingline Lender: JPMorgan Chase Bank, N.A., in its capacity as the lender of
Swingline Loans.
Swingline Loans: as defined in Section 2.6.
Swingline Participation Amount: as defined in Section 2.7.
Syndication Agent: as defined in the preamble hereto.
Term Commitment: as to any Lender, the obligation of such Lender, if any, to make a
Term Loan to the Borrower in a principal amount not to exceed the amount set forth under the
heading Term Commitment opposite such Lenders name on Schedule 1.1A. The original aggregate
amount of the Term Commitments is $66,000,000.
Term Lender: each Lender that has a Term Commitment or that holds a Term Loan.
Term Loan: as defined in Section 2.1, and including any incremental Term Loans made
pursuant to Section 2.23.
Term Loan Maturity Date: November 8, 2011.
Term Percentage: as to any Term Lender at any time, the percentage which such
Lenders Term Commitment then constitutes of the aggregate Term Commitments (or, at any time after
the Funding Date, the percentage which the aggregate principal amount of such Lenders Term Loans
then outstanding constitutes of the aggregate principal amount of the Term Loans then outstanding).
Total Asset Value: an amount equal to the sum, without duplication, of (i) the
lower of the undepreciated cost or market value of all Real Properties that are 100% fee owned or
ground-leased by the Group Members, plus (ii) the pro-rata share of the lower of the undepreciated
cost or market value of all Real Properties that are less than 100% fee owned or ground-leased by
the Group Members, plus (iii) unrestricted cash and Cash Equivalents of the Group Members in excess
of $10,000,000, plus (iv) the book value of (A) notes receivable of the Group Members which are
secured by mortgage Liens on real estate and which are not more than 60 days past due or otherwise
in default after giving effect to applicable cure periods (Mortgage Notes) and (B) notes
receivable of Group Members (1) under which the obligor (or the guarantor thereof) is the operator
of a medical property for which a Group Member is the lessor or mortgagee, (2) which are
cross-defaulted to the lease or Mortgage Note held by such Group Member, (3) which are not more
than 60 days past due or otherwise in default after giving effect to applicable cure periods, and
(4) which are set forth in a schedule provided to the Administrative Agent and have been approved
by the Required Lenders (provided that not more than $50,000,000 of Total Asset Value may be
attributable to notes receivable described in this clause (B)), all as determined on a consolidated
basis in accordance with GAAP.
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Total EBITDA: for any fiscal period, total EBITDA of the Group Members and the
Borrowers prorata share of EBITDA of unconsolidated Subsidiaries and joint ventures of the
Borrower.
Total Fixed Charges: for any fiscal period, an amount equal to the sum of (i)
Interest Expense, (ii) regularly scheduled installments of principal payable with respect to all
Total Indebtedness (but excluding any balloon payments due at maturity), plus (iii) all dividend
payments due to the holders of any preferred shares of beneficial interest of Holdings and all
distributions due to the holders of any limited partnership interests in the Borrower other than
limited partner distributions based on the per share dividend paid on the common shares of
beneficial interest of the Company (including the Borrowers prorata share thereof for
unconsolidated Subsidiaries and joint ventures).
Total Indebtedness: all Indebtedness of the Group Members and the Borrowers
prorata share of all Indebtedness of unconsolidated Subsidiaries and joint ventures of the
Borrower.
Total Leverage Ratio: as defined in Section 7.1(a).
Total Revolving Commitments: at any time, the aggregate amount of the Revolving
Commitments then in effect.
Total Revolving Extensions of Credit: at any time, the aggregate amount of the
Revolving Extensions of Credit of the Revolving Lenders outstanding at such time.
Transferee: any Assignee or Participant.
Type: as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
United States: the United States of America.
Wholly Owned Subsidiary: as to any Person, any other Person all of the Capital
Stock of which (other than directors qualifying shares required by law) is owned by such Person
directly and/or through other Wholly Owned Subsidiaries.
Wholly Owned Subsidiary Guarantor: any Subsidiary Guarantor that is a Wholly Owned
Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when used in the other Loan Documents or
any certificate or other document made or delivered pursuant hereto or thereto.
(a) As used herein and in the other Loan Documents, and any certificate or other document
made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member
not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not
defined, shall have the respective meanings given to them under GAAP, (ii) the words include,
includes and including shall be deemed to be followed by the phrase without limitation,
(iii) the word incur shall be construed to mean incur, create, issue,
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assume, become liable in respect of or suffer to exist (and the words incurred and
incurrence shall have correlative meanings), (iv) the words asset and property shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold
interests and contract rights, and (v) references to agreements or other Contractual Obligations
shall, unless otherwise specified, be deemed to refer to such agreements or Contractual
Obligations as amended, supplemented, restated or otherwise modified from time to time.
(b) The words hereof, herein and hereunder and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Commitments. Subject to the terms and conditions hereof, each Term Lender
severally agrees to make a term loan (a Term Loan) to the Borrower on the Funding Date in
an amount not to exceed the amount of the Term Commitment of such Lender. The Term Loans may from
time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.2 and 2.12. The Lenders commitments to make
the Term Loan shall expire on November 30, 2007 if the Funding Date has not occurred by such date.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the Administrative
Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 1:00
P.M., New York City time, on the anticipated Funding Date) requesting that the Term Lenders make
the Term Loans on the Funding Date and specifying the amount to be borrowed. Upon receipt of such
notice the Administrative Agent shall promptly notify each Term Lender thereof. Not later than
4:00 P.M., New York City time, on the Funding Date each Term Lender shall make available to the
Administrative Agent at the Funding Office an amount in immediately available funds equal to the
Term Loan to be made by such Lender. The Administrative Agent shall credit the account of the
Borrower on the books of such office of the Administrative Agent with the aggregate of the amounts
made available to the Administrative Agent by the Term Lenders in immediately available funds.
2.3 Repayment of Term Loans.
(a) The Term Loan of each Lender shall mature in 16 consecutive quarterly installments,
each of which shall be in an amount equal to such Lenders Term Percentage multiplied by the
amount set forth below opposite such installment:
|
|
|
Installment |
|
Principal Amount |
|
|
|
December 31, 2007
|
|
$165,000 |
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|
|
|
Installment |
|
Principal Amount |
|
|
|
March 31, 2008
|
|
$165,000 |
June 30, 2008
|
|
$165,000 |
September 30, 2008
|
|
$165,000 |
December 31, 2008
|
|
$165,000 |
March 31, 2009
|
|
$165,000 |
June 30, 2009
|
|
$165,000 |
September 30, 2009
|
|
$165,000 |
December 31, 2009
|
|
$165,000 |
March 31, 2010
|
|
$165,000 |
June 30, 2010
|
|
$165,000 |
September 30, 2010
|
|
$165,000 |
December 31, 2010
|
|
$165,000 |
March 31, 2011
|
|
$165,000 |
June 30, 2011
|
|
$165,000 |
September 30, 2011
|
|
$165,000 |
Term Loan Maturity Date
|
|
$63,360,000 or remaining principal amount of Term Loans |
2.4 Revolving Commitments.
(a) Subject to the terms and conditions hereof, each Revolving Lender severally agrees to
make revolving credit loans (Revolving Loans) to the Borrower from time to time during
the Revolving Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lenders Revolving Percentage of the sum of (i) the L/C Obligations
then outstanding and (ii) the aggregate principal amount of the Swingline Loans then outstanding,
does not exceed the amount of such Lenders Revolving Commitment. During the Revolving
Commitment Period the Borrower may use the Revolving Commitments by borrowing, prepaying the
Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans,
as determined by the Borrower and notified to the Administrative Agent in accordance with
Sections 2.5 and 2.12.
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(b) The Borrower shall repay all outstanding Revolving Loans on the Revolving Termination
Date.
2.5 Procedure for Revolving Loan Borrowing. The Borrower may borrow under the
Revolving Commitments during the Revolving Commitment Period on any Business Day, provided
that the Borrower shall give the Administrative Agent irrevocable notice in the form of Exhibit
E (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City
time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar
Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of ABR Loans)
(provided that any such notice of a borrowing of ABR Loans under the Revolving Facility to
finance payments required by Section 3.5 may be given not later than 10:00 A.M., New York City
time, on the date of the proposed borrowing), specifying (i) the amount and Type of Revolving Loans
to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the initial Interest
Period therefor, and certifying that the conditions set forth in Section 5.2 are satisfied. Each
borrowing under the Revolving Commitments shall be in an amount equal to (x) in the case of ABR
Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving
Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided, that the
Swingline Lender may request, on behalf of the Borrower, borrowings under the Revolving Commitments
that are ABR Loans in other amounts pursuant to Section 2.7. Upon receipt of any such notice from
the Borrower, the Administrative Agent shall promptly notify each Revolving Lender thereof. Each
Revolving Lender will make the amount of its pro rata share of each borrowing
available to the Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be made available to
the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the Administrative Agent by the
Revolving Lenders and in like funds as received by the Administrative Agent.
2.6 Swingline Commitment.
(a) Subject to the terms and conditions hereof, the Swingline Lender agrees to make a
portion of the credit otherwise available to the Borrower under the Revolving Commitments from
time to time during the Revolving Commitment Period by making swing line loans (Swingline
Loans) to the Borrower; provided that (i) the aggregate principal amount of
Swingline Loans outstanding at any time shall not exceed the Swingline Commitment then in effect
(notwithstanding that the Swingline Loans outstanding at any time, when aggregated with the
Swingline Lenders other outstanding Revolving Loans, may exceed the Swingline Commitment then in
effect) and (ii) the Borrower shall not request, and the Swingline Lender shall not make, any
Swingline Loan if, after giving effect to the making of such Swingline Loan, the aggregate amount
of the Available Revolving Commitments would be less than zero. During the Revolving Commitment
Period, the Borrower may use the Swingline Commitment by borrowing, repaying and reborrowing, all
in accordance with the terms and conditions hereof. Swingline Loans shall be ABR Loans only.
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(b) The Borrower shall repay to the Swingline Lender the then unpaid principal amount of
each Swingline Loan on the earlier of the Revolving Termination Date and the first date after
such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two
Business Days after such Swingline Loan is made; provided that on each date that a
Revolving Loan is borrowed, the Borrower shall repay all Swingline Loans then outstanding.
2.7 Procedure for Swingline Borrowing; Refunding of Swingline Loans.
(a) Whenever the Borrower desires that the Swingline Lender make Swingline Loans it shall
give the Swingline Lender irrevocable telephonic notice confirmed promptly in writing in the form
of Exhibit E (which telephonic notice must be received by the Swingline Lender not later
than 1:00 P.M., New York City time, on the proposed Borrowing Date), specifying (i) the amount to
be borrowed and (ii) the requested Borrowing Date (which shall be a Business Day during the
Revolving Commitment Period), and certifying that the conditions set forth in Section 5.2 are
satisfied. Each borrowing under the Swingline Commitment shall be in an amount equal to $500,000
or a whole multiple of $100,000 in excess thereof. Not later than 3:00 P.M., New York City time,
on the Borrowing Date specified in a notice in respect of Swingline Loans, the Swingline Lender
shall make available to the Administrative Agent at the Funding Office an amount in immediately
available funds equal to the amount of the Swingline Loan to be made by the Swingline Lender.
The Administrative Agent shall make the proceeds of such Swingline Loan available to the Borrower
on such Borrowing Date by depositing such proceeds in the account of the Borrower with the
Administrative Agent on such Borrowing Date in immediately available funds.
(b) The Swingline Lender, at any time and from time to time in its sole and absolute
discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swingline Lender
to act on its behalf), on one Business Days notice given by the Swingline Lender no later than
12:00 Noon, New York City time, request each Revolving Lender to make, and each Revolving Lender
hereby agrees to make, a Revolving Loan, in an amount equal to such Revolving Lenders Revolving
Percentage of the aggregate amount of the Swingline Loans (the Refunded Swingline
Loans) outstanding on the date of such notice, to repay the Swingline Lender. Each
Revolving Lender shall make the amount of such Revolving Loan available to the Administrative
Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., New York
City time, one Business Day after the date of such notice. The proceeds of such Revolving Loans
shall be immediately made available by the Administrative Agent to the Swingline Lender for
application by the Swingline Lender to the repayment of the Refunded Swingline Loans. The
Borrower irrevocably authorizes the Swingline Lender to charge the Borrowers accounts with the
Administrative Agent (up to the amount available in each such account) in order to immediately
pay the amount of such Refunded Swingline Loans to the extent amounts received from the Revolving
Lenders are not sufficient to repay in full such Refunded Swingline Loans.
(c) If prior to the time a Revolving Loan would have otherwise been made pursuant to
Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing
with respect to the Borrower or if for any other reason, as determined by the Swingline Lender in
its sole discretion, Revolving Loans may not be made as contemplated by Section 2.7(b), each
Revolving Lender shall, on the date such Revolving Loan was to have
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been made pursuant to the notice referred to in Section 2.7(b), purchase for cash an
undivided participating interest in the then outstanding Swingline Loans by paying to the
Swingline Lender an amount (the Swingline Participation Amount) equal to (i) such
Revolving Lenders Revolving Percentage times (ii) the sum of the aggregate principal
amount of Swingline Loans then outstanding that were to have been repaid with such Revolving
Loans.
(d) Whenever, at any time after the Swingline Lender has received from any Revolving Lender
such Lenders Swingline Participation Amount, the Swingline Lender receives any payment on
account of the Swingline Loans, the Swingline Lender will distribute to such Lender its Swingline
Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the
period of time during which such Lenders participating interest was outstanding and funded and,
in the case of principal and interest payments, to reflect such Lenders pro rata
portion of such payment if such payment is not sufficient to pay the principal of and interest on
all Swingline Loans then due); provided, however, that in the event that such
payment received by the Swingline Lender is required to be returned, such Revolving Lender will
return to the Swingline Lender any portion thereof previously distributed to it by the Swingline
Lender.
(e) Each Revolving Lenders obligation to make the Loans referred to in Section 2.7(b) and
to purchase participating interests pursuant to Section 2.7(c) shall be absolute and
unconditional and shall not be affected by any circumstance, including (i) any setoff,
counterclaim, recoupment, defense or other right that such Revolving Lender or the Borrower may
have against the Swingline Lender, the Borrower or any other Person for any reason whatsoever,
(ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy
any of the other conditions specified in Section 5, (iii) any adverse change in the condition
(financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan
Document by the Borrower, any other Loan Party or any other Revolving Lender or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.
2.8 Commitment Fees, etc.
(a) The Borrower agrees to pay to the Administrative Agent for the account of each
Revolving Lender a commitment fee for the period from and including the date hereof to the last
day of the Revolving Commitment Period, computed at the Commitment Fee Rate on the average daily
amount of the Available Revolving Commitment of such Lender during the period for which payment
is made, payable quarterly in arrears on each Fee Payment Date, commencing on the first such date
to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on
the dates as set forth in any fee agreements with the Administrative Agent and to perform any
other obligations contained therein.
2.9 Termination or Reduction of Revolving Commitments. The Borrower shall have the
right, upon not less than three Business Days notice to the Administrative Agent, to terminate the
Revolving Commitments or, from time to time, to reduce the amount of the Revolving Commitments;
provided that no such termination or reduction of Revolving Commitments shall
-27-
be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans and
Swingline Loans made on the effective date thereof, the Total Revolving Extensions of Credit would
exceed the Total Revolving Commitments. Any such reduction shall be in an amount equal to
$1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Commitments
then in effect.
2.10 Optional Prepayments. The Borrower may at any time and from time to time prepay
the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to
the Administrative Agent no later than 11:00 A.M., New York City time, three Business Days prior
thereto, in the case of Eurodollar Loans, no later than 11:00 A.M., New York City time, one
Business Day prior thereto, in the case of Term Loans and Revolving Loans which are ABR Loans, and
no later than 11:00 A.M. New York City time on the date of prepayment, in the case of Swingline
Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is
of Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any
amounts owing pursuant to Section 2.20. Upon receipt of any such notice the Administrative Agent
shall promptly notify each relevant Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein, together with
(except in the case of Revolving Loans that are ABR Loans and Swingline Loans) accrued interest to
such date on the amount prepaid. Partial prepayments of Term Loans shall be in an aggregate
principal amount of $1,000,000 or a whole multiple thereof. Partial prepayments of Swingline Loans
shall be in an aggregate principal amount of $100,000 or a whole multiple thereof.
2.11 Mandatory Prepayments and Commitment Reductions.
(a) If any Indebtedness shall be incurred by any Group Member (excluding any Indebtedness
incurred in accordance with Section 7.2, other than Indebtedness incurred in accordance with
paragraph (f) thereof but excluding any purchase money Indebtedness incurred in connection with
an acquisition permitted by Section 7.8(g)), an amount equal to 50% of the Net Cash Proceeds
thereof shall be applied on the date of such incurrence toward the prepayment of the Term Loans
and Revolving Loans as set forth in Section 2.11(d).
(b) If on any date any Group Member shall receive Net Cash Proceeds from any Asset Sale or
Recovery Event then, unless a Reinvestment Notice shall have been delivered in respect thereof,
50% of such Net Cash Proceeds shall be applied within five (5) Business Days of such date toward
the prepayment of the Term Loans and Revolving Loans as set forth in Section 2.11(d);
provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of
Asset Sales that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice
shall not exceed $25,000,000 in any fiscal year of the Borrower, (ii) if such Net Cash Proceeds
are not reinvested within five (5) Business Days of the date such Net Cash Proceeds are received,
the Borrower shall apply such Net Cash Proceeds within five (5) Business Days of the date of
receipt to the repayment of the Revolving Credit Loans (without any corresponding reduction of
the Revolving Commitments), (iii) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied
toward the prepayment of the Term Loans and the Revolving Loans as set forth in Section 2.11(d),
and to the extent that the Borrower
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has applied Net Cash Proceeds to the repayment of Revolving Loans pursuant to clause (ii)
above, the Borrower shall reborrow Revolving Loans in the amount of the Reinvestment Prepayment
Amount and apply such proceeds to the prepayment of Term Loans and Revolving Loans as set forth
in Section 2.11(d).
(c) The Borrower shall repay all outstanding Term Loans on the Term Loan Maturity Date.
The Borrower shall repay all outstanding Revolving Loans on the Revolving Termination Date.
(d) Amounts to be applied in connection with prepayments made pursuant to Section 2.11
(other than the Net Cash Proceeds from the incurrence of Indebtedness secured by a Lien on a
Borrowing Base Property) shall be applied, first, to the prepayment of the Term Loans in
accordance with Section 2.17(b), second, to the prepayment of Swingline Loans (without
any corresponding reduction of the Revolving Commitments), third, to the prepayment of
Revolving Loans (without any corresponding reduction of the Revolving Commitments), and
fourth, to cash collateralize Letters of Credit by depositing an amount in cash in a cash
collateral account established with the Administrative Agent for the benefit of the Revolving
Lenders on terms and conditions satisfactory to the Administrative Agent. Amounts to be applied
in connection with prepayments made pursuant to Section 2.11(a) from the Net Cash Proceeds from
the incurrence of Indebtedness secured by a Lien on a Borrowing Base Property shall be applied,
first, to the prepayment of Swingline Loans (without any corresponding reduction of the
Revolving Commitments), second, to the prepayment of Revolving Loans (without any
corresponding reduction of the Revolving Commitments), third to the prepayment of the
Term Loans in accordance with Section 2.17(b), , and fourth, to cash collateralize
Letters of Credit by depositing an amount in cash in a cash collateral account established with
the Administrative Agent for the benefit of the Revolving Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment pursuant to Section
2.11 shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each
prepayment of the Loans under Section 2.11 (except in the case of Revolving Loans that are ABR
Loans and Swingline Loans) shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
2.12 Conversion and Continuation Options.
(a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by
giving the Administrative Agent prior irrevocable notice of such election no later than 11:00
A.M., New York City time, on the Business Day preceding the proposed conversion date,
provided that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR
Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable notice of such
election no later than 11:00 A.M., New York City time, on the third Business Day preceding the
proposed conversion date (which notice shall specify the length of the initial Interest Period
therefor), provided that no ABR Loan under a particular Facility may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative
Agent or the Majority Facility Lenders in respect of such Facility have determined in its or
their sole discretion not to permit such conversions. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
-29-
(b) Any Eurodollar Loan may be continued as such upon the expiration of the then current
Interest Period with respect thereto by the Borrower giving irrevocable notice to the
Administrative Agent, in accordance with the applicable provisions of the term Interest Period
set forth in Section 1.1, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan under a particular Facility may be continued as
such when any Event of Default has occurred and is continuing and the Administrative Agent has or
the Majority Facility Lenders in respect of such Facility have determined in its or their sole
discretion not to permit such continuations, and provided, further, that if the
Borrower shall fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically
converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of
any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.
2.13 Limitations on Eurodollar Tranches. Notwithstanding anything to the contrary in
this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and all
selections of Interest Periods shall be in such amounts and be made pursuant to such elections so
that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans
comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000
in excess thereof and (b) no more than five (5) Eurodollar Tranches shall be outstanding at any one
time.
2.14 Interest Rates and Payment Dates.
(a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with
respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the
Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation
shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all
outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a
rate per annum equal to (x) in the case of the Loans, the rate that would otherwise be applicable
thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case
of Reimbursement Obligations, the rate applicable to ABR Loans under the Revolving Facility
plus 2%, and (ii) if all or a portion of any interest payable on any Loan or any
commitment fee or other amount payable hereunder shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum equal to the rate then applicable to ABR Loans under the relevant Facility plus
2% (or, in the case of any such other amounts that do not relate to a particular Facility, the
rate then applicable to ABR Loans under the Revolving Facility plus 2%), in each case,
with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount
is paid in full (as well after as before judgment).
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(d) Interest shall be payable in arrears on each Interest Payment Date, provided
that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to
time on demand of the Administrative Agent.
2.15 Computation of Interest and Fees.
(a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day
year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on
which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on
the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of
each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting
from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of
the opening of business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective
date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in
the absence of manifest error. The Administrative Agent shall, at the request of the Borrower,
deliver to the Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.14(a).
2.16 Inability to Determine Interest Rate. If prior to the first day of any Interest
Period:
(a) the Administrative Agent shall have determined (which determination shall be conclusive
and binding upon the Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest
Period, or
(b) the Administrative Agent shall have received notice from the Majority Facility Lenders
in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their affected Loans during such
Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the
relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar
Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y)
any Loans that were to have been converted on the first day of such Interest Period to Eurodollar
Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted,
on the last day of the then-current Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as
such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans.
2.17 Pro Rata Treatment and Payments.
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(a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower
on account of any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Term Percentages or Revolving
Percentages, as the case may be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on account of principal of and
interest on the Term Loans shall be made pro rata according to the respective
outstanding principal amounts of the Term Loans then held by the Term Lenders. The amount of
each principal prepayment of the Term Loans shall be applied to reduce the then remaining
installments of the Term Loans pro rata based upon the respective then remaining
principal amounts thereof. Amounts repaid or prepaid on account of the Term Loans may not be
reborrowed.
(c) Each payment (including each prepayment) by the Borrower on account of principal of and
interest on the Revolving Loans shall be made pro rata according to the
respective outstanding principal amounts of the Revolving Loans then held by the Revolving
Lenders.
(d) All payments (including prepayments) to be made by the Borrower hereunder, whether on
account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim
and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the
Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than
payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day unless the result of such extension would
be to extend such payment into another calendar month, in which event such payment shall be made
on the immediately preceding Business Day. In the case of any extension of any payment of
principal pursuant to the preceding two sentences, interest thereon shall be payable at the then
applicable rate during such extension.
(e) Unless the Administrative Agent shall have been notified in writing by any Lender prior
to a borrowing that such Lender will not make the amount that would constitute its share of such
borrowing available to the Administrative Agent, the Administrative Agent may assume that such
Lender is making such amount available to the Administrative Agent, and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If
such amount is not made available to the Administrative Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon, at a rate equal to the greater of (i) the Federal Funds Effective
Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation, for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the Administrative Agent submitted to
any Lender with respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lenders share of such borrowing is not made available to the
Administrative Agent by such
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Lender within three Business Days after such Borrowing Date, the Administrative Agent shall
also be entitled to recover such amount with interest thereon at the rate per annum applicable to
ABR Loans, on demand, from the Borrower.
(f) Unless the Administrative Agent shall have been notified in writing by the Borrower
prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will
not make such payment to the Administrative Agent, the Administrative Agent may assume that the
Borrower is making such payment, and the Administrative Agent may, but shall not be required to,
in reliance upon such assumption, make available to the Lenders their respective pro
rata shares of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days after such due date, the Administrative Agent
shall be entitled to recover, on demand, from each Lender to which any amount which was made
available pursuant to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to
limit the rights of the Administrative Agent or any Lender against the Borrower.
2.18 Requirements of Law. (a) If the adoption of or any change in any Requirement
of Law or in the interpretation or application thereof or compliance by any Lender with any request
or directive (whether or not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.19 and
changes in the rate of tax on or measured by the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory
loan or similar requirement against assets held by, deposits or other liabilities in or for
the account of, advances, loans or other extensions of credit by, or any other acquisition
of funds by, any office of such Lender that is not otherwise included in the determination
of the Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender, by an amount that
such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar
Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for such increased cost
or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any change in any
Requirement of Law regarding capital adequacy or in the interpretation or application thereof
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or compliance by such Lender or any corporation controlling such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) from any
Governmental Authority made subsequent to the date hereof shall have the effect of reducing the
rate of return on such Lenders or such corporations capital as a consequence of its obligations
hereunder or under or in respect of any Letters of Credit to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or compliance (taking into
consideration such Lenders or such corporations policies with respect to capital adequacy) by
an amount deemed by such Lender to be material, then from time to time, after submission by such
Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor,
the Borrower shall pay to such Lender such additional amount or amounts as will compensate such
Lender or such corporation for such reduction.
(c) A certificate as to any additional amounts payable pursuant to this Section submitted
by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in
the absence of manifest error. Notwithstanding anything to the contrary in this Section, the
Borrower shall not be required to compensate a Lender pursuant to this Section for any amounts
incurred more than nine months prior to the date that such Lender notifies the Borrower of such
Lenders intention to claim compensation therefor; provided that, if the circumstances
giving rise to such claim have a retroactive effect, then such nine-month period shall be
extended to include the period of such retroactive effect. The obligations of the Borrower
pursuant to this Section shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.19 Taxes.
(a) All payments made by the Borrower under this Agreement shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net
income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the
Administrative Agent or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing
such tax or any political subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Administrative Agent or such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings (Non-Excluded Taxes) or Other Taxes are required to be
withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the
amounts so payable to the Administrative Agent or such Lender shall be increased to the extent
necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded
Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement, provided, however, that the Borrower
shall not be required to increase any such amounts payable to any Lender with respect to any
Non-Excluded Taxes (i) that are attributable to such Lenders failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to
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such Lender at the time such Lender becomes a party to this Agreement, except to the extent
that such Lenders assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this
paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly
as possible thereafter the Borrower shall send to the Administrative Agent for its own account or
for the account of the relevant Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required documentary evidence,
the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a U.S. Person as defined in Section
7701(a)(30) of the Code (a Non-U.S. Lender) shall deliver to the Borrower and the
Administrative Agent (or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form
W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of portfolio
interest, a statement substantially in the form of Exhibit H and a Form W-8BEN, or any
subsequent versions thereof or successors thereto, properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding
tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such
forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this
Agreement (or, in the case of any Participant, on or before the date such Participant purchases
the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.
Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no
longer in a position to provide any previously delivered certificate to the Borrower (or any
other form of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to
deliver.
(e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax
under the law of the jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without withholding or at a
reduced rate, provided that such Lender is legally entitled to complete, execute and
deliver such documentation and in such Lenders
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judgment such completion, execution or submission would not materially prejudice the legal
position of such Lender.
(f) If the Administrative Agent or any Lender determines, in its sole discretion, that it
has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 2.19, it shall pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section
2.19 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund), net of
all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to such refund);
provided, that the Borrower, upon the request of the Administrative Agent or such Lender,
agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to the Administrative Agent or such
Lender in the event the Administrative Agent or such Lender is required to repay such refund to
such Governmental Authority. This paragraph shall not be construed to require the Administrative
Agent or any Lender to make available its tax returns (or any other information relating to its
taxes which it deems confidential) to the Borrower or any other Person.
(g) The agreements in this Section shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
2.20 Indemnity. The Borrower agrees to indemnify each Lender for, and to hold each
Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of
(a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance with the provisions
of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from
Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of
this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last
day of an Interest Period with respect thereto. Such indemnification shall be the amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, at the Eurodollar Rate that would have been applicable
for the period from the date of such prepayment or of such failure to borrow, convert or continue
to the last day of such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such failure) in each case
at the applicable rate of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) that would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A
certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any
Lender shall be conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
2.21 Change of Lending Office. Each Lender agrees that, upon the occurrence of any
event giving rise to the operation of Section 2.18 or 2.19(a) with respect to such Lender, it will,
if
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requested by the Borrower, use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such designation is made
on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to
suffer no economic, legal or regulatory disadvantage, and provided, further, that
nothing in this Section shall affect or postpone any of the obligations of the Borrower or the
rights of any Lender pursuant to Section 2.18 or 2.19(a).
2.22 Replacement of Lenders. The Borrower shall be permitted to replace any Lender
that (a) requests reimbursement for amounts owing pursuant to Section 2.18 or 2.19(a) or (b)
defaults in its obligation to make Loans hereunder, with a replacement financial institution;
provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no
Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior
to any such replacement, such Lender shall have taken no action under Section 2.21 so as to
eliminate the continued need for payment of amounts owing pursuant to Section 2.18 or 2.19(a), (iv)
the replacement financial institution shall purchase, at par, all Loans and other amounts owing to
such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to
such replaced Lender under Section 2.20 if any Eurodollar Loan owing to such replaced Lender shall
be purchased other than on the last day of the Interest Period relating thereto, (vi) the
replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in
accordance with the provisions of Section 10.6 (provided that the Borrower shall be obligated to
pay the registration and processing fee referred to therein), (viii) until such time as such
replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required
pursuant to Section 2.18 or 2.19(a), as the case may be, and (ix) any such replacement shall not be
deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender
shall have against the replaced Lender.
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2.23 Incremental Commitments. (a) The Borrower may, by written notice to the
Administrative Agent on up to two (2) occasions during the period from the Closing Date to the
eighteen (18) month anniversary of the Closing Date, request incremental Term Commitments and/or
incremental Revolving Commitments, as applicable, in an amount not to exceed the aggregate amount
of $130,000,000 from one or more additional Term Lenders and/or additional Revolving Lenders (which
may include any existing Lender) willing to provide such incremental Term Loans and/or incremental
Revolving Commitments, as the case may be, in their own discretion; provided, that each incremental
Revolving Lender and incremental Term Lender shall be subject to the approval of the Administrative
Agent (which approval shall not be unreasonably withheld) unless, in the case of any incremental
Lender, such incremental Lender is a Lender, an Affiliate of a Lender or an Approved Fund. Such
notice shall set forth (i) the amount of the incremental Term Commitments and/or incremental
Revolving Commitments being requested, (ii) the aggregate amount of all incremental Term
Commitments and incremental Revolving Commitments, when taken together with all other incremental
Commitments, shall not exceed $130,000,000 in the aggregate (the Incremental Limit), and
(iii) the date on which such incremental Term Commitments and/or incremental Revolving Commitments
are requested to become effective (the Increased Amount Date). The Administrative Agent
and/or its Affiliates shall use commercially reasonable efforts, with the assistance of the
Borrower, to arrange a syndicate of Lenders willing to hold the requested incremental Term
Commitments and/or incremental Revolving Commitments.
(b) The Borrower and each incremental Term Lender and/or incremental Revolving Lender shall
execute and deliver to the Administrative Agent such documentation as the Administrative Agent
shall reasonably specify to evidence the incremental Term Commitment of such incremental Term
Lender and/or incremental Revolving Commitment of such incremental Revolving Lender. Each such
documentation shall specify the terms of the applicable incremental Term Loans and/or incremental
Revolving Commitments; provided, that (i) the incremental Term Loans shall rank pari passu in
right of payment and of security with the Term Loans and shall have the same terms as the Term
Loans (including as to pricing, maturity and amortization) and (ii) from and after the
effectiveness of each amendment or other documentation, the associated incremental Revolving
Commitments shall thereafter be Revolving Commitments with the same terms as the Revolving
Commitments (including as to pricing and maturity). Each of the parties hereto hereby agrees
that, upon the effectiveness of any such documentation, this Agreement shall be amended to the
extent (but only to the extent) necessary to reflect the existence and terms of the incremental
Term Commitments and/or incremental Revolving Commitments evidenced thereby (including adjusting
the Revolving Percentages and/or the Term Percentages), and new Notes shall be issued and the
Borrower shall make such borrowings and repayments as shall be necessary to effect the
reallocation of the Commitments, in each case without the consent of the Lenders other than those
Lenders with incremental Revolving Commitments and/or Term Commitments. The fees payable by the
Borrower upon any such incremental Revolving Commitments and/or Term Commitments shall be agreed
upon by the Administrative Agent, the Lenders with incremental Revolving Commitments and/or Term
Commitments and the Borrower at the time of such increase.
Notwithstanding the forgoing, nothing in this Section 2.23 shall constitute or be deemed to
constitute an agreement by any Lender to increase its Commitments hereunder.
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(c) Notwithstanding the foregoing, no incremental Term Commitment or incremental Revolving
Commitment shall become effective under this Section 2.23 unless (i) on the date of such
effectiveness, the conditions set forth in Section 5.2 shall be satisfied and the Administrative
Agent shall have received a certificate to that effect dated such date and executed by a
Responsible Officer of the Borrower, (ii) the Administrative Agent shall have received customary
legal opinions, board resolutions and other customary closing certificates and documentation as
required by the relevant amendment or other documentation and, to the extent required by the
Administrative Agent, consistent with those delivered on the Closing Date under Section 5.1 and
such additional customary documents and filings as the Administrative Agent may reasonably
require, and (iii) the Borrower shall be in pro forma compliance with the covenants set forth in
Section 7.1 after giving effect to such incremental Term Commitment and/or incremental Revolving
Commitments, the Loans to be made thereunder and the application of the proceeds therefrom as if
made and applied on such date.
(d) Each of the parties hereto hereby agrees that the Administrative Agent may take any and
all action as may be reasonably necessary to ensure that (i) all incremental Term Loans (other
than Term Loans) in the form of additional Term Loans, when originally made, are included in each
Borrowing of outstanding Term Loans on a pro rata basis, and (ii) all Revolving Loans in respect
of incremental Revolving Commitments, when originally made, are included in each Borrowing of
outstanding Revolving Loans on a pro rata basis. The Borrower agrees that Section 2.20 shall
apply to any conversion of Eurodollar Loans to ABR Loans reasonably required by the Lenders to
effect the foregoing.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment.
(a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the
agreements of the other Revolving Lenders set forth in Section 3.4(a), agrees to issue letters of
credit (Letters of Credit) for the account of the Borrower on any Business Day during
the Revolving Commitment Period in such form as may be approved from time to time by the Issuing
Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of
Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C
Commitment or (ii) the aggregate amount of the Available Revolving Commitments would be less than
zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than
the earlier of (x) the first anniversary of its date of issuance and (y) the date that is five
Business Days prior to the Revolving Termination Date, provided that any Letter of Credit
with a one-year term may provide for the renewal thereof for additional one-year periods (which
shall in no event extend beyond the date referred to in clause (y) above).
(b) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit if
such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed
any limits imposed by, any applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from time to time
request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its
address for notices specified herein an Application therefor, completed to the satisfaction of the
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Issuing Lender, and such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such
Application and the certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall promptly issue the
Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue
any Letter of Credit earlier than three Business Days after its receipt of the Application therefor
and all such other certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be
agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall
promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders,
notice of the issuance of each Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges.
(a) The Borrower will pay a fee on all outstanding Letters of Credit at a per annum rate
equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the
Revolving Facility on the average daily amount of the L/C Obligations (excluding any portion
thereof attributable to unreimbursed drawings), shared ratably among the Revolving Lenders and
payable quarterly in arrears on each Fee Payment Date after the issuance date. In addition, the
Borrower shall pay to the Issuing Lender for its own account a fronting fee of 0.125% per annum
on the average daily amount of the L/C Obligations (excluding any portion thereof attributable to
unreimbursed drawings), payable quarterly in arrears on each Fee Payment Date after the issuance
date.
(b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing
Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing
Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any
Letter of Credit.
3.4 L/C Participations.
(a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C
Participant, and, to induce the Issuing Lender to issue Letters of Credit, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions set forth below, for such L/C Participants own account and
risk an undivided interest equal to such L/C Participants Revolving Percentage in the Issuing
Lenders obligations and rights under and in respect of each Letter of Credit and the amount of
each draft paid by the Issuing Lender thereunder. Each L/C Participant agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C
Participant shall pay to the Issuing Lender upon demand at the Issuing Lenders address for
notices specified herein an amount equal to such L/C Participants Revolving Percentage of the
amount of such draft, or any part thereof, that is not so reimbursed. Each L/C Participants
obligation to pay such amount shall be absolute and unconditional and shall not be affected by
any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right that
such L/C Participant may have against
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the Issuing Lender, the Borrower or any other Person for any reason whatsoever, (ii) the
occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of
the other conditions specified in Section 5, (iii) any adverse change in the condition (financial
or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan Document by
the Borrower, any other Loan Party or any other L/C Participant or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing
(b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant
to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing
Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after
the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an
amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds
Effective Rate during the period from and including the date such payment is required to the date
on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the
numerator of which is the number of days that elapse during such period and the denominator of
which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business
Days after the date such payment is due, the Issuing Lender shall be entitled to recover from
such L/C Participant, on demand, such amount with interest thereon calculated from such due date
at the rate per annum applicable to ABR Loans under the Revolving Facility. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this
Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment under any Letter of
Credit and has received from any L/C Participant its pro rata share of such
payment in accordance with Section 3.4(a), the Issuing Lender receives any payment related to
such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof,
the Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant
shall return to the Issuing Lender the portion thereof previously distributed by the Issuing
Lender to it.
3.5 Reimbursement Obligation of the Borrower. If any draft is paid under any Letter
of Credit, the Borrower shall reimburse the Issuing Lender for the amount of (a) the draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in
connection with such payment, not later than 12:00 Noon, New York City time, on (i) the Business
Day that the Borrower receives notice of such draft, if such notice is received on such day prior
to 10:00 A.M., New York City time, or (ii) if clause (i) above does not apply, the Business Day
immediately following the day that the Borrower receives such notice;
provided that the Borrower
may, subject to the conditions to borrowing set forth herein, request in accordance with Section
2.5 or Section 2.6 that such payment be financed with an ABR Revolving Loan or Swingline Loan in an
equivalent amount and, to the extent so financed, the Borrowers obligation to make such payment
shall be discharged and replaced by the resulting ABR Revolving Loan or Swingline Loan. Each such
payment shall be made to the Issuing Lender at its address for notices referred to herein in
Dollars and in immediately available funds.
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Interest shall be payable on any such amounts from the date on which the relevant draft is
paid until payment in full at the rate set forth in (x) until the Business Day next succeeding the
date of the relevant notice, Section 2.14(b) and (y) thereafter, Section 2.14(c).
3.6 Obligations Absolute. The Borrowers obligations under this Section 3 shall be
absolute and unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment that the Borrower may have or have had against the Issuing
Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with
the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrowers
Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the
validity or genuineness of documents or of any endorsements thereon, even though such documents
shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the
Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such
Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit, except for errors or omissions found
by a final and nonappealable decision of a court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any
action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or
the related drafts or documents, if done in the absence of gross negligence or willful misconduct,
shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the
Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for payment under any
Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount
thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft
presented for payment under any Letter of Credit shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that the documents
(including each draft) delivered under such Letter of Credit in connection with such presentment
are substantially in conformity with such Letter of Credit.
3.8 Applications. To the extent that any provision of any Application related to any
Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this
Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Agreement and to make
the Loans or to issue or participate in the Letters of Credit, Holdings and the Borrower hereby
jointly and severally represent and warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition.
(a) The pro forma covenant compliance certificate described in Section 5.1(l), copies of
which have heretofore been furnished to each Lender, has been prepared giving effect (as if
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such events had occurred on such date) to (i) the Loans to be made on the Funding Date and
the use of proceeds thereof, (ii) the repayment of Indebtedness under the Existing Credit
Agreement and the Existing Term Loan Agreement and (iii) the payment of fees and expenses in
connection with the foregoing. Such certificate has been prepared based on the best information
available to the Borrower as of the date of delivery thereof, and presents fairly on a
pro forma basis the estimated financial covenant compliance of Borrower and its
consolidated Subsidiaries as at the Funding Date, assuming that the events specified in the
preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of Holdings and its Subsidiaries as at December
31, 2006, and the related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by and accompanied by an unqualified report from KPMG, present
fairly the consolidated financial condition of Holdings and its Subsidiaries as at such date, and
the consolidated results of its operations and its consolidated cash flows for the fiscal year
then ended. The unaudited consolidated balance sheet of Holdings and its Subsidiaries as at
September 30, 2007, and the related unaudited consolidated statements of income and cash flows
for the three-month period ended on such date, present fairly the consolidated financial
condition of Holdings and its Subsidiaries as at such date, and the consolidated results of its
operations and its consolidated cash flows for the three-month period then ended (subject to
normal year-end audit adjustments). All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by the aforementioned firm of accountants and
disclosed therein and except for the lack of footnotes with interim statements). No Group Member
has any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any
long-term leases or unusual forward or long-term commitments, including any interest rate or
foreign currency swap or exchange transaction or other obligation in respect of derivatives, that
are not reflected in the most recent financial statements referred to in this paragraph. During
the period from December 31, 2006 to and including the date hereof there has been no Disposition
by any Group Member of any material part of its business or property other than the prepayment of
the mortgage note of Alliance Hospital and Centinela Hospital Medical Center.
4.2 No Change. Since June 30, 2007, there has been no development or event that has
had or could reasonably be expected to have a Material Adverse Effect.
4.3 Existence; Compliance with Law. Each Group Member (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization, (b) has the
power and authority, and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged, (c) is duly
qualified as a foreign corporation or other organization and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that its failure to be so qualified
could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and (d) is
in compliance with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
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4.4 Power; Authorization; Enforceable Obligations. Each Loan Party has the power and
authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a
party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party
has taken all necessary organizational action to authorize the execution, delivery and performance
of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the
extensions of credit on the terms and conditions of this Agreement. No consent or authorization
of, filing with, notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the extensions of credit hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4,
which consents, authorizations, filings and notices have been obtained or made and are in full
force and effect and (ii) the filings referred to in Section 4.19. Each Loan Document has been
duly executed and delivered on behalf of each Loan Party party thereto. This Agreement
constitutes, and each other Loan Document upon execution will constitute, a legal, valid and
binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors
rights generally and by general equitable principles (whether enforcement is sought by proceedings
in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this Agreement and the
other Loan Documents, the borrowings hereunder, the issuance of the Letters of Credit and the use
of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of
any Group Member, except for any such violation which could not reasonably be expected to have a
Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien
on any of their respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of
Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
4.6 Litigation. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of Holdings or the Borrower,
threatened by or against any Group Member or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or
thereby, or (b) that could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. No Group Member is in default under or with respect to any of its
Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each Group Member has title in fee simple to, or a
valid leasehold interest in, all its Real Property, and good title to, or a valid leasehold
interest in, all its other property (including Mortgage Notes), and none of such property is
subject to any Lien except as permitted by Section 7.3. Each Group Member has obtained customary
title insurance on its Real Property.
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4.9 Intellectual Property. Each Group Member owns, or is licensed to use, all
Intellectual Property necessary for the conduct of its business as currently conducted. No
material claim has been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does
Holdings or the Borrower know of any valid basis for any such claim. The use of Intellectual
Property by each Group Member does not infringe on the rights of any Person in any material
respect.
4.10 Taxes. Each Group Member has filed or caused to be filed all material Federal,
state and other tax returns that are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the relevant Group Member); no tax Lien has been filed, and, to the
knowledge of Holdings and the Borrower, no claim is being asserted, with respect to any such tax,
fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans, and no other
extensions of credit hereunder, will be used (a) for buying or carrying any margin stock
within the respective meanings of each of the quoted terms under Regulation U as now and from time
to time hereafter in effect for any purpose that violates the provisions of the Regulations of the
Board or (b) for any purpose that violates the provisions of the Regulations of the Board. If
requested by any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group
Member pending or, to the knowledge of Holdings or the Borrower, threatened; (b) hours worked by
and payment made to employees of each Group Member have not been in violation of the Fair Labor
Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all
payments due from any Group Member on account of employee health and welfare insurance have been
paid or accrued as a liability on the books of the relevant Group Member.
4.13 ERISA. Neither a Reportable Event nor an accumulated funding deficiency
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the
five-year period prior to the date on which this representation is made or deemed made with respect
to any Plan, and each Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of
the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a
material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or
partial withdrawal from any Multiemployer
Plan that has
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resulted or could reasonably be expected to result in a material liability under
ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any
material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to
withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding
the date on which this representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an investment
company, or a company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any
Requirement of Law (other than Regulation X of the Board) that limits its ability to incur
Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent by the Borrower
in writing from time to time after the Closing Date, (a) Schedule 4.15 sets forth the name and
jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of
each class of Capital Stock owned by any Loan Party and (b) there are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than stock options
granted to employees or directors and directors qualifying shares) of any nature relating to any
Capital Stock of the Borrower or any Subsidiary, except as created by the Loan Documents.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used to repay existing
Indebtedness of the Borrower under the Existing Term Loan Agreement and the Existing Credit
Agreement. The proceeds of the Revolving Loans and the Swingline Loans, and the Letters of Credit,
shall be used for general corporate purposes of the Borrower and its Subsidiaries, including the
financing of working capital needs, the repayment of Indebtedness of the Borrower and its
Subsidiaries and acquisitions permitted by this Agreement.
4.17 Environmental Matters. Except as, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, to the best knowledge of Holdings and the Borrower
after due inquiry:
(a) the facilities and properties owned, leased or operated by any Group Member (the
Properties) do not contain, and have not previously contained during the ownership or
lease of, or operation by, such Group Member, any Materials of Environmental Concern in amounts
or concentrations or under circumstances that constitute or constituted a violation of, or could
give rise to liability under, any Environmental Law;
(b) no Group Member has received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Properties or the business operated by any
Group Member (the Business), nor does Holdings or the Borrower have knowledge or reason
to believe that any such notice will be received or is being threatened;
(c) During the ownership or lease of, or operation by, any Group Member, Materials of
Environmental Concern have not been transported or disposed of from the Properties in
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violation of, or in a manner or to a location that could give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation of, or in a manner that
could give rise to liability under, any applicable Environmental Law;
(d) no judicial proceeding or governmental or administrative action is pending or, to the
knowledge of Holdings and the Borrower, threatened, under any Environmental Law to which any
Group Member is or will be named as a party with respect to the Properties or the Business, nor
are there any consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any Environmental Law
with respect to the Properties or the Business;
(e) During the ownership or lease of, or operation by, any Group Member, there has been no
release or threat of release of Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of any Group Member in connection with the Properties
or otherwise in connection with the Business, in violation of or in amounts or in a manner that
could give rise to liability under Environmental Laws;
(f) the Properties and all operations at the Properties are in compliance, and have during
the ownership or lease of, or operation by, any Group Member been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the Properties or the Business; and
(g) no Group Member has assumed any liability of any other Person under Environmental Laws.
4.18 Accuracy of Information, etc. The statements and information contained in this
Agreement, any other Loan Document, the Confidential Information Memorandum, or any other document,
certificate or statement furnished by or on behalf of any Loan Party to the Administrative Agent or
the Lenders, or any of them, for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, taken as a whole, do not contain as of the date such
statement, information, document or certificate was so furnished and as updated from time to time,
any untrue statement of a material fact or omitted to state a material fact necessary to make the
statements contained herein or therein not misleading. The projections and pro
forma financial information contained in the materials referenced above are based upon good
faith estimates and assumptions believed by management of the Borrower to be reasonable at the time
made, it being recognized by the Lenders that such financial information as it relates to future
events is not to be viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth therein by a material
amount. There is no fact known to any Loan Party that could reasonably be expected to have a
Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents,
the Confidential Information Memorandum, or in any other documents, certificates and statements
furnished to the Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
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4.19 Security Documents. The Guarantee and Collateral Agreement is effective to
create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable security interest in the Collateral described therein and proceeds thereof. In the
case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock
certificates representing such Pledged Stock which are represented by certificates delivered to the
Administrative Agent, and in the case of the other Collateral described in the Guarantee and
Collateral Agreement, when financing statements and other filings specified on Schedule 4.19(a) in
appropriate form are filed in the offices specified on Schedule 4.19(a), the Guarantee and
Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all
right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as
security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case
prior and superior in right to any other Person (except, in the case of Collateral other than
Pledged Stock, Liens permitted by Section 7.3 which by operation of law would have priority over
the Liens on such Collateral).
4.20 Solvency. Each Loan Party is, and after giving effect to the incurrence of all
Indebtedness and obligations being incurred in connection herewith will be and will continue to be,
Solvent.
4.21 Certain Documents. The Borrower has delivered to the Administrative Agent a
complete and correct copy of the Senior Note Indenture, and the Senior Exchangeable Note Indenture
including any amendments, supplements or modifications with respect to any of the foregoing.
4.22 Status of Holdings. Holdings (i) is a REIT, (ii) has not revoked its election
to be a REIT, (iii) has not engaged in any prohibited transactions as defined in Section
856(b)(6)(iii) of the Code (or any successor provision thereto), and (iv) for its current tax
year (as defined in the Code) is, and for all prior tax years subsequent to its election to be a
real estate investment trust has been, entitled to a dividends paid deduction which meets the
requirements of Section 857 of the Code. The common stock of Holdings is listed for trading on the
New York Stock Exchange.
4.23 Properties. Schedule 4.23(a) sets forth a list of all Real Property of the Group
Members and the owner (or ground-lessor) of such Real Property, and Schedule 4.23(b) sets forth a
list of all Borrowing Base Properties and the owner (or ground-lessor) of such Borrowing Base
Property. All such Borrowing Base Properties satisfy the requirements for a Borrowing Base
Property set forth in the definition thereof.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each Lender to make
the initial extension of credit requested to be made by it is subject to the satisfaction, prior to
or concurrently with the making of such extension of credit on the Funding Date, of the following
conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The Administrative Agent
shall have received (i) this Agreement, executed and delivered by the Administrative
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Agent, Holdings, the Borrower and each Person listed on Schedule 1.1A, (ii) the
Guarantee and Collateral Agreement, executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor and (iii) an Acknowledgement and Consent in the form attached to the
Guarantee and Collateral Agreement, executed and delivered by each Issuer (as defined therein),
if any, that is not a Loan Party.
(b) Rating. The Borrower shall have obtained a rating (which rating may be a
private letter rating) for the Facilities of BB- or higher from S&P and Ba3 or higher from
Moodys.
(c) Financial Statements. The Lenders shall have received (i) audited consolidated
financial statements of Holdings and its Subsidiaries for the 2005 and 2006 fiscal years and (ii)
unaudited interim consolidated financial statements of Holdings and its Subsidiaries for each
fiscal quarter ended after the date of the latest applicable financial statements delivered
pursuant to clause (i) of this paragraph as to which such financial statements are available, and
such financial statements shall not, in the reasonable judgment of the Lenders, reflect any
material adverse change in the consolidated financial condition of Holdings and its Subsidiaries,
as reflected in the financial statements.
(d) Projections. The Lenders shall have received satisfactory projections through
2008.
(e) Approvals. All governmental and third party approvals necessary in connection
with the continuing operations of the Group Members and the transactions contemplated hereby
shall have been obtained and be in full force and effect, and all applicable waiting periods
shall have expired without any action being taken or threatened by any competent authority that
would restrain, prevent or otherwise impose adverse conditions on the financing contemplated
hereby.
(f) Lien Searches. The Administrative Agent shall have received the results of a
recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and
such search shall reveal no liens on any of the assets of the Loan Parties except for liens
permitted by Section 7.3 or discharged or to be discharged on or prior to the Funding Date
pursuant to documentation satisfactory to the Administrative Agent.
(g) Fees. The Lenders and the Administrative Agent shall have received all fees
required to be paid, and all expenses for which invoices have been presented (including the
reasonable fees and expenses of legal counsel), on or before the Funding Date. All such amounts
will be paid with proceeds of Loans made on the Funding Date and will be reflected in the funding
instructions given by the Borrower to the Administrative Agent on or before the Funding Date.
(h) Closing Certificate; Certified Certificate of Incorporation; Good Standing
Certificates. The Administrative Agent shall have received (i) a certificate of each Loan
Party, dated the Funding Date, substantially in the form of Exhibit C, with appropriate
insertions and attachments, including the certificate of incorporation of each Loan Party that is
a corporation certified by the relevant authority of the jurisdiction of organization of such
Loan Party, and
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(ii) a long form good standing certificate for each Loan Party from its jurisdiction of
organization.
(i) Legal Opinion. The Administrative Agent shall have received the legal opinion
of Goodwin Procter LLP, counsel to the Borrower and its Subsidiaries, in form and substance
reasonably satisfactory to the Agents.
(j) Pledged Stock; Stock Powers. The Administrative Agent shall have received any
certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and
Collateral Agreement, together with an undated stock power for any such certificate executed in
blank by a duly authorized officer of the pledgor thereof.
(k) Filings, Registrations and Recordings. Each document (including any Uniform
Commercial Code financing statement) required by the Security Documents or under law or
reasonably requested by the Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other Person (other than
with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(l) Compliance Certificate. The Lenders shall have received a certificate of a
Responsible Officer of the Borrower certifying as to compliance with the financial covenants set
forth in Section 7.1 on a pro-forma basis on the Funding Date after giving effect to the
incurrence of the Loans, which certificate shall include calculations in reasonable detail
demonstrating such compliance, including as to the calculation of Borrowing Base Value.
(m) Solvency Certificate. The Administrative Agent shall have received a solvency
certificate from a Responsible Officer of Holdings.
(n) Insurance. The Administrative Agent shall have received insurance certificates
satisfying the requirements of Section 6.5.
(o) Pay-off of Existing Facilities. The Administrative Agent shall have received
satisfactory evidence that (i) (A) the repayment in full and termination of the Existing Term
Loan Agreement and (B) the release of all collateral granted thereunder shall occur immediately
upon the funding of the Loans hereunder on the Funding Date and (ii) (A) the repayment in full of
the Existing Credit Agreement shall occur immediately upon the funding of the Loans hereunder on
the Funding Date and (B) the Borrower has delivered a notice to Merrill Lynch Capital, as
administrative agent, terminating the Existing Credit Agreement and requesting the release of all
collateral granted thereunder.
5.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any
extension of credit requested to be made by it on any date (including its initial extension of
credit) is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and warranties
made by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as
of such date as if made on and as of such date.
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(b) No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extensions of credit requested to be made
on such date.
(c) Borrowing Base Certificate. The Administrative Agent shall have received a
certificate of a Responsible Officer of the Borrower certifying as to compliance with the
financial covenants set forth in Sections 7.1(g) and (h) on a pro-forma basis on the date of such
extension of credit after giving effect to such extension of credit, which certificate shall
include calculations in reasonable detail demonstrating such compliance, including as to the
calculation of Borrowing Base Value.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall
constitute a representation and warranty by the Borrower as of the date of such extension of credit
that the conditions contained in this Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to
any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall and shall
cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent and each Lender:
(a) as soon as available, but in any event within 90 days after the end of each fiscal year
of Holdings, a copy of the audited consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at the end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative form the figures for
the previous year, reported on without a going concern or like qualification or exception, or
qualification arising out of the scope of the audit, by KPMG or other independent certified
public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45 days after the end of each of
the first three quarterly periods of each fiscal year of Holdings, the unaudited consolidated
balance sheet of Holdings and its consolidated Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of income and of cash flows for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material respects and shall be
prepared in reasonable detail and in accordance with GAAP applied (except as approved by such
accountants or officer, as the case may be, and disclosed in reasonable detail therein and except
for the absence of footnotes with the interim statements) consistently throughout the periods
reflected therein and with prior periods. Delivery by Holdings to the Administrative Agent and the
Lenders of its annual report to the SEC on Form 10-K and its quarterly report to the SEC on Form
10-Q, in each case in accordance with SEC requirement for such reports, shall be deemed to be
compliance by Holdings with this Section 6.1(a) and Section 6.1(b), as applicable.
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6.2 Certificates; Other Information. Furnish to the Administrative Agent and each
Lender (or, in the case of clause (f), to the relevant Lender):
(a) as soon as available, but in any event within 60 days after the end of each of the
first three quarterly periods of each fiscal year of Holdings and within 90 days after the end of
each fiscal year of Holdings, (i) a certificate of a Responsible Officer stating that, to the
best of such Responsible Officers knowledge, each Loan Party during such period has observed or
performed all of its covenants and other agreements, and satisfied every condition contained in
this Agreement and the other Loan Documents to which it is a party to be observed, performed or
satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) in the case of quarterly or
annual financial statements, (x) a Compliance Certificate containing all information and
calculations necessary for determining compliance by each Group Member with the provisions of
this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the
Borrower, as the case may be, and (y) to the extent not previously disclosed to the
Administrative Agent, a description of any change in the jurisdiction of organization of any Loan
Party since the date of the most recent report delivered pursuant to this clause (y) (or, in the
case of the first such report so delivered, since the Closing Date);
(b) as soon as available, and in any event no later than 90 days after the end of each
fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year
(including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the
end of the following fiscal year, the related consolidated statements of projected cash flow,
projected changes in financial position and projected income and a description of the underlying
assumptions applicable thereto), and, as soon as available, significant revisions, if any, of
such budget and projections with respect to such fiscal year (collectively, the
Projections), which Projections shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Projections are based on reasonable estimates, information
and assumptions;
(c) within 45 days after the end of each fiscal quarter of the Borrower (or 90 days in the
case of the fourth quarter), a narrative discussion and analysis of the financial condition and
results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the
period from the beginning of the then current fiscal year to the end of such fiscal quarter, as
compared to the comparable periods of the previous year; provided that delivery to the
Administrative Agent and the Lenders of Holdings annual report to the SEC on Form 10-K and its
quarterly report to the SEC on Form 10-Q containing such narrative discussion and analysis shall
be deemed to be compliance with this Section 6.1(c);
(d) no later than 5 Business Days prior to the effectiveness thereof, copies of
substantially final drafts of any proposed amendment, supplement, waiver or other modification
with respect to the Senior Note Indenture or the Senior Exchangeable Note Indenture;
(e) within five days after the same are sent, copies of all financial statements and
reports that Holdings or the Borrower sends to the holders of any class of its debt securities or
public equity securities and, within five days after the same are filed, copies of all material
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financial statements and reports that Holdings or the Borrower may make to, or file with,
the SEC; and
(f) promptly, such additional financial and other information as any Lender may from time
to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all its material obligations of
whatever nature, except where the amount or validity thereof is currently being contested in good
faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have
been provided on the books of the relevant Group Member and except for any nonpayment of which
could not reasonably be expected to have a Material Adverse Effect.
6.4 Maintenance of Existence; Compliance. (a)(i) Preserve, renew and keep in full
force and effect its organizational existence and (ii) take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct of its business,
except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii)
above, to the extent that failure to do so could not reasonably be expected to have a Material
Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to
the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to
have a Material Adverse Effect. Without limiting the generality of the foregoing, Holdings will do
all things necessary to maintain its status as a REIT and will maintain its listing on the New York
Stock Exchange.
6.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary
in its business in good working order and condition, ordinary wear and tear excepted and (b)
maintain with financially sound and reputable insurance companies insurance on all its property in
at least such amounts and against at least such risks (but including in any event public liability,
all-risks casualty and business interruption) as are usually insured against in the same general
area by companies engaged in the same or a similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books
of records and account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation to its business and
activities and (b) permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any reasonable time and as
often as may reasonably be desired and to discuss the business, operations, properties and
financial and other condition of the Group Members with officers and employees of the Group Members
and with their independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation of any Group
Member or (ii) litigation, investigation or proceeding that may exist at any time between any
Group Member and any Governmental Authority, that in either case, if not cured or if
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adversely determined, as the case may be, could reasonably be expected to have a Material
Adverse Effect;
(c) any litigation or proceeding affecting any Group Member (i) in which the amount
involved is $1,000,000 or more and not covered by insurance, (ii) in which injunctive or similar
relief is sought or (iii) which relates to any Loan Document;
(d) the following events, as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any
other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer
Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of,
any Plan;
(e) any default by tenant under a lease of Real Property or any default by an obligor under
any Mortgage Note held by a Group Member, in each case after giving effect to any applicable cure
period and to the extent that such Real Property or Mortgage Note is included in the Borrowing
Base Value; and
(f) any development or event that has had or could reasonably be expected to have a
Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible
Officer setting forth details of the occurrence referred to therein and stating what action the
relevant Group Member proposes to take with respect thereto.
6.8 Environmental Laws.
(a) Comply with, and take commercially reasonable steps to ensure compliance by all tenants
and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply with and
maintain, and take commercially reasonable steps to ensure that all tenants and subtenants obtain
and comply with and maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws, in each case to the extent the failure to do
so could reasonably be expected to have a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all Governmental Authorities regarding
Environmental Laws.
6.9 Distributions in the Ordinary Course. In the ordinary course of business, the
Borrower causes all of its Subsidiaries to make transfers of net cash and cash equivalents upstream
to the Borrower, and the Borrower shall continue to follow such ordinary course of business. The
Borrower shall not make net transfers of cash and cash equivalents downstream to its Subsidiaries
except in the ordinary course of business consistent with past practice.
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6.10 Additional Collateral, etc. (a) With respect to any new Subsidiary (other than
an Excluded Foreign Subsidiary or an Excluded Subsidiary) created or acquired after the Closing
Date by any Group Member (which, for the purposes of this paragraph (a), shall include any existing
Subsidiary that ceases to be an Excluded Foreign Subsidiary or an Excluded Subsidiary), promptly
(i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral
Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative
Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital
Stock of such new Subsidiary that is owned by any Group Member, (ii) deliver to the Administrative
Agent any certificates representing such Capital Stock, together with undated stock powers, in
blank, executed and delivered by a duly authorized officer of the relevant Group Member, (iii)
cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to
take such actions necessary or advisable to grant to the Administrative Agent for the benefit of
the Lenders a perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Subsidiary, including the filing of
Uniform Commercial Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent and
(C) to deliver to the Administrative Agent a certificate of such Subsidiary, substantially in the
form of Exhibit C, with appropriate insertions and attachments, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(b) Prior to the addition of any new Real Property as a Borrowing Base Property after the
Closing Date, the Borrower shall deliver written notice to the Agents of its request to add such
Real Property as a Borrowing Base Property at least ten (10) Business Days prior to the proposed
date of such addition together with (a) a certificate of a Responsible Officer certifying that such
Real Property satisfies the eligibility criteria set forth in the definition of Borrowing Base
Property, certifying as to compliance with the financial covenants on a pro-forma basis after
giving effect to the addition of such Real Property as a Borrowing Base Property, which certificate
shall include calculations in reasonable detail demonstrating such compliance, including as to the
calculation of Borrowing Base Value, and certifying that the representations and warranties
regarding the Collateral set forth in Article 4 remain true and correct after giving effect to the
addition of such Borrowing Base Property, and (b) a copy of the lease for such Real Property, a
lease abstract for such Real Property, an operating statement for such Real Property, in each case
certified by an officer of the Borrower as being true and correct, and such other information
regarding such Real Property as the Agents may reasonably request. Promptly (and in any event
within ten (10) Business Days) after receipt of all of the foregoing information, the Agents shall
review such information and notify the Borrower in writing whether or not they accept the
Borrowers determination that such Real Property qualifies as a Borrowing Base Property. From and
after the date of such written notification from the Agents, and so long as such Real Property
continues to satisfy the eligibility criteria set forth in the definition of Borrowing Base
Property, such Real Property shall be treated as a Borrowing Base Property hereunder.
(c) The Borrower will, and will cause each of its Subsidiaries to, cooperate with the Lenders
and the Administrative Agent and execute such further instruments and documents as
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the Lenders or the Administrative Agent shall reasonably request to carry out to their satisfaction
the transactions contemplated by this Agreement and the other Loan Documents
6.11 Notices of Asset Sales or Dispositions. The Borrower shall deliver to the
Administrative Agent and the Lenders written notice not less than five (5) Business Days prior to a
sale, encumbrance with a Lien to secure Indebtedness or other Disposition of (i) a Borrowing Base
Property or (ii) other assets of the Loan Parties or their Subsidiaries, in a single transaction or
series of related transactions, for consideration in excess of $3,000,000, in each case which is
permitted pursuant to Section 7.2(f), 7.3(i) or Section 7.5, as applicable. In addition,
simultaneously with delivery of any such notice, the Loan Parties shall deliver to the
Administrative Agent a certificate of a Responsible Officer certifying that no Default or Event of
Default (including any non-compliance with the financial covenants contained herein) has occurred
and is continuing or would occur on a pro forma basis after giving effect to the proposed sale,
encumbrance or other Disposition, which certificate shall include calculations in reasonable detail
demonstrating compliance with the financial covenants on a pro-forma basis, including as to the
calculation of Borrowing Base Value.
To the extent such proposed transaction would result in a Default or an Event of Default, the
Borrower shall apply the proceeds of such transaction (together with such additional amounts as may
be required), to prepay the Obligations in an amount, as determined by the Administrative Agent,
equal to that which would be required to reduce the Obligations so that no Default or Event of
Default would exist. Otherwise, the Borrower shall apply the proceeds of such transaction in
accordance with Section 2.11.
If such proposed transaction is permitted hereunder, the Administrative Agent shall, at the
Borrowers expense, take all such action reasonably requested by the Borrower to release any Lien
granted to or held by the Administrative Agent with respect to the Collateral relating to such Real
Property or Mortgage Note being sold, encumbered or disposed of, as applicable, under any Security
Document, including without limitation release of the pledge of stock of any Subsidiary whose
principal asset is such Real Property or Mortgage Note being sold, encumbered or disposed of and to
release the guarantee obligations of any such Subsidiary under the Guarantee and Collateral
Agreement.
6.12 Maintenance of Ratings. The Borrower shall maintain ratings on the Facilities
from each of S&P and Moodys; provided that if the rating obtained from such rating agency is a
private letter rating that is not monitored and automatically updated by such rating agency, then
the Borrower shall obtain an annual update of such rating on or before each anniversary of the
Closing Date.
SECTION 7. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments
remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to
any Lender or the Administrative Agent hereunder, each of Holdings and the Borrower shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
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(a) Total Leverage Ratio. Permit the ratio of Total Indebtedness to Total Asset
Value (the Total Leverage Ratio) as at the last day of any period of four consecutive fiscal
quarters of the Borrower or on the date of any incurrence of Indebtedness by the Borrower or its
Subsidiaries to exceed 55%, provided that such ratio may exceed 55% as of the end of up to 2
consecutive fiscal quarters in one fiscal year so long as such ratio does not exceed 60%.
(b) Fixed Charge Coverage Ratio. Permit the ratio of Total EBITDA to Total Fixed
Charges for any period of four consecutive fiscal quarters of the Borrower to be less than 1.50
to 1.0.
(c) Mortgage Secured Leverage Ratio. Permit the ratio of Mortgage Secured
Indebtedness to Total Asset Value as at the last day of any period of four consecutive fiscal
quarters of the Borrower or on the date of any incurrence of Indebtedness by the Borrower or its
Subsidiaries to exceed 25%.
(d) Recourse Mortgage Secured Leverage Ratio. Permit the ratio of Recourse
Mortgage Secured Indebtedness to Total Asset Value as at the last day of any period of four
consecutive fiscal quarters of the Borrower or on the date of any incurrence of Indebtedness by
the Borrower or its Subsidiaries to exceed 10%.
(e) Consolidated Adjusted Net Worth. Permit Consolidated Tangible Net Worth to be
less than the sum of (i) $403,662,837 plus (ii) 85% of Net Cash Proceeds from issuances of
Capital Stock by the Borrower or Holdings after September 30, 2007.
(f) Floating Rate Debt. Permit the ratio of Total Indebtedness that bears interest
at a floating rate of interest to Total Asset Value as at the last day of any period of four
consecutive fiscal quarters of the Borrower or on the date of any incurrence of Indebtedness by
the Borrower or its Subsidiaries to exceed 30%.
(g) Facility Leverage Ratio. Permit the ratio of Facility Indebtedness to
Borrowing Base Value as at the last day of any period of four consecutive fiscal quarters of the
Borrower or on the date of any incurrence of Indebtedness by the Borrower or its Subsidiaries to
exceed 50%.
(h) Borrowing Base Interest Coverage Ratio. Permit the ratio of Borrowing Base NOI
for any period of four consecutive fiscal quarters of the Borrower to Facility Interest Expense
for such period to be less than 2.0 to 1.0 as at the last day of any period of four consecutive
fiscal quarters of the Borrower or on the date of any incurrence of Indebtedness by the Borrower
or its subsidiaries.
(i) Covenant Compliance Calculations. The Borrower shall deliver the certificate
described in Section 5.2(c) evidencing compliance with the financial ratios set forth in Sections
7.1(g) and (h) as of each Borrowing Date. Such calculations shall be made in accordance with
Section 7.1(j).
(j) Pro Forma Calculations.
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(i) For purposes of the pro-forma calculations to be made pursuant to Sections 7.1(g)
and (i) (and the definitions used therein), such calculations shall be adjusted by (A)
excluding from Borrowing Base Value the actual value of any assets sold by the Borrower or
any of its Subsidiaries since the last day of the prior fiscal quarter and (B) adding to
Borrowing Base Value the actual value of any assets acquired (or to be acquired with any
borrowing) by the Borrower or any of its Subsidiaries since the last day of the prior fiscal
quarter.
(ii) For purposes of the pro-forma calculations to be made pursuant to Sections 7.1(h)
and (i) (and the definitions used therein), such calculations shall be adjusted by (A)
excluding from Borrowing Base NOI the actual NOI for the relevant period of any assets sold
by the Borrower or any of its Subsidiaries since the last day of the prior fiscal quarter,
(B) adding to Borrowing Base NOI the projected NOI for the next four quarters (based on the
Borrowers projections made in good faith) for any assets acquired (or to be acquired with
any borrowing) by the Borrower or any of its Subsidiaries since the last day of the prior
fiscal quarter, (C) excluding from Facility Interest Expense, the Facility Interest Expense
for the relevant period for any Facility Indebtedness for which the Borrower or any
Subsidiary is no longer obligated in respect of, or as the result of the application of
proceeds from, any Borrowing Base Properties sold by the Borrower or any of its Subsidiaries
since the last day of the prior fiscal quarter, and (D) adding to Facility Interest Expense,
the projected Facility Interest Expense for the next four quarters (based on the Borrowers
projections made in good faith) for any Facility Indebtedness assumed or incurred by the
Borrower or any of its Subsidiaries since the last day of the prior fiscal quarter.
7.2 Indebtedness. Create, issue, incur, assume, become liable in respect of or
suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary
Guarantor to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of business by the Borrower or
any of its Subsidiaries of obligations of any Wholly Owned Subsidiary Guarantor in an aggregate
amount not to exceed $5,000,000 at any one time outstanding;
(d) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any
refinancings, refundings, renewals or extensions thereof (without increasing, or shortening the
maturity of, the principal amount thereof);
(e) (i) Indebtedness of the Borrower in respect of the Senior Notes and the Senior
Exchangeable Notes and (ii) Guarantee Obligations of Holdings in respect of such Indebtedness;
and
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(f) additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate
principal amount (for the Borrower and all Subsidiaries) at any one time outstanding that would
not cause a violation of Section 7.1;
; provided that the Borrower shall not permit any Subsidiary Guarantor that is the owner (or
ground-lessee) of a Borrowing Base Property or a Mortgage Note included in the computation of
Borrowing Base Value to create, incur, assume, become liable in respect of or suffer to exist any
Indebtedness that is recourse to such Subsidiary Guarantor.
7.3 Liens. Create, incur, assume or suffer to exist any Lien upon any of its
property, whether now owned or hereafter acquired, except:
(a) Liens for taxes not yet due or that are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are maintained on the
books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens
arising in the ordinary course of business that are not overdue for a period of more than 30 days
or that are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers compensation, unemployment insurance
and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances that, in the
aggregate, are not substantial in amount and that do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(f) Liens (not affecting the Collateral) in existence on the date hereof listed on Schedule
7.3(f), securing Indebtedness permitted by Section 7.2(d), provided that no such Lien is
spread to cover any additional property after the Closing Date and that the amount of
Indebtedness secured thereby is not increased;
(g) Liens created pursuant to the Security Documents;
(h) any interest or title of a lessor under any lease entered into by the Borrower or any
other Subsidiary in the ordinary course of its business and covering only the assets so leased;
and
(i) Liens (not affecting the Collateral) securing Indebtedness permitted by Section 7.2(f);
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provided that notwithstanding the foregoing, the Borrower shall not, and shall not permit
any of its Subsidiaries to, grant a Lien on its Capital Stock as collateral for Indebtedness to any
Person other than the Administrative Agent.
7.4 Fundamental Changes. Enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all
or substantially all of its property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower
(provided that the Borrower shall be the continuing or surviving corporation) or with or
into any Wholly Owned Subsidiary Guarantor (provided that a Wholly Owned Subsidiary
Guarantor shall be the continuing or surviving corporation);
(b) any Subsidiary of the Borrower may Dispose of any or all of its assets (i) to the
Borrower or any Wholly Owned Subsidiary Guarantor (upon voluntary liquidation or otherwise) or
(ii) pursuant to a Disposition permitted by Section 7.5; and
(c) any Investment expressly permitted by Section 7.8 may be structured as a merger,
consolidation or amalgamation.
7.5 Disposition of Property. Dispose of any of its property, whether now owned or
hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such
Subsidiarys Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by clause (i) of Section 7.4(b);
(d) the sale or issuance of any Subsidiarys Capital Stock to the Borrower or any Wholly
Owned Subsidiary Guarantor; and
(e) the Disposition of other property having a fair market value not to exceed $50,000,000
in the aggregate for any fiscal year of the Borrower, so long as no Default or Event of Default
has occurred and is continuing, or would occur after giving effect thereto, and the Borrower
complies with Section 2.11 and Section 6.11.
7.6 Restricted Payments. Declare or pay any dividend (other than dividends payable
solely in common stock of the Person making such dividend) on, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now
or hereafter outstanding, or make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of any Group Member (collectively,
Restricted Payments), except that:
(a) any Subsidiary may make Restricted Payments to the Borrower or any Wholly Owned
Subsidiary Guarantor;
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(b) so long as no Default or Event of Default shall have occurred and be continuing, the
Borrower may make Restricted Payments to Holdings and Holdings may make Restricted Payments of
such amount to its shareholders; provided that (i) beginning with the fiscal quarter ended
December 31, 2007, the Borrower shall not make Restricted Payments to Holdings in excess of 100%
of FFO (w) for the period of one fiscal quarter for the fiscal quarter ended December 31, 2007,
(x) for the period of two fiscal quarters for the fiscal quarter ended March 31, 2008, (y) for
the period of three fiscal quarters, for the fiscal quarter ended June 30, 2008, and (z) for the
period of four fiscal quarters, for the fiscal quarter ended September 30, 2008 and thereafter,
(ii) if a Default or an Event of Default has occurred and is continuing, the Borrower may only
make Restricted Payments to Holdings in the amounts required to be made by Holdings in order to
maintain its status as a REIT; and (iii) the Borrower may not make any Restricted Payments to
Holdings if the Obligations have been declared due and payable.
7.7 [Reserved].
7.8 Investments. Make any advance, loan, extension of credit (by way of guaranty or
otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or
other debt securities of, or any assets constituting a business unit of, or make any other
investment in, any Person (all of the foregoing, Investments), except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of any Group Member in the ordinary course of business
(including for travel, entertainment and relocation expenses) in an aggregate amount for all
Group Members not to exceed $1,000,000 at any one time outstanding;
(e) [reserved];
(f) intercompany Investments by any Group Member in the Borrower or any Person that, prior
to such investment, is a Wholly Owned Subsidiary Guarantor; and
(g) Investments consisting of acquisitions of real property or Mortgage Notes receivable
consistent with the Borrowers business strategy, so long as no Default or Event of Default has
occurred and is continuing, or would occur after giving effect thereto.
7.9 Optional Payments and Modifications of Certain Debt Instruments. (a) Make or
offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or
otherwise optionally or voluntarily defease or segregate funds with respect to the Senior Notes or
the Senior Exchangeable Notes; or (b) amend, modify, waive or otherwise change, or consent or agree
to any amendment, modification, waiver or other change to, any of the terms of the Senior Notes or
the Senior Exchangeable Notes (other than any such amendment, modification, waiver or other change
that would extend the maturity or reduce the amount of any payment of principal thereof or reduce
the rate or extend any date for payment of interest thereon).
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7.10 Transactions with Affiliates. Enter into any transaction, including any
purchase, sale, lease or exchange of property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than Holdings, the Borrower or any
Wholly Owned Subsidiary Guarantor) unless such transaction is (a) otherwise not prohibited under
this Agreement, (b) in the ordinary course of business of the relevant Group Member, and (c) upon
fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a
comparable arms length transaction with a Person that is not an Affiliate.
7.11 Sales and Leasebacks. Enter into any arrangement with any Person providing for
the leasing by any Group Member of real or personal property that has been or is to be sold or
transferred by such Group Member to such Person or to any other Person to whom funds have been or
are to be advanced by such Person on the security of such property or rental obligations of such
Group Member.
7.12 Swap Agreements. Enter into any Swap Agreement, except (a) Swap Agreements
entered into to hedge or mitigate risks to which the Borrower or any Subsidiary has actual exposure
(other than those in respect of Capital Stock or the Senior Notes or the Senior Exchangeable Notes)
and (b) Swap Agreements entered into in order to effectively cap, collar or exchange interest rates
(from fixed to floating rates, from one floating rate to another floating rate or otherwise) with
respect to any interest-bearing liability or investment of the Borrower or any Subsidiary.
7.13 Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a
day other than December 31 or change the Borrowers method of determining fiscal quarters.
7.14 Negative Pledge Clauses. Enter into or suffer to exist or become effective any
agreement that prohibits or limits the ability of any Group Member to create, incur, assume or
suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter
acquired, other than (a) this Agreement and the other Loan Documents and (b) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the assets financed
thereby).
7.15 Clauses Restricting Subsidiary Distributions. Enter into or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the
Borrower to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held
by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make
loans or advances to, or other Investments in, the Borrower or any other Subsidiary of the Borrower
or (c) transfer any of its assets to the Borrower or any other Subsidiary of the Borrower, except
for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents, the Senior Exchangeable Note Indenture or the Senior Indenture and (ii)
any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been
entered into in connection with the Disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
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7.16 Lines of Business. Enter into any business, either directly or through any
Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on
the date of this Agreement or that are reasonably related thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation
when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on
any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other
Loan Document, within five days after any such interest or other amount becomes due in accordance
with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan Party herein or in any
other Loan Document or that is contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection with this Agreement or any such
other Loan Document shall prove to have been inaccurate in any material respect on or as of the
date made or deemed made; or
(c) any Loan Party shall default in the observance or performance of any agreement
contained in clause (i) or (ii) of Section 6.4(a) (with respect to Holdings and the Borrower
only), Section 6.7(a) or Section 7 of this Agreement or Section 5 of the Guarantee and Collateral
Agreement; or
(d) any Loan Party shall default in the observance or performance of any other agreement
contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a)
through (c) of this Section), and such default shall continue unremedied for a period of 30 days
after notice to the Borrower from the Administrative Agent or the Required Lenders; or
(e) any Group Member shall (i) default in making any payment of any principal of any
Indebtedness (including any Guarantee Obligation, but excluding the Loans) on the scheduled or
original due date with respect thereto; or (ii) default in making any payment of any interest on
any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; or (iii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to cause, or to
permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such
holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default, event or condition
described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an
Event of Default unless, at such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and
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be continuing with respect to Indebtedness the outstanding principal amount of which exceeds
in the aggregate $15,000,000; or
(f) (i) any Group Member shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part of its assets, or
any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Group Member any case, proceeding or other action of a nature
referred to in clause (i) above that (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed or undischarged for a period of 60 days;
or (iii) there shall be commenced against any Group Member any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets that results in the entry of an order for any such relief
that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due; or
(g) (i) any Person shall engage in any prohibited transaction (as defined in Section 406
of ERISA or Section 4975 of the Code) involving any Plan, (ii) any accumulated funding
deficiency (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect
to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Group
Member or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to,
or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders,
likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Group Member or
any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is
likely to, incur any liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist
with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could, in the sole judgment
of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered against any Group Member involving in
the aggregate a liability (not paid or fully covered by insurance as to which the relevant
insurance company has acknowledged coverage) of $15,000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days
from the entry thereof; or
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(i) any of the Security Documents shall cease, for any reason, to be in full force and
effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created
by any of the Security Documents shall cease to be enforceable and of the same effect and
priority purported to be created thereby, or any Loan Party or any Affiliate of any Loan Party
shall so assert; or
(j) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall
cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any
Loan Party shall so assert; or
(k) (i) (any person or group (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the Exchange Act)) shall become, or obtain rights
(whether by means or warrants, options or otherwise) to become, the beneficial owner (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more
than 30% of the outstanding common stock of Holdings; (ii) the board of directors of Holdings
shall cease to consist of a majority of Continuing Directors; (iii) Holdings shall cease to own
and control, of record and beneficially, directly, 90% of each class of outstanding Capital Stock
of the Borrower free and clear of all Liens; or (iv) a Specified Change of Control shall occur;
(l) Holdings shall (i) conduct, transact or otherwise engage in, or commit to conduct,
transact or otherwise engage in, any business or operations other than those incidental to its
ownership of the Capital Stock of the Borrower, (ii) incur, create, assume or suffer to exist any
Indebtedness or other liabilities or financial obligations, except (w) Indebtedness incurred with
respect to guarantees of the Senior Notes, the Senior Exchangeable Notes or the Indebtedness set
forth on Schedule 7.3(f), (x) nonconsensual obligations imposed by operation of law, (y)
obligations pursuant to the Loan Documents to which it is a party and (z) obligations with
respect to its Capital Stock, or (iii) own, lease, manage or otherwise operate any properties or
assets (including cash (other than cash received in connection with dividends made by the
Borrower in accordance with Section 7.6 pending application in the manner contemplated by said
Section) and cash equivalents) other than the ownership of shares of Capital Stock of the
Borrower; or
(m) the collateral granted to the Lenders under the Existing Credit Agreement has not been
released under the Existing Credit Agreement and added as Collateral hereunder on or before
December 31, 2007;
then, and in any such event, (A) if such event is an Event of Default specified in clause (i),
(ii), (iii) or (iv) of paragraph (f) above with respect to the Borrower, automatically the
Commitments shall immediately terminate and the Loans (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) shall immediately become due and payable, and (B) if
such event is any other Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of
the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
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immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent
may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the
Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented the documents
required thereunder) to be due and payable forthwith, whereupon the same shall immediately become
due and payable. With respect to all Letters of Credit with respect to which presentment for honor
shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower
shall at such time deposit in a cash collateral account opened by the Administrative Agent an
amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts
held in such cash collateral account shall be applied by the Administrative Agent to the payment of
drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters
of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have
been satisfied and all other obligations of the Borrower hereunder and under the other Loan
Documents shall have been paid in full, the balance, if any, in such cash collateral account shall
be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as
expressly provided above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived by the Borrower.
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents,
and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take
such action on its behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of this Agreement and the other Loan Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither any Agent nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except to the extent that any of the foregoing are found
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by a final and nonappealable decision of a court of competent jurisdiction to have resulted
from its or such Persons own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or warranties made by
any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for in, or received by
the Agents under or in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other
Loan Document or for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain
or to inquire as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to
rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to Holdings or the Borrower), independent accountants and other experts selected
by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if
so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if
so specified by this Agreement, all Lenders), and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
9.5 Notice of Default. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative
Agent has received notice from a Lender, Holdings or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a notice of default.
In the event that the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such action with respect
to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement, all Lenders); provided that unless and until the
Administrative Agent shall have received such directions, the Administrative Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of the Lenders.
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9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges
that neither the Agents nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates have made any representations or warranties to it and that no act
by any Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate
of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any
Lender. Each Lender represents to the Agents that it has, independently and without reliance upon
any Agent or any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their affiliates and
made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon any Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the time, continue to make
its own credit analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that
may come into the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent in its capacity as
such (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation
of Holdings or the Borrower to do so), ratably according to their respective Aggregate Exposure
Percentages in effect on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages
immediately prior to such date), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on,
incurred by or asserted against such Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby or any action
taken or omitted by such Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are
found by a final and nonappealable decision of a court of competent jurisdiction to have resulted
from such Agents gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its affiliates may make loans
to, accept deposits from and generally engage in any kind of business with any Loan Party as though
such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect
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to any Letters of Credit issued or participated in by it, each Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not an Agent, and the terms Lender and Lenders shall include each
Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may resign as
Administrative Agent upon 10 days notice to the Lenders and the Borrower. If the Administrative
Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then
the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect
to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower
(which approval shall not be unreasonably withheld or delayed), whereupon such successor agent
shall succeed to the rights, powers and duties of the Administrative Agent, and the term
Administrative Agent shall mean such successor agent effective upon such appointment and
approval, and the former Administrative Agents rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no
successor agent has accepted appointment as Administrative Agent by the date that is 10 days
following a retiring Administrative Agents notice of resignation, the retiring Administrative
Agents resignation shall nevertheless thereupon become effective, and the Lenders shall assume and
perform all of the duties of the Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above. After any retiring
Administrative Agents resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
9.10 Syndication Agent. The Syndication Agent shall not have any duties or
responsibilities hereunder in its capacity as such.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan Document, nor
any terms hereof or thereof may be amended, supplemented or modified except in accordance with the
provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant
Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan Documents for the
purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on
such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be,
may specify in such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification shall (i)
forgive or reduce the principal amount or extend the final scheduled date of maturity of any Loan,
extend the scheduled date of any amortization payment in respect of the Term Loan, reduce the
stated rate of any interest or fee payable hereunder (except (x) in connection with the waiver of
applicability of any post-default increase in interest
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rates (which waiver shall be effective with the consent of the Majority Facility Lenders of
each adversely affected Facility) and (y) that any amendment or modification of defined terms used
in the financial covenants in this Agreement shall not constitute a reduction in the rate of
interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Lenders Commitment, in each
case without the written consent of each Lender directly affected thereby; (ii) eliminate or reduce
the voting rights of any Lender under this Section 10.1 without the written consent of such Lender;
(iii) reduce any percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations under this Agreement
and the other Loan Documents, release all or substantially all of the Collateral or release
Holdings or all or substantially all of the Subsidiary Guarantors from their obligations under the
Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (iv)
amend, modify or waive any provision of Section 9 without the written consent of the Administrative
Agent; (v) reduce the percentage specified in the definition of Majority Facility Lenders with
respect to any Facility without the written consent of all Lenders under such Facility; (vi) amend,
modify or waive any provision of Section 2.6 or 2.7 without the written consent of the Swingline
Lender; (vii) amend, modify or waive any provision of Section 3 without the written consent of the
Issuing Lender; or (viii) change Section 2.17 (a), (b) or (c) in a manner that would alter the pro
rata sharing of payments required thereby, without the written consent of each Lender affected
thereby. Any such waiver and any such amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative
Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the
Lenders and the Administrative Agent shall be restored to their former position and rights
hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered, or three Business
Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower and the Administrative Agent,
and as set forth in an administrative questionnaire delivered to the Administrative Agent in the
case of the Lenders, or to such other address as may be hereafter notified by the respective
parties hereto:
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Holdings: |
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Medical Properties Trust, Inc. |
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1000 Urban Center Drive, Suite 501 |
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Birmingham, AL 35242 |
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Attention:
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Michael G. Stewart |
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Telecopy:
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(205) 969-3756 |
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Telephone:
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(205) 969-3755 |
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Borrower: |
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MPT Operating Partnership, L.P. |
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c/o Medical Properties Trust, Inc. |
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1000 Urban Center Drive, Suite 501 |
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Birmingham, AL 35242 |
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Attention:
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Michael G. Stewart |
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Telecopy:
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(205) 969-3756 |
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Telephone:
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(205) 969-3755 |
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Administrative Agent: |
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JPMorgan Chase Bank, N.A. |
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277 Park Avenue, 3rd Floor |
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New York, NY 10172 |
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Attention:
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Vanessa Chiu |
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Telecopy:
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(646) 534-0574 |
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Telephone:
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(212) 622-6015 |
provided that any notice, request or demand to or upon the Administrative Agent or the
Lenders shall not be effective until received.
Notices and other communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Administrative Agent;
provided that the foregoing shall not apply to notices pursuant to Section 2 unless
otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent
or the Borrower may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it; provided that
approval of such procedures may be limited to particular notices or communications.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations and warranties
made hereunder, in the other Loan Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the execution and delivery of this
Agreement and the making of the Loans and other extensions of credit hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the
Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection
with the development, preparation and execution of, and any amendment, supplement or modification
to, this Agreement and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the transactions contemplated
hereby and thereby, including the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses and including such costs and
expenses incurred under Section 6.10 and 6.11, with statements with respect to the foregoing to be
submitted to the Borrower prior to the Funding Date (in the case of amounts to be paid on the
Funding Date) and from time to time thereafter on a quarterly basis or such other periodic basis as
the Administrative Agent shall deem appropriate, (b) to pay or reimburse
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each Lender and the Administrative Agent for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the other Loan Documents
and any such other documents, including the fees and disbursements of counsel to each Lender and of
counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes,
if any, that may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in respect of, this
Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and
hold each Lender and the Administrative Agent and their respective officers, directors, employees,
affiliates, advisors, trustees, agents and controlling persons (each, an Indemnitee)
harmless from and against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration of this Agreement,
the other Loan Documents and any such other documents, including any of the foregoing relating to
the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of any Group Member or any of the Properties and the
reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by
any Indemnitee against any Loan Party under any Loan Document (all the foregoing in this clause
(d), collectively, the Indemnified Liabilities), provided, that the Borrower
shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the
extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence, willful misconduct or breach of
obligations of such Indemnitee. Without limiting the foregoing, and to the extent permitted by
applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and
hereby waives and agrees to cause its Subsidiaries to waive, all rights for contribution or any
other rights of recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or related to
Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee.
All amounts due under this Section 10.5 shall be payable not later than 10 Business Days after
written demand therefor. Statements payable by the Borrower pursuant to this Section 10.5 shall be
submitted to Michael G. Stewart (Telephone No. (205) 969-3755) (Telecopy No. (205) 969-3756), at
the address of the Borrower set forth in Section 10.2, or to such other Person or address as may be
hereafter designated by the Borrower in a written notice to the Administrative Agent. The
agreements in this Section 10.5 shall survive repayment of the Loans and all other amounts payable
hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any affiliate of the Issuing Lender
that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null
and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder
except in accordance with this Section.
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(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may
assign to one or more Persons, other than a natural person (each, an Assignee) all or a
portion of its rights and obligations under this Agreement (including all or a portion of its
Commitments and the Loans at the time owing to it) with the prior written consent of:
(A) the Borrower (such consent not to be unreasonably withheld or delayed),
provided that no consent of the Borrower shall be required for an assignment to a
Lender, an affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of
Default has occurred and is continuing, any other Person;
(B) the Administrative Agent (such consent not to be unreasonably withheld or delayed),
provided that no consent of the Administrative Agent shall be required for an
assignment of all or any portion of a Term Loan to a Lender, an affiliate of a Lender or an
Approved Fund; and
(C) the Issuing Lender and the Swingline Lender (such consent not to be unreasonably
withheld or delayed), provided that no consent of the Issuing Lender or the
Swingline Lender shall be required for an assignment of all or any portion of a Term Loan.
(i) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an affiliate of a Lender or an
Approved Fund or an assignment of the entire remaining amount of the assigning Lenders
Commitments or Loans, the amount of the Commitments or Loans of the assigning Lender subject
to each such assignment (determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent) shall not be less than
$1,000,000 (in the case of a Term Loan) or $5,000,000 (in the case of a Revolving
Commitment) unless each of the Borrower and the Administrative Agent otherwise consent,
provided that (1) no such consent of the Borrower shall be required if an Event of
Default has occurred and is continuing and (2) such amounts shall be aggregated in respect
of each Lender and its affiliates or Approved Funds, if any;
(B) the assigning Lender and the Assignee party to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an administrative questionnaire.
For the purposes of this Section 10.6, Approved Fund means any Person (other than a
natural person) that is engaged in making, purchasing, holding or investing in bank loans and
similar extensions of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an affiliate of a Lender or (c) an entity or an affiliate of an entity
that administers or manages a Lender.
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(ii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below,
from and after the effective date specified in each Assignment and Assumption the Assignee
thereunder shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement (and, in
the case of an Assignment and Assumption covering all of the assigning Lenders rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.5). Any
assignment or transfer by a Lender of rights or obligations under this Agreement that does
not comply with this Section 10.6 shall be treated for purposes of this Agreement as a sale
by such Lender of a participation in such rights and obligations in accordance with
paragraph (c) of this Section.
(iii) The Administrative Agent, acting for this purpose as an agent of the Borrower,
shall maintain at one of its offices a copy of each Assignment and Assumption delivered to
it and a register for the recordation of the names and addresses of the Lenders, and the
Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the Register). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.
(iv) Upon its receipt of a duly completed Assignment and Assumption executed by an
assigning Lender and an Assignee, the Assignees completed administrative questionnaire
(unless the Assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in paragraph (b) of this Section and any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been recorded in
the Register as provided in this paragraph.
(c)(i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell
participations to one or more banks or other entities (a Participant) in all or a portion
of such Lenders rights and obligations under this Agreement (including all or a portion of its
Commitments and the Loans owing to it); provided that (A) such Lenders obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (C) the Borrower, the Administrative
Agent, the Issuing Lender and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lenders rights and obligations under this Agreement. Any
agreement pursuant to which a Lender sells such a participation shall provide that such Lender
shall retain the sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement; provided that such agreement may provide that
such Lender will not, without the consent of the Participant, agree to any amendment, modification
or waiver that (1) requires the consent of each Lender directly
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affected thereby pursuant to the proviso to the second sentence of Section 10.1 and (2)
directly affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.18, 2.19 and 2.20 to
the same extent as if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 10.7(b) as though it were a Lender, provided such Participant
shall be subject to Section 10.7(a) as though it were a Lender.
(v) A Participant shall not be entitled to receive any greater payment under Section
2.18 or 2.19 than the applicable Lender would have been entitled to receive with respect to
the participation sold to such Participant, unless the sale of the participation to such
Participant is made with the Borrowers prior written consent. Any Participant that is a
Non-U.S. Lender shall not be entitled to the benefits of Section 2.19 unless such
Participant complies with Section 2.19(d).
(b) Any Lender may at any time pledge or assign a security interest in all or any portion
of its rights under this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to
any such pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or Assignee for such Lender as a party hereto.
(c) The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue
Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph
(d) above.
(d) Notwithstanding the foregoing, any Conduit Lender may assign any or all of the Loans it
may have funded hereunder to its designating Lender without the consent of the Borrower or the
Administrative Agent and without regard to the limitations set forth in Section 10.6(b). Each of
Holdings, the Borrower, each Lender and the Administrative Agent hereby confirms that it will not
institute against a Conduit Lender or join any other Person in instituting against a Conduit
Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under
any state bankruptcy or similar law, for one year and one day after the payment in full of the
latest maturing commercial paper note issued by such Conduit Lender; provided, however,
that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold
harmless each other party hereto for any loss, cost, damage or expense arising out of its
inability to institute such a proceeding against such Conduit Lender during such period of
forbearance.
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10.7 Adjustments; Set-off.
(a) Except to the extent that this Agreement expressly provides for payments to be
allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a
Benefitted Lender) shall receive any payment of all or part of the Obligations owing to
it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or
otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender
shall purchase for cash from the other Lenders a participating interest in such portion of the
Obligations owing to each such other Lender, or shall provide such other Lenders with the
benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share
the excess payment or benefits of such collateral ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by law, each Lender
shall have the right, without prior notice to Holdings or the Borrower, any such notice being
expressly waived by Holdings and the Borrower to the extent permitted by applicable law, upon any
amount becoming due and payable by Holdings or the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount
any and all deposits (general or special, time or demand, provisional or final), in any currency,
and any other credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender
or any branch or agency thereof to or for the credit or the account of Holdings or the Borrower,
as the case may be. Each Lender agrees promptly to notify the Borrower and the Administrative
Agent after any such setoff and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument. Delivery of an executed signature page
of this Agreement by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents represent the entire
agreement of Holdings, the Borrower, the Administrative Agent and the Lenders with respect to the
subject matter hereof and thereof, and there are no promises, undertakings, representations or
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warranties by the Administrative Agent or any Lender relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
10.11 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings and the Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding relating to this
Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such courts and waives
any objection that it may now or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to Holdings or the Borrower, as the case may be at its address set forth
in Section 10.2 or at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
10.13 Acknowledgements. Each of Holdings and the Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this
Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or
duty to Holdings or the Borrower arising out of or in connection with this Agreement or any of
the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one
hand, and Holdings and the Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
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(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists
by virtue of the transactions contemplated hereby among the Lenders or among Holdings, the
Borrower and the Lenders.
10.14 Releases of Guarantees and Liens. (a) Notwithstanding anything to the contrary
contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably
authorized by each Lender (without requirement of notice to or consent of any Lender except as
expressly required by Section 10.1) to take any action requested by the Borrower having the effect
of releasing any Collateral or guarantee obligations (i) to the extent necessary to permit
consummation of any transaction not prohibited by any Loan Document or that has been consented to
in accordance with Section 10.1 or (ii) under the circumstances described in paragraph (b) below.
(b) At such time as the Loans, the Reimbursement Obligations and the other obligations
under the Loan Documents shall have been paid in full, the Commitments have been terminated and
no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens
created by the Security Documents, and the Security Documents and all obligations (other than
those expressly stated to survive such termination) of the Administrative Agent and each Loan
Party under the Security Documents shall terminate, all without delivery of any instrument or
performance of any act by any Person.
10.15 Confidentiality. Each of the Administrative Agent and each Lender agrees to
keep confidential all non-public information provided to it by any Loan Party, the Administrative
Agent or any Lender pursuant to or in connection with this Agreement that is designated by the
provider thereof as confidential; provided that nothing herein shall prevent the
Administrative Agent or any Lender from disclosing any such information (a) to the Administrative
Agent, any other Lender or any affiliate thereof, (b) subject to an agreement to comply with the
provisions of this Section, to any actual or prospective Transferee or any direct or indirect
counterparty to any Swap Agreement (or any professional advisor to such counterparty), (c) to its
employees, directors, agents, attorneys, accountants and other professional advisors or those of
any of its affiliates in connection with their rights and obligations hereunder and under the other
Loan Documents, (d) upon the request or demand of any Governmental Authority, (e) in response to
any order of any court or other Governmental Authority or as may otherwise be required pursuant to
any Requirement of Law, (f) if requested or required to do so in connection with any litigation or
similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized rating agency that
requires access to information about a Lenders investment portfolio in connection with ratings
issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder
or under any other Loan Document.
10.16 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE ADMINISTRATIVE AGENT AND THE
LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
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10.17 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act) hereby
notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain,
verify and record information that identifies the Borrower, which information includes the name and
address of the Borrower and other information that will allow such Lender to identify the Borrower
in accordance with the Act.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered by their proper and duly authorized officers as of the day and year first above written.
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MEDICAL PROPERTIES TRUST, INC.
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By: |
/s/ R. Steve Hamner
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Name: |
R. Steve Hamner |
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Title: |
Executive Vice President and Chief
Financial Officer |
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MPT OPERATING PARTNERSHIP, L.P.
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By: |
/s/ R. Steve Hamner
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Name: |
R. Steve Hamner |
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Title: |
Executive Vice President and Chief
Financial Officer |
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JPMORGAN CHASE BANK, N.A., as
Administrative Agent and as a Lender
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By: |
/s/ Vanessa Chiu
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Name: |
Vanessa Chiu |
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Title: |
Vice President |
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KEYBANK NATIONAL ASSOCIATION, as
Syndication Agent and as a Lender
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By: |
/s/ Laura Conway
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Name: |
Laura Conway |
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Title: |
Vice President |
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RAYMOND JAMES BANK, FSB, as a Lender
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By: |
/s/ Thomas G. Scott
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Name: |
Thomas G. Scott |
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Title: |
Vice President |
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DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender
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By: |
/s/ Carin Keegan
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Name: |
Carin Keegan |
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Title: |
Vice President |
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By: |
/s/ Erin Morrissey
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Name: |
Erin Morrissey |
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Title: |
Vice President |
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UBS LOAN FINANCE LLC, as a Lender
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By: |
/s/ Richard L. Tavrow
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Name: |
Richard L. Tavrow |
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Title: |
Director Banking Products Services, US |
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By: |
/s/ David B. Julie
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Name: |
David B. Julie |
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Title: |
Associate Director Banking Products
Services, US |
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ROYAL BANK OF CANADA, as a Lender
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By: |
/s/ Dan LePage
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Name: |
Dan LePage |
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Title: |
Authorized Signatory |
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EX-10.58 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.60
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT is made as of September 29, 2006 among MEDICAL PROPERTIES
TRUST, INC. (the REIT), MPT OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership (the Operating
Partnership) (the REIT and the Operating Partnership are
referenced collectively as the Company), and
Edward K. Aldag, Jr. (the Executive):
WHEREAS,
the Executive and the Company entered into an Employment Agreement Dated September 10, 2003, as
first amended on March 8, 2004, (the Employment; Agreement); and
WHEREAS,
the parties desire to amend the Employment Agreement as provided
herein.
NOW,
THEREFORE, in consideration of the premises and for other good and
valuable consideration, the
parties hereby agree as follows:
1. Paragraph 4
of the Employment Agreement is hereby deleted in its entirety and the following
paragraph is hereby substituted in lieu thereof:
4. INCENTIVE AWARDS: ANNUAL INCENTIVE BONUS. The Executive shall be entitled to
receive an annual cash incentive bonus for each fiscal year during the Term of this
Agreement consistent with such bonus policy as may be adopted by the Board of Directors
or its Compensation Committee (Bonus Policy). The Bonus Policy shall contain both
individual and group goals. If the Executive or the Company, as the case may be,
satisfies the performance criteria contained in such Bonus Policy for a fiscal year, he
shall receive an annual incentive bonus (the Incentive Bonus), in an amount determined
by the Compensation Committee and subject to ratification by the Board, if required. If
the Executive or the Company, as the case may be, fails to satisfy the performance
criteria contained in such Bonus Policy for a fiscal year, the Compensation Committee may
determine whether any Incentive Bonus shall be payable to Executive for that year,
subject to ratification by the Board, if required. The Executives bonus shall not be
subject to any minimum award, as provided in the Executives Employment Agreement
previous to this amendment. Additionally, in consideration for the Executives agreement
to forgo a guaranteed minimum bonus, the Company agrees that the previous bonus ceiling
of 100% of salary is no longer applicable and that, henceforth, there shall be no
limitation or ceiling on the maximum bonus that may be awarded to the Executive by the
Board of Directors or its Compensation Committee.
Second Amendment to Employment Agreement of
Edward K. Aldag, Jr.
Page 1 of 2
2. Except to the extent hereby amended, the Employment Agreement, as amended on March 8, 2004,
is hereby confirmed and ratified and shall continue in full force and effect.
3. The effective date of this amendment is September 29,2006.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as
of the date first above written.
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OPERATING PARTNERSHIP:
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EXECUTIVE: |
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MPT OPERATING PARTNERSHIP, L.P. |
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BY: MEDICAL PROPERTIES TRUST, LLC |
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ITS: GENERAL PARTNER |
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BY: MEDICAL PROPERTIES TRUST, INC.
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/s/ Edward K. Aldag, Jr.
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ITS: SOLE MEMBER
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Edward K. Aldag, Jr. |
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By:
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/s/ Emmett E. McLean
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Dated: 10/2/06 |
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Emmett E. McLean |
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Executive Vice President and CEO |
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Dated: 10/10/06 |
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REIT: |
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By:
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/s/ Emmett E. McLean |
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Emmett E. McLean |
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Executive Vice President and CEO |
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Dated: 10/10/06 |
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Second Amendment to Employment Agreement of
Edward K. Aldag, Jr.
Page 2 of 2
EX-10.59 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit
10.59
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of September 29, 2006 among MEDICAL
PROPERTIES TRUST, INC. (the REIT), MPT OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership (the Operating Partnership) (the REIT and the Operating Partnership are referenced
collectively as the Company), and Richard S. Hamner (the Executive):
WHEREAS, the Executive and the Company entered into an Employment Agreement Dated September 10,
2003 (the Employment Agreement); and
WHEREAS, the parties desire to amend the Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration,
the parties hereby agree as follows:
1. Paragraph 4 of the Employment Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
4. INCENTIVE AWARDS: ANNUAL INCENTIVE BONUS. The Executive shall be entitled
to receive an annual cash incentive bonus for each fiscal year during the Term of
this Agreement consistent with such bonus policy as may be adopted by the Board of
Directors or its Compensation Committee (Bonus Policy). The Bonus Policy shall
contain both individual and group goals. If the Executive or the Company, as the
case may be, satisfies the performance criteria contained in such Bonus Policy for
a fiscal year, he shall receive an annual incentive bonus (the Incentive Bonus),
in an amount determined by the Compensation Committee and subject to ratification
by the Board, if required. If the Executive or the Company, as the case may be,
fails to satisfy the performance criteria contained in such Bonus Policy for a
fiscal year, the Compensation Committee may determine whether any Incentive Bonus
shall be payable to Executive for that year, subject to ratification by the Board,
if required. The Executives bonus shall not be subject to any minimum award, as
provided in the Executives Employment Agreement previous to this amendment.
Additionally, in consideration for the Executives agreement to forgo a guaranteed
minimum bonus, the Company agrees that the previous bonus ceiling of 100% of
salary is no longer applicable and that, henceforth, there shall be no limitation
or ceiling on the maximum bonus that may be awarded to the Executive by the Board
of Directors or its Compensation Committee.
2. Except to the extent hereby amended, the Employment Agreement is
hereby confirmed and ratified and shall continue in full force and effect.
First Amendment to Employment Agreement of
Richard S. Hamner
Page 1 of 2
3. The effective date of this amendment is September 29, 2006.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as
of the date first above written.
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OPERATING PARTNERSHIP:
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EXECUTIVE: |
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MPT OPERATING PARTNERSHIP, L.P. |
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BY: MEDICAL PROPERTIES TRUST, LLC |
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ITS: GENERAL PARTNER |
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BY: MEDICAL PROPERTIES TRUST, INC.
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/s/ Richard S. Hamner
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ITS: SOLE MEMBER
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Richard S. Hamner |
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By:
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/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
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Dated: 10/12/06 |
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Chairman, President and CEO |
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Dated: 10/2/06 |
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REIT: |
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By:
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/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
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Chairman, President and CEO |
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Dated: 10/2/06 |
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First Amendment to Employment Agreement of
Richard S. Hamner
Page 2 of 2
EX-10.60 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit
10.60
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of September 29, 2006 among MEDICAL
PROPERTIES TRUST, INC. (the REIT), MPT OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership (the Operating Partnership) (the REIT and the Operating Partnership are referenced
collectively as the Company), and William G. McKenzie (the Executive):
WHEREAS, the Executive and the Company entered into an Employment Agreement Dated September
10,2003 (the Employment Agreement); and
WHEREAS, the parties desire to amend the Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration,
the parties hereby agree as follows:
1. Paragraph 4 of the Employment Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
4. INCENTIVE AWARDS: ANNUAL INCENTIVE BONUS. The Executive shall be entitled
to receive an annual cash incentive bonus for each fiscal year during the Term of
this Agreement consistent with such bonus policy as may be adopted by the Board of
Directors or its Compensation Committee (Bonus Policy). The Bonus Policy shall
contain both individual and group goals. If the Executive or the Company, as the
case may be, satisfies the performance criteria contained in such Bonus Policy for
a fiscal year, he shall receive an annual incentive bonus (the Incentive Bonus),
in an amount determined by the Compensation Committee and subject to ratification
by the Board, if required. If the Executive or the Company, as the case may be,
fails to satisfy the performance criteria contained in such Bonus Policy for a
fiscal year, the Compensation Committee may determine whether any Incentive Bonus
shall be payable to Executive for that year, subject to ratification by the Board,
if required. The Executives bonus shall not be subject to any minimum award, as
provided in the Executives Employment Agreement previous to this amendment.
Additionally, in consideration for the Executives agreement to forgo a guaranteed
minimum bonus, the Company agrees that the previous bonus ceiling of 100% of
salary is no longer applicable and that, henceforth, there shall be no limitation
or ceiling on the maximum bonus that may be awarded to the Executive by the Board
of Directors or its Compensation Committee.
2. Except to the extent hereby amended, the Employment Agreement is
hereby confirmed and ratified and shall continue in full force and effect.
First Amendment to Employment Agreement of
William G. McKenzie
Page 1 of 2
3. The effective date of this amendment is September 29, 2006.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as
of the date first above written.
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OPERATING PARTNERSHIP:
|
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EXECUTIVE: |
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MPT OPERATING PARTNERSHIP, L.P. |
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BY: MEDICAL PROPERTIES TRUST, LLC |
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ITS: GENERAL PARTNER |
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BY: MEDICAL PROPERTIES TRUST, INC.
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/s/ William G. Mckenzie
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ITS: SOLE MEMBER
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William G. McKenzie |
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By:
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/s/ Edward K. Aldag, Jr. |
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Edward K. Aldag, Jr.
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Dated: 10/2/06 |
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Chairman, President and CEO |
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Dated: 10/2/06 |
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REIT: |
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By:
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/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
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Chairman, President and CEO |
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Dated: 10/2/06 |
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First Amendment to Employment Agreement of
William G. McKenzie
Page 2 of 2
EX-10.61 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit
10.61
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of September 29, 2006 among MEDICAL
PROPERTIES TRUST, INC. (the REIT), MPT OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership (the Operating Partnership) (the REIT and the Operating Partnership are referenced
collectively as the Company), and Emmett E. McLean (the Executive):
WHEREAS, the Executive and the Company entered into an Employment Agreement Dated September 10,
2003 (the Employment Agreement); and
WHEREAS, the parties desire to amend the Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration,
the parties hereby agree as follows:
1. Paragraph 4 of the Employment Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
4. INCENTIVE AWARDS: ANNUAL INCENTIVE BONUS. The Executive shall be entitled
to receive an annual cash incentive bonus for each fiscal year during the Term of
this Agreement consistent with such bonus policy as may be adopted by the Board of
Directors or its Compensation Committee (Bonus Policy). The Bonus Policy shall
contain both individual and group goals. If the Executive or the Company, as the
case may be, satisfies the performance criteria contained in such Bonus Policy for
a fiscal year, he shall receive an annual incentive bonus (the Incentive Bonus),
in an amount determined by the Compensation Committee and subject to ratification
by the Board, if required. If the Executive or the Company, as the case may be,
fails to satisfy the performance criteria contained in such Bonus Policy for a
fiscal year, the Compensation Committee may determine whether any Incentive Bonus
shall be payable to Executive for that year, subject to ratification by the Board,
if required. The Executives bonus shall not be subject to any minimum award, as
provided in the Executives Employment Agreement previous to this amendment.
Additionally, in consideration for the Executives agreement to forgo a guaranteed
minimum bonus, the Company agrees that the previous bonus ceiling of 100% of
salary is no longer applicable and that, henceforth, there shall be no limitation
or ceiling on the maximum bonus that may be awarded to the Executive by the Board
of Directors or its Compensation Committee.
2. Except to the extent hereby amended, the Employment Agreement is
hereby confirmed and ratified and shall continue in full force and effect.
First Amendment to Employment Agreement of
Emmett E. McLean
Page 1 of 2
3. The effective date of this amendment is September 29, 2006.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as
of the date first above written.
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|
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OPERATING PARTNERSHIP:
|
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EXECUTIVE: |
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MPT OPERATING PARTNERSHIP, L.P. |
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BY: MEDICAL PROPERTIES TRUST, LLC |
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ITS: GENERAL PARTNER |
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BY:
MEDICAL PROPERTIES TRUST, INC.
ITS: SOLE MEMBER
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/s/ Emmett E. McLean
Emmett E. McLean
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By:
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/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
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Dated: 10/10/06 |
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Chairman, President and CEO |
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Dated: 10/2/06 |
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REIT: |
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By:
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/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
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Chairman, President and CEO |
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Dated: 10/2/06 |
|
|
First Amendment to Employment Agreement of
Emmett E. McLean
Page 2 of 2
EX-10.62 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit
10.62
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of September 29, 2006 among MEDICAL
PROPERTIES TRUST, INC. (the REIT), MPT OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership (the Operating Partnership) (the REIT and the Operating Partnership are referenced
collectively as the Company), and Michael G. Stewart (the Executive):
WHEREAS, the Executive and the Company entered into an Employment Agreement Dated April 28, 2005
(the Employment Agreement); and
WHEREAS, the parties desire to amend the Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration,
the parties hereby agree as follows:
1. Paragraph 4 of the Employment Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
4. INCENTIVE AWARDS: ANNUAL INCENTIVE BONUS. The Executive shall be entitled
to receive an annual cash incentive bonus for each fiscal year during the Term of
this Agreement consistent with such bonus policy as may be adopted by the Board of
Directors or its Compensation Committee (Bonus Policy). The Bonus Policy shall
contain both individual and group goals. If the Executive or the Company, as the
case may be, satisfies the performance criteria contained in such Bonus Policy for
a fiscal year, he shall receive an annual incentive bonus (the Incentive Bonus),
in an amount determined by the Compensation Committee and subject to ratification
by the Board, if required. If the Executive or the Company, as the case may be,
fails to satisfy the performance criteria contained in such Bonus Policy for a
fiscal year, the Compensation Committee may determine whether any Incentive Bonus
shall be payable to Executive for that year, subject to ratification by the Board,
if required. The Executives bonus shall not be subject to any minimum award, as
provided in the Executives Employment Agreement previous to this amendment.
Additionally, in consideration for the Executives agreement to forgo a guaranteed
minimum bonus, the Company agrees that the previous bonus ceiling of 100% of
salary is no longer applicable and that, henceforth, there shall be no limitation
or ceiling on the maximum bonus that may be awarded to the Executive by the Board
of Directors or its Compensation Committee.
2. Except to the extent hereby amended, the Employment Agreement is
hereby confirmed and ratified and shall continue in full force and effect.
First Amendment to Employment Agreement of
Michael G. Stewart
Page 1 of 2
3. The effective date of this amendment is September 29, 2006.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as
of the date first above written.
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|
|
OPERATING PARTNERSHIP:
|
|
EXECUTIVE: |
|
|
MPT OPERATING PARTNERSHIP, L.P. |
|
|
|
|
BY: MEDICAL PROPERTIES TRUST, LLC |
|
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|
|
ITS: GENERAL PARTNER |
|
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|
|
BY: MEDICAL PROPERTIES TRUST, INC.
|
|
/s/ Michael G. Stewart
|
|
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ITS: SOLE MEMBER
|
|
Michael G. Stewart |
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|
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By.
|
|
/s/ Edward K. Aldag, JR.
Edward K. Aldag, Jr.
|
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Dated: 10/3/06 |
|
|
Chairman, President and CEO |
|
|
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|
|
Dated: 10/2/06 |
|
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|
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REIT: |
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|
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|
|
By:
|
|
/s/ Edward K. Aldag, Jr.
Edward K. Aldag, Jr.
|
|
|
|
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Chairman, President and CEO |
|
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Dated: 10/2/06 |
|
|
First Amendment to Employment Agreement of
Michael G. Stewart
Page 2 of 2
EX-21.1 SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
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|
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|
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Jurisdiction(s) in Which |
|
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Jurisdiction of |
|
Qualified as a |
Subsidiary |
|
Organization |
|
Foreign Corporation |
1300 Campbell Lane, LLC
|
|
Delaware
|
|
Kentucky |
4499 Acushnet Avenue, LLC
|
|
Delaware
|
|
Massachusetts |
7173 North Sharon Avenue, LLC
|
|
Delaware
|
|
California |
8451 Pearl Street, LLC
|
|
Delaware
|
|
Colorado |
92 Brick Road, LLC
Medical Properties Trust, LLC
|
|
Delaware
Delaware
|
|
New Jersey
Alabama |
MPT Development Services, Inc.
|
|
Delaware
|
|
Alabama |
MPT Finance Company, LLC
|
|
Delaware |
|
|
MPT of Bloomington, LLC
|
|
Delaware
|
|
Indiana |
MPT of Anaheim, LLC
|
|
Delaware
|
|
California |
MPT of Anaheim, L.P.
|
|
Delaware
|
|
California |
MPT of Bucks County, L.P.
|
|
Delaware
|
|
Pennsylvania |
MPT of Bucks County, LLC
|
|
Delaware
|
|
Pennsylvania |
MPT of California, LLC
|
|
Delaware
|
|
California |
MPT of Centinela, L.P.
|
|
Delaware
|
|
California |
MPT of Centinela, LLC
|
|
Delaware
|
|
California |
MPT of Chino, LLC
|
|
Delaware
|
|
California |
MPT of Covington, LLC
|
|
Delaware
|
|
Louisiana |
MPT of Dallas LTACH, L.P.
|
|
Delaware
|
|
Texas |
MPT of Dallas LTACH, LLC
|
|
Delaware
|
|
Texas (as MPT of Dallas LTACH
GP, LLC) |
MPT of Denham Springs, LLC
|
|
Delaware
|
|
Louisiana |
MPT of Huntington Beach, LLC
|
|
Delaware
|
|
California |
MPT of Huntington Beach, L.P.
|
|
Delaware
|
|
California |
MPT of Inglewood, LLC
|
|
Delaware
|
|
California |
MPT of Inglewood, L.P.
|
|
Delaware
|
|
California |
MPT of La Palma, LLC
|
|
Delaware
|
|
California |
MPT of La Palma, L.P.
|
|
Delaware
|
|
California |
MPT of Luling, LLC
|
|
Delaware
|
|
Texas (as Delaware MPT of
Luling, LLC) |
MPT of Luling, L.P.
|
|
Delaware
|
|
Texas |
MPT of Montclair, L.P.
|
|
Delaware
|
|
California |
MPT of Montclair, LLC
|
|
Delaware |
|
|
MPT of North Cypress, L.P.
|
|
Delaware
|
|
Texas (as Delaware MPT of
North Cypress Texas, L.P.) |
MPT of North Cypress, LLC
|
|
Delaware
|
|
Texas |
MPT of Paradise Valley, LLC
|
|
Delaware
|
|
California |
MPT of Paradise Valley, L.P.
|
|
Delaware
|
|
California |
MPT of Portland, LLC
|
|
Delaware
|
|
Oregon |
MPT of Redding, LLC
|
|
Delaware
|
|
California |
MPT of Shasta, LLC
|
|
Delaware
|
|
California |
MPT of Shasta, L.P.
|
|
Delaware
|
|
California |
MPT of Sherman Oaks, LLC
|
|
Delaware
|
|
California |
MPT of Southern California, LLC
|
|
Delaware
|
|
California |
MPT of Southern California, L.P.
|
|
Delaware
|
|
California |
MPT of Twelve Oaks, LLC
|
|
Delaware
|
|
Texas |
MPT of Twelve Oaks, L.P.
|
|
Delaware
|
|
Texas |
MPT of Victoria, LLC
|
|
Delaware
|
|
Texas (as Delaware MPT of
Victoria, LLC) |
MPT of Victoria, L.P.
|
|
Delaware
|
|
Texas |
MPT of Victorville, LLC
|
|
Delaware
|
|
California |
MPT of Warm Springs, LLC
|
|
Delaware
|
|
Texas (as Delaware MPT of Warm
Springs, LLC) |
MPT of Warm Springs, L.P.
|
|
Delaware
|
|
Texas |
MPT of West Anaheim, LLC
|
|
Delaware
|
|
California |
MPT of West Anaheim, L.P.
|
|
Delaware
|
|
California |
MPT Operating Partnership, L.P.
|
|
Delaware
|
|
Massachusetts, Alabama |
MPT West Houston Hospital, LLC
|
|
Delaware
|
|
Texas (as MPT West Houston
Hospital GP, LLC) |
MPT West Houston Hospital, L.P.
|
|
Delaware
|
|
Texas |
MPT West Houston MOB, LLC
|
|
Delaware
|
|
Texas (as MPT West Houston MOB
GP, LLC) |
MPT West Houston MOB, L.P.
|
|
Delaware
|
|
Texas |
San Joaquin Health Care Associates Limited Partnership
|
|
Delaware
|
|
California |
EX-23.1 CONSENT OF KPMG LLP
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Medical Properties Trust, Inc.
We consent to the incorporation by reference in the registration statements (No. 333-130337) on
Form S-8 and (Nos. 333-121883, 333-140433, and 333-141100) on Form S-3 of Medical Properties Trust,
Inc. of our report dated March 13, 2008, with respect to (i) the consolidated balance sheets of
Medical Properties Trust, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders equity and cash flows for each of the years in
the three-year period ended December 31, 2007, and the related financial statement schedules, and
(ii) the effectiveness of internal control over financial reporting as of December 31, 2007, which
reports appear in the December 31, 2007 Annual Report on Form 10-K of Medical Properties Trust,
Inc.
/s/ KPMG LLP
Birmingham, Alabama
March 13, 2008
EX-23.2 CONSENT OF MOSS ADAMS LLP
Exhibit 23.2
The Board of Directors
Prime Healthcare Services, Inc., and Subsidiaries
We hereby consent to the incorporation by reference in the registration statements (No. 333-130337)
on Form S-8 and (Nos. 333-121883, 333-140433 and 333-141100) on Form S-3 of Medical Properties
Trust, Inc. of our report dated June 13, 2007, relating to the consolidated balance sheets of Prime
Healthcare Services, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the related
consolidated statements of income, stockholders equity and cash
flows for each of the years in the two-year period ended
December 31, 2006 which reports appear in the December 31, 2007 Annual Report on Form 10-K of Medical Properties
Trust, Inc.
/s/ Moss Adams LLP
Irvine, California
March 13, 2008
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Edward K. Aldag, Jr., certify that:
1) |
|
I have reviewed this annual report on Form 10-K of Medical Properties Trust, Inc. |
|
2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
d) |
|
disclosed in this report any changes in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors: |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
Date: March 13, 2008 |
/s/ Edward K. Aldag, Jr.
|
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief Executive Officer |
|
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, R. Steven Hamner, certify that:
|
1) |
|
I have reviewed this annual report on Form 10-K of Medical Properties Trust, Inc. |
|
|
2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3) |
|
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
|
4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared; |
|
|
b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
d) |
|
disclosed in this report any changes in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
|
5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of registrants board of directors: |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
Date: March 13, 2008 |
/s/ R. Steven Hamner
|
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief
Financial Officer |
|
EX-32 SECTION 906, CERTIFICATION OF THE CEO/CFO
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND
18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Medical Properties Trust, Inc. (the
Company) for the year ended December 31, 2007 (the Report), each of the undersigned, Edward K.
Aldag, Jr. and R. Steven Hamner, certifies, pursuant to Section 18 U.S.C. Section 1350, that:
|
1. |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
Date: March 13, 2008 |
/s/ Edward K. Aldag, Jr.
|
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and Chief
Executive Officer |
|
|
|
|
|
|
/s/ R. Steven Hamner
|
|
|
R. Steven Hamner |
|
|
Executive Vice President and Chief
Financial Officer |
|
EX-99.1 CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.1
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
INDEPENDENT AUDITORS REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
CONTENTS
|
|
|
|
|
PAGE |
|
|
|
INDEPENDENT AUDITORS REPORT |
|
1 |
|
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
Consolidated balance sheets |
|
2-3 |
Consolidated statements of income |
|
4 |
Consolidated statements of stockholders equity |
|
5 |
Consolidated statements of cash flows |
|
6-7 |
Notes to consolidated financial statements |
|
8-27 |
[LETTERHEAD OF MOSS ADAMS LLP]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Prime Healthcare Services, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheets of Prime Healthcare Services, Inc.,
and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of
income, stockholders equity, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of Prime Healthcare Services, Inc., and Subsidiaries
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatements. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Prime Healthcare Services, Inc., and
Subsidiaries, as of December 31, 2006 and 2005, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities effective January 1, 2005.
The Company has accounted for the effect of the adoption as a cumulative effect change in the
consolidated statement of income for the year ended December 31, 2005.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The information on pages 28 through 30 is presented for purposes of additional
analysis and is not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements, and in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ Moss Adams LLC
Irvine, California
June 13, 2007
1
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,984,387 |
|
|
$ |
25,550,515 |
|
Patient accounts receivable, net of allowance
for doubtful accounts of $4,171,000 in 2006
and $3,427,000 in 2005 |
|
|
53,397,527 |
|
|
|
21,144,471 |
|
Related party receivables |
|
|
956,361 |
|
|
|
596,301 |
|
Supplies inventory |
|
|
2,233,614 |
|
|
|
1,676,500 |
|
Prepaid expenses and other assets |
|
|
27,921,033 |
|
|
|
9,991,132 |
|
Deposits |
|
|
1,881,544 |
|
|
|
2,524,120 |
|
Income taxes receivable |
|
|
18,413 |
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
787,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
100,392,879 |
|
|
|
62,270,039 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization |
|
|
31,045,265 |
|
|
|
14,931,460 |
|
|
|
|
|
|
|
|
|
|
GOODWILL |
|
|
12,316,712 |
|
|
|
7,646,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143,754,856 |
|
|
$ |
84,847,545 |
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Bank overdraft |
|
$ |
1,159,486 |
|
|
$ |
|
|
Accounts payable |
|
|
17,379,765 |
|
|
|
4,344,105 |
|
Accrued expenses |
|
|
18,328,683 |
|
|
|
6,663,254 |
|
Medical claims payable |
|
|
3,959,088 |
|
|
|
4,708,760 |
|
Related party payables |
|
|
5,669,785 |
|
|
|
2,275,707 |
|
Income taxes payable |
|
|
147,000 |
|
|
|
2,201,315 |
|
Estimated third-party payor settlements |
|
|
2,640,190 |
|
|
|
5,610,607 |
|
Other current liabilities |
|
|
1,219,450 |
|
|
|
1,309,357 |
|
Deferred income taxes |
|
|
|
|
|
|
1,767,000 |
|
Current portion of capital leases |
|
|
448,440 |
|
|
|
451,813 |
|
Current portion of long-term debt |
|
|
9,093,668 |
|
|
|
2,033,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
60,045,555 |
|
|
|
31,365,063 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
1,958,000 |
|
Accrued professional liability reserve |
|
|
2,288,000 |
|
|
|
2,288,000 |
|
Capital leases, net of current portion |
|
|
695,426 |
|
|
|
620,339 |
|
Long-term debt, net of current portion |
|
|
14,734,500 |
|
|
|
8,098,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
17,717,926 |
|
|
|
12,964,409 |
|
|
|
|
|
|
|
|
|
|
NON CONTROLLING INTEREST |
|
|
31,299,046 |
|
|
|
17,746,674 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, .$01 par value, 3,000 shares
authorized, 100 shares issued and outstanding |
|
|
1 |
|
|
|
1 |
|
Additional paid in capital |
|
|
2,999 |
|
|
|
2,999 |
|
Note receivable from stockholder |
|
|
(9,000,000 |
) |
|
|
|
|
Retained earnings |
|
|
43,689,329 |
|
|
|
22,768,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,692,329 |
|
|
|
22,771,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143,754,856 |
|
|
$ |
84,847,545 |
|
|
|
|
|
|
|
|
See
accompanying notes.
3
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
REVENUE |
|
|
|
|
|
|
|
|
Net patient service revenue |
|
$ |
336,335,806 |
|
|
$ |
139,635,409 |
|
Premium revenue |
|
|
26,440,384 |
|
|
|
28,580,312 |
|
Other revenue |
|
|
5,510,341 |
|
|
|
1,678,946 |
|
|
|
|
|
|
|
|
|
|
|
|
368,286,531 |
|
|
|
169,894,667 |
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Compensation and employee benefits |
|
|
141,878,408 |
|
|
|
51,493,423 |
|
Provision for doubtful accounts |
|
|
42,161,121 |
|
|
|
25,731,743 |
|
General and administrative |
|
|
73,949,811 |
|
|
|
31,773,780 |
|
Medical supplies |
|
|
30,280,374 |
|
|
|
13,465,691 |
|
Professional services |
|
|
27,203,252 |
|
|
|
14,045,050 |
|
Depreciation and amortization |
|
|
3,573,601 |
|
|
|
1,388,162 |
|
Medical claims |
|
|
1,321,107 |
|
|
|
845,433 |
|
(Gain) loss on sale of assets |
|
|
(9,939 |
) |
|
|
326,282 |
|
|
|
|
|
|
|
|
|
|
|
|
320,357,735 |
|
|
|
139,069,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
|
47,928,796 |
|
|
|
30,825,103 |
|
|
INTEREST EXPENSE, net |
|
|
(642,039 |
) |
|
|
(44,599 |
) |
|
GAIN ON EXTINGUISHMENT OF DEBT |
|
|
104,447 |
|
|
|
2,845,071 |
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
|
47,391,204 |
|
|
|
33,625,575 |
|
|
INCOME TAX (BENEFIT) PROVISION |
|
|
(2,682,098 |
) |
|
|
4,084,838 |
|
|
|
|
|
|
|
|
|
INCOME BEFORE EXTRAORDINARY GAIN |
|
|
50,073,302 |
|
|
|
29,540,737 |
|
|
EXTRAORDINARY GAIN ON ACQUISITION |
|
|
|
|
|
|
4,402,621 |
|
|
|
|
|
|
|
|
|
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE |
|
|
50,073,302 |
|
|
|
33,943,358 |
|
|
CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
|
|
|
|
|
|
(712,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE ALLOCATION TO
NON-CONTROLLING INTEREST |
|
|
50,073,302 |
|
|
|
33,230,478 |
|
|
|
|
|
|
|
|
|
|
ALLOCATION OF INCOME TO
NON-CONTROLLING INTEREST |
|
|
(27,052,372 |
) |
|
|
(27,258,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTROLLING INTEREST IN NET INCOME |
|
$ |
23,020,930 |
|
|
$ |
5,972,071 |
|
|
|
|
|
|
|
|
See
accompanying notes.
4
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Receivable |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
|
|
|
|
Shares |
|
|
from Stockholder |
|
|
Stock |
|
|
Paid in Capital |
|
|
Earnings |
|
|
Total |
|
BALANCE, December 31, 2004 |
|
|
30 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
2,999 |
|
|
$ |
16,796,328 |
|
|
$ |
16,799,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,972,071 |
|
|
|
5,972,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2005 |
|
|
30 |
|
|
|
|
|
|
|
1 |
|
|
|
2,999 |
|
|
|
22,768,399 |
|
|
|
22,771,399 |
|
|
Distributions to stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,100,000 |
) |
|
|
(2,100,000 |
) |
|
Notes receivable from shareholder |
|
|
|
|
|
|
(9,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,000,000 |
) |
|
Controlling interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,020,930 |
|
|
|
23,020,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2006 |
|
|
30 |
|
|
$ |
(9,000,000 |
) |
|
$ |
1 |
|
|
$ |
2,999 |
|
|
$ |
43,689,329 |
|
|
$ |
34,692,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
5
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Controlling interest in net income |
|
$ |
23,020,930 |
|
|
$ |
5,972,071 |
|
Adjustments to reconcile controlling interest in net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,573,601 |
|
|
|
1,388,162 |
|
Loss (Gain) on sale of assets |
|
|
(9,939 |
) |
|
|
326,282 |
|
Provision for doubtful accounts |
|
|
42,161,121 |
|
|
|
25,731,743 |
|
Extraordinary gain on acquisition |
|
|
|
|
|
|
(4,402,621 |
) |
Gain on extinguishment of debt |
|
|
(104,447 |
) |
|
|
(2,845,071 |
) |
Deferred income taxes |
|
|
(2,938,000 |
) |
|
|
2,460,000 |
|
Non controlling interest in net income |
|
|
27,052,372 |
|
|
|
27,971,287 |
|
Changes in assets and liabilities net of acquisitions: |
|
|
|
|
|
|
|
|
Patient accounts receivable |
|
|
(74,264,177 |
) |
|
|
(28,180,154 |
) |
Supplies inventory |
|
|
439,965 |
|
|
|
138,028 |
|
Prepaid expenses and other assets |
|
|
(17,459,183 |
) |
|
|
(2,915,119 |
) |
Deposits |
|
|
253,068 |
|
|
|
(1,552,483 |
) |
Due to/ from related parties |
|
|
508,032 |
|
|
|
(49,417 |
) |
Accounts payable |
|
|
13,035,659 |
|
|
|
(4,242,153 |
) |
Accrued expenses |
|
|
5,526,967 |
|
|
|
(3,441,764 |
) |
Medical claims payable |
|
|
(749,672 |
) |
|
|
(799,641 |
) |
Income taxes payable/ receivable |
|
|
(2,072,728 |
) |
|
|
(1,559,982 |
) |
Estimated third-party payor settlements |
|
|
(2,970,417 |
) |
|
|
1,345,613 |
|
Other current liabilities |
|
|
14,540 |
|
|
|
2,600,314 |
|
Accrued professional liability reserve |
|
|
|
|
|
|
(940,000 |
) |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
15,017,692 |
|
|
|
17,005,095 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisition of Veritas |
|
|
|
|
|
|
(1,050,000 |
) |
Cash received from acquisition of Veritas |
|
|
|
|
|
|
3,946,394 |
|
Acquisition of net assets from Sherman Oaks Health System |
|
|
|
|
|
|
(695,758 |
) |
Purchase of property and equipment |
|
|
(16,866,981 |
) |
|
|
(5,247,575 |
) |
Proceeds from the sale of assets |
|
|
|
|
|
|
64,600 |
|
Amounts advanced for related party receivables |
|
|
(2,985,048 |
) |
|
|
(10,942,291 |
) |
Amounts received from related party receivables |
|
|
5,361,034 |
|
|
|
24,987,500 |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(14,490,995 |
) |
|
|
11,062,870 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Increase/(decrease) in bank overdraft |
|
|
1,159,486 |
|
|
|
(395,728 |
) |
Proceeds from long-term debt borrowing |
|
|
5,412,366 |
|
|
|
9,269,205 |
|
Payments on long-term debt |
|
|
(3,064,677 |
) |
|
|
(3,404,568 |
) |
Distribution to non-controlling interest |
|
|
(14,500,000 |
) |
|
|
(9,500,000 |
) |
Advances on stockholder notes receivable |
|
|
(9,000,000 |
) |
|
|
|
|
Distribution to stockholder |
|
|
(2,100,000 |
) |
|
|
|
|
Proceeds from issuance of common stock in non controlling interest |
|
|
1,000,000 |
|
|
|
|
|
Net borrowing from lines of credit |
|
|
9,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(12,092,825 |
) |
|
|
(4,031,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(11,566,128 |
) |
|
|
24,036,874 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year |
|
|
25,550,515 |
|
|
|
1,513,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year |
|
$ |
13,984,387 |
|
|
$ |
25,550,515 |
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31, |
|
|
|
2006 |
|
|
2005 |
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,148,702 |
|
|
$ |
943,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
1,431,500 |
|
|
$ |
2,525,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Obligations incurred for the acquisition of property and equipment |
|
$ |
2,420,978 |
|
|
$ |
1,884,935 |
|
|
|
|
|
|
|
|
See
accompanying notes.
7
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Business
Prime Healthcare Services, Inc. (the Company or PHSI), formerly Desert Valley Health
System, Inc., is a Delaware corporation incorporated on March 27, 2000. The Company is a
holding company whose principal activity is the ownership and management of its wholly owned
subsidiaries, Desert Valley Hospital, Inc. (DVH), Prime Healthcare Services, LLC (PHS),
Apple Valley Surgery Center Corporation (AVSCC), Prime Healthcare Systems II, LLC dba
Sherman Oaks Hospital (PHS2), Veritas Health Services, Inc. dba Chino Valley Medical
Center, Prime Healthcare Huntington Beach, LLC dba Huntington Beach Hospital, Prime
Healthcare La Palma, LLC dba La Palma Intercommunity Hospital, Prime Healthcare Anaheim, LLC
dba West Anaheim Medical Center, Prime Healthcare Services III, LLC dba Montclair Hospital
Medical Center (PHS3). DVH operates an 83 bed acute care hospital (Desert Valley
Hospital) located in Victorville, California. AVSCC operates an ambulatory surgery center
located in Apple Valley, California. PHS provides management and consulting services to
other healthcare organizations. PHS3 was created during the year ended December 31, 2005
for the purpose of acquiring a hospital (Note 12). Sherman Oaks Hospital is a 153 bed acute
care hospital located in Sherman Oaks, California. Veritas Health Services, Inc.
(Veritas) is a 126 bed acute care hospital located in Chino California. PHSI acquired
100% of the outstanding common stock of Veritas on January 1, 2006 (Note 12). Prime
Healthcare Huntington Beach, LLC (HBH) was formed during the year ended December 31, 2006
for the purpose of acquiring certain operating assets of VHS of Huntington Beach, Inc. dba
Huntington Beach Hospital (Note 12). HBH operates a 131 bed acute care hospital located in
Huntington Beach, California. Prime Healthcare La Palma, LLC (La Palma) was formed during
the year ended December 31, 2006 for the purpose of acquiring certain operating assets of
VHS of Orange County, Inc. dba La Palma Intercommunity Hospital (Note 12). La Palma
operates a 141 bed acute care hospital located in La Palma, California. Prime Healthcare
Anaheim, LLC (WAMC) was formed during the year ended December 31, 2006 for the purpose of
acquiring certain operating assets of VHS of Anaheim, Inc. dba West Anaheim Medical Center
(Note 12). WAMC operates a 219 bed acute care hospital located in Anaheim, California.
Prime Healthcare Services III, LLC (Montclair) was formed during the year ended December
31, 2006 for the purpose of acquiring certain operating assets of Doctors Hospital Medical
Center of Montclair, L.P. dba Doctors Hospital Medical Center of Montclair (Note 12).
Montclair operates a 102 bed acute care hospital located in Montclair, California.
8
Note 1 Nature of Business (continued)
Effective January 1, 2005 the Company adopted Financial Accounting Standards Board (FASB)
Financial Interpretation No. 46(R) Consolidation of Variable Interest Entities (FIN46(R)).
The Company determined that it has a variable interest in Desert Valley Medical Group, Inc.
(DVMG), Chino Valley Medical Group, Inc. (CVMG), Sherman Oaks Medical Group Management,
Inc. (SOMGM), and Prime Management Services, Inc. (PMSI). It was also determined that
PHSI is the primary beneficiary of these variable interest entities. The adoption of
FIN46(R) resulted in a cumulative effect adjustment of $712,880 which was a reduction in
income before allocation to non-controlling interest. See basis of consolidation below.
DVMG was incorporated as a California professional corporation in August 1995 and is
headquartered in Victorville, California. DVMG has over 60 board-certified primary care and
specialty physicians, urgent care/walk-in clinics, on-site imaging, health education and
access to pharmacy, and lab services. DVMG is affiliated with DVH, which is adjacent to the
main campus of DVMG. CVMG was formed in February 2005 to establish a multi-specialty
medical group. As of December 31, 2006 CVMG has not commenced operations. SOMGM was
incorporated as a California professional corporation in October 2005 and is located in
Sherman Oaks, California. PMSI was incorporated on October 18, 2005 as a California
corporation. PMSI provides certain management services to hospitals owned by PHSI.
9
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Business (continued)
Following is summarized financial statement information for DVMG as of and for the year
ended December 31, 2006:
|
|
|
|
|
Balance Sheet Information |
|
|
|
|
Current assets |
|
$ |
3,302,663 |
|
Property and equipment, net |
|
|
753,207 |
|
Deposits |
|
|
222,400 |
|
Related party receivables |
|
|
2,605,740 |
|
|
|
|
|
Total Assets |
|
$ |
6,884,010 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
5,907,142 |
|
Long-term liabilities |
|
|
1,701,481 |
|
Stockholders deficit |
|
|
(724,613 |
) |
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
6,884,010 |
|
|
|
|
|
|
|
|
|
|
Income Statement Information |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
41,349,404 |
|
Operating expenses |
|
|
37,273,223 |
|
|
|
|
|
Income from operations |
|
|
4,076,181 |
|
|
|
|
|
|
Other, net |
|
|
(11,733 |
) |
|
|
|
|
Income before income taxes |
|
|
4,064,448 |
|
Income taxes |
|
|
59,000 |
|
|
|
|
|
Net income |
|
$ |
4,005,448 |
|
|
|
|
|
10
Note 2 Organization and Summary of Significant Accounting Policies
Basis of consolidation - The consolidated financial statements include the accounts of the
Company, DVH, PHS, PHS2, PHS3, AVSCC, Veritas, HBH, La Palma and WAMC, after the elimination
of all material intercompany transactions and balances. The Company has determined that
DVMG, CVMG, SOMGM and PMSI are variable interest entities as defined by FIN 46(R). The
equity of the variable interest entities have been reflected as a non-controlling interest
as of December 31, 2006 and 2005. On October 1, 2005, DVMG acquired all of the outstanding
shares of Veritas Health Services, Inc. dba Chino Valley Medical Center (see Note 12).
DVMGs consolidated financial statements as of and for the year ended December 31, 2005
includes the accounts of CVMC from the date of acquisition, October 1, 2005, through
December 31, 2005. All inter-company accounts and transactions have been eliminated upon
consolidation. The consolidation of these entities does not change any legal ownership, and
does not change the assets or the liabilities and equity of PHSI as a stand-alone entity.
However, certain creditors of the non-controlling interest entity have recourse to the
general credit of the Company.
Net patient service revenue - Net patient service revenue is reported at the estimated net
realizable amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with third-party
payors. In some cases, reimbursement is based on formulas which cannot be determined until
cost reports are filed and audited or otherwise settled by the various programs. Normal
estimation differences between final settlements and amounts accrued in previous years are
reflected in net patient service revenue.
Premium revenue and medical claims expense - The Company has agreements with various Health
Maintenance Organizations (HMO) to provide medical services to enrollees. Under these
agreements, the Company receives monthly capitation revenue based on the number of each
HMOs enrollees, regardless of services actually performed by the Company. Premium revenue
under HMO contracts is recognized during the period in which the Company is obligated to
provide services. Certain of the HMO contracts also contain shared-risk provisions whereby
the Company can earn additional incentive revenue or incur penalties based upon the
utilization of inpatient hospital services by assigned HMO enrollees. The Company records
shared-risk revenue and expenses based upon inpatient utilization on an estimated basis.
Differences between estimated shared-risk revenue or expenses and actual amounts are
recorded upon final settlement with each HMO. Amounts due to unaffiliated health care
providers for out of network claims are recognized as incurred. The amounts recorded are
based upon projections of historical developments. Such projections are adjusted and
estimates changed when developments of claims information warrant. Estimation differences
are reflected in medical claims expenses.
11
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 Organization and Summary of Significant Accounting Policies (continued)
Supplies inventory - Supplies inventory is stated at cost, determined by the average cost
method, which is not in excess of market.
Property and equipment - Property and equipment is stated at cost. Depreciation and
amortization is computed using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 15 years. Amortization of leasehold improvements is
computed over the lessor of the lease term and the estimated useful lives of the assets and
is included in depreciation and amortization expense.
Use of estimates - The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America 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 consolidated
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income taxes - As of and for the year ended December 31, 2005, income taxes were accounted
for under the asset and liability method for deferred income taxes for PHSI, DVH, AVSCC and
Veritas. Under this method, deferred income tax assets and liabilities result from
temporary differences in the financial reporting bases and the income tax reporting bases of
assets and liabilities. When it appears more likely than not that deferred taxes will not
be realized, a valuation allowance is recorded to reduce the deferred tax asset to its
estimated realizable value. The Company files consolidated income tax returns with its
subsidiaries.
Effective January 1, 2006 PHSI, DVH, AVSCC and Veritas, filed an election to convert
corporate status from Sub chapter C corporations to Sub Chapter S of the Internal Revenue
Code and state law. In addition, DVH, AVSCC, Veritas and PMSI are qualified Q subs of PHSI
and are included in the PHSI consolidated income tax return for the year ended December 31,
2006. In lieu of corporate income taxes, the stockholders of PHSI will be taxed on their
proportionate share of PHSIs net income as defined by the Internal Revenue Code. HBH, La
Palma, WAMC, and Montclair are single member LLCs. Their taxable income and loss will be
included in the PHSI consolidated income tax return for the year ended December 31, 2006.
However, PHSI is subject to various state and franchise taxes. PHSI may disburse funds
necessary to satisfy the stockholders estimated income tax liabilities.
DVMG, PMSI and SOMGM have elected to be taxed under the provision of subchapter S of the
Internal Revenue Code and state law. Under these provisions, the entities do not pay
corporate income taxes on their taxable income. However, the entities are subject to
California franchise taxes. In addition, the stockholders of the entities are liable for
individual federal and state income taxes on taxable income. The Company may disburse funds
necessary to satisfy the stockholders estimated tax liability.
12
Note 2 Organization and Summary of Significant Accounting Policies (continued)
Cash and cash equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Goodwill - Management evaluates goodwill, at a minimum, on an annual basis and whenever
events and changes in circumstances suggest that the carrying amount may not be recoverable.
Impairment of goodwill is tested at the reporting unit level by comparing the reporting
units carrying amount, including goodwill, to the fair value of the reporting unit. The
fair values of the reporting units are estimated using a combination of the income or
discounted cash flow approach and market approach, which uses comparable data. If the
carrying amount of the reporting unit exceeds fair value, goodwill is considered impaired
and a second step is performed to measure the amount of impairment loss, if any.
For the year ended December 31, 2006, the management of the Company determined that an
impairment did not exist. However, if estimates or the related assumptions change in the
future, the Company may be required to record impairment charges to reduce the carrying
amount of this asset.
Fair value of financial instruments - The Companys consolidated balance sheets include the
following financial instruments: cash and cash equivalents, patient accounts receivable,
notes receivable, accounts payable and accrued liabilities, and long-term liabilities. The
Company considers the carrying amounts of current assets and liabilities in the consolidated
balance sheets to approximate the fair value of these financial instruments and their
expected realization. The carrying amount of notes receivable and long-term debt
approximated their fair value, based on current market rates of instruments of the same
risks and maturities.
Note 3 Concentration of Credit Risk
Financial instruments which potentially subject the Company to significant concentrations of
credit risk consist primarily of cash. The Company maintains cash in bank deposit accounts
at high credit quality financial institutions. The balances at times, may exceed the
$100,000 federally insured limit.
Patient accounts receivable at December 31, 2006 and 2005 are comprised of the following:
government programs, primarily Medicare 31% and 27%, respectively, Medi-Cal 25% and 21%,
respectively, Healthcare maintenance and preferred provider organizations (managed care
programs) 16% and 2%, respectively, and private pay and commercial insurance patients 28%
and 50%, respectively. Management believes there are no credit risks associated with
receivables from government programs. Receivables from managed care programs and others are
from various payors who are subject to differing economic conditions and do not represent
concentrated risks to the Company. Management continually monitors and adjusts the reserves
associated with receivables, and does not require collateral. Losses due to bad debts have
been within managements estimates.
13
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 Property and Equipment
Property and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Equipment |
|
$ |
40,844,735 |
|
|
$ |
27,583,264 |
|
Leasehold improvements |
|
|
4,726,087 |
|
|
|
2,526,609 |
|
Automobiles |
|
|
3,273,016 |
|
|
|
1,426,209 |
|
Construction in progress (estimated cost to complete
at December 31, 2006 is approximately $16,475,000) |
|
|
2,663,488 |
|
|
|
477,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,507,326 |
|
|
|
32,013,723 |
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization |
|
|
(20,462,061 |
) |
|
|
(17,082,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,045,265 |
|
|
$ |
14,931,460 |
|
|
|
|
|
|
|
|
Gross property and equipment includes $1,906,347 of equipment under capital lease
arrangements as of December 31, 2006. Related accumulated amortization totaled
approximately $587,980 as of December 31, 2006.
14
Note 5 Long-Term Debt
Long-term debt consists of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Line of credit with City National Bank,
secured by accounts receivable, interest
payable monthly at an annual rate of
prime (8.25% at December 31, 2006), due March 1,
2007. |
|
$ |
6,000,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Term loans with GE Commercial Finance, secured
by various equipment, payable in monthly
installments ranging from approximately $7,000 to $140,000 including interest at
fixed interests rate ranging from 6.63% to
7.44% per annum, maturing in 2010. |
|
|
6,111,616 |
|
|
|
5,664,448 |
|
|
|
|
|
|
|
|
|
|
Term loan with City National Bank, secured by
equipment, interest payable monthly at an
annual rate of prime (8.25% at December 31,
2006), principal payable in monthly payments
of $116,667, maturing on August 1, 2011. |
|
|
6,493,450 |
|
|
|
4,295,312 |
|
|
|
|
|
|
|
|
|
|
Bank note payable, secured by certain real
estate, bearing interest at 5.75% per annum,
payable in monthly payments of $1,258,
maturing in August 2024. |
|
|
160,457 |
|
|
|
171,455 |
|
|
|
|
|
|
|
|
|
|
Line of credit with Merrill Lynch, secured by
accounts receivables, interest payable
monthly at an annual rate of LIBOR plus 3%
(8.38% at December 31, 2006), maturing in
September 2008. |
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable with City National Bank, secured
by equipment, bearing interest at LIBOR plus
1.5% per annum (6.88% at December 31, 2006),
principal payable in monthly payment of $34,377 starting September 1, 2007, maturing
September 1, 2012. |
|
|
2,062,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,828,168 |
|
|
|
10,131,215 |
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
(9,093,668 |
) |
|
|
(2,033,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,734,500 |
|
|
$ |
8,098,070 |
|
|
|
|
|
|
|
|
15
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 Long-Term Debt (continued)
Aggregate annual principal maturities of long-term debt for the five years subsequent to
December 31, 2006 are as follows:
|
|
|
|
|
Years ending December 31, |
|
|
|
|
2007 |
|
$ |
9,093,668 |
|
2008 |
|
|
6,517,261 |
|
2009 |
|
|
3,639,390 |
|
2010 |
|
|
2,825,989 |
|
2011 |
|
|
1,312,986 |
|
Thereafter |
|
|
438,874 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,828,168 |
|
|
|
|
|
During 2005, Veritas secured a line of credit in the amount of $5,000,000. The amounts
drawn on this line of credit were $3,000,000 and $0 as of December 31, 2006 and 2005,
respectively. Interest on the outstanding borrowings is payable monthly at LIBOR plus 3%.
The interest rate was 8.38% as of December 31, 2006. The line is secured by accounts
receivable of Veritas. Under the terms of the agreement, Veritas is required to maintain
certain financial and non financial covenants. Management believes Veritas was in
compliance with loan covenants as of December 31, 2006.
In March 2005, DVH and DVMG secured a line of credit in the amount of $7,000,000. The
amounts drawn on this line of credit by DVH were $6,000,000 and $0 at December 31, 2006 and
2005, respectively. Interest on the outstanding borrowings is payable monthly at the
lenders prime rate plus 3%. The interest rate was 8.25% as of December 31, 2006. The line
is secured by accounts receivable of DVH. Under the terms of the agreement, the Company is
required to maintain certain financial and non financial covenants. Management believes the
Company was in compliance with the covenants as of December 31, 2006.
Note 6 Professional Liability and Workers Compensation Insurance
The Company has entered into an agreement with Desert Valley Insurance, LTD. (DVIL) and ACE
Insurance Company to provide workers compensation insurance coverage for the Company. DVIL
is affiliated with the Company through common ownership. Under the terms of the agreement
DVIL is obligated to insure each workers compensation claim up to a maximum of $500,000 per
claim. Losses in excess of $500,000 per claim are insured by ACE Insurance Company.
16
Note 6 Professional Liability and Workers Compensation Insurance (continued)
The Company also entered into an agreement with DVIL to provide commercial malpractice
liability insurance on a claims made basis. Under the policy with DVIL the Company is
covered up to a $10,000,000 general aggregate limit with no amount deductible.
Accounting principles generally accepted in the United States of America require that a
health care facility disclose the estimated costs of malpractice claims in the period of the
incident of malpractice, if it is reasonably possible that liabilities may be incurred and
losses can be reasonably estimated. The Company recognized an estimated liability based
upon its claims experience to cover the Companys potential exposure to incurred but
unreported claims. The claim reserve is based on the best data available to the Company;
however, the estimate is subject to a significant degree of inherent variability. Such an
estimate is continually monitored and reviewed, and as the reserve is adjusted, the
difference is reflected in current operations. While the ultimate amount of professional
liability is dependent on future developments, management is of the opinion that the
associated liabilities recognized in the accompanying consolidated financial statements is
adequate to cover such claims. Management is aware of no potential professional liability
claims whose settlement, if any, would have a material adverse effect on the Companys
consolidated financial position.
The Company has evaluated whether they are required to consolidate DVIL in accordance with
FIN 46(R) as of December 31, 2006, and have determined that DVIL is not required to be
consolidated.
Note 7 Leases
During the period June 1, 2004 through February 28, 2005, the Company leased the Desert
Valley Hospital facility under a month to month arrangement. Effective February 28, 2005,
the Company entered into a new lease for this facility which expires on February 28, 2020.
The new lease provides for monthly rent payments of approximately $240,000, which is
adjusted annually based on the consumer price index.
The Company leases certain equipment under various non-cancelable operating and capital
lease arrangements. The leases expire on various dates through 2011. Capital leases bear
interest at rates ranging from 6.0% 9.4%.
On November 30, 2005, Veritas entered into a non-cancelable operating lease for its hospital
facility which expires November 30, 2020. Veritas has an option to extend the term of the
lease for three additional periods of five years each. The lease provides for a monthly
base rent of $175,000, which is adjusted annually based on the greater of 2% or the consumer
price index.
On December 30, 2005, PHS2 entered into a non-cancelable operating lease for its hospital
facility which expires December 30, 2020. PHS2 has an option to extend the term of the
lease for three additional periods of five years each. The lease provides for a monthly
base rent of $175,000, which is adjusted annually based on the greater of 2% or the consumer
price index.
17
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 Leases (continued)
On July 31, 2006 Montclair entered into a non-cancelable operating lease for its hospital
facility which expires July 31, 2021. Montclair has an option to extend the term of the
lease for three additional periods of five years each. The lease provides for a monthly
base rent of $162,500, which is adjusted annually based on the greater of 2% or consumer
price index.
On November 8, 2006 HBH, La Palma and WAMC entered into non-cancelable operating leases for
their hospital facilities which expire November 8, 2021. These leases have an option to
extend the term of the lease for three additional periods of five years each. The lease
provides for a monthly base rent ranging from $98,900 to $197,900, which is adjusted
annually based on the greater of 2% or consumer price index.
Lease expense consisting primarily of building rent, and equipment leases, amounted to
approximately $19,063,000 and $10,692,000 for the years ended December 31, 2006 and 2005
respectively.
Future minimum lease payments under non-cancelable operating leases (with initial or
remaining lease terms in excess of one year) and future minimum capital lease payments as of
December 31, 2006 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
Capital |
|
|
Lease |
|
|
|
Leases |
|
|
Commitments |
|
Years ending December 31, |
|
|
|
|
|
|
|
|
2007 |
|
$ |
514,655 |
|
|
$ |
21,790,431 |
|
2008 |
|
|
342,156 |
|
|
|
20,335,114 |
|
2009 |
|
|
223,251 |
|
|
|
19,582,257 |
|
2010 |
|
|
161,131 |
|
|
|
17,594,824 |
|
2011 |
|
|
36,069 |
|
|
|
16,226,331 |
|
Thereafter |
|
|
|
|
|
|
151,745,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
1,277,262 |
|
|
$ |
247,274,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest |
|
|
(133,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
|
(448,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
695,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Note 8 Related Party Transactions
The Company leases certain office buildings and parking facilities from a related party.
The leases are for five year terms. Rent expense incurred under these leases was $985,025
and $694,985 for the years ended December 31, 2006 and 2005, respectively.
The Company purchases medical supplies from a related party within the normal course of
business. For the years ended December 31, 2006 and 2005, medical supplies purchased from
the related party totaled $309,035 and $357,576, respectively.
Notes receivable from related parties as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Notes receivable from Action Collection,
unsecured, non interest bearing, due on demand. |
|
$ |
3,561 |
|
|
$ |
18,697 |
|
|
|
|
|
|
|
|
|
|
Notes receivable from an officer of the Company,
unsecured, bearing interest at 6% as of December
31, 2006, due on demand. |
|
|
|
|
|
|
62,911 |
|
|
|
|
|
|
|
|
|
|
Short term unsecured advances to employees, non
interest bearing, due on demand |
|
|
272,169 |
|
|
|
504,253 |
|
|
|
|
|
|
|
|
|
|
Receivable from DVIL, related to expenses
incurred in excess of deductibles. |
|
|
433,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from related party, unsecured,
non interest bearing, payable on demand. |
|
|
241,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various |
|
|
5,939 |
|
|
|
10,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
956,361 |
|
|
$ |
596,301 |
|
|
|
|
|
|
|
|
19
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Related Party Transactions
Notes payable from related parties as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Notes payable to Sherman Oaks Health System
related to acquisition (Note 12) , unsecured, non
interest bearing, payable on demand. |
|
$ |
94,374 |
|
|
$ |
287,576 |
|
|
|
|
|
|
|
|
|
|
Notes payable to related party, unsecured, non
interest bearing, payable on demand. |
|
|
5,133,463 |
|
|
|
1,988,131 |
|
|
|
|
|
|
|
|
|
|
Payable to DVIL, related to the financing of
insurance premiums. |
|
|
273,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable to Action Collection, unsecured,
non interest bearing, due on demand. |
|
|
168,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,669,785 |
|
|
$ |
2,275,707 |
|
|
|
|
|
|
|
|
The Company uses the services of Action Collection, a related party collection agency to
collect delinquent patient accounts receivable. For the years ended December 31, 2006 and
2005, agency fees paid to the related party totaled $2,009,581 and $2,018,355, respectively.
20
Note 8 Related Party Transactions (continued)
The Company entered into agreements with DVIL to provide workers compensation insurance
coverage and commercial malpractice liability insurance on a claims made basis (see Note 6).
Insurance premiums paid to DVIL totaled $33,421,594 and $9,624,650 for the years ended
December 31, 2006 and 2005, respectively. The Company gets reimbursement from DVIL for
workers compensation insurance deductibles paid on behalf of DVIL.
The Company leases certain office buildings and parking facilities from a related party.
The leases are for five year terms. Rent expense incurred under these leases was
approximately $175,000 for the years ended December 31, 2006 and 2005.
The Company purchases medical supplies from a related party within the normal course of
business. For the years ended December 31, 2006 and 2005, medical supplies purchased from
the related party totaled approximately $309,035 and $357,576 respectively.
During 2006, the Company advanced $9,000,000 to an officer/stockholder. The advances are
unsecured, due on demand and bear interest at 6% per annum. For financial reporting
purposes the advances are being reflected as a reduction in stockholders equity.
Note 9 Retirement Savings Plan
The Company has a defined contribution pension plan covering substantially all of its
employees. The Companys contribution to the plan is at the Companys discretion but
limited to the maximum amount deductible for federal income tax purposes under the
applicable Internal Revenue Code. During the years ended December 31, 2006 and 2005, the
Company made contributions of $513,746 and $0, respectively, to the plan.
Note 10 Contingencies
The Company is aware of certain asserted and unasserted legal claims. While the outcome
cannot be determined at this time, it is managements opinion that the liability, if any,
from these actions will not have a material adverse effect on the Companys financial
position.
21
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 Contingencies (continued)
The health care industry is subject to numerous laws and regulations of federal, state, and
local governments. Compliance with such laws and regulations can be subject to future
government review and interpretation, as well as regulatory actions unknown or unasserted at
this time. These laws and regulations include, but are not limited to, accreditation,
licensure, and government health care program participation requirements, reimbursement for
patient services, and Medicare and Medicaid fraud and abuse. Recently, government activity
has increased with respect to investigations and allegations concerning possible violations
of fraud and abuse statutes and regulations by health care providers. Violations of these
laws and regulations could result in exclusion from government health care program
participation, together with the imposition of significant fines and penalties, as well as
significant repayment for past reimbursement for patient services received. While the
Company is subject to similar regulatory review, there are no reviews currently underway and
management believes that the outcome of any potential regulatory review will not have a
material adverse effect on the Companys financial position.
Management believes that the Company is in compliance with government law and regulations
related to fraud and abuse and other applicable areas. While no material regulatory
inquiries have been made, compliance with such laws and regulations can be subject to future
governmental review and interpretation, as well as regulatory actions unknown or unasserted
at this time.
Note 11 Legislation
The Health Insurance Portability and Accountability Act (HIPAA) was enacted on August 21,
1996, to assure health insurance portability, reduce health care fraud and abuse, guarantee
security and privacy of health information and enforce standards for health information.
Organizations were required to be in compliance with certain HIPAA privacy provisions
beginning April 2003. Organizations are subject to significant fines and penalties if found
not to be compliant with the provisions outlined in the regulations. Management believes
that the Company is in compliance with HIPAA.
Note 12 Acquisitions
On October 1, 2005 DVMG acquired 100% of the outstanding common stock of Veritas. The
acquisition of Veritas expands and compliments the operations of the Company. The purchase
price of $1,050,000 was paid in cash to the Veritas shareholders. The operating results of
Veritas are included in the DVMG consolidated results from the date of acquisition through
December 31, 2005. At January 1, 2006 PHSI acquired 100% of the outstanding common stock at
Veritas from DVMG. The purchase price of $1,050,000 was paid in cash to DVMG.
22
Note 12 Acquisitions (continued)
The acquisition of Veritas has been accounted for using the purchase method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.
The following table presents the allocation of the aggregate purchase price of Veritas:
|
|
|
|
|
|
|
Allocation at |
|
|
|
October 1, 2005 |
|
Cash |
|
$ |
3,946,394 |
|
Patient accounts receivable |
|
|
10,500,000 |
|
Prepaids and other current assets |
|
|
5,385,839 |
|
Supplies inventory |
|
|
876,212 |
|
Accounts payable and accrued expenses |
|
|
(7,214,190 |
) |
Income taxes payable |
|
|
(3,600,652 |
) |
Third party settlements |
|
|
(2,658,868 |
) |
Pre-petiton liabilities |
|
|
(1,554,114 |
) |
Accrued professional liability reserve |
|
|
(228,000 |
) |
Extraordinary gain on acquisition |
|
|
(4,402,621 |
) |
|
|
|
|
|
|
|
|
|
Purchase price |
|
$ |
1,050,000 |
|
|
|
|
|
Extra ordinary gain on acquisition of $4,402,621 represents the excess of the fair value of
the net assets acquired over the purchase price.
On December 30, 2005 PHS2 entered into an asset purchase agreement the agreement with
Sherman Oaks Health System. Pursuant to the agreement PHS2 acquired the operating assets
and certain capital lease obligations from Sherman Oaks Health System. The purchase price
of $695,758 was paid in cash to Sherman Oaks Health System. The acquisition of the
operating assets and assumption of the liabilities of Sherman Oaks Health System expands and
compliments the operations of the Company.
23
PRIME HEALTHCARE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 Acquisitions (continued)
The acquisition has been accounted for using the purchase method in accordance with SFAS No.
141. The following table presents the allocation of the aggregate purchase price:
|
|
|
|
|
|
|
Allocation at |
|
|
|
December 30, 2005 |
|
Prepaids and other current assets |
|
$ |
49,538 |
|
Supplies inventory |
|
|
423,378 |
|
Major moveable equipment |
|
|
846,675 |
|
Capital lease obligations |
|
|
(623,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
695,758 |
|
|
|
|
|
On October 1, 2006 HBH entered into an asset purchase agreement with VHS of Huntington
Beach, Inc. Pursuant to the agreement HBH acquired the operating assets and certain current
liabilities from VHS of Huntington Beach, Inc. The purchase price of $2,048,705 was paid
through the assumption of liabilities. The acquisition of the operating assets and
assumption of certain current liabilities of VHS of Huntington Beach, Inc. expands and
compliments the operations of the Company.
The acquisition has been accounted for using the purchase method in accordance with SFAS No.
141. The following table presents the allocation of the aggregate purchase price:
|
|
|
|
|
Prepaids and other current assets |
|
$ |
300,861 |
|
Supplies inventory |
|
|
395,162 |
|
Goodwill |
|
|
1,352,681 |
|
Accrued liabilities |
|
|
(2,048,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
24
Note 12 Acquisitions (continued)
On October 1, 2006 La Palma entered into an asset purchase agreement with VHS of Orange
County, Inc. Pursuant to the agreement La Palma acquired the operating assets and certain
current liabilities from VHS of Orange County, Inc. The purchase price of $1,527,251 was
paid through the assumption of liabilities. The acquisition of the operating assets and
assumption of certain current liabilities VHS of Orange County, Inc. expands and compliments
the operations of the Company.
The acquisition has been accounted for using the purchase method in accordance with SFAS No.
141. The following table presents the allocation of the aggregate purchase price:
|
|
|
|
|
|
|
Allocation at |
|
|
|
October 1, 2006 |
|
Prepaids and other current assets |
|
$ |
24,698 |
|
Supplies inventory |
|
|
290,752 |
|
Goodwill |
|
|
1,211,801 |
|
Accrued liabilities |
|
|
(1,527,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
On October 1, 2006 WAMC entered into an asset purchase agreement with VHS of Anaheim, Inc.
Pursuant to the agreement WAMC acquired the operating assets and certain current liabilities
from VHS of Anaheim, Inc. The purchase price of $2,667,653 was paid through the assumption
of liabilities. The acquisition of the operating assets and assumption of certain current
liabilities VHS of Anaheim, Inc. expands and compliments the operations of the Company.
The acquisition has been accounted for using the purchase method in accordance with SFAS No.
141. The following table presents the allocation of the aggregate purchase price:
|
|
|
|
|
Prepaids and other current assets |
|
$ |
145,159 |
|
Supplies inventory |
|
|
416,311 |
|
Goodwill |
|
|
2,106,183 |
|
Accrued liabilities |
|
|
(2,667,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
25
Note 13 Income taxes
Temporary differences that result in deferred tax assets and liabilities at December 31, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Deferred tax assets, current |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
|
$ |
533,000 |
|
Accrued vacation and other accrued liabilities |
|
|
|
|
|
|
158,000 |
|
State taxes |
|
|
|
|
|
|
96,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
787,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities,current |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
|
|
|
$ |
1,767,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current |
|
|
|
|
|
|
|
|
Fixed assets |
|
$ |
|
|
|
$ |
1,958,000 |
|
|
|
|
|
|
|
|
The components of the provision (benefit) for income taxes for the year ended December 31,
are as follows:
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
979,950 |
|
State |
|
|
64,521 |
|
|
|
644,888 |
|
|
|
|
|
|
|
|
|
|
|
|
64,521 |
|
|
|
1,624,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expense |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2,497,300 |
) |
|
$ |
2,091,000 |
|
State |
|
|
(440,700 |
) |
|
|
369,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,938,000 |
) |
|
|
2,460,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,873,479 |
) |
|
$ |
4,084,838 |
|
|
|
|
|
|
|
|
The income tax benefit for the year ended December 31, 2006 is the result of the Companys
change in corporate status from Subchapter C to Subchapter S of the Internal Revenue Code
(see Note 1).
26
Note 14 Proceedings Under Chapter 11
On June 30, 2005 the bankruptcy court approved Veritass plan of reorganization from
Chapter 11 bankruptcy. Pursuant to the plan Veritas will make payments in full to all
creditors with approved pre-petition claims and consummate the plan through its continued
operations.
The accounts of Veritas included pre-petition liabilities of $1,219,450 and $1,309,357 as
of December 31, 2006 and 2005. Pre-petition liabilities include claims that are expected
to be settled as part of the plan of reorganization. Pre-petition liabilities consist
primarily of trade accounts payable to unsecured creditors.
Gain on extinguishment of debt of $104,447 and $2,845,071 for the year ended December 31,
2006 and 2005, respectively, represents pre-petition claims that have been discharged by
the bankruptcy court or reductions in pre-petition claims resulting from settlement
agreements between Veritas and the creditors.
EX-99.2 CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.2
Unaudited
PRIME HEALTHCARE SERVICES, INC.
CONSOLIDATED FINANCIALS
BALANCE SHEET AS OF September 30, 2007
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
Cash and Cash Equivalents |
|
$ |
31,786,598 |
|
Accounts Receivable |
|
|
355,462,224 |
|
|
|
|
|
|
Allowance for Bad Debts |
|
|
(30,458,790 |
) |
|
|
|
|
|
Alowance for Contractuals |
|
|
(257,289,498 |
) |
|
|
|
|
Net Accounts Receivable |
|
|
67,713,936 |
|
|
|
|
|
|
Other Receivables |
|
|
14,513,118 |
|
Inventories |
|
|
3,000,910 |
|
Prepaid Expenses and Other |
|
|
18,467,599 |
|
|
|
|
|
Total Current Assets |
|
|
135,482,161 |
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
Land and Land Improvements |
|
|
|
|
Buildings and Bldg. Improvements |
|
|
519,917 |
|
Leasehold Improvements |
|
|
5,166,325 |
|
Equipment |
|
|
65,051,676 |
|
Construction in Progress |
|
|
10,527,535 |
|
|
|
|
|
Total Property and Equipment |
|
|
81,265,453 |
|
|
|
|
|
|
Accumulated Depreciation |
|
|
(25,038,078 |
) |
|
|
|
|
NET PROPERTY & EQUIPMENT |
|
|
56,227,375 |
|
|
|
|
|
|
LONG TERM ASSETS |
|
|
|
|
Long Term Notes |
|
|
10,000,000 |
|
Deposits |
|
|
411,565 |
|
Other LT Assets |
|
|
22,191,757 |
|
|
|
|
|
Total Long Term Assets |
|
|
32,603,322 |
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
224,312,858 |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
Accounts Payable |
|
$ |
24,530,646 |
|
Accrued Payroll |
|
|
17,878,184 |
|
Notes Payable |
|
|
5,801,586 |
|
Other Accrued Liabilities |
|
|
7,419,013 |
|
IBNR |
|
|
3,974,897 |
|
Due to (From) Fiscal Intermediaries |
|
|
7,523,138 |
|
Line of Credit |
|
|
|
|
|
|
|
|
|
Current Portion Long Term Debt |
|
|
6,221,673 |
|
|
|
|
|
Total Current Liabilities |
|
|
73,349,137 |
|
|
|
|
|
|
LONG TERM LIABILITIES |
|
|
|
|
Capital Leases |
|
|
506,869 |
|
Other Loans |
|
|
16,429,752 |
|
Other Long Term Liabilities |
|
|
12,248,587 |
|
|
|
|
|
Total Long Term Liabilities |
|
|
29,185,208 |
|
|
|
|
|
|
Total Inter-Co Payable / (Receivable) |
|
|
|
|
|
|
|
|
|
TOTAL DUE TO/(FROM) RELATED ENTITIES |
|
|
10,949,672 |
|
|
|
|
|
|
Total Liabilities |
|
|
113,484,017 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
Paid In Capital |
|
|
8,353,701 |
|
Retained Earnings |
|
|
105,845,103 |
|
|
|
|
|
|
Distribution |
|
|
(64,844,882 |
) |
Current Year Earnings / (Loss) |
|
|
61,474,919 |
|
|
|
|
|
Total Equity |
|
|
110,828,841 |
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
224,312,858 |
|
|
|
|
|
Unaudited
PRIME HEALTHCARE SERVICES, INC.
CONSOLIDATED FINANCIALS
INCOME STATEMENT AS OF SEPTEMBER 30, 2007
|
|
|
|
|
REVENUE |
|
|
|
|
|
NET PATIENT REVENUE |
|
|
471,323,018 |
|
|
CAPITATION REVENUE |
|
|
21,463,665 |
|
|
OTHER REVENUE |
|
|
11,554,161 |
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING REVENUE |
|
|
504,340,844 |
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
COMPENSATION AND EMPLOYEE BENEFITS |
|
|
213,605,675 |
|
|
PROVISION FOR DOUBTFUL ACCOUNTS |
|
|
78,696,909 |
|
|
GENERAL AND ADMINISTRATIVE |
|
|
77,392,573 |
|
|
MEDICAL SUPPLIES |
|
|
28,078,414 |
|
|
PROFESSIONAL FEES |
|
|
32,605,348 |
|
|
DEPRECIATION / AMORTIZATION |
|
|
4,509,755 |
|
|
MEDICAL CLAIMS |
|
|
4,366,425 |
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES |
|
|
439,255,098 |
|
|
|
|
|
|
|
|
|
|
NET OPERATING INCOME (LOSS) |
|
|
65,085,747 |
|
|
INTEREST |
|
|
2,702,299 |
|
|
|
|
|
|
|
|
|
|
PRE-TAX INCOME (LOSS) |
|
|
62,383,448 |
|
|
INCOME TAX EXPENSE |
|
|
908,529 |
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
61,474,919 |
|
|
|
|
|
Unaudited
PRIME HEALTHCARE SERVICES, INC.
CONSOLIDATED FINANCIALS
STATEMENT OF CASH FLOWS AS OF SEPTEMBER 30, 2007
|
|
|
|
|
Cash Flow From Operations: |
|
|
|
|
Net Income |
|
$ |
61,474,919 |
|
|
|
|
|
|
Depreciation |
|
|
4,336,973 |
|
Amortization |
|
|
0 |
|
Minority Interest |
|
|
0 |
|
|
|
|
|
|
(Inc)/Dec in A/R |
|
|
(14,316,409 |
) |
|
|
|
|
|
(Inc)/Dec in Inventory |
|
|
(767,296 |
) |
|
|
|
|
|
(Inc)/Dec in Prepaids |
|
|
9,453,434 |
|
|
|
|
|
|
(Inc)/Dec in Other Receivables |
|
|
(12,613,161 |
) |
|
|
|
|
|
Inc/(Dec) in Payroll Payables |
|
|
11,630,366 |
|
|
|
|
|
|
Inc/(Dec) in Accrued Payables |
|
|
5,991,395 |
|
|
|
|
|
|
Inc/(Dec) in IBNR |
|
|
(4,984,191 |
) |
|
|
|
|
|
Inc/(Dec) in Other Liabilities |
|
|
(1,028,302 |
) |
Inc/(Dec) in Fiscal Inter |
|
|
4,882,948 |
|
Inc/(Dec) in Other Acc Exp |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total Cash From Operations |
|
|
64,060,676 |
|
|
|
|
|
|
Cash Flow From Investing |
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
(29,519,083 |
) |
Pmts to Acquire Other Assets |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total Cash From Investing |
|
|
(29,519,083 |
) |
|
|
|
|
|
Cash Flow From Financing |
|
|
|
|
Funds Provided (to) from Related Party |
|
|
6,236,248 |
|
|
|
|
|
|
Distributions to Share Holders |
|
|
(64,844,882 |
) |
Shareholder Contrbution |
|
|
0 |
|
Borrow (Repayment) of Debt |
|
|
42,057,809 |
|
Unaudited
|
|
|
|
|
(Repayment) of Capital Leases |
|
|
(188,557 |
) |
Net Proceeds From Owners Contribution |
|
|
0 |
|
Pmt for Acquisition |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total Cash Flow From Financing/Dist |
|
|
(16,739,382 |
) |
|
|
|
|
|
|
|
|
|
Total Cash Flow |
|
|
17,802,211 |
|
|
|
|
|
|
Beginning Cash Balance |
|
|
13,984,387 |
|
|
|
|
|
|
|
|
|
|
Ending Cash Balance |
|
$ |
31,786,598 |
|
|
|
|
|