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<SEC-DOCUMENT>0001017062-02-000405.txt : 20020415
<SEC-HEADER>0001017062-02-000405.hdr.sgml : 20020415
ACCESSION NUMBER: 0001017062-02-000405
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020318
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HEALTH CARE PROPERTY INVESTORS INC
CENTRAL INDEX KEY: 0000765880
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 330091377
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08895
FILM NUMBER: 02577847
BUSINESS ADDRESS:
STREET 1: 4675 MACARTHUR COURT 9TH FL
STREET 2: SUITE 900
CITY: NEWPORT BEACH
STATE: CA
ZIP: 92660
BUSINESS PHONE: 9492210600
MAIL ADDRESS:
STREET 1: 4675 MACARTHUR COURT
STREET 2: SUITE 900
CITY: NEWPORT BEACH
STATE: CA
ZIP: 92660
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>HEALTH CARE PROPERTY INVESTORS FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission File Number 1-8895
HEALTH CARE PROPERTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Maryland 33-0091377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
(Address of principal executive offices)
Registrant's telephone number: (949) 221-0600
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------- -------------------------
Common Stock* New York Stock Exchange
7-7/8% Series A Cumulative
Redeemable Preferred Stock New York Stock Exchange
8.70% Series B Cumulative
Redeemable Preferred Stock New York Stock Exchange
8.60% Series C Cumulative
Redeemable Preferred Stock New York Stock Exchange
*The common stock has preferred stock purchase rights attached which
are registered pursuant to Section 12(b) of the Securities Act of 1933, as
amended, and listed on the New York Stock Exchange.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [_]
As of March 13, 2002 there were 56,902,388 shares of common stock
outstanding. The aggregate market value of the shares of common stock held by
non-affiliates of the registrant, based on the closing price of these shares on
March 13, 2002 on the New York Stock Exchange, was approximately $2,165,336,000.
Portions of the definitive Proxy Statement for the registrant's 2002 Annual
Meeting of Stockholders have been incorporated by reference into Part III of
this Report.
<PAGE>
PART I
Item 1. BUSINESS
Health Care Property Investors, Inc. (HCPI), a Maryland corporation, was
organized in March 1985 to qualify as a real estate investment trust (REIT). We
invest in health care related real estate located throughout the United States,
including long-term care facilities, congregate care and assisted living
facilities, acute care and rehabilitation hospitals, medical office buildings,
health care laboratory and biotech research facilities and physician group
practice clinics. We commenced business nearly 17 years ago, making us the
second oldest REIT specializing in health care real estate.
As of December 31, 2001, our gross investment in our properties, including
partnership interests and mortgage loans, was approximately $2.7 billion. Our
portfolio of 429 properties in 42 states consisted of:
. 176 long-term care facilities
. 94 congregate care and assisted living facilities
. 86 medical office buildings
. 37 physician group practice clinics
. 21 acute care hospitals
. Nine rehabilitation hospitals
. Six health care laboratory and biotech research facilities
The average age of our properties is 17 years. As of December 31, 2001,
approximately 55% of our revenue was derived from properties operated by
publicly traded health care providers.
Our senior debt is rated Baa2 by Moody's and BBB+ by both Standard & Poor's
and Fitch, respectively, and has been rated medium investment grade continuously
since 1986, when we first received a bond rating. We believe that we have
enjoyed an excellent track record in attracting and retaining key employees. Our
five executive officers have worked with us on average for 16 years. Our average
annual return to stockholders, assuming reinvestment of dividends and before
stockholders' income taxes, was approximately 17.4% over the period from our
initial public offering in May 1985 through December 31, 2001.
On November 4, 1999, American Health Properties, Inc. (AHE) merged with and
into HCPI in a stock-for-stock transaction. The merger resulted in the issuance
of 19,430,115 shares of HCPI's common stock and 4,000,000 depositary shares of
HCPI's series C cumulative redeemable preferred stock. Additionally, upon
consummation of the merger, we assumed AHE's debt comprised of $220 million of
senior notes and $56 million of mortgage debt, and paid $71 million in cash to
replace its revolving line of credit. The transaction was treated as a purchase
for financial accounting purposes and, accordingly, the operating results of AHE
have been included in our consolidated financial statements effective as of
November 4, 1999.
References herein to "HCPI", "the Company", "we", "us" and "our" include
Health Care Property Investors, Inc. and our wholly-owned subsidiaries and
consolidated joint ventures and partnerships, unless the context otherwise
requires.
-1-
<PAGE>
Our Properties
Lessees and Operators
As of December 31, 2001, we had an ownership interest in 401 properties
located in 40 states. We leased 300 of our owned properties pursuant to
long-term triple net leases to 82 health care providers. Under a triple net
lease, in addition to the rent obligation, the lessee is responsible for all
operating expenses of the property such as utilities, property taxes, insurance
and repairs and maintenance. The most significant lessees under triple net
leases include the following companies or their affiliates:
. Tenet Healthcare Corporation
. HealthSouth Corporation
. Kindred Healthcare, Inc.
. Emeritus Corporation
. HCA Inc.
. Beverly Enterprises, Inc.
. Centennial Healthcare Corp.
(See section on Facility Operators for percentages of annualized revenue
for these operators.)
The remaining 101 owned properties are medical office buildings, physician
clinics and health care laboratory and biotech research facilities with triple
net, gross or modified gross leases with multiple tenants which are managed by
independent property management companies on our behalf. Under gross or modified
gross leases, we may be responsible for property taxes, repairs and maintenance
and/or insurance on those properties.
We also hold mortgage loans on 28 properties that are owned and operated by
16 health care providers including Beverly, Emeritus and Centennial. We have
provided mortgage loans in the amount of $158,204,000 on those 28 properties,
including 16 long-term care facilities, seven congregate care and assisted
living centers, three acute care hospitals and two medical office buildings. At
December 31, 2001, the remaining balance on these loans totaled $148,075,000.
With the exception of Tenet which accounts for 18.3% of our annualized
revenue, no single lessee or operator accounts for more than 5.6% of our revenue
for the year ended December 31, 2001.
Equity Investments
Of the 401 health care facilities in which we had an ownership interest as
of December 31, 2001, we directly own 329 facilities outright, including:
. 136 long-term care facilities
. 83 congregate care and assisted living centers
. 54 medical office buildings
. 37 physician group practice clinics
. 16 acute care hospitals
. Three rehabilitation hospitals
-2-
<PAGE>
At December 31, 2001, we also had varying percentage interests in several
limited liability companies and partnerships that together own 72 facilities and
two mortgages as further discussed below under "Investments in Consolidated and
Non-Consolidated Joint Ventures."
The following is a summary of our properties grouped by type of facility
and equity interest as of December 31, 2001:
<TABLE>
<CAPTION>
Equity Number Number Total
Interest of of Beds / Investments Annualized
Facility Type Percentage Facilities Units (1) (2) Rents/Interest
- ---------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Long-Term Care Facilities 100% 151 18,613 $ 589,875 $ 73,523
Long-Term Care Facilities 77-80% 25 2,778 71,215 9,927
---------------------------------------------------------------
176 21,391 661,090 83,450
---------------------------------------------------------------
Acute Care Hospitals 100% 19 2,429 618,203 72,300
Acute Care Hospitals 77% 2 356 42,806 8,152
---------------------------------------------------------------
21 2,785 661,009 80,452
---------------------------------------------------------------
Rehabilitation Hospitals 100% 3 248 36,305 5,963
Rehabilitation Hospitals 90-97% 6 437 72,172 9,946
---------------------------------------------------------------
9 685 108,477 15,909
---------------------------------------------------------------
Congregate Care & Assisted Living Centers 100% 90 7,014 444,296 44,754
Congregate Care & Assisted Living Centers 45-50% 4 412 1,537 ---
---------------------------------------------------------------
94 7,426 445,833 44,754
---------------------------------------------------------------
Medical Office Buildings (3) 100% 55 --- 483,560 45,198
Medical Office Buildings (3) 54-90% 31 --- 167,850 16,697
---------------------------------------------------------------
86 --- 651,410 61,895
---------------------------------------------------------------
Health Care Laboratory and Biotech
Research Facilities (3) 54% 6 --- 53,984 4,872
---------------------------------------------------------------
Physician Group Practice Clinics (3) 100% 37 --- 147,566 14,053
---------------------------------------------------------------
Totals 429 32,287 $2,729,369 $305,385
===============================================================
</TABLE>
(1) Congregate care and assisted living centers are apartment like facilities
and are therefore stated in units (studio, one or two bedroom apartments)
in order to indicate facility size; all other facilities are stated in
beds, except the medical office buildings, the physician group practice
clinics and the health care laboratory and biotech research facilities for
which square footage is provided in footnote 3.
(2) Includes partnership and limited liability company investments, and
incorporates all partners' and members' assets and construction commitments
as well as our investment in unconsolidated joint ventures.
(3) The medical office buildings, physician group practice clinics and health
care laboratory and biotech research facilities encompass approximately
4,671,000, 1,036,000 and 432,000 square feet, respectively.
The following paragraphs describe each type of property.
Long-Term Care Facilities. We have invested in 176 long-term care
-------------------------
facilities. Various health care providers operate these facilities. Long-term
care facilities offer restorative, rehabilitative and custodial nursing care for
people not requiring the more extensive and sophisticated treatment available at
acute care hospitals. Ancillary revenues and revenue from subacute care services
are derived from providing services to residents beyond room and board and
include occupational, physical, speech, respiratory and IV therapy, wound care,
oncology treatment, brain injury care and orthopedic therapy as well as sales of
pharmaceutical products and other services. Certain long-term
-3-
<PAGE>
care facilities provide some of the foregoing services on an out-patient basis.
Long-term care facilities are designed to supplement hospital care and many have
transfer agreements with one or more acute care hospitals. These facilities
depend to some degree upon referrals from practicing physicians and hospitals.
Long-term care services are paid for either by private sources, or through the
federal Medicare and state Medicaid programs.
Long-term care facilities generally provide patients with accommodation,
complete medical and nursing care, and rehabilitation services including speech,
physical and occupational therapy. As a part of the Omnibus Budget
Reconciliation Act ("OBRA") of 1981, Congress established a waiver program under
Medicaid to offer an alternative to institutional long-term care services. The
provisions of OBRA and the subsequent OBRA Acts of 1987 and 1990 allow states,
with federal approval, greater flexibility in program design as a means of
developing cost-effective alternatives to delivering services traditionally
provided in the long-term care setting. This is a contributing factor to the
recent increase in the number of assisted living facilities, which may adversely
affect some long-term care facilities as some individuals choose the residential
environment and lower cost delivery system provided in the assisted living
setting.
Acute Care Hospitals. We have an interest in 18 general acute care
--------------------
hospitals and three long-term acute care hospitals. Acute care hospitals offer a
wide range of services such as fully-equipped operating and recovery rooms,
obstetrics, radiology, intensive care, open heart surgery and coronary care,
neurosurgery, neonatal intensive care, magnetic resonance imaging, nursing
units, oncology, clinical laboratories, respiratory therapy, physical therapy,
nuclear medicine, rehabilitation services and outpatient services.
Long-term acute care hospitals provide care for patients with complex
medical conditions that require more intensive care, monitoring, or emergency
back-up than that available in most skilled nursing-based subacute programs.
Most long-term acute care hospital patients have severe chronic health problems
and are medically unstable or at risk of medical instability. The most common
cases treated in this setting include high acuity ventilator-dependent patients
and patients with multiple system failures relating to cancer, spinal cord
injuries or head injuries.
Services are paid for by private sources, third party payors (e.g.,
insurance and HMOs), or through the federal Medicare and state Medicaid
programs. Medicare provides reimbursement incentives to traditional general
acute care hospitals to minimize inpatient length of stay.
Rehabilitation Hospitals. We have investments in nine rehabilitation
------------------------
hospitals. These hospitals provide inpatient and outpatient care for patients
who have sustained traumatic injuries or illnesses, such as spinal cord
injuries, strokes, head injuries, orthopedic problems, work related disabilities
and neurological diseases, as well as treatment for amputees and patients with
severe arthritis. Rehabilitation programs encompass physical, occupational,
speech and inhalation therapies, rehabilitative nursing and other specialties.
Services are paid for by the patient or the patient's family, third party payors
(e.g., insurance and HMOs), or through the federal Medicare program.
Congregate Care and Assisted Living Centers. We have investments in 94
-------------------------------------------
congregate care and assisted living centers. Congregate care centers typically
offer studio, one bedroom and two bedroom apartments on a month-to-month basis
primarily to individuals who are over 75 years of age. Residents, who must be
ambulatory, are provided meals and eat in a central dining area; they may also
be assisted with some daily living activities. These centers offer programs and
services that
-4-
<PAGE>
allow residents certain conveniences and make it possible for them to live
independently; staff is also available when residents need assistance and for
group activities.
Assisted living centers serve elderly persons who require more assistance
with daily living activities than congregate care residents, but who do not
require the constant supervision nursing homes provide. Services include
personal supervision and assistance with eating, bathing, grooming and
administering medication. Assisted living centers typically contain larger
common areas for dining, group activities and relaxation to encourage social
interaction. Residents typically rent studio and one and two bedroom units on a
month-to-month basis.
Charges for room and board and other services in both congregate care and
assisted living centers are generally paid from private sources.
Medical Office Buildings. We have investments in 86 medical office
------------------------
buildings. These buildings are generally located adjacent to, or on the campus
of, acute care hospitals. Medical office buildings contain physicians' offices
and examination rooms, and may also include pharmacies, hospital ancillary
service space and day-surgery operating rooms. Medical office buildings require
more extensive plumbing, electrical, heating and cooling capabilities than
commercial office buildings for sinks, brighter lights and special equipment
that physicians typically use. Of our owned medical office buildings, 16 are
master leased on a triple net basis to lessees that then sublease office space
to physicians or other medical practitioners, 68 are managed by third party
property management companies and are leased under triple net, gross or modified
gross leases under which we are responsible for certain operating expenses, and
two are mortgages.
Health Care Laboratory and Biotech Research Facilities. We have investments
------------------------------------------------------
in six health care laboratory and biotech research facilities. These facilities
are located on a research campus of a major university. The facilities are
designed for and accommodate research and development in the biopharmaceutical
industry, drug discovery and development, and predictive and personalized
medicine. The facilities are leased to two tenants on a long-term basis.
Physician Group Practice Clinics. We have investments in 37 physician group
--------------------------------
practice clinic facilities that are leased to 15 different tenants. These
clinics generally provide a broad range of medical services through organized
physician groups representing various medical specialties. Each clinic facility
is generally leased to a single lessee under a triple net or modified gross
lease.
The following table shows, with respect to each property type, the location
by state, the number of beds/units, recent occupancy levels, patient revenue
mix, annualized rents and interest, and information regarding remaining lease
terms.
-5-
<PAGE>
<TABLE>
<CAPTION>
High
Number Quality Average
Number of Beds/ Average Revenue Annualized Remaining
of Units Occupancy Mix Rents/ Term
Facility Location Facilities (1) (2) (2), (3) Interest (5)
- --------------------------------------------------------------------------------------------------------------------------
(Thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Long-Term Care Facilities
Alabama 1 175 82% 37% $ 868 2
Arizona 3 428 70 33 1,101 6
Arkansas 9 866 53 33 2,265 8
California 17 1,698 86 41 5,724 12
Colorado 7 1,055 88 37 5,686 9
Connecticut 1 121 96 49 165 1
Florida 12 1,267 87 23 6,760 8
Georgia 1 60 84 30 122 20
Idaho 1 119 68 37 571 12
Illinois 1 128 98 61 322 4
Indiana 32 4,064 77 43 18,905 11
Iowa 1 201 89 47 696 12
Kansas 3 299 94 48 1,131 8
Kentucky 1 100 98 50 590 10
Louisiana 3 355 80 23 962 12
Maryland 3 438 85 39 1,933 16
Massachusetts 5 615 83 38 1,945 9
Michigan 4 406 88 48 1,038 7
Minnesota 1 94 95 57 115 9
Mississippi 1 120 97 30 376 10
Missouri 1 153 --- --- 540 10
Montana 1 80 60 38 205 8
Nevada 2 266 86 68 1,569 8
New Mexico 1 102 81 18 327 2
North Carolina 7 782 84 45 3,163 7
Ohio 12 1,543 83 46 8,073 10
Oklahoma 12 1,395 76 78 511 12
Oregon 1 110 --- --- 50 3
Pennsylvania 1 89 74 36 391 2
South Carolina 2 --- --- --- --- 10
Tennessee 13 2,192 84 42 10,859 9
Texas 6 689 67 47 1,621 7
Utah 1 120 69 25 494 12
Washington 2 252 74 54 995 9
Wisconsin 7 1,009 82 46 3,377 8
- --------------------------------------------------------------------------------------------------------------------------
Sub-Total 176 21,391 82 42 83,450 9
- --------------------------------------------------------------------------------------------------------------------------
Acute Care Hospitals
Arizona 1 21 91 100 473 11
California 4 828 54 100 28,335 3
Florida 1 204 70 100 7,513 3
Georgia 1 167 54 100 7,387 3
Idaho 1 22 --- --- --- ---
Louisiana 2 325 40 100 5,468 3
Missouri 1 201 76 100 3,642 3
New Mexico 1 56 77 100 2,365 5
North Carolina 1 355 57 100 7,667 3
South Carolina 2 174 23 100 2,687 4
Texas 5 293 65 100 6,788 6
Utah 1 139 23 100 8,127 3
- --------------------------------------------------------------------------------------------------------------------------
Sub-Total 21 2,785 54% 100% $ 80,452 3
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
High
Number Quality Average
Number of Beds/ Average Revenue Annualized Remaining
of Units Occupancy Mix Rents/ Term
Facility Location Facilities (1) (2) (2),(3) Interest (5)
- ----------------------------------------------------------------------------------------------------------------------------
(Thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Rehabilitation Facilities
Arizona 1 60 72% 100% $ 1,804 3
Arkansas 2 120 80 100 3,193 8
Colorado 1 64 70 100 1,235 4
Florida 1 108 97 100 2,250 10
Kansas 2 145 62 100 3,765 2
Texas 1 108 70 100 1,753 2
West Virginia 1 80 94 100 1,909 10
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total 9 685 77 100 15,909 6
- ----------------------------------------------------------------------------------------------------------------------------
Physician Group Practice Clinics (4)
California 2 --- --- --- 4,483 8
Colorado 1 --- --- --- 348 6
Florida 9 --- --- --- 2,442 6
Georgia 3 --- --- --- 362 7
North Carolina 2 --- --- --- 533 3
Oklahoma 4 --- --- --- 292 5
Tennessee 4 --- --- --- 1,629 9
Texas 4 --- --- --- 1,598 7
Virginia 1 --- --- --- 273 7
Wisconsin 7 --- --- --- 2,093 13
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total 37 --- --- --- 14,053 8
- ----------------------------------------------------------------------------------------------------------------------------
Congregate Care and Assisted Living Centers
Alabama 1 84 --- --- --- 13
Arizona 1 98 92 79 571 6
Arkansas 1 17 --- --- 28 9
California 7 535 78 100 5,444 14
Delaware 1 52 62 80 409 6
Florida 10 820 87 100 2,843 11
Georgia 2 80 89 100 293 9
Idaho 1 50 96 89 365 4
Indiana 4 378 --- --- 1,447 9
Kansas 2 194 62 46 158 12
Louisiana 3 240 94 100 1,698 12
Maryland 2 140 --- --- 970 10
Michigan 3 320 98 100 1,025 11
Mississippi 1 80 96 100 697 15
Missouri 1 73 43 73 317 10
Nebraska 1 73 --- --- 514 7
New Jersey 4 279 77 88 2,258 10
New Mexico 2 285 73 100 2,166 10
New York 1 75 85 100 489 6
North Carolina 3 230 84 100 1,403 9
Ohio 2 280 63 100 1,623 10
Oregon 1 58 85 100 403 8
Pennsylvania 3 232 89 100 2,040 7
South Carolina 9 650 73 94 4,324 11
Tennessee 1 60 33 100 16 ---
Texas 22 1,722 76 93 10,650 10
Virginia 1 90 --- --- 855 12
Washington 3 219 86 58 1,665 10
Wisconsin 1 12 96 100 83 7
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total 94 7,426 79% 94% $ 44,754 10
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
High
Number Quality Average
Number of Beds/ Average Revenue Annualized Remaining
of Units Occupancy Mix Rents/ Term
Facility Location Facilities (1) (2) (3) Interest (5)
- ----------------------------------------------------------------------------------------------------------------------------
(Thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Medical Office Buildings (4)
Arizona 9 --- --- --- $ 2,701 7
California 12 --- --- --- 11,934 5
Florida 5 --- --- --- 1,595 6
Indiana 14 --- --- --- 6,997 6
Kansas 1 --- --- 394 9
Kentucky 1 --- --- --- 685 4
Maryland 1 --- --- --- 611 8
Massachusetts 1 --- --- --- 1,814 7
Minnesota 2 --- --- --- 2,319 6
Missouri 1 --- --- --- 555 6
Nevada 1 --- --- --- 258 17
New Jersey 2 --- --- --- 2,720 3
New York 1 --- --- --- 2,340 6
North Dakota 1 --- --- --- 981 8
Ohio 1 --- --- --- 463 11
Oregon 1 --- --- --- 583 13
Tennessee 1 --- --- --- 1,285 12
Texas 11 --- --- --- 10,789 4
Utah 19 --- --- --- 10,755 8
Washington 1 --- --- --- 2,116 6
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total 86 --- --- --- 61,895 6
- ----------------------------------------------------------------------------------------------------------------------------
Health Care Laboratory and
Biotech Research
Utah 6 --- --- --- 4,872 12
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total 6 --- --- --- $ 4,872 12
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FACILITIES 429 32,287 --- --- $305,385 7
============================================================================================================================
</TABLE>
(1) Congregate care and assisted living centers are apartment-like facilities
and are therefore stated in units (studio, one or two bedroom apartments)
in order to indicate facility size. Medical office buildings, physician
group practice clinics and health care laboratory and biotech research
facilities are measured in square feet and encompass approximately
4,671,000 square feet, 1,036,000 square feet and 432,000 square feet,
respectively. All other facilities are measured by licensed bed count.
(2) This information is derived from information provided by our lessees for
the most recent quarter. Excluded are facilities under construction, newly
completed facilities under start-up, vacant facilities, and facilities
where the data is not available or not meaningful. Occupancy computations
are weighted by number of beds/units. Long-Term Care Facilities are
computed using available beds which can sometimes be less than the number
of licensed beds a facility may have. In prior years, this information was
computed for all facilities using an average for the four most recent
quarters using a simple average on licensed beds for all facility types.
(3) This information is derived from information provided by our lessees
for the most recent quarter. Excluded are facilities under construction,
newly completed facilities under start up, vacant facilities and facilities
where the data is not available or not meaningful. All revenues, including
private patient and Medicare revenues but excluding Medicaid revenues, are
included in "High Quality" revenues. In prior years, this information was
computed for all facilities using an average for the four most recent
quarters using a simple average for all facility types.
(4) Physician group practice clinics and medical office building lessees have
use of the leased facilities for their own use or for the use of
sub-lessees.
(5) Average Remaining Lease Term calculations are weighted by annualized
revenue. Previously this information was computed using a simple average.
Competition
We compete for real estate acquisitions and financings with health care
providers, other health care related real estate investment trusts, real estate
partnerships, real estate lenders, and other investors.
-8-
<PAGE>
Our properties are subject to competition from the properties of other
health care providers. Certain of these other operators have capital resources
substantially in excess of some of the operators of our facilities. In addition,
the extent to which the properties are utilized depends upon several factors,
including the number of physicians using the health care facilities or referring
patients there, competitive systems of health care delivery and the size and
composition of the population in the surrounding area. Private, federal and
state payment programs and the effect of other laws and regulations may also
have a significant influence on the utilization of the properties. Virtually all
of the properties operate in a competitive environment and patients and referral
sources, including physicians, may change their preferences for a health care
facility from time to time.
Facility Operators
At December 31, 2001, we had investments in 429 properties located in 42
states and operated by 93 health care operators. In addition, approximately 650
leases are in force in the multi-tenant buildings. Listed below are our major
operators, the number of facilities operated by our operators, and the
annualized revenue and the approximate percentage of annualized revenue derived
from those operators.
<TABLE>
<CAPTION>
Percentage of
Annualized Total Annualized
Operators Facilities Revenue Revenue
--------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C>
Tenet 9 $ 56,058 18%
HealthSouth 9 17,077 6
Kindred 24 16,372 5
Emeritus 27 15,367 5
HCA 9 14,752 5
Beverly 24 10,009 3
Centennial 18 8,744 3
</TABLE>
Certain of the listed facilities have been subleased to other operators
with the original lessee remaining liable on the leases. The revenue applicable
to these sublessees is not included in the annualized revenue percentages above.
The percentage of annualized revenue on these subleased facilities was 1% for
the year ended December 31, 2001.
Tenet, HealthSouth, Kindred, Emeritus, HCA and Beverly are subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended, and accordingly file periodic financial statements on Form 10-K and
Form 10-Q with the Securities and Exchange Commission. We obtained all of the
financial and other information relating to these operators listed below from
their public reports.
The following table summarizes our major public operators' assets,
stockholders' equity, interim revenue and net income (or net loss) from
continuing operations as of or for the nine months ended September 30, 2001. All
of the following information is based upon such operators' public reports.
<TABLE>
<CAPTION>
Net Income/
Stockholders' (Loss) from
Operators Assets Equity (Deficit) Revenue Operations
-----------------------------------------------------------------------------------------------------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C>
Tenet (1) $ 13,423 $ 5,301 $ 6,691 $ 416
HealthSouth 7,375 3,720 3,265 135
Kindred (2) 1,481 480 1,539 33
Emeritus 171 (73) 105 (4)
HCA 17,497 4,915 13,415 845
Beverly 1,857 560 2,033 (35)
</TABLE>
-9-
<PAGE>
(1) The information described above for Tenet is for the six months ended
November 30, 2001 or as of November 30, 2001, as applicable.
(2) The information described above for Kindred is for the six months ended
September 30, 2001 or as of September 30, 2001, as applicable.
The following table summarizes our major public operators' assets,
stockholders' equity, annualized revenue and net income (or net loss) from
continuing operations as of or for the year ended December 31, 2000.
<TABLE>
<CAPTION>
Net Income/
Stockholders' (Loss) from
Operators Assets Equity (Deficit) Revenue Operations
---------------------------------------------------------------------------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C>
Tenet* $ 12,995 $ 5,079 $ 12,053 $ 678
HealthSouth 7,380 3,527 4,195 279
Kindred 1,334 (472) 2,889 (65)
Emeritus 178 (66) 125 (22)
HCA 17,568 4,405 16,670 219
Beverly 1,876 584 2,628 (55)
</TABLE>
* The information described above for Tenet is for the fiscal year ended May
31, 2001 or as of May 31, 2001, as applicable.
The current equity market capitalization for each of the operators listed
above, based on the closing price of their common stock on March 1, 2002 as
reported in the Wall Street Journal, and based on the number of outstanding
shares of their common stock as reported in their most recent public filing
available is as follows: Tenet, $18.9 billion; HealthSouth, $4.7 billion;
Kindred, $714 million; HCA, $20.9 billion; Emeritus, $48.4 million; and Beverly,
$635 million.
Certain additional information about these operators is provided below:
Tenet
Tenet, a Fortune 500 company, is one of the nations largest health care
services companies, providing a broad range of services through the ownership
and management of acute care hospitals. Tenet's unsecured debt ratings have
recently improved to Baa3/BBB by Moody's and Standard and Poor's.
Kindred Healthcare (formerly Vencor, Inc.):
We have negotiated a new lease with Kindred Healthcare, Inc. ("Kindred")
for 22 facilities whose leases were scheduled originally to expire in August
2001. For lease renewal purposes, the facilities comprise three groups with
maturities of nine, ten, and eleven years. The annual rent on these facilities
has increased by $3,300,000 to $16,100,000 in the first lease year. Ten
additional facilities were originally leased to Kindred. Of those ten, six have
been leased directly to former Kindred sublessees or third parties for lower
rents to us of an estimated $200,000 annually, three have been subsequently
sold, and one is being considered for lease to a third party.
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Troubled Long-Term Care and Assisted Living Operators
We derive 27% of our revenue from the long-term care industry. A slowing
economy with lower labor costs, greater availability of nursing aides, less
labor turnover and lower interest costs is expected to continue to improve
nursing home operations, tempered in part by increased liability insurance costs
and lower increases or decreases in government reimbursement. While certain
long-term care operators and facilities continue to experience operating
problems in part due to low levels of Medicaid reimbursements in certain states,
many others have shown improvement. However, if the most recent Medicare
reimbursement increase is not extended beyond October 1, 2002 and various states
institute Medicaid rate cuts to reduce budget shortfalls, some operators may
again begin feeling the strain of inadequate reimbursement. Several long-term
care facility operators, including Kindred and Genesis Health Ventures, two of
our lessees, have successfully emerged from bankruptcy proceedings. In addition,
two other large long-term care operators and lessees, Sun Healthcare, which has
recently received approval for its reorganization plan, and Mariner Healthcare
which has submitted its plan for reorganization, may exit bankruptcy during the
first half of 2002.
We own eleven long-term care facilities in Oklahoma, four facilities in
North Carolina, and eight facilities in various other states whose operations
have been negatively affected by reduced reimbursement and the performance and
financial situation of the properties and their lessees. We recorded revenue of
approximately $1,400,000 less in the fourth quarter of this year from these 23
properties than in the corresponding quarter in 2000. Management expects
improved results from higher lease revenue or sales of these properties in the
next 12 months. We recently signed leases for six of these facilities and
letters of intent on another three properties.
The assisted living industry, from which we derive 15% of our revenue, has
been challenged by overbuilding in certain areas, slower than projected fill-up
rates, margin pressure from lower than projected rents and shortage of capital.
Development activity has slowed and there is improving census in a number of
communities. Various assisted living companies continue their efforts to
restructure their capital, debt and lease structures, while new operators are
emerging in the market with new capital for selective investment.
We own seven assisted living facilities currently leased to three operators
whose operations have been negatively affected by their current market position.
This has resulted in our recording revenue of approximately $700,000 less in the
fourth quarter of this year from these seven properties than in the same quarter
in 2000. Management believes that there will be a significant improvement in its
return on some of these buildings in 2002.
We cannot assure you that the bankruptcies of certain long-term care
operators and the trouble experienced by assisted living operators will not have
a material adverse effect on our Net Income, FFO or the market value of our
common stock.
Leases and Loans
The initial base rental rates of the triple net leases of properties we
acquired during the three years ended December 31, 2001 have generally ranged
from 9% to 12% per annum of the acquisition price of the related property.
Initial interest rates on the loans we entered into during the three years ended
December 31, 2001 have generally ranged from 8% to 11% per annum. Rental rates
vary by lease, taking into consideration many factors, such as:
. Creditworthiness of the lessee
. Operating performance of the facility
. Interest rates at the beginning of the lease
. Location, type and physical condition of the facility
Certain leases provide for additional rents that are based upon a
percentage of increased revenue over specific base period revenue of the leased
properties. Others have rent increases based on inflation indices or other
factors and some leases and loans have annual fixed rent or interest rate
increases (see Note 2 to the Consolidated Financial Statements in this Annual
Report on Form 10-K).
In addition to the minimum and additional rents, each lessee under a triple
net lease is responsible for all additional charges, including charges related
to non-payment or late payment of rent, taxes and assessments, governmental
charges, and utility and other charges. Each triple net
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lessee is required, at its expense, to maintain its leased property in good
order and repair. We are not required to repair, rebuild or maintain the
properties leased under triple net leases.
Each lessee with a gross or modified gross lease is also responsible for
minimum and additional rents, but may not be responsible for all operating
expenses. Under gross or modified gross leases, we may be responsible for
property taxes, repairs and maintenance and/or insurance on those properties.
The primary or fixed terms of the triple net and modified gross leases
generally range from ten to 15 years, and generally have one or more five-year
(or longer) renewal options. The average remaining base lease-term on the triple
net and modified gross leases is approximately seven years. The primary term of
the gross leases to multiple tenants in the medical office buildings range from
one to 20 years, with an average of six years remaining on those leases.
Obligations under the triple-net leases, in most cases, have corporate parent or
shareholder guarantees. Irrevocable letters of credit from various financial
institutions and lease deposits back 142 leases and loans on 15 facilities which
cover from one to 18 months of lease or loan payments. We require the lessees
and mortgagors to renew such letters of credit during the lease or loan term in
amounts that may change based upon the passage of time, improved operating cash
flows or improved credit ratings.
We believe that the credit enhancements discussed above provide us with
significant protection for our investment portfolio. As of January 31, 2002,
other than approximately $5.4 million in delinquent rents and interest, of which
approximately $1.1 million is covered by credit enhancements, we are currently
receiving rents and interest in a timely manner from substantially all lessees
and mortgagors as provided under the terms of the leases or loans; we have
provided reserves of $3.4 million against the remaining amounts.
Based upon information provided to us by lessees or mortgagors, certain
facilities are presently underperforming financially. Individual facilities may
underperform as a result of inadequate Medicaid reimbursement, low occupancy,
less than optimal patient mix, excessive operating costs, other operational
issues or capital needs. We believe that, even if these facilities remain at
current levels of performance, the lease and loan provisions contain sufficient
security to assure that material rental and mortgage obligations will continue
to be met for the remainder of the lease or loan terms. In the future it is
expected that some lessees may choose not to renew their leases on certain
properties at existing rental rates (see table below).
Many lessees have the right of first refusal to purchase the properties
during the lease term; many leases provide one or more five-year (or longer)
renewal options at existing lease rates and continuing additional rent formulas,
although certain leases provide for lease renewals at fair market value. Certain
lessees also have options to purchase the properties, generally for fair market
value, and generally at the expiration of the primary lease term and/or any
renewal term under the lease. If options are exercised, many such provisions
require lessees to purchase or renew several facilities together, precluding the
possibility of lessees purchasing or renewing only those facilities with the
best financial outcomes. Sixty one properties are not subject to purchase
options until 2008 or later, and an additional 292 leased properties do not have
any purchase options.
A table recapping lease expirations, mortgage maturities, properties
subject to purchase options and financial underperformance as of December 31,
2001 follows:
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<PAGE>
<TABLE>
<CAPTION>
Current Annualized Revenue of
----------------------------------------------------------
Properties Subject to
Lease Expirations, Purchase
Options and Properties Subject Estimated Revenue
Mortgage Maturities to Purchase Options Loss at Lease
Year (1) (2), (3) Expiration (4), (5)
- --------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except percentages)
<S> <C> <C> <C>
2002 $ 3,447 $ 2,108 0.32% $ 977
2003 8,759 3,577 0.35 1,079
2004 66,468 54,338 1.31 3,992
Thereafter 226,711 83,898 --- ---
-------------------------------------------------------------------------------------------
$305,385 $143,921 1.98% $ 6,048
===========================================================================================
</TABLE>
(1) This column includes the revenue impact by year and the total annualized
rental and interest income associated with the properties subject to
lessees' renewal options and/or purchase options and mortgage maturities.
(2) This column includes the revenue impact by year and the total annualized
rental and interest income associated with properties subject to purchase
options. If a purchase option is exercisable at more than one date, the
convention used in the table is to show the revenue subject to the purchase
option at the date management estimates is most likely for exercise of the
option. Although certain purchase option periods commenced in earlier
years, lessees have not exercised their purchase options as of this time.
The total for this column (2) $143,921 is a component (subset) of column
(1), the total current annualized revenue of properties subject to lease
expirations, purchase options and mortgage maturities.
(3) Seven hospitals leased to Tenet Healthcare Corporation come up for renewal
or purchase option in 2004. Six of these leases were renewed in 1999 for a
five year term. Based on the current operations at these facilities and the
availability of contractual renewal rates below market, management of HCPI
expects that renewal of the leases in 2004 for another five year term is
likely.
(4) Based on current market conditions, we estimate that there could be a
revenue loss (compared to current rental rates) upon the expiration of the
current term of the leases in the percentages and amounts shown in the
table for lease expirations. The percentages are computed by taking the
possible revenue loss as a percentage of 2001 total annualized revenue.
(5) We estimate that in addition to the possible reduction in income from lease
expirations, we may also have an increase of approximately $700,000 in 2002
due to the reinvestment of cash received from mortgage maturities and
facility sales. This amount is calculated based on current interest rate
levels and is not estimated in years subsequent to 2002 due to the
unpredictable levels of facility sales and interest rates and their impact
on sales and mortgage maturities.
There are numerous factors that could have an impact on lease renewals or
facility sales, including the financial strength of the lessee, expected
facility operating performance, the relative level of interest rates and
individual lessee financing options. Based upon management expectations of our
continued growth, the facilities subject to renewal and/or sale and mortgage
maturities and any possible rent loss therefrom should represent a small
percentage of revenue in the year of renewal or purchase.
Each lessee, at its expense, may make non-capital additions, modifications
or improvements to its leased property. All such alterations, replacements and
improvements must comply with the terms and provisions of the lease, and become
our or our affiliates' property upon termination of the lease. Leases generally
require the lessee to maintain adequate insurance on the leased property, naming
us or our affiliates and any mortgagees as additional insureds. In certain
circumstances, the lessee may self-insure pursuant to a prudent program of
self-insurance if the lessee or the guarantor of
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<PAGE>
its lease obligations has substantial net worth. In addition, each lease
requires the lessee to indemnify us or our affiliates against certain
liabilities in connection with the leased property.
Development of Facilities
Since 1987, we have committed to the development of 61 facilities. As of
December 31, 2001, we have funded costs of approximately $418 million and have
completed 58 facilities of our total development commitment. The completed
facilities comprise:
. 35 congregate care and assisted living facilities
. Seven long-term care facilities
. Seven medical office buildings
. Five rehabilitation hospitals
. Four acute care hospitals
Simultaneously with the commencement of each of these development programs
and prior to funding, we enter into a lease agreement with the
developer/operator. The base rent under the lease is generally established at a
rate equivalent to a specified margin over our cost of money at the commencement
of the lease.
Our build to suit development program generally includes a variety of
additional forms of credit enhancement and collateral beyond those provided by
the leases. During the development period, we generally require additional
security and collateral in the form of more than one of the following:
. Irrevocable letters of credit from financial institutions;
. Payment and performance bonds; and
. Completion guarantees by either one or a combination of the
developer/operator's parent entity, other affiliates or one or more of
the individual principals who control the developer/operator.
In addition, before we advance any funds under the development agreement,
the developer/operator must provide:
. Satisfactory evidence in the form of an endorsement to our title
insurance policy that no intervening liens have been placed on the
property since the date of our previous advance;
. A certificate executed by the project architect that indicates that all
construction work completed on the project conforms with the requirements
of the applicable plans and specifications;
. A certificate executed by the general contractor that all work requested
for reimbursement has been completed; and
. Satisfactory evidence that the funds remaining unadvanced are sufficient
for the payment of all costs necessary for the completion of the project
in accordance with the terms and provisions of the agreement.
As a further safeguard during the development period, we generally will
retain 10% of construction funds incurred until we have received satisfactory
evidence that the project will be fully
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<PAGE>
completed in accordance with the applicable plans and specifications. We also
monitor the progress of the development of each project and the accuracy of the
developer/operator's draw requests by having our own in-house inspector perform
regular on-site inspections of the project prior to the release of any requested
funds.
Investments in Consolidated and Non-Consolidated Joint Ventures
At December 31, 2001, we also had varying percentage interests in several
limited liability companies and partnerships that together own 72 facilities and
two mortgages, as further discussed below:
(1) A 77% interest in a partnership (Health Care Property Partners) which owns
two acute care hospitals and 18 long-term care facilities and has one
mortgage on a long-term care facility.
(2) Interests of between 90% and 97% in six partnerships (HCPI/San Antonio Ltd.
Partnership, HCPI/Colorado Springs Ltd. Partnership, HCPI/Little Rock Ltd.
Partnership, HCPI/Kansas Ltd. Partnership, Fayetteville Health Associates
Ltd. Partnership and Wichita Health Associates Ltd. Partnership), each of
which was formed to own a comprehensive rehabilitation hospital.
(3) A 90% interest in a limited liability company (HCPI Indiana, LLC) which
owns six medical office buildings and has one mortgage on a medical office
building.
(4) A 59% interest in a limited liability company (HCPI Utah, LLC) which owns
18 medical office buildings.
(5) A 54% interest in a limited liability company (HCPI Utah II, LLC) which
owns six medical office buildings, five health care laboratory and biotech
research facilities and is constructing one health care laboratory and
biotech research facility.
(6) An 80% interest in five limited liability companies (Vista-Cal Associates,
LLC; Statesboro Associates, LLC; Ft. Worth-Cal Associates, LLC; Perris-Cal
Associates, LLC; and Louisiana-Two Associates, LLC) which own an aggregate
of six long-term care facilities.
(7) A 45% - 50% interest in four limited liability companies (Seminole Shores
Living Center, LLC - 50%; Edgewood Assisted Living Center, LLC - 45%;
Arborwood Living Center, LLC - 45%; and Greenleaf Living Center, LLC - 45%)
each owning a congregate care facility.
Future Acquisitions
We anticipate acquiring additional health care related facilities and
leasing them to health care operators or investing in mortgages secured by
health care facilities.
Taxation of HCPI
We believe that we have operated in such a manner as to qualify for
taxation as a REIT under Sections 856 to 860 of the Internal Revenue Code of
1986, as amended (the "Code"), commencing with our taxable year ended December
31, 1985, and we intend to continue to operate in such a manner. No assurance
can be given that we have operated or will be able to continue to operate in a
manner so as to qualify or to remain so qualified. This summary is qualified in
its entirety by the applicable Code provisions, rules and regulations
promulgated thereunder, and administrative and judicial interpretations thereof.
If we qualify for taxation as a REIT, we will generally not be required to
pay federal corporate income taxes on the portion of our net income that is
currently distributed to stockholders. This
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<PAGE>
treatment substantially eliminates the "double taxation" (i.e., at the corporate
and stockholder levels) that generally results from investment in a corporation.
However, we will be required to pay federal income tax under certain
circumstances.
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable, but for Sections 856 through
860 of the Code, as a domestic corporation; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi)
during the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, actually or constructively, by five or
fewer individuals; and (vii) which meets certain other tests, described below,
regarding the amount of its distributions and the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
There presently are two gross income requirements. First, at least 75% of
our gross income (excluding gross income from "prohibited transactions" as
defined below) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property or from
certain types of temporary investment income. Second, at least 95% of our gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from income that qualifies under the 75% test and all other
dividends, interest and gain from the sale or other disposition of stock or
securities. A "prohibited transaction" is a sale or other disposition of
property (other than foreclosure property) held for sale to customers in the
ordinary course of business.
At the close of each quarter of our taxable year, we must also satisfy four
tests relating to the nature of our assets. First, at least 75% of the value of
our total assets must be represented by real estate assets (including stock or
debt instruments held for not more than one year, purchased with the proceeds of
a stock offering or long-term (more than five years) public debt offering by
us), cash, cash items and government securities. Second, not more than 25% of
our total assets may be represented by securities other than those in the 75%
asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by us may not exceed 5% of the value
of our total assets and we may not own more than 10% of the vote or value of the
securities of a non-REIT corporation, other than certain debt securities and
interests in taxable REIT subsidiaries, as defined below. Fourth, not more than
20% of the value of our total assets may be represented by securities of one or
more taxable REIT subsidiaries.
The first three asset tests mentioned above were applicable for all of our
prior taxable years, except for the "10% value" requirement relating to the
securities of a non-REIT corporation. This provision and the fourth asset test,
which limits our ownership of taxable REIT subsidiaries, are effective for
taxable years ending after December 31, 2000.
We own interests in various partnerships and limited liability companies.
In the case of a REIT that is a partner in a partnership or a member of a
limited liability company that is treated as a partnership under the Code,
Treasury Regulations provide that for purposes of the REIT income and asset
tests, the REIT will be deemed to own its proportionate share of the assets of
the partnership or limited liability company and will be deemed to be entitled
to the income of the partnership or limited liability company attributable to
such share. The ownership of an interest in a partnership or limited
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<PAGE>
liability company by a REIT may involve special tax risks, including the
challenge by the Internal Revenue Service (the "Service") of the allocations of
income and expense items of the partnership or limited liability company, which
would affect the computation of taxable income of the REIT, and the status of
the partnership or limited liability company as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. We also
own interests in a number of subsidiaries which are intended to be treated as
qualified REIT subsidiaries (each a "QRS"). The Code provides that such
subsidiaries will be ignored for federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of such subsidiaries will
be treated as assets, liabilities and such items of ours. If any partnership,
limited liability company, or subsidiary in which we own an interest were
treated as a regular corporation (and not as a partnership, QRS or taxable REIT
subsidiary) for federal income tax purposes, we would likely fail to satisfy the
REIT asset tests described above and would therefore fail to qualify as a REIT.
We believe that each of the partnerships, limited liability companies, and
subsidiaries (other than taxable REIT subsidiaries) in which we own an interest
will be treated for tax purposes as a partnership or disregarded entity (in the
case of a partnership or limited liability company), or QRS, respectively,
although no assurance can be given that the Service will not successfully
challenge the status of any such organization.
We also own interests in two subsidiaries which are intended to be treated
as taxable REIT subsidiaries (each a "TRS"). A REIT may own any percentage of
the voting stock and value of the securities of a corporation which jointly
elects with the REIT to be a TRS, provided certain requirements are met. A TRS
generally may engage in any business, including the provision of customary or
noncustomary services to tenants of its parent REIT and of others, except a TRS
may not manage or operate a health care facility. A TRS is treated as a regular
corporation and is subject to federal income tax and applicable state income and
franchise taxes at regular corporate rates. In addition, a 100% tax may be
imposed on a REIT if its rental, service or other agreements with its TRS, or
the TRS's agreements with the REIT's tenants, are not on arms' length terms.
In order to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (A) the sum of (i) 90% of our "real estate investment trust taxable
income" (computed without regard to the dividends paid deduction and our net
capital gain) and (ii) 90% of the net income, if any (after tax), from
foreclosure property, minus (B) the sum of certain items of non-cash income. For
all of our taxable years beginning before January 1, 2001, the 90% distribution
requirement discussed above was 95%. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before we timely file our tax return for such year, if paid on or before the
first regular dividend payment date after such declaration and if we so elect
and specify the dollar amount in our tax return. To the extent that we do not
distribute all of our net long-term capital gain or distribute at least 90%, but
less than 100%, of our "real estate investment trust taxable income", as
adjusted, we will be required to pay tax thereon at regular corporate tax rates.
Furthermore, if we should fail to distribute during each calendar year at least
the sum of (i) 85% of our ordinary income for such year, (ii) 95% of our capital
gain income for such year, and (iii) any undistributed taxable income from prior
periods, we would be required to pay a 4% excise tax on the excess of such
required distributions over the amounts actually distributed.
If we fail to qualify for taxation as a REIT in any taxable year, and
certain relief provisions do not apply, we will be required to pay tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify will not be deductible by us nor will they be required to be
made. Unless entitled to relief under specific statutory provisions, we will
also be disqualified from taxation as a REIT for the four
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taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances we would be entitled to the
statutory relief. Failure to qualify for even one year could substantially
reduce distributions to stockholders and could result in our incurring
substantial indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes.
On November 4, 1999, we acquired AHE in a merger. AHE had also made an
election to be taxed as a REIT. If AHE failed to qualify as a REIT for any of
its taxable years, it would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. As successor-in-interest to AHE, we would be required to pay this tax. In
addition, in connection with the merger, and to the extent that the merger is
treated as a reorganization under the Code, we succeeded to various tax
attributes of AHE, including any undistributed C corporation earnings and
profits of AHE. A C corporation is generally defined as a corporation which is
required to pay a full corporate-level tax. If AHE qualified as a REIT for all
years prior to the merger and the merger is treated as a reorganization under
the Code, then AHE would not have any undistributed C corporation earnings and
profits. If, however, AHE failed to qualify as a REIT for any year, then it is
possible that we acquired undistributed C corporation earnings and profits from
AHE. If we did not distribute these C corporation earnings and profits prior to
the end of 1999, we would fail to qualify as a REIT. AHE's counsel rendered
opinions in connection with the merger to the effect that, based on the facts,
representations and assumptions stated therein, commencing with its taxable year
ended December 31, 1987, AHE was organized in conformity with the requirements
for qualification and taxation as a REIT under the Code, and its method of
operation enabled it to meet, through the effective time of the merger, the
requirements for qualification and taxation as a REIT under the Code.
We and our stockholders may be required to pay state or local tax in
various state or local jurisdictions, including those in which we or they
transact business or reside. The state and local tax treatment of us and our
stockholders may not conform to the federal income tax consequences discussed
above.
Government Regulation
The health care industry is heavily regulated by federal, state and local
laws. This government regulation of the health care industry affects us because:
(1) The financial ability of lessees to make rent and debt payments to us may
be affected by governmental regulations such as licensure, certification
for participation in government programs, and government reimbursement, and
(2) Our additional rents are often based on our lessees' gross revenue from
operations in many instances, which in turn are affected by the amount of
reimbursement such lessees receive from the government.
These laws and regulations are subject to frequent and substantial changes
resulting from legislation, adoption of rules and regulations, and
administrative and judicial interpretations of existing law. These changes may
have a dramatic effect on the definition of permissible or impermissible
activities, the relative costs associated with doing business and the amount of
reimbursement by both government and other third-party payors. These changes may
be applied retroactively. The ultimate timing or effect of these changes cannot
be predicted. The failure of any borrower of funds from us or lessee of any of
our properties to comply with such laws, requirements
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and regulations could affect its ability to operate its facility or facilities
and could adversely affect such borrower's or lessee's ability to make debt or
lease payments to us.
Fraud and Abuse. There are various federal and state laws prohibiting fraud
by health care providers, including criminal provisions which prohibit filing
false claims or making false statements to receive payment or certification
under Medicare and Medicaid, or failing to refund overpayments or improper
payments. Violation of these federal provisions is a felony punishable by up to
five years imprisonment and/or a $25,000 fine. Civil provisions prohibit the
knowing filing of a false claim or the knowing use of false statements to obtain
payment. The penalties for such violations may include fines ranging from $5,000
to $10,000, plus treble damages, for each claim filed.
There are also laws that attempt to eliminate fraud and abuse by
prohibiting payment arrangements that include compensation for patient
referrals. The federal Anti-Kickback Law prohibits, among other things, the
offer, payment, solicitation or receipt of any form of remuneration in return
for, or to induce, the referral of Medicare, Medicaid, or other federal health
care program patients. A wide array of relationships and arrangements, including
ownership interests in a company by persons who refer or who are in a position
to refer patients, as well as personal services agreements, have under certain
circumstances, been alleged or been found to violate these provisions. In
addition to the Anti-Kickback Statute, federal law also restricts physicians who
have financial relationships with hospitals and other providers of health care
services from making referrals for certain services to those providers. In
August 1995, the federal government released final regulations addressing
physician referral prohibitions relating to financial relationships with
entities that furnish clinical laboratory services. In January 2001, the federal
government released the first portion of final regulations that explain the
scope of the physician referral prohibition with respect to entities that
furnish certain "designated health services." Most of the provisions contained
within the January 2001 regulations became effective January 4, 2002. The second
part of the final regulations has not been promulgated and is not expected until
2002 or later. All of these regulations will impact health care providers'
financial and contractual arrangements with physicians.
Many states have adopted or are considering legislative proposals similar
to the federal Anti-Kickback Statute, some of which apply to the referral of
patients for health care services reimbursed by any source, not only the
Medicare and other federal government programs. In addition, several states have
enacted or are considering legislation that prohibits physician referral
arrangements or requires physicians to disclose any financial interest they may
have with a health care provider to their patients when referring patients to
that provider. The federal and state laws and regulations regarding fraud and
abuse are extremely complex, and little judicial or regulatory interpretation
exists.
State and federal governments are devoting increasing attention and
resources to anti-fraud initiatives against health care providers. The Health
Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act
of 1997 expand the penalties for health care fraud, including broader provisions
for the exclusion of providers from the Medicare and Medicaid programs. Further,
under Operation Restore Trust, a major anti-fraud demonstration project, the
Office of Inspector General of the U.S. Department of Health and Human Services,
in cooperation with other federal and state agencies, has focused on the
activities of skilled nursing facilities, home health agencies, hospices and
durable medical equipment suppliers in certain states, including California, in
which we have properties. Due to the success of Operation Restore Trust, the
project has been expanded to numerous other states and to additional providers,
including providers of ancillary nursing home services.
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Another trend affecting the health care industry is the increased use of
the federal False Claims Act and, in particular, actions under the False Claims
Act's "whistleblower" provisions. Those provisions allow a private individual to
bring actions on behalf of the government alleging that the defendant has
defrauded the federal government. Recently, the number of suits brought against
health care providers by private individuals has increased. In addition, various
states are considering or have enacted laws modeled after the federal False
Claims Act. Even in instances when a whistleblower action is dismissed with no
judgment or settlement, the Lessee may incur substantial legal fees and other
costs relating to an investigation. Certain lessees have been faced with
whistleblower suits by former employees, alleging non-compliance with Medicare
rules and regulations. For instance, the U.S. Department of Justice recently
joined a whistleblower suit filed against Integrated Health Services, Inc.,
which alleges that the company admitted and retained patients in its long-term
care hospitals who did not require acute care and billed Medicare for these
allegedly unnecessary services.
Some Medicare fiscal intermediaries (private companies that contract with
the Centers for Medicare and Medicaid Services, "CMS," formerly the Health Care
Financing Administration, to administer the Medicare program) have also
increased scrutiny of cost reports filed by long-term care providers. Findings
of violations of the fraud and abuse laws and regulations may jeopardize a
borrower's or lessee's ability to operate a facility or to make rent and debt
payments, thereby potentially adversely affecting us. Our lease arrangements
with lessees may also be subject to these fraud and abuse laws. Federal and
state laws governing illegal rebates and kickbacks regulate contingent or
percentage rent arrangements where our co-investors are physicians or others in
a position to refer patients to the facilities. Although only limited
interpretive or enforcement guidance is available, we have structured our rent
arrangements in a manner that we believe complies with such laws and
regulations.
We have no knowledge regarding any facilities in which we have an
investment that would lead us to believe that the facilities in which we have
investments are not in substantial compliance with the various regulatory
requirements applicable to them, although there can be no assurance that the
operators are in compliance or will remain in compliance in the future.
Licensure Risks. Most health care facilities must obtain a license to
operate. Failure to obtain licensure or loss of licensure would prevent a
facility from operating. These events could adversely affect the facility
operator's ability to make rent and debt payments. State and local laws also may
regulate expansion, including the addition of new beds or services or
acquisition of medical equipment, and occasionally the contraction of health
care facilities by requiring certificate of need or other similar approval
programs. In addition, health care facilities are subject to the Americans with
Disabilities Act and building and safety codes which govern access to and
physical design requirements and building standards for facilities.
Environmental Matters. A wide variety of federal, state and local
environmental and occupational health and safety laws and regulations affect
health care facility operations. Under various federal, state and local
environmental laws, ordinances and regulations, an owner of real property or a
secured lender (such as us) may be liable for the costs of removal or
remediation of hazardous or toxic substances at, under or disposed of in
connection with such property, as well as other potential costs relating to
hazardous or toxic substances (including government fines and damages for
injuries to persons and adjacent property). Such laws often impose such
liability without regard to whether the owner or secured lender knew of, or was
responsible for, the presence or disposal of such substances and may be imposed
on the owner or secured lender in connection with
-20-
<PAGE>
the activities of an operator of the property. The cost of any required
remediation, removal, fines or personal or property damages and the owner's or
secured lender's liability therefore could exceed the value of the property,
and/or the assets of the owner or secured lender. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn, would
reduce our revenue.
Although the mortgage loans that we provide and leases covering our
properties require the borrower and the lessee to indemnify us for certain
environmental liabilities, the scope of such obligations may be limited and we
cannot assure that any such borrower or lessee would be able to fulfill its
indemnification obligations.
Medicare and Medicaid Programs. Sources of revenue for lessees and
mortgagors may include the federal Medicare program, state Medicaid programs,
private insurance carriers, health care service plans and health maintenance
organizations, among others. Efforts to reduce costs by these payors will likely
continue, which may result in reduced or slower growth in reimbursement for
certain services provided by some of our operators. In addition, the failure of
any of our operators to comply with various laws and regulations could
jeopardize their ability to continue participating in the Medicare and Medicaid
programs.
Medicare payments to acute care hospitals for inpatient services are based
on the Prospective Payment System. Under the Prospective Payment System, a
hospital is paid a prospectively established rate based on the category of the
patient's diagnosis ("Diagnostic Related Groups" or "DRGs"). Beginning in 1991,
Medicare payments began to phase-in the Prospective Payment System for capital
related inpatient costs over a ten year period. Thus, current Medicare
reimbursement to hospitals for capital-related inpatient costs is based on a
federal prospective rate rather than the cost-based reimbursement system
previously used. DRG rates are subject to adjustment on an annual basis as part
of the federal budget reconciliation process. The Balanced Budget Act of 1997
expanded the Prospective Payment System to include skilled nursing facilities,
home health agencies, hospital outpatient departments, and rehabilitation
hospitals. See "Health Care Reform" section and further discussion following.
Beginning in August 2000, CMS implemented a prospective payment system
under which services and items furnished in hospital outpatient departments are
reimbursed using a predetermined amount for each Ambulatory Payment
Classification or "APC". Each Medicare outpatient APC is based on the specific
procedures performed and items furnished during a patient visit. Certain items
and services are paid on a fee schedule, and for certain drugs, biologies, and
technologies, hospitals are reimbursed additional amounts. APC rates are subject
to adjustment on an annual basis.
Medicaid programs generally pay for acute and rehabilitative care based on
reasonable costs at fixed rates; long-term care facilities are generally
reimbursed using fixed daily rates. Medicaid payments are generally below retail
rates for lessee-operated facilities. Increasingly, states have introduced
managed care contracting techniques in the administration of Medicaid programs.
Such mechanisms could have the impact of reducing utilization of and
reimbursement to lessee-operated facilities.
Third party payors in various states and areas base payments on costs,
retail rates or, increasingly, negotiated rates. Negotiated rates can include
discounts from normal charges, fixed daily rates and prepaid capitated rates.
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Skilled Nursing Facility Prospective Payment System. Most state Medicaid
programs and, up until July 1, 1998, Medicare programs utilized a cost-based
reimbursement system for skilled nursing facilities, which reimbursed these
facilities for the reasonable direct and indirect allowable costs incurred in
providing routine services plus in certain states, a return on equity, subject
to certain cost ceilings. These costs normally included allowances for
administrative and general costs as well as the costs of property and equipment
(depreciation and interest, fair rental allowance or rental expense). Cost-based
reimbursement was typically subject to retrospective adjustment through cost
report settlement, and for certain states, payments made to a facility on an
interim basis that were subsequently determined to be less than or in excess of
allowable costs could be adjusted through future payments to the affected
facility. State Medicaid reimbursement programs varied as to the methodology
used to determine the level of allowable costs which were reimbursed to
operators.
Beginning on July 1, 1998, the congressionally mandated Prospective Payment
System was implemented for skilled nursing facilities. Under the Prospective
Payment System, skilled nursing facilities are paid a case-mix adjusted federal
per diem rate for Medicare-covered services provided by the skilled nursing
facilities. The per diem rate is calculated to cover routine service costs,
ancillary costs and most capital-related costs (see further discussion under
Health Care Reform).
Long-Term Care Facilities and Regulatory Issues. Long-term care facilities
are regulated primarily through the licensing of such facilities against a
common background established by federal law enacted as part of the Omnibus
Budget Reconciliation Act of 1987. Regulatory authorities and licensing
standards vary from state to state, and in some instances from locality to
locality. These standards are constantly reviewed and revised. State agencies
periodically inspect facilities to determine whether they comply with state
and/or federal regulations, at which time deficiencies may be identified. The
facilities must correct these deficiencies as a condition to continued licensing
or certification and participation in government reimbursement programs.
Depending on the nature of such deficiencies, remedies can be routine or costly.
Similarly, compliance with regulations which cover a broad range of areas such
as patients' rights, staff training, quality of life and quality of resident
care may increase facility start-up and operating costs.
In 1999 and 2000, Congress increased funding for state health agencies in
order to allow state agencies that conduct skilled nursing facility inspections
to intensify Medicare and Medicaid regulatory enforcement efforts. CMS has
instructed these state agencies to increase the number of unannounced nursing
home inspections and to investigate consumer complaints about skilled nursing
facilities promptly. As a result of these increased enforcement efforts, some of
our lessees may be subject to fines and other penalties that could increase
their operating costs.
Acute Care Hospitals. Acute care hospitals are also subject to extensive
federal, state and local regulation. Acute care hospitals undergo periodic
inspections regarding standards of medical care, equipment and hygiene as a
condition of licensure. Various licenses and permits also are required for
purchasing and administering narcotics, operating laboratories and pharmacies
and the use of radioactive materials and certain equipment. Each of our
facilities, the operation of which requires accreditation, is accredited by the
Joint Commission on Accreditation of Healthcare Organizations. Such
accreditation may be a more cost-effective and time-efficient method of meeting
requirements for continued licensing and for participation in government
sponsored provider programs.
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<PAGE>
Acute care hospitals must comply with requirements for various forms of
utilization review. In addition, under the Prospective Payment System, each
state must have a Peer Review Organization (also known as a Quality Improvement
Organization) carry out federally funded mandated reviews of Medicare patient
admissions, treatment and discharges in acute care hospitals.
Congregate Care and Assisted Living Facilities. Certain congregate care and
assisted living facilities are subject to federal, state and local licensure,
certification and inspection laws. These laws regulate, among other matters, the
number of licensed beds, the provision of services, equipment, staffing and
operating policies and procedures. Failure to comply with these laws and
regulations could result in the denial of reimbursement in a few states and
decertification from the Medicaid program, the imposition of fines, suspension
or, and in extreme cases, the revocation of a facility's license or closure of a
facility. Such actions may have an effect on the revenue of the operators of
properties owned by or mortgaged to us and therefore adversely impact us.
Physician Group Practice Clinics. Physician group practice clinics are
subject to extensive federal, state and local legislation and regulation. Every
state imposes licensing requirements on individual physicians and on facilities
and services operated by physicians. In addition, federal and state laws
regulate health maintenance organizations and other managed care organizations
with which physician groups may have contracts. Many states require regulatory
approval, including certificates of need, before establishing certain types of
physician-directed clinics, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the entry
into new markets, physician clinics and affiliated practice groups may become
subject to compliance with additional regulation.
Rehabilitation Hospitals. Rehabilitation hospitals are subject to extensive
federal, state and local legislation, regulation, inspection and licensure
requirements similar to those of acute care hospitals. Many states have adopted
a "patient's bill of rights" which provides for certain higher standards for
patient care that are designed to decrease restrictions and enhance dignity in
treatment.
Health Care Reform
The health care industry has continually faced various challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care facilities
into extended care and home care settings, and the vertical and horizontal
consolidation of health care providers. The pressure to control health care
costs intensified during 1994 and 1995 as a result of the national health care
reform debate and continued as Congress attempted to slow the rate of growth of
federal health care expenditures as part of its effort to balance the federal
budget.
Changes in the law, new interpretations of existing laws, and changes in
payment methodology may have a dramatic effect on the definition of permissible
or impermissible activities, the relative costs associated with doing business
and the amount of reimbursement furnished by both government and other
third-party payors. These changes may be applied retroactively under certain
circumstances. The ultimate timing or effect of legislative efforts cannot be
predicted and may impact us in different ways.
These changes include:
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. The adoption of the Medicare+Choice program, which expands Medicare
beneficiaries' choices to include traditional Medicare fee-for-service,
private fee-for-service medical savings accounts, various managed care
plans, and provider sponsored organizations, among others;
. The expansion and restriction of reimbursement for various Medicare
benefits;
. The adoption of a Prospective Payment System for skilled nursing
facilities, home health agencies, hospital outpatient departments, and
rehabilitation hospitals;
. The repeal of the Boren amendment payment standard for Medicaid so that
states have the exclusive authority to determine provider rates and
providers have no federal right of action;
. The reduction in Medicare disproportionate share payments to hospitals;
and
. The removal of the $150,000,000 limit on tax-exempt bonds for nonacute
hospital capital projects.
The Balanced Budget Act of 1997, signed by President Clinton on August 5,
1997, was designed to produce several billion dollars in net savings for
Medicaid over the five years following enactment. In addition, the Balanced
Budget Act repealed the Boren Amendment under which states were required to pay
long-term care providers, including skilled nursing facilities, rates that were
"reasonable and adequate to meet the cost which must be incurred by efficiently
and economically operated facilities". As a result of the repeal of the Boren
Amendment, states are now required by the Balanced Budget Act to do the
following with respect to skilled nursing facility rates:
. Use a public process for determining rates;
. Publish proposed and final rates, the methodologies underlying the rates,
and justifications for the rates; and
. Give methodologies and justifications.
When determining rates, states are required to take into account the
situation of skilled nursing facilities that serve a disproportionate number of
low-income patients with special needs. The Secretary of Health and Human
Services is required to conduct a study concerning the effect of state
rate-setting methodologies on the access to and the quality of services provided
to Medicaid beneficiaries and report the study results to Congress. The Balanced
Budget Act also provides the federal government with expanded enforcement powers
to combat waste, fraud and abuse in delivery of health care services. Though
applicable to payments for services furnished on or after October 1, 1997, the
new requirements are not retroactive. Thus, states that have not proposed
changes in their payment methods or standards, or changes in rates for items and
services furnished on or after October 1, 1997, need not immediately implement a
Balanced Budget Act public approval process. The Balanced Budget Act of 1997
also strengthened the anti-fraud and abuse laws to provide for stiffer penalties
for fraud and abuse violations.
The Balanced Budget Act also reduced the payments made to long-term acute
care hospitals ("LTACs"). Regarding LTACs, the Balanced Budget Act reduced the
amount of reimbursement for incentive payments established pursuant to the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), for capital expenditures
and bad debts, and for services to certain patients transferred from an acute
care hospital. In addition, the Balanced Budget Act for the first time imposed a
national ceiling limitation or "national cap" on payments that may be made in
each category of hospitals exempt from a prospective payment system. LTACs
constitute one such category. The reduction in payments to LTACs mandated by the
Budget Act many adversely effect an LTAC operator's ability to develop or
acquire LTACs in the future.
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LTACs, currently excluded from a prospective payment system, are scheduled
to transition to a prospective payment system by October 1, 2002. A prospective
payment system for LTACs is mandated under the Balanced Budget Act. The Benefits
Improvement Act directs the Secretary of the U.S. Department of Health and Human
Services to study the question of whether to base the eventual prospective
payment system for LTACs on existing diagnosis-related groups, which are now
used for inpatient stays in acute care hospitals, or on refined diagnosis
related groups. To date, the Secretary has not proposed a prospective payment
system for LTACs. If the Secretary cannot implement a prospective payment system
specific to LTACs by October 1, 2002, the Secretary is required to instead
implement a prospective payment system based upon existing acute care hospital
diagnosis-related groups that have been modified where possible to account for
resource usage of LTAC patients.
In November 1999, President Clinton signed into law the Medicare, Medicaid
and SCHIP Balanced Budget Refinement Act of 1999 ("Budget Refinement Act") which
reduces some of the reimbursement cutbacks enacted under the Balanced Budget
Act. The Budget Refinement Act delayed implementation of cost-cutting measures
and increased payments to some sectors of the health care industry. Long-term
care facilities received increased payments under the Budget Refinement Act.
Disproportionate share hospital payment cutbacks were lessened. The Budget
Refinement Act provided that the change to a prospective payment system for
outpatient hospital services must be budget neutral and not result in reduced
reimbursement. The extent of the financial relief provided by the Budget
Refinement Act is estimated to be $16 billion over five years.
Continuing this trend, President Clinton signed the Medicare, Medicaid and
SCHIP Benefits Improvement and Protection Act of 2000 ("Benefits Improvement
Act") in December 2000, which provides for across-the-board Medicare and
Medicaid payment increases for most health care providers. Overall, passage of
the Benefits Improvement Act is expected to result in approximately $35 billion
in additional reimbursement for providers over the next five years.
Additionally, the Benefits Improvement Act extended the moratorium on
implementation of the cap for outpatient therapy services throughout 2002.
Payments for home health services, hospice services, and long-term care hospital
services will also increase under the provisions of the Benefits Improvement
Act.
A number of the Budget Refinement Act and the Benefits Improvement Act
provisions that provide reimbursement relief to skilled nursing facilities are
set to expire on September 30, 2002. It has been estimated that the skilled
nursing facility sector will experience a 17% rate drop when these provisions
expire in fiscal year 2003. Various industry organizations are examining ways to
ameliorate the potentially adverse effects of such a Medicare rate drop.
Other federal initiatives will result in greater operational expenditures
for health care providers. For instance, the Health Insurance Portability and
Accountability Act of 1996 requires a significant overhaul of health care
information systems to protect individual medical information and to standardize
formatting of health care claims. In November 1999, the Department of Health and
Human Services released proposed regulations to protect the confidentiality of
individual health information. Final privacy regulations were released in
December 2000. Health care providers must comply with the privacy regulations by
April 14, 2003. The federal government has estimated that the United States
health care industry will spend approximately $18 billion over a ten-year period
in order to achieve compliance with these new privacy requirements.
In August 2000, the U.S. Department of Health and Human Services also
released final regulations that delineated uniform, national standards for the
electronic exchange of medical
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information and filing of claims. Health care providers must comply with these
regulations by October 16, 2002, or receive a waiver from the Department to
extend the deadline for compliance to October 16, 2003. The federal government
estimates that compliance will cost health care providers approximately $3.5
billion. However, the federal government has predicted that implementation of
these uniform standards will help to speed conversion from manual to electronic
billing systems, resulting in cost savings of approximately $30 billion over the
next decade for health care providers.
In addition to the reforms enacted and considered by Congress from time to
time, state legislatures periodically consider various health care reform
proposals. Congress and state legislatures can be expected to continue to review
and assess alternative health care delivery systems, new regulatory enforcement
initiatives, and new payment methodologies. Public debate of these issues can be
expected to continue in the future. There are numerous initiatives at the
federal and state levels for comprehensive reforms affecting the payment for and
delivery of health care services. Changes in the law, new interpretations of
existing laws, and changes in payment methodology and enforcement priorities may
have a dramatic effect on the definition of permissible or impermissible
activities, the relative costs associated with doing business and the amount of
reimbursement by both government and other third-party payors. These changes may
be applied retroactively. The ultimate timing or effect of legislative efforts
cannot be predicted and may impact us in different ways.
In 1998, health expenditures in the United States amounted to $1.1
trillion, representing 13.5 percent of Gross Domestic Product. The Centers for
Medicaid and Medicare Services reported that 1998 spending for health care
continued a five-year trend of low growth to below six percent annually, but
reflected the highest annual percentage increase since 1993. Also, for the first
time in a decade, public spending grew more slowly than private health care
spending. The primary reason for the slow growth in public spending was
Medicare, which was significantly affected by the adoption of reimbursement
restriction measures in the Balanced Budget Act of 1997. Fraud savings also
contributed. Because economic growth generally matched growth in health care
spending since 1993, the health care share of gross domestic product has
remained roughly the same since 1993. We believe that government and private
efforts to contain or reduce health care costs will continue. These trends are
likely to lead to reduced or slower growth in reimbursement for certain services
provided by some of our lessees and mortgagors. We believe that the vast nature
of the health care industry, the financial strength and operating flexibility of
our operators and the diversity of our portfolio will mitigate the impact of any
such diminution in reimbursements. However, we cannot predict whether any of the
above proposals or any other proposals will be adopted and, if adopted, no
assurance can be given that the implementation of such reforms will not have a
material adverse effect on our financial condition or results of operations.
Objectives and Policies
We are organized to invest in income-producing health care related
facilities. In evaluating potential investments, we consider such factors as:
. The geographic area, type of property and demographic profile;
. The location, construction quality, condition and design of the property;
. The current and anticipated cash flow and its adequacy to meet
operational needs and lease obligations;
. The rent provides a competitive market return to our investors;
. The potential for capital appreciation;
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<PAGE>
. The tax laws related to real estate investment trusts;
. The regulatory and reimbursement environment in which the properties
operate;
. Occupancy and demand for similar health facilities in the same or nearby
communities;
. An adequate mix between private and government sponsored patients at
health facilities;
. Potential alternative uses of the facilities; and
. Prospects for liquidity through financing or refinancing.
There are no limitations on the percentage of our total assets that may be
invested in any one property or partnership. The Investment Committee of the
Board of Directors may establish limitations as it deems appropriate from time
to time. No limits have been set on the number of properties in which we will
seek to invest, or on the concentration of investments in any one facility or
any one city or state. We acquire our investments primarily for income.
At December 31, 2001, we had three series of preferred stock and one class
of debt securities which are senior to the common stock. We may, in the future,
issue additional debt or equity securities which will be senior to the common
stock. We have authority to offer shares of our capital stock in exchange for
investments which conform to our standards and to repurchase or otherwise
acquire our shares or other securities.
We may incur additional indebtedness when, in the opinion of our management
and directors, it is advisable. For short-term purposes we from time to time
negotiate lines of credit, or arrange for other short-term borrowings from banks
or otherwise. We arrange for long-term borrowings through public offerings or
from institutional investors.
In addition, we may incur additional mortgage indebtedness on real estate
which we have acquired through purchase, foreclosure or otherwise. Where
leverage is present on terms deemed favorable, we invest in properties subject
to existing loans, or secured by mortgages, deeds of trust or similar liens on
the properties. We also may obtain non-recourse or other mortgage financing on
unleveraged properties in which we have invested or may refinance properties
acquired on a leveraged basis.
In March 2001, we introduced a new Dividend Reinvestment and Stock Purchase
Plan (the "Plan"). Under the terms of the Plan, existing stockholders may
purchase shares of common stock by reinvesting all or a portion of the cash
dividends from their shares of common stock, or by making optional cash payments
to purchase additional shares of common stock.
On June 20, 2000 we adopted a Stockholder Rights Plan and declared a
dividend of one preferred share purchase right for each outstanding share of our
common stock. The rights will become exercisable if a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of our common stock or following the
commencement or announcement of an intention to make a tender offer or exchange
offer the consummation of which would result in the beneficial ownership by a
person or group of 15% or more of our common stock. After the rights become
exercisable, each right will entitle the holder to purchase from us one
one-hundredth (1/100th) of a share of Series D Junior Participating Preferred
Stock at a price of $95 per one one-hundredth (1/100th) of a Preferred Share,
subject to certain anti-dilution adjustments. The rights will at no time have
any voting rights.
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Each Series D Preferred Share purchasable upon exercise of the rights will
be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $1.00 per share but will be entitled to an aggregate
dividend of 100 times the dividend, if any, declare per common share. In the
event our liquidation, dissolution or winding up, the holders of the Series D
Preferred Shares will be entitled to a preferential liquidation payment of $100
per share plus any accrued but unpaid dividends but will be entitled to an
aggregate payment of 100 times the payment made per common share. Each Series D
Preferred Share will have 100 votes and will vote together with our common
stock. Finally, in the event of any merger, consolidation or other transaction
in which shares of our common stock are exchanged, each Series D Preferred Share
will be entitled to receive 100 times the amount received per share of common
stock. Series D Preferred Shares will not be redeemable. The rights are
protected by customary anti-dilution provisions. Because of the nature of the
Preferred Share's dividend, liquidation and voting rights, the value of one
one-hundredth of a Preferred Share purchasable upon exercise of each Right
should approximate the value of one common share.
Under certain circumstances, each holder of a right, other than rights that
are or were acquired or beneficially owned by a person or group acquiring 15% or
more (which rights will thereafter be void), will have the right to receive upon
exercise that number of common shares having a market value of two times the
then current purchase price of one right. In the event that, after a person
acquired 15% or more of our common stock, we were acquired in a merger or other
business combination transaction or more than 50% of our assets or earning power
were sold, each holder of a right shall have the right to receive, upon the
exercise thereof at the then current purchase price of the right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the then current purchase
price of one right.
The rights may be redeemed by the Board of Directors at any time prior to
the time a person or group acquires 15% or more of our common stock.
The rights will expire on July 27, 2010 (unless earlier redeemed, exchanged
or terminated). The Bank of New York is the Rights Agent.
The rights are designed to assure that all of our stockholders receive fair
and equal treatment in the event of any proposed takeover of us and to guard
against partial tender offers, open market accumulations and other abusive
tactics to gain control of us without paying all stockholders a control premium.
The rights will cause substantial dilution to a person or group that acquires
15% or more of our stock on terms not approved by our Board of Directors. The
rights should not interfere with any merger or other business combination
approved by the Board of Directors at any time prior to the first date that a
person or group acquires 15% or more of our common stock.
We will not, without the prior approval of a majority of directors, acquire
from or sell to any director, officer or employee of HCPI, or any affiliate
thereof, as the case may be, any of our assets or other property.
We provide to our stockholders annual reports containing audited financial
statements and quarterly reports containing unaudited information.
The policies set forth herein have been established by our Board of
Directors and may be changed without stockholder approval.
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<TABLE>
<CAPTION>
Health Care Property Investors
- -----------------------------------------------
<S> <C>
50%
Health Care Investors, III
-- HCPI Mortgage Corp. = 50%
100%
-- Texas HCP, Inc. = 99%
100% Texas HCP Holding, L.P. = HCPI/San Antonio LP
\ 1% / 90%
-- Texas HCP G.P., Inc. = \ /
100% \99%/
Texas HCP Medical Office Buildings, L.P.
-- Texas HCP Medical G.P., Inc. = 1%
100%
-- HCPI Trust
100%
-- HCPI Knightdale, Inc.
100%
-- Meadowdome LLC
100%
-- AHE of Somerville, Inc.
100%
-- AHP of Nevada, Inc.
100%
-- AHP of Washington, Inc.
100%
-- Tucson-Cal Associates, LLC
100%
-- HCP Medical Office Buildings I, LLC
100%
-- HCP Medical Office Buildings II, LLC
100%
-- HCPI Investments, Inc.
100%
-- Indiana HCP G.P., Inc. = 1% ------
100%
-- Indiana HCP I, Inc. = 49.5% ------ --- Indiana HCP, L.P.
100% 100%
-- Indiana HCP II, Inc. = 49.5% ------
100%
-- Consolidated Partnerships and Limited Liability Companies:
Health Care Property Partners - 77%
HCPI/Colorado Springs LP - 97%
HCPI Indiana LLC - 90%
HCPI Kansas LP - 97%
HCPI/Little Rock LP - 97%
HCPI/Utah LLC - 59% (Owns 100% of HCPI Davis North LLC)
Fayetteville Health Associates LP - 97%
Wichita Health Associates LP - 97%
HCPI/Utah II LLC - 54% (Owns 100% of HCPI Stansbury LLC and HCPI
Wesley LLC)
HCPI Idaho Falls LLC - 100% Various Non-Consolidated LLCs*
* HCPI or a qualified REIT subsidiary is non-managing member and has a 45%-80%
interest in the following limited liability companies:
Louisiana-Two Associates, LLC - 80%
Arborwood Living Center, LLC - 45%
Perris-Cal Associates, LLC - 80%
Edgewood Assisted Living LLC - 45%
Statesboro Associates, LLC - 80%
Greenleaf Living Center LLC - 45%
Vista-Cal Associates, LLC - 80%
Seminole Shores Living Center LLC - 50%
Ft. Worth-Cal Assoc. LLC - 80%
</TABLE>
-29-
<PAGE>
Item 2. PROPERTIES
See Item 1. for details.
Item 3. LEGAL PROCEEDINGS
During 2001, we were not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-30-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is listed on the New York Stock Exchange. Set forth below
for the fiscal quarters indicated are the reported high and low closing prices
of our common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
2001 2000 1999
High Low High Low High Low
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $34 1/2 $29 1/4 $26 $23 11/16 $31 3/8 $26 5/8
Second Quarter 36 13/16 33 29 25 32 15/16 27 5/16
Third Quarter 38 5/8 33 3/4 30 1/2 26 3/8 28 9/16 24 11/16
Fourth Quarter 39 1/16 35 1/8 29 15/16 27 1/4 27 1/8 21 15/16
</TABLE>
As of March 13, 2002 there were approximately 4,800 stockholders of record
and approximately 70,000 beneficial stockholders of our common stock.
It has been our policy to declare quarterly dividends to the common stock
shareholders so as to comply with applicable sections of the Internal Revenue
Code governing REITs. The cash dividends per share paid on common stock are set
forth below:
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------
<S> <C> <C> <C>
First Quarter $.76 $.72 $.68
Second Quarter .77 .73 .69
Third Quarter .78 .74 .70
Fourth Quarter .79 .75 .71
</TABLE>
Boyer. On January 25, 1999, we completed the acquisition of a managing
-----
member interest in HCPI/Utah, LLC, a Delaware limited liability company
("HCPI/Utah"), in exchange for a cash contribution of approximately $18.9
million. In connection with this acquisition, several limited liability
companies and general partnerships affiliated with The Boyer Company, L.C.
("Boyer") contributed a portfolio of 14 medical office buildings (including two
ground leaseholds associated therewith) to HCPI/Utah with an aggregate equity
value (net of assumed debt) of approximately $18.9 million. In exchange for this
capital contribution, the contributing entities received 593,247 non-managing
member units of HCPI/Utah. HCPI/Utah also issued 590,555 managing member units
to HCPI. At the initial closing, HCPI/Utah was also granted the right to acquire
five additional medical office buildings. During 1999, two of the five buildings
were contributed to HCPI/Utah and the contributing entities received 48,212
non-managing member units of HCPI/Utah and 707,663 managing member units were
issued to us. In addition, HCPI and HCPI/Utah agreed with Boyer that HCPI/Utah
would not acquire the medical office building known as Old Mill. During 2001,
two more of the buildings were contributed to HCPI/Utah and the contributing
entities received 84,922 non-managing member units of HCPI/Utah and 308,827
managing member units were issued. The Amended and Restated Limited Liability
Company Agreement of HCPI/Utah (the "Agreement") provides that only we are
authorized to act on behalf of HCPI/Utah and that we have responsibility for the
management of its business. In accordance with the Agreement, the contributing
entities also
-31-
<PAGE>
received an additional 29,688 units in 1999 and 8,324 units in 2001 as a result
of step-ups in value of certain of the buildings. During 2000, HCPI/Utah
determined that 505,881 managing member units previously recorded and issued to
HCPI during 1999 should have been recorded as a loan from HCPI to retire
existing debt of HCPI/Utah. Consequently, HCPI/Utah redesignated these units as
a loan from HCPI, which is secured by HCPI/Utah real estate assets.
Generally the non-managing member units issued in connection with the
initial closing became exchangeable for common stock on January 25, 2000. The
non-managing member units issued on or prior to August 17, 2001, in connection
with the subsequent closings will become exchangeable on August 17, 2002, and
the non-managing member units issued after August 17, 2001, in connection with
the subsequent closings, will become exchangeable twelve months after the last
issuance of units. The non-managing member units are exchangeable for common
stock on a one for one basis (subject to certain adjustments, such as stock
splits and reclassifications) or for an amount of cash equal to then-current
market value of the shares of common stock into which the non-managing member
units may be exchanged. HCPI/Utah relied on the exemption provided by Section
4(2) of the Securities Act of 1933, as amended, in connection with the issuance
and sale of the non-managing member units. During the first quarter of 2000, we
registered 593,247 shares of our common stock for issuance from time to time in
exchange for units.
On August 17, 2001, we completed the acquisition of a managing member
interest in HCPI/Utah, II, LLC, a Delaware limited liability company ("HCPI/Utah
II"), in exchange for a cash contribution of approximately $32.8 million. In
connection with the acquisition, several limited liability companies and general
partnerships affiliated with The Boyer Company, L.C., a Utah limited liability
company ("Boyer"), contributed a portfolio of four medical office buildings and
five health care laboratory and biotech research facilities (seven of which
buildings are owned through ground leasehold interests) to HCPI/Utah II with an
aggregate equity value (net of assumed debt) of approximately $25.7 million. In
exchange for this capital contribution, the contributing entities received
738,923 non-managing units of HCPI/Utah II. HCPI/Utah II also issued 942,670
managing member units to HCPI. At the initial closing, HCPI/Utah II was also
granted the right to acquire eight additional medical office buildings. During
2001, two of the eight buildings were contributed to HCPI/Utah II and the
contributing entities received 62,758 non-managing member units of HCPI/Utah II
and 15,509 managing member units were issued to us. The Amended and Restated
Limited Liability Company Agreement of HCPI/Utah II, as amended (the
"Agreement") provides that only we are authorized to act on behalf of HCPI/Utah
II and that we have responsibility for the management of its business.
Generally, the non-managing member units issued in connection with the
initial closing will become exchangeable for common stock on August 17, 2002,
and the non-managing member units issued in connection with the subsequent
closings will become exchangeable 12 months after the last issuance of units.
The non-managing member units are exchangeable for common stock on a one-for one
basis (subject to certain adjustments, such as stock splits and
reclassifications) or for an amount of cash equal to the then-current market
value of the shares of common stock into which the non-managing member units may
be exchanged. HCPI/Utah II relied on the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, in connection with the issuance and sale
of the non-managing member units.
-32-
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Set forth below is our selected financial data as of and for the years
ended December 31, 2001, 2000, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total Revenue $332,460 $329,807 $224,793 $161,549 $ 128,503
Net Income Applicable to
Common Shares 96,266 108,867 78,450 78,635 63,542
Basic Earnings per Common Share 1.79 2.13 2.25 2.56 2.21
Diluted Earnings per Common Share 1.78 2.13 2.25 2.54 2.19
Balance Sheet Data:
Total Assets 2,431,153 2,394,852 2,464,795 1,352,327 937,442
Debt Obligations 1,057,752 1,158,928 1,179,507 709,045 452,858
Stockholders' Equity 1,246,724 1,139,283 1,195,662 591,134 438,747
Other Data:
Basic Funds From Operations (1) 179,375 171,344 114,520 96,255 83,442
Cash Flows From Operating
Activities 200,848 205,511 124,117 112,311 87,544
Cash Flows Provided By (Used In)
Investing Activities (118,163) 63,714 (230,460) (417,524) (205,238)
Cash Flows Provided By (Used In)
Financing Activities (132,900) (218,298) 109,535 305,633 118,967
Dividends Paid 190,123 175,079 106,177 89,210 71,926
Dividends Paid Per Common Share 3.10 2.94 2.78 2.62 2.46
- --------------------------
</TABLE>
(1) We believe that Funds From Operations ("FFO") is an important supplemental
measure of operating performance. HCPI adopted the new definition of FFO
prescribed by the National Association of Real Estate Investment Trusts
(NAREIT). FFO is defined as Net Income applicable to common shares
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate depreciation, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not, and is not intended to,
represent cash generated from operating activities in accordance with
generally accepted accounting principles, is not necessarily indicative of
cash available to fund cash needs and should not be considered as an
alternative to Net Income. FFO, as defined by us may not be comparable to
similarly entitled items reported by other REITs that do not define it in
accordance with the definition prescribed by NAREIT. The following table
represents items and amounts being aggregated to compute FFO.
<TABLE>
<CAPTION>
2001 2000 1999 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income Applicable to Common Shares $ 96,266 $ 108,867 $ 78,450 $ 78,635 $ 63,542
Real Estate Depreciation 84,098 72,590 44,789 29,577 22,667
Joint Venture Adjustments 243 1,917 1,584 2,096 (720)
Gain on Sale of Real Estate Properties (1,232) (11,756) (10,303) (14,053) (2,047)
Gain on Extinguishment of Debt --- (274) --- --- ---
------------------------------------------------------------------
$179,375 $ 171,344 $ 114,520 $ 96,255 $ 83,442
==================================================================
</TABLE>
-33-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Health Care Property Investors, Inc., including its wholly-owned
subsidiaries and affiliated joint ventures (HCPI), generally acquires health
care facilities and leases them on a long-term basis to health care providers.
We also lease medical office space to providers and physicians on a shorter term
basis. On a more limited basis, we provide mortgage financing on health care
facilities. As of December 31, 2001, our portfolio of properties, including
equity investments, consisted of 429 facilities located in 42 states. These
facilities are comprised of 176 long-term care facilities, 94 congregate care
and assisted living facilities, 86 medical office buildings, 37 physician group
practice clinics, 21 acute care hospitals, nine freestanding rehabilitation
facilities and six health care laboratory and biotech research facilities. Our
gross investment in the properties, which includes joint venture acquisitions,
was approximately $2.7 billion at December 31, 2001.
The primary focus of operations for 2001 was the completion of $240 million
of new investments. We financed the acquisitions primarily through the proceeds
from the issuance of new equity and asset sales. However, the issuance of new
equity had the short-term impact of de-leveraging the Company by paying down the
bank lines with long-term capital. Additionally, we recorded lower market rents
on certain properties and recorded a $13.6 million write-down on 13 properties
related to the reorganization of certain nursing home and assisted living
operators.
On November 4, 1999, American Health Properties, Inc. (AHE) merged with and
into HCPI in a stock-for-stock transaction. The merger resulted in the issuance
of 19,430,115 shares of our common stock and 4,000,000 depositary shares of our
series C cumulative redeemable preferred stock. Additionally, upon consummation
of the merger, we assumed AHE's debt comprised of $220 million of senior notes
and $56 million of mortgage debt, and paid $71 million in cash to replace its
revolving line of credit. The transaction was treated as a purchase for
financial accounting purposes and, accordingly, the operating results of AHE
have been included in our consolidated financial statements effective November
1999.
Results of Operations
Year Ended December 31, 2001 Vs. Year Ended December 31, 2000
Net Income applicable to common shares for the year ended December 31, 2001
totaled $96,266,000 or $1.78 per share on a diluted basis on revenue of
$332,460,000. This compares to Net Income applicable to common shares of
$108,867,000 or $2.13 per share on a diluted basis on revenue of $329,807,000
for the corresponding period in 2000. Included in Net Income applicable to
common shares and earnings per share on a diluted basis for the year ended
December 31, 2001 is the net effect of a write-down of $13,640,000, or $0.25 per
share, to fair market value (see Note 3 to the Consolidated Financial
Statements) of 13 facilities to be sold offset by a net Gain on Sale of Real
Estate Properties of $1,232,000, or $0.02 per share. Net Income applicable to
common shares and earnings per share on a diluted basis for the year ended
December 31, 2000 includes the net effect of a write-down of $2,751,000, or
$0.05 per share, to fair market value of four facilities to be sold and a net
Gain on Sale of Real Estate Properties of $11,756,000, or $0.23 per share. In
addition, Net Income applicable to common shares for the year ended December 31,
2000, includes a $2,000,000 or $0.04 per share one-time charge as a result of an
equity investment write-off.
-34-
<PAGE>
Rental Income attributable to Triple Net Leases for the year ended December
31, 2001 decreased 0.2% or $502,000 to $226,510,000. The decrease is primarily
the result of the impact of dispositions made during 2000 and 2001 offset by
acquisition activity during 2001. Rental Income attributable to Managed
Properties for the year ended December 31, 2001 increased 5.3% or $4,274,000 to
$84,092,000 with a related increase in Managed Properties Operating Expenses of
8.5% or $2,367,000 to $30,105,000. These increases were generated primarily from
2001 acquisition activity (see Note 3 to the Consolidated Financial Statements).
Interest and Other Income for the year ended December 31, 2001 decreased 4.9% or
$1,119,000 to $21,858,000 primarily as a result of a loan payoff in the first
quarter of 2001.
Interest Expense for the year ended December 31, 2001 decreased 9.5% or
$8,258,000 to $78,489,000. The decrease is primarily the result of lower
balances and interest rates on short-term bank loans all described in more
detail within the "Liquidity and Capital Resources" section. The increase in
Real Estate Depreciation of 15.9% or $11,508,000 to $84,098,000 for the year
ended December 31, 2001 is the direct result of the write-down of the 13
facilities to be sold discussed previously.
We believe that Funds From Operations (FFO) is the most important
supplemental measure of operating performance for a real estate investment trust
(see Note 14 to the Consolidated Financial Statements). FFO for the year ended
December 31, 2001 increased 4.7% or $8,031,000 to $179,375,000. The increase is
mainly attributable to an increase in Rental Income, Managed Properties and a
decrease in Interest Expense, offset by decreases in Rental Income, Triple Net
Properties and Interest and Other Income, and an increase in Managed Properties
Operating Expenses.
Year Ended December 31, 2000 Vs. Year Ended December 31, 1999
Net Income applicable to common shares for the year ended December 31, 2000
totaled $108,867,000 or $2.13 per share on a diluted basis on revenue of
$329,807,000. This compares to Net Income applicable to common shares of
$78,450,000 or $2.25 per share on a diluted basis on revenue of $224,793,000 for
the corresponding period in 1999. Included in Net Income applicable to common
shares and earnings per share on a diluted basis for the years ended December
31, 2000 and 1999 is a Gain on Sale of Real Estate Properties of $11,756,000, or
$0.23 per share, and $10,303,000, or $0.27 per share, respectively. In addition,
Net Income applicable to common shares for the year ended December 31, 2000
includes a $2,000,000 or $0.04 per share one-time charge as a result of an
equity investment write-off. Also included is a $2,751,000 or $0.05 per share
one-time charge as a result of the write-down to realizable value of four
physician clinics to be sold (see Note 3 to the Consolidated Financial
Statements). The increase in Net Income applicable to common shares is primarily
the result of 1999 acquisition activity, most of which is attributable to the
acquisition of AHE's portfolio.
Rental Income attributable to Triple Net Leases for the year ended December
31, 2000 increased 57.8% or $83,164,000 to $227,012,000. Rental Income,
attributable to Managed Properties for the year ended December 31, 2000
increased 43.2% or $24,096,000 to $79,818,000 with a related increase in Managed
Properties Operating Expenses of 52.1% or $9,498,000 to $27,738,000. These
increases were generated primarily from 1999 acquisition activity, most of which
is related to the acquisition of AHE's portfolio. Interest and Other Income for
the year ended December 31, 2000
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<PAGE>
decreased 8.9% or $2,246,000 to $22,977,000 primarily as a result of the
divestiture during mid 1999 of certain partnership interests from which we were
receiving income.
Interest Expense for the year ended December 31, 2000 increased 48.4% or
$28,289,000 to $86,747,000. The increase is primarily the result of an increase
in borrowings used to fund the acquisitions made during 1999 and the interest
related to the debt assumed in the merger with AHE all described in more detail
within the "Liquidity and Capital Resources" section. The increase in Real
Estate Depreciation of 62.1% or $27,801,000 to $72,590,000 for the year ended
December 31, 2000 is the direct result of the new investments made during 1999
including the merger with AHE as well as the write-down of the four facilities
to be sold previously discussed.
FFO for the year ended December 31, 2000 increased 49.6% or $56,824,000 to
$171,344,000. The increase is mainly attributable to increases in Rental Income,
as offset by increases in Interest Expense and Managed Properties Operating
Expenses which were previously discussed in more detail.
Liquidity and Capital Resources
We have financed investments through the sale of common and preferred
stock, issuance of long-term debt, assumption of mortgage debt, the mortgaging
of certain of our properties, use of short-term bank lines and use of internally
generated cash flows. We have also raised cash through the disposition of assets
in 2000 and 2001. Management believes that our liquidity and sources of capital
are adequate to finance our operations. Future investments in additional
facilities (see Note 9 to the Consolidated Financial Statements) will be
dependent on the availability of cost-effective sources of capital.
At December 31, 2001, stockholders' equity totaled $1,246,724,000. Our debt
to equity ratio was 0.85 to 1.00. For the year ended December 31, 2001, FFO
(before interest expense) covered Interest Expense 3.30 to 1.00.
Equity
Since January 1999, we have completed two equity offerings for cash,
summarized in the following table:
<TABLE>
<CAPTION>
Date Issuance Shares Issued Net Proceeds
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
May 1999 Common Stock at $31.4375/share 1,000,000 $ 29,600,000
May 2001 Common Stock at $34.80/share 4,025,000 $ 133,000,000
</TABLE>
In March 2001, we introduced a new Dividend Reinvestment and Stock Purchase
Plan. As of December 31, 2001, 815,432 shares have been issued with net proceeds
of $28,900,000 realized under this plan. An additional $14,800,000 has been
realized through the exercise of stock options.
We used the net equity proceeds to pay down short-term borrowings under our
revolving lines of credit pending deployment on long-term investments. We
invested any excess funds in short-term investments until they were needed for
acquisitions or development.
-36-
<PAGE>
Since 1998, we have issued 1,647,202 non-managing member units (convertible
one for one into shares of our common stock) to the non-managing members in
three limited liability companies of which we are the managing member, and
through which we have acquired medical office buildings and health care
laboratory and biotech research facilities.
On November 4, 1999, in connection with the merger with AHE, we issued
19,430,115 shares of our common stock and 4,000,000 depositary shares of 8.60%
series C cumulative redeemable preferred stock (see Note 5 to the Consolidated
Financial Statements).
Senior Unsecured Debt
The following table summarizes the Medium Term Note (MTN) financing
activities since January 1999:
<TABLE>
<CAPTION>
Amount Issued
Date Maturity Coupon Rate /(Redeemed)
- ------------------------------ --------------------- ------------------------ --------------------------
<S> <C> <C> <C>
February-April 1999 5 years 6.92%-7.48% $ 62,000,000
May-November 1999 --- 8.81%-10.57% (5,000,000)
February 2000 --- 8.87% (10,000,000)
February 2000 4 years 9.00% 25,000,000
March-November 2001 --- 7.05%-8.82% (14,000,000)
</TABLE>
On November 4, 1999, in connection with the merger with AHE, we assumed the
outstanding senior notes of AHE, consisting of $120,000,000 principal amount of
7.50% senior notes (8.16% effective rate) due 2007 and $100,000,000 principal
amount of 7.05% senior notes due 2002; $1,000,000 of the 2002 series was retired
during 2001 with the remaining $99,000,000 paid off in January 2002.
Since 1986 the debt rating agencies have rated our Senior Notes investment
grade. Current senior debt ratings are Baa2 from Moody's and BBB+ from both
Standard & Poor's and Fitch.
Secured Debt
At December 31, 2001, we had a total of $185,022,000 in Mortgage Notes
Payable secured by 37 health care facilities with a net book value of
approximately $325,195,000. Interest rates on the Mortgage Notes ranged from
3.20% to 10.63%.
During 2001, we assumed secured debt of $18,600,000 in connection with the
acquisition of the first two phases of a $126,000,000 transaction to acquire
entities controlled by The Boyer Company (see Note 3 to Consolidated Financial
Statements).
During 2000, we completed a secured debt transaction which in the aggregate
resulted in loan proceeds of $83,000,000, on a portfolio of 12 medical office
buildings and physician clinics with an investment value of approximately
$138,000,000. The loan features an average coupon of 8.12% (8.43% effective
rate) with a ten year term. These proceeds were used to fund the final payment
of our convertible subordinated notes due November 8, 2000.
We assumed $56,000,000 of AHE's mortgage debt in late 1999 with interest
rates ranging from 7.00% to 8.52% due 2003 to 2011.
-37-
<PAGE>
Revolving Lines of Credit
We have two revolving lines of credit, one for $188,000,000 that was
renewed recently and expires on October 30, 2002 and one for $207,000,000 that
expires on November 3, 2003. As of December 31, 2001, we had a total of
$283,000,000 available on these lines of credit.
Other
During the first two quarters of 2000, we repurchased $31,090,000 of our 6%
convertible subordinated notes due November 8, 2000 in open market transactions
at a gain of $274,000. The balance of $68,910,000 was paid off on the due date.
Retained Cash Flows
Since our inception in May 1985, we have recorded approximately
$1,155,708,000 in FFO. Of this amount, we have distributed a total of
$982,675,000 to stockholders as dividends on common stock. We have retained the
balance of $173,033,000 and used it as an additional source of capital.
On November 20, 2001, we paid a dividend of $0.79 per common share or
$44,042,000 in the aggregate. Total dividends paid on common stock during the
year ended December 31, 2001 were $165,223,000, and as a percentage of FFO was
92.1%. During the first quarter of 2002, we declared and paid a dividend of
$0.80 per common share or approximately $45,109,000 in the aggregate.
Available Shelf Registrations
As of February 2002, we had $232,000,000 available for future financing of
debt and equity securities under a shelf registration statement filed with the
Securities and Exchange Commission. Of that amount, we have approximately
$85,000,000 available under MTN senior debt programs. These amounts may be
issued from time to time in the future based on our needs and existing market
conditions.
Letters of Credit
At December 31, 2001, we held approximately $9,562,000 in depository
accounts and $46,637,000 in irrevocable letters of credit from commercial banks
to secure a number of lessees' lease and borrowers' loan obligations. We may
draw upon the letters of credit or depository accounts if there are any defaults
under the leases and/or loans. Amounts available under letters of credit could
change based upon facility operating conditions and other factors and such
changes may be material.
Facility Rollovers
We have concluded a significant number of "facility rollover" transactions
on properties that have been under long-term leases and mortgages. Facility
rollover transactions principally include lease renewals and renegotiations,
exchanges, sales of properties, and, to a lesser extent, payoffs on mortgage
receivables. The annualized impact on a pro forma basis as if the facility
rollover transactions had occurred on January 1 of each year was to decrease FFO
for the years 1999 and 2000 by $3,300,000 and $1,200,000, respectively, and have
no net effect on FFO for the year 2001. Total rollovers were 26 facilities, 40
facilities and 60 facilities in each of the years 1999 through 2001,
respectively.
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<PAGE>
For the years ending December 31, 2002 and 2003, we have 14 facilities and
18 facilities in the triple net lease portfolio, respectively, that are subject
to lease expiration and mortgage maturities. Including lease expirations in the
managed portfolio, total Company revenue subject to lease expirations and
mortgage maturities are 1.1% for 2002 and 2.9% for 2003.
-39-
<PAGE>
Troubled Long-Term Care and Assisted Living Operators
The financial weakness of operators in the long-term care and assisted
living sectors may result in some uncertainties in our ability to continue to
realize the full benefit of such operators' leases. We cannot assure you that
the bankruptcies of certain long-term care operators and the trouble experienced
by assisted living operators would not have a material adverse effect on our Net
Income, FFO or the market value of our common stock (see Note 4 to the
Consolidated Financial Statements).
Cautionary Language Regarding Forward Looking Statements
Statements in this Annual Report that are not historical factual statements
are "forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The statements include, among other things,
statements regarding the intent, belief or expectations of HCPI and its officers
and can be identified by the use of terminology such as "may," "will," "expect,"
"believe," "intend," "plan," "estimate," "should" and other comparable terms or
the negative thereof. In addition, we, through our senior management, from time
to time make forward looking oral and written public statements concerning our
expected future operations and other developments. Readers are cautioned that,
while forward looking statements reflect our good faith belief and best judgment
based upon current information, they are not guarantees of future performance
and are subject to known and unknown risks and uncertainties. Actual results may
differ materially from the expectations contained in the forward looking
statements as a result of various factors. In addition to the factors set forth
under the caption Risk Factors in this Annual Report, readers should consider
the following:
(a) Legislative, regulatory, or other changes in the health care industry
at the local, state or federal level which increase the costs of or
otherwise affect the operations of our lessees;
(b) Changes in the reimbursement available to our lessees and mortgagors by
governmental or private payors, including changes in Medicare and
Medicaid payment levels and the availability and cost of third party
insurance coverage;
(c) Competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
(d) Availability of suitable health care facilities to acquire at a
favorable cost of capital and the competition for such acquisition and
financing of health care facilities;
(e) The ability of our lessees and mortgagors to operate our properties in
a manner sufficient to maintain or increase revenues and to generate
sufficient income to make rent and loan payments;
(f) The financial weakness of operators in the long-term care and assisted
living sectors, including the bankruptcies of certain of our tenants,
which results in uncertainties in our ability to continue to realize
the full benefit of such operators' leases; and
(g) Changes in national or regional economic conditions, including changes
in interest rates and the availability and cost of capital for the
Company.
Item 7a. DISCLOSURES ABOUT MARKET RISK
Our investments are financed by the sale of common stock, long-term debt,
internally generated cash flows, and some short-term bank debt.
We generally have fixed base rent on our leases; in addition, there can be
additional rent based on a percentage of increased revenue over specified base
period revenue of the properties and/or
-40-
<PAGE>
increases based on inflation indices or other factors. Financing costs are
comprised of dividends on preferred and common stock, fixed interest on
long-term debt and short-term interest on bank debt.
On a more limited basis, we have provided mortgage loans to operators of
health care facilities in the normal course of business. All of the mortgage
loans receivable have fixed interest rates or interest rates with periodic fixed
increases. Therefore, the mortgage loans receivable are all considered to be
fixed rate loans, and the current interest rate (the lowest rate) is used in the
computation of market risk provided in the following table if material.
We may assume existing mortgage notes payable as part of an acquisition
transaction. Currently we have two mortgage notes payable with variable interest
rates and the remaining mortgage notes payable have fixed interest rates or
interest rates with fixed periodic increases. Our Senior Notes are at fixed
rates with one exception for a $25,000,000 variable rate senior note for which
management has fixed the interest rate by means of a swap contract. The variable
rate loans are at interest rates below the current prime rate of 4.75%, and
fluctuations are tied to the prime rate or to a rate currently below the prime
rate.
At December 31, 2001, we are exposed to market risks related to
fluctuations in interest rates only on $4,882,000 of variable rate mortgage
notes payable and $108,500,000 of variable rate bank debt out of our portfolio
of real estate of $2,738,000,000.
Fluctuation in the interest rate environment will not affect our future
earnings and cash flows on our fixed rate debt until that debt matures and must
be replaced or refinanced. Interest rate changes will affect the fair value of
the fixed rate instruments. Conversely, changes in interest rates on variable
rate debt would change our future earnings and cash flows, but not affect the
fair value on those instruments. Assuming a one percentage point increase in the
interest rate related to the variable rate debt including the mortgage notes
payable and the bank lines of credit, and assuming no change in the outstanding
balance as of year end, interest expense for 2001 would increase by
approximately $1,134,000.
The principal amount and the average interest rates for the mortgage loans
receivable and debt categorized by the final maturity dates is presented in the
following table. The fair value estimates for the mortgage loans receivable are
based on the estimates of management and on rates currently prevailing for
comparable loans. The fair market value estimates for debt securities are based
on discounting future cash flows utilizing current rates offered to us for debt
of the same type and remaining maturity.
-41-
<PAGE>
<TABLE>
<CAPTION>
------------------------------Maturity-------------------------
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
------------------------------------------------------------------------
ASSETS (Amounts in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans Receivable $3,576 $41,267 $103,232 $148,075 $143,319
Weighted Average Interest Rate 8.36% 9.56% 10.53% 10.21%
LIABILITIES
Variable Rate Debt:
Bank Notes Payable $108,500 $108,500 $108,500
Weighted Average Interest Rate 2.58% 2.58%
Mortgage Notes Payable $ 378 $4,504 $4,882 $4,882
Weighted Average Interest Rate 3.28% 3.20% 3.21%
Fixed Rate Debt:
Senior Notes Payable $116,000 $31,000 $92,000 $231,000 $135,000 $159,230 $764,230 $788,168
Weighted Average Interest Rate 7.25% 7.09% 7.78% 6.79% 6.74% 8.09% 7.26%
Mortgage Notes Payable $345 $ 8,620 $ 9,848 $14,261 $147,066 $180,140 $182,567
Weighted Average Interest Rate 9.00% 8.52% 7.59% 8.77% 8.08% 8.13%
</TABLE>
We do not believe that the future market rate risks related to the above
securities will have a material impact on us or the results of our future
operations. Readers are cautioned that most of the statements contained in the
"Disclosures about Market Risk" paragraphs are forward looking and should be
read in conjunction with the disclosures under the heading "Cautionary Language
Regarding Forward Looking Statements" previously set forth.
New Pronouncements
See Note 19 to the Consolidated Financial Statements for a discussion of
our implementation of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No.141 "Business Combinations," No. 142 "Goodwill
and Other Intangible Assets," No. 143 "Accounting for Asset Retirement
Obligations," and No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".
-42-
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers were as follows on March 13, 2002:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------- ------ ------------------------------------------------------------------------
<S> <C> <C>
Kenneth B. Roath 66 Chairman, President and Chief Executive Officer
James G. Reynolds 50 Executive Vice President and Chief Financial Officer
Devasis Ghose 48 Senior Vice President - Finance and Treasurer
Edward J. Henning 49 Senior Vice President, General Counsel and Corporate Secretary
Stephen R. Maulbetsch 45 Senior Vice President - Acquisitions
</TABLE>
There is hereby incorporated by reference the information appearing under
the captions "Board of Directors and Officers" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Registrant's definitive
proxy statement relating to its Annual Meeting of Stockholders to be held on May
14, 2002.
Item 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information under the caption
"Executive Compensation" in the Registrant's definitive proxy statement relating
to its Annual Meeting of Stockholders to be held on May 14, 2002.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is hereby incorporated by reference the information under the
captions "Principal Stockholders" and "Board of Directors and Officers" in the
Registrant's definitive proxy statement relating to its Annual Meeting of
Stockholders to be held on May 14, 2002.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information under the caption
"Certain Transactions" and "Compensation Committee Interlocks and Insider
Participation" in the Registrant's definitive proxy statement relating to its
Annual Meeting of Stockholders to be held on May 14, 2002.
-43-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
a) Financial Statements:
1) Report of Independent Public Accountants
2) Financial Statements
Consolidated Balance Sheets - December 31, 2001 and 2000 Consolidated
Statements of Income - for the years ended December 31, 2001, 2000 and
1999
Consolidated Statements of Stockholders' Equity - for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - for the years ended December
31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Note: All schedules have been omitted because the required information
is presented in the financial statements and the related notes or
because the schedules are not applicable.
b) Reports on Form 8-K:
NONE
c) Exhibits:
3.1 Articles of Restatement of HCPI (incorporated herein by
reference to exhibit 3.1 of HCPI's quarterly report on Form
10-Q for the period ended June 30, 2001).
3.2 Second Amended and Restated Bylaws of HCPI (incorporated
herein by reference to exhibit 3.2 of HCPI's quarterly
report on form 10-Q for the period ended March 31, 1999).
3.3 Amendment No. 1 to Second Amended and Restated Bylaws of
HCPI.
4.1 Rights agreement, dated as of July 27, 2000, between Health
Care Property Investors, Inc. and the Bank of New York which
includes the form of Certificate of Designations of the
Series D Junior Participating Preferred Stock of Health Care
Property Investors, Inc. as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by
reference to exhibit 4.1 of Health Care Property Investors,
Inc.'s Current Report on Form 8-K dated July 28, 2000).
4.2 Indenture, dated as of September 1, 1993, between HCPI and
The Bank of New York, as Trustee, with respect to the Series
C and D Medium Term Notes, the Senior Notes due 2006 and the
Mandatory Par Put Remarketed Securities due 2015
(incorporated by reference to exhibit 4.1 to HCPI's
registration statement on Form S-3 dated September 9, 1993).
-44-
<PAGE>
4.3 Indenture, dated as of April 1, 1989, between HCPI and The
Bank of New York for Debt Securities (incorporated by
reference to exhibit 4.1 to HCPI's registration statement on
Form S-3 dated March 20, 1989).
4.4 Form of Fixed Rate Note (incorporated by reference to
exhibit 4.2 to HCPI's registration statement on Form S-3
dated March 20, 1989).
4.5 Form of Floating Rate Note (incorporated by reference to
exhibit 4.3 to HCPI's registration statement on Form S-3
dated March 20, 1989).
4.6 Registration Rights Agreement dated November 20, 1998
between HCPI and James D. Bremner (incorporated by reference
to exhibit 4.8 to HCPI's annual report on Form 10-K for the
year ended December 31, 1999). This exhibit is identical in
all material respects to two other documents except the
parties thereto. The parties to these other documents, other
than HCPI, were James P. Revel and Michael F. Wiley.
4.7 Registration Rights Agreement dated January 20, 1999 between
HCPI and Boyer Castle Dale Medical Clinic, L.L.C.
(incorporated by reference to exhibit 4.9 to HCPI's annual
report on Form 10-K for the year ended December 31, 1999).
This exhibit is identical in all material respects to 13
other documents except the parties thereto. The parties to
these other documents, other than HCPI, were Boyer
Centerville Clinic Company, L.C., Boyer Elko, L.C., Boyer
Desert Springs, L.C., Boyer Grantsville Medical, L.C.,
Boyer-Ogden Medical Associates, LTD., Boyer Ogden Medical
Associates No. 2, LTD., Boyer Salt Lake Industrial Clinic
Associates, LTD., Boyer-St. Mark's Medical Associates, LTD.,
Boyer McKay-Dee Associates, LTD., Boyer St. Mark's Medical
Associates #2, LTD., Boyer Iomega, L.C., Boyer Springville,
L.C., and - Boyer Primary Care Clinic Associates, LTD. #2.
4.8 Form of Deposit Agreement (including form of Depositary
Receipt with respect to the Depositary Shares, each
representing one-one hundredth of a share of our 8.60%
Cumulative Redeemable Preferred Stock, Series C)
(incorporated by reference to exhibit 4.8 to HCPI's
quarterly report on Form 10-Q for the period ended March 31,
2001) dated as of March 1, 2001 by and among HCPI, Wells
Fargo Bank Minnesota, N.A. and the holders from time to time
of the Depositary Shares described therein.
4.9 Indenture, dated as of January 15, 1997, between American
Health Properties, Inc. and The Bank of New York, as trustee
(incorporated herein by reference to exhibit 4.1 to American
Health Properties, Inc.'s current report on Form 8-K (file
no. 001-09381), dated January 21, 1997).
4.10 First Supplemental Indenture, dated as of November 4, 1999,
between HCPI and The Bank of New York, as trustee
(incorporated by reference to HCPI's quarterly report on
Form 10-Q for the period ended September 30, 1999).
4.11 Dividend Reinvestment and Stock Purchase Plan, dated
November 9, 2000 (incorporated by reference to exhibit 99.1
to HCPI's registration statement on Form S-3 dated November
13, 2000, registration number 333-49796).
4.12 Registration Rights Agreement dated August 17, 2001 between
HCPI, Boyer Old Mill II, L.C., Boyer-Research Park
Associates, LTD., Boyer Research Park Associates VII, L.C.,
Chimney Ridge, L.C., Boyer-Foothill Associates, LTD., Boyer
Research Park Associates VI, L.C., Boyer Stansbury II, L.C.,
Boyer Rancho Vistoso, L.C., Boyer-Alta View Associates,
LTD., Boyer Kaysville Associates, L.C., Boyer Tatum
Highlands Dental Clinic, L.C., Amarillo Bell Associates,
Boyer Evanston, L.C., Boyer Denver Medical, L.C., Boyer
Northwest Medical Center Two, L.C., and Boyer Caldwell
Medical, L.C.
-45-
<PAGE>
10.1 Amendment No. 1, dated as of May 30, 1985, to Partnership
Agreement of Health Care Property Partners, a California
general partnership, the general partners of which consist
of HCPI and certain affiliates of Tenet (incorporated by
reference to exhibit 10.1 to HCPI's annual report on Form
10-K for the year ended December 31, 1985).
10.2 HCPI Second Amended and Restated Directors Stock Incentive
Plan (incorporated by reference to exhibit 10.43 to HCPI's
quarterly report on Form 10-Q for the period ended March 31,
1997).*
10.3 HCPI Second Amended and Restated Stock Incentive Plan
(incorporated by reference to exhibit 10.44 to HCPI's
quarterly report on Form 10-Q for the period ended March 31,
1997).*
10.4 First Amendment to Second Amended and Restated Directors
Stock Incentive Plan, effective as of November 3, 1999
(incorporated by reference to exhibit 10.1 to HCPI's
quarterly report on Form 10-Q for the period ended September
30, 1999).*
10.5 Second Amendment to Second Amended and Restated Directors
Stock Incentive Plan, effective as of January 4, 2000
(incorporated by reference to exhibit 10.15 to HCPI's annual
report on Form 10-K for the year ended December 31, 1999).*
10.6 First Amendment to Second Amended and Restated Stock
Incentive Plan effective as of November 3, 1999
(incorporated by reference to exhibit 10.3 to HCPI's
quarterly report on Form 10-Q for the period ended September
30, 1999).*
10.7 HCPI 2000 Stock Incentive Plan, effective as of March 23,
2000.*
10.8 HCPI Second Amended and Restated Directors Deferred
Compensation Plan (incorporated by reference to exhibit
10.45 to HCPI's quarterly report on Form 10-Q for the period
ended September 30, 1997).*
10.9 Second Amendment to Second Amended and Restated Directors
Deferred Compensation Plan, effective as of November 3, 1999
(incorporated by reference to exhibit 10.2 to HCPI's
quarterly report on Form 10-Q for the period ended September
30, 1999).
10.10 Fourth Amendment to Second Amended and Restated Director
Deferred Compensation Plan, effective as of January 4, 2000
(incorporated by reference to exhibit 10.17 to HCPI's annual
report on Form 10-K for the year ended December 31, 1999).*
10.11 Employment Agreement dated October 13, 2000 between HCPI
and Kenneth B. Roath (incorporated by reference to exhibit
10.11 to HCPI's annual report on Form 10-K for the year
ended December 31, 2000).*
10.12 Various letter agreements, each dated as of October 16,
2000, among HCPI and certain key employees of the Company
(incorporated by reference to exhibit 10.12 to HCPI's annual
report on Form 10-K for the year ended December 31, 2000).*
10.13 HCPI Amended and Restated Executive Retirement Plan.*
10.14 Stock Transfer Agency Agreement between HCPI and The Bank
of New York dated as of July 1, 1996 (incorporated by
reference to exhibit 10.40 to HCPI's quarterly report on
Form 10-Q for the period ended September 30, 1996).
10.15 Amended and Restated Limited Liability Company Agreement
dated November 20, 1998 of HCPI/Indiana, LLC (incorporated
by reference to
-46-
<PAGE>
exhibit 10.15 to HCPI's annual report on Form 10-K for the
year ended December 31, 1998).
10.16 Amended and Restated Limited Liability Company Agreement
dated January 20, 1999 of HCPI/Utah, LLC (incorporated by
reference to exhibit 10.16 to HCPI's annual report on Form
10-K for the year ended December 31, 1998).
10.17 Revolving Credit Agreement, dated as of November 3, 1999,
among HCPI, each of the banks identified on the signature
pages hereof, The Bank of New York, as agent for the banks
and as issuing bank, and Bank of America, N.A. and Wells
Fargo Bank, N.A., as co-documentation agents, with BNY
Capital Markets, Inc., as lead arranger and Book Manager
(incorporated by reference to exhibit 10.4 to HCPI's
quarterly report on Form 10-Q for the period ended
September 30, 1999).
10.18 364-Day Revolving Credit Agreement, dated as of November 3,
1999 among HCPI, each of the banks identified on the
signature pages hereof, The Bank of New York, as agent for
the banks, and Bank of America, N.A. and Wells Fargo Bank,
N.A., as co-documentation agents, with BNY Capital Markets,
Inc., as lead arranger and book manager (incorporated by
reference to exhibit 10.5 to HCPI's quarterly report on
Form 10-Q for the period ended September 30, 1999).
10.19 Cross-Collateralization, Cross-Contribution and
Cross-Default Agreement, dated as of July 20, 2000, by HCP
Medical Office Buildings II, LLC, and Texas HCP Medical
Office Buildings, L.P., for the benefit of First Union
National Bank (incorporated by reference to exhibit 10.20
to HCPI's annual report on Form 10-K for the year ended
December 31, 2000).
10.20 Cross-Collateralization, Cross-Contribution and
Cross-Default Agreement, dated as of August 31, 2000, by
HCP Medical Office Buildings I, LLC, and Meadowdome, LLC,
for the benefit of First Union National Bank (incorporated
by reference to exhibit 10.21 to HCPI's annual report on
Form 10-K for the year ended December 31, 2000).
10.21 Amended and Restated Limited Liability Company Agreement
dated August 17, 2001 of HCPI/Utah II, LLC.
10.22 First Amendment to Amended and Restated Limited Liability
Company Agreement dated October 30, 2001 of HCPI/Utah II,
LLC.
10.23 Amendment No. 1, dated as of October 29, 2001, to the
364-Day Revolving Credit Agreement, dated as of November 3,
1999 among HCPI, each of the banks identified on the
signature pages thereto, The Bank of New York, as agent for
the banks, and Bank of America, N.A. and Wells Fargo Bank,
NA., as co-documentation agents, with BNY Capital Markets,
Inc., as lead arranger and book manager.
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountant
* Management Contract or Compensatory Plan or Arrangement.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statement on Form S-8
No.s 33-28483 and 333-90353 filed May 11, 1989 and November 5, 1999,
respectively, and Form S-8 No.s 333-54786 and 333-54784 each filed February 1,
2001.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 13, 2002
HEALTH CARE PROPERTY INVESTORS, INC.
(Registrant)
/S/ Kenneth B. Roath
-----------------------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Signature and Title
- ---- -------------------
March 13, 2002 /S/ Kenneth B. Roath
--------------------------------------------
Kenneth B. Roath, Chairman of the Board of
Directors, President and Chief Executive
Officer (Principal Executive Officer)
March 13, 2002 /S/ James G. Reynolds
--------------------------------------------
James G. Reynolds, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
March 13, 2002 /S/ Devasis Ghose
--------------------------------------------
Devasis Ghose, Senior Vice President-
Finance and Treasurer (Principal Accounting
Officer)
-48-
<PAGE>
March 13, 2002 /S/ Paul V. Colony
--------------------------------------------
Paul V. Colony, Director
March 13, 2002 /S/ Robert R. Fanning
--------------------------------------------
Robert R. Fanning, Jr., Director
March 13, 2002 /S/ Michael D. McKee
-----------------------------------
Michael D. McKee, Director
March 13, 2002 /S/ Orville E. Melby
--------------------------------------------
Orville E. Melby, Director
March 13, 2002 /S/ Harold M. Messmer, Jr.
-----------------------------------
Harold M. Messmer, Jr., Director
March 13, 2002 /S/ Peter L. Rhein
--------------------------------------------
Peter L. Rhein, Director
March 13, 2002 /S/ Warren E. Spieker, Jr.
-----------------------------------
Warren E. Spieker, Jr., Director
-49-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets - as of December 31, 2001 and 2000 F-3
Consolidated Statements of Income -
for the years ended December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity -
for the years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows -
for the years ended December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7 -- F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Health Care Property Investors, Inc.:
We have audited the accompanying consolidated balance sheets of Health Care
Property Investors, Inc. (a Maryland corporation) as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Health Care
Property Investors, Inc. as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
/S/ ARTHUR ANDERSEN LLP
Orange County, California
January 21, 2002
F-2
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except par values)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
2001 2000
----------------- ----------------
<S> <C> <C>
ASSETS
Real Estate Investments:
Buildings and Improvements $2,267,030 $2,140,591
Accumulated Depreciation (339,971) (287,719)
----------------- ----------------
1,927,059 1,852,872
Construction in Progress 11,616 ---
Land 255,881 247,637
----------------- ----------------
2,194,556 2,100,509
Loans Receivable, Net 176,286 187,237
Investments in and Advances to Joint Ventures 21,750 22,615
Accounts Receivable, Net of Allowance for Doubtful Accounts of
$4,270 and $1,504 as of December 31, 2001 and 2000 20,940 16,341
Other Assets 9,213 9,527
Cash and Cash Equivalents 8,408 58,623
----------------- ----------------
TOTAL ASSETS $2,431,153 $2,394,852
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable $ 108,500 $ 204,500
Senior Notes Payable 764,230 777,514
Mortgage Notes Payable 185,022 176,914
Accounts Payable, Accrued Expenses and Deferred Income 56,709 57,097
Minority Interests in Joint Ventures 13,767 14,709
Minority Interests Convertible into Common Stock 56,201 24,835
Stockholders' Equity:
Preferred Stock, $1.00 par value: Authorized - 50,000,000 shares;
11,721,600 shares outstanding as of
December 31, 2001 and 2000 274,487 274,487
Common Stock, $1.00 par value; 200,000,000
shares authorized; 56,386,868 and 50,873,902
outstanding as of December 31, 2001 and 2000 56,387 50,874
Additional Paid-In Capital 1,100,743 927,182
Other Equity (7,948) (5,272)
Cumulative Net Income 883,084 761,918
Cumulative Dividends (1,060,029) (869,906)
----------------- ----------------
Total Stockholders' Equity 1,246,724 1,139,283
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,431,153 $2,394,852
================= ================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-3
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
2001 2000 1999
-------------- ------------- --------------
<S> <C> <C> <C>
REVENUE
Rental Income, Triple Net Leases $ 226,510 $ 227,012 $ 143,848
Rental Income, Managed Properties 84,092 79,818 55,722
Interest and Other Income 21,858 22,977 25,223
-------------- ------------- --------------
332,460 329,807 224,793
-------------- ------------- --------------
EXPENSES
Interest Expense 78,489 86,747 58,458
Real Estate Depreciation 84,098 72,590 44,789
Managed Properties Operating Expenses 30,105 27,738 18,240
General and Administrative Expenses 13,239 13,266 11,908
Impairment of Equity Investment --- 2,000 ---
-------------- ------------- --------------
205,931 202,341 133,395
-------------- ------------- --------------
INCOME FROM OPERATIONS 126,529 127,466 91,398
Minority Interests (6,595) (5,729) (5,476)
Gain on Sale of Real Estate Properties, Net 1,232 11,756 10,303
-------------- ------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEMS 121,166 133,493 96,225
Extraordinary Item-Gain on Extinguishment of Debt --- 274 ---
-------------- ------------- --------------
NET INCOME 121,166 133,767 96,225
Dividends to Preferred Stockholders 24,900 24,900 17,775
-------------- ------------- --------------
NET INCOME APPLICABLE TO COMMON SHARES $ 96,266 $ 108,867 $ 78,450
============== ============= ==============
BASIC EARNINGS PER COMMON SHARE $ 1.79 $ 2.13 $ 2.25
============== ============= ==============
DILUTED EARNINGS PER COMMON SHARE $ 1.78 $ 2.13 $ 2.25
============== ============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC) 53,879 51,057 34,792
============== ============= ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-4
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------ ---------------------------
Number Par Additional Total
Number of of Value Paid-In Cumulative Cumulative Other Stockholders'
Shares Amount Shares Amount Capital Net Income Dividends Equity Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1998 7,785 $187,847 30,987 $30,987 $433,309 $531,926 $(588,650) $(4,285) $591,134
Issuances of Preferred Stock, 4,000 88,160 88,160
Net
Issuances of Common Stock, Net 20,488 20,488 508,382 528,870
Exercise of Stock Options 5 5 88 93
Net Income 96,225 96,225
Stock Repurchase (40) (966) (59) (59) (1,308) (2,333)
Dividends Paid - Preferred (17,775) (17,775)
Shares
Dividends Paid - Common Shares (88,402) (88,402)
Deferred Compensation (218) (218)
Notes Receivable From Officers (92) (92)
- ----------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1999 11,745 275,041 51,421 51,421 940,471 628,151 (694,827) (4,595) 1,195,662
Issuances of Common Stock, Net 75 75 2,093 2,168
Exercise of Stock Options 55 55 1,383 1,438
Net Income 133,767 133,767
Stock Repurchase (23) (554) (677) (677) (16,765) (17,996)
Dividends Paid - Preferred (24,900) (24,900)
Shares
Dividends Paid - Common Shares (150,179) (150,179)
Deferred Compensation (487) (487)
Notes Receivable From Officers (190) (190)
- ----------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 2000 11,722 274,487 50,874 50,874 927,182 761,918 (869,906) (5,272) 1,139,283
Issuances of Common Stock, Net 4,927 4,927 159,345 164,272
Exercise of Stock Options 586 586 14,216 14,802
Net Income 121,166 121,166
Dividends Paid - Preferred (24,900) (24,900)
Shares
Dividends Paid - Common Shares (165,223) (165,223)
Deferred Compensation (1,026) (1,026)
Notes Receivable From Officers (510) (510)
Other Comprehensive Income/(Loss):
Accumulated Comprehensive
Loss (See Note 2) (1,140) (1,140)
- ----------------------------------------------------------------------------------------------------------------------------
Balances,
December 31, 2001 11,722 $274,487 56,387 $56,387 $1,100,743 $883,084 $(1,060,029) $(7,948) $1,246,724
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
2001 2000 1999
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 121,166 $ 133,767 $ 96,225
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Real Estate Depreciation 84,098 72,590 44,789
Non Cash Charges 4,282 4,028 3,071
Joint Venture Adjustments 243 1,917 1,584
Gain on Sale of Real Estate Properties (1,232) (11,756) (10,303)
Gain on Extinguishment of Debt --- (274) ---
Changes in:
Operating Assets (3,686) (1,036) (5,866)
Operating Liabilities (4,023) 6,275 (5,383)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 200,848 205,511 124,117
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate (155,329) (21,558) (160,681)
Acquisition of American Health Properties, Net Cash Expended --- --- (80,071)
Proceeds from Sale of Real Estate Properties 29,303 81,022 46,098
Other Investments and Loans 7,863 4,250 (35,806)
------------- ------------- -------------
NET CASH (USED IN)/ PROVIDED BY INVESTING ACTIVITIES (118,163) 63,714 (230,460)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Bank Notes Payable (96,000) (11,000) 127,500
Repayment of Senior Notes (14,000) (10,000) (15,000)
Issuance of Senior Notes --- 24,865 62,000
Issuance of Secured Debt --- 83,000 ---
Cash Proceeds from Issuing Common Stock 176,310 1,438 31,969
Increase/(Decrease) in Minority Interests 546 (522) 17,182
Periodic and Final Payments on Mortgages (10,416) (3,815) (2,889)
Repurchase of Common and Preferred Stock --- (17,819) (2,333)
Repurchase of Convertible Subordinated Notes Payable --- (99,651) ---
Dividends Paid (190,123) (175,079) (106,177)
Other Financing Activities 783 (9,715) (2,717)
------------- ------------- -------------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (132,900) (218,298) 109,535
------------- ------------- -------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (50,215) 50,927 3,192
Cash and Cash Equivalents, Beginning of Period 58,623 7,696 4,504
------------- ------------- -------------
Cash and Cash Equivalents, End of Period $ 8,408 $ 58,623 $ 7,696
============= ============= =============
ADDITIONAL CASH FLOW DISCLOSURES:
Interest Paid, Net of Capitalized Interest $ 80,160 $ 85,907 $ 55,127
============= ============= =============
Capitalized Interest $ 243 $ 514 $ 1,223
============= ============= =============
Mortgages Assumed on Acquired Properties exclusive of AHE Merger $ 18,569 $ $ 42,896
============= ============= =============
Equity Issued in Acquisition of Properties exclusive of AHE Merger $ 30,730 $ --- $ 969
============= ============= =============
Equity Issued in AHE Merger $ --- $ --- $ 585,154
============= ============= =============
Fair Value of AHE Assets Acquired $ --- $ --- $ 967,181
============= ============= =============
Liabilities Assumed in AHE Acquisition $ --- $ --- $ 298,911
============= ============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-6
<PAGE>
HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Health Care Property Investors, Inc., a Maryland corporation, was organized
in March 1985 to qualify as a real estate investment trust (REIT). Health Care
Property Investors, Inc. and its affiliated subsidiaries and partnerships (HCPI)
were organized to invest in health care related properties located throughout
the United States. As of December 31, 2001, we own or have investments in 429
properties located in 42 states. The properties include 176 long-term care
facilities, 94 congregate care and assisted living centers, 86 medical office
buildings (MOBs), 37 physician group practice clinics, 21 acute care hospitals,
nine freestanding rehabilitation hospitals and six health care laboratory and
biotech research facilities. As of December 31, 2001, we provided mortgage loans
on or leased these properties to 93 health care operators and to approximately
650 tenants in the managed portfolio (defined in the following text).
(2) SIGNIFICANT ACCOUNTING POLICIES
Rental And Interest Income:
Rental Income includes base and additional rental income. Additional rental
income is generated by a percentage of increased revenue over specified base
period revenue of the properties and/or increases based on inflation indices or
other factors. In addition, we may receive payments from lessees upon transfer
or assignment of existing leases; such amounts received are deferred and
amortized over the remaining term of the leases.
We have certain leases and mortgages that have contractual fixed increases
in rents and interest. We record straight-line rents and interest in cases where
we believe such rents and interest are sustainable.
During 2000, we adopted the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in Financial
Statements". Under SAB 101, we are required to defer income recognition of
additional rents that are based on facility revenue increases until an annual
(rather than quarterly) contractual facility revenue hurdle is exceeded. Due to
our current lease structures, SAB 101 will delay the recognition of certain
additional rents from the first quarter of a year to subsequent quarters of the
year. We previously followed the practice of estimating and applying rents
ratably throughout each of the quarters. SAB 101 had no impact on our results of
operations for the year ended December 31, 2001 and had a minor impact in
reducing income by $300,000 in our results of operations for the year ended
December 31, 2000.
Managed Property Operations:
We have ownership interests in 68 MOBs, 27 physician group practice clinics
and six health care laboratory and biotech research facilities which are managed
by independent property management companies on our behalf. These facilities are
leased to multiple tenants under gross, modified gross or triple net leases.
Both operating income and rental income (other than basic rental income
attributable to these properties) are recorded under Rental Income, Managed
Properties in our
F-7
<PAGE>
financial statements. Expenses related to the operation of these facilities are
recorded as Managed Properties Operating Expenses.
Real Estate:
We record the acquisition of real estate at cost and use the straight-line
method of depreciation for buildings and improvements over estimated useful
lives ranging up to 45 years. We periodically evaluate our investments in real
estate for potential impairment by comparing our investment to the expected
future cash flows to be generated from the properties. If such impairments were
to occur, we would write-down our investment in the property to estimated market
value. In addition, certain of our investments are in the process of being sold.
In instances where the expected sales price is projected to be less than the net
investment we will write-down our investment in the property to market value.
Acquisition, development and construction arrangements are accounted for as real
estate investments/joint ventures or loans based on the characteristics of the
arrangements.
Investments In Consolidated Subsidiaries And Partnerships:
We consolidate the accounts of our subsidiaries and certain general and
limited partnerships which are majority owned and controlled. All significant
intercompany investments, accounts and transactions have been eliminated.
Investments In And Advances To Joint Ventures:
We have investments in certain general partnerships and joint ventures (see
Note 6 following) in which we may serve as the general partner or managing
member. However, since the other members in these joint ventures have
significant voting rights relative to acquisition, sale and refinancing of
assets, we account for these investments using the equity method of accounting.
The accounting policies of these joint ventures are substantially consistent
with those of HCPI.
Federal Income Taxes:
We have operated at all times so as to qualify as a REIT under Sections 856
to 860 of the Internal Revenue Code of 1986. As such, we are not taxed on our
income that is distributed to stockholders. At December 31, 2001, the tax basis
of our net assets and liabilities is less than the reported amounts by
approximately $216,000,000. The majority of this difference is attributable to
the merger of American Health Properties, Inc. in 1999, wherein, for reporting
purposes the assets are recordable at fair market value while tax bases remain
at historical cost. Additional variances are caused by accelerated depreciation
for tax assets and differences in tax basis value versus fair market value in
three limited liability companies which are consolidated (and where we are the
managing member).
Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income for financial statements due to the
treatment required under the Internal Revenue Code of certain interest income
and expense items, depreciable lives, bases of assets and timing of rental
income.
Derivatives And Hedging:
F-8
<PAGE>
During 1999, we entered into a $25,000,000 swap contract through which the
variable interest rate on a senior note is fixed until its February 2004
maturity. Pursuant to Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (Statement 133), which is applicable as of 2001, this
swap is recorded as a cash flow hedge. The swap qualifies for the short-cut
method under Statement 133 as the notional and principal amount are the same,
the fair value of the swap at inception is zero, net settlements under the swap
are based on the same index at each settlement date, the interest bearing
liability is not prepayable (as defined), and there are no other terms of the
hedged item or interest rate swap that would invalidate the assumption of
effectiveness. As such, we have reflected the unrealized loss based on the
change in fair market value of $1,140,000 as of December 31, 2001 as an
accumulated comprehensive loss (see Note 12), which is recorded under Other
Equity on the face of the balance sheet. If the note is held to maturity, the
unrealized loss will not be incurred. Prior to December 31, 2001, the fair
market value was considered immaterial.
Statement 133 established accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. Additionally, changes in the derivative's
fair value are recognized as comprehensive income if specific hedge accounting
criteria are met. If these criteria are not met, changes in the fair value are
to be included in earnings.
Cash And Cash Equivalents:
Investments purchased with original maturities of three months or less are
considered to be cash and cash equivalents.
Use Of Estimates In The Preparation Of Financial Statements:
Management is required to make estimates and assumptions in the preparation
of financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions 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 expense during
the reporting period. Actual results could differ from those estimates.
Reclassification:
Reclassifications have been made for comparative financial statement
presentation.
(3) REAL ESTATE INVESTMENTS
HCPI was organized to make long-term, equity-oriented investments
principally in operating, income-producing health care related properties. Our
equity investments have generally been structured as land and building
leasebacks.
Under the terms of the lease agreements, we earn fixed monthly base rental
income and may earn periodic additional rental income. At December 31, 2001,
minimum future rental income from 364 properties with non-cancelable operating
leases is expected to be approximately $269,918,000 in 2002, $260,877,000 in
2003, $207,134,000 in 2004, $184,531,000 in 2005, $171,495,000 in 2006 and
$722,932,000 in the aggregate thereafter.
F-9
<PAGE>
Investments:
During the year ended December 31, 2001, we completed the following
investment activity:
Acquisition Transactions $190,000,000
Facilities Under Construction 40,300,000
Mortgage Loans 10,000,000
--------------
Total Investments $240,300,000
==============
The $190,000,000 in acquisitions was comprised of 27 properties, including
eight skilled nursing facilities, eight medical office buildings, five health
care laboratory and biotech research facilities and six congregate care and
assisted living facilities. Facilities under construction include a $28,000,000
short stay hospital and medical office building and a $12,300,000 health care
laboratory and biotech research facility. At December 31, 2001, we had funded
$10,800,000 for construction of these facilities.
In September 2001, we invested $10,000,000 in a participation to fund three
loans each secured by an assisted living facility. One facility was sold in
November 2001 and $7,400,000 of our initial investment was repaid to us.
Total investments for 2001 include the first two phases of a $126,000,000
commitment to acquire 12 medical office buildings and six health care laboratory
and biotech research facilities from entities controlled by The Boyer Company.
The facilities are being acquired through HCPI/Utah II, LLC, a limited liability
company of which we are the managing member. The initial phase in August
included four medical office buildings and five health care laboratory and
biotech research facilities for $73,500,000, as well as the initial funding of
approximately $2,100,000 for the construction of a $12,300,000 health care
laboratory and biotech research facility. In October 2001, we acquired two
medical office buildings for $7,500,000. Funding for the first two phases
included the assumption of $18,600,000 in secured debt, the issuance of
approximately $28,000,000 of equity in the form of 801,681 non-managing member
units in HCPI/Utah II, LLC and the contribution of $36,500,000 in cash. The
non-managing member interests in HCPI/Utah II, LLC, which are recorded under
Minority Interests Convertible into Common Stock, are convertible into our
common stock on a one-for-one basis. Additional closings will occur as buildings
are constructed over the next two years. Future closings will be financed with
cash and the issuance of equity in the form of additional non-managing member
units.
During 2001, we acquired two medical office buildings which represented the
final phase of a commitment commenced in 1998 to acquire facilities from
entities controlled by The Boyer Company. The two medical office buildings were
acquired through HCPI/Utah, LLC, a limited liability company of which we are the
managing member. Funding for the acquisition of the two medical office buildings
consisted of the issuance of 84,922 non-managing member units in HCPI/Utah, LLC.
Funding for the acquisition of all 18 facilities consisted of the issuance of
756,069 non-managing member units in HCPI/Utah, LLC. These units, which are
recorded under Minority Interests Convertible into Common Stock, are convertible
into our common stock on a one-for-one basis.
In addition, during 2000 we purchased the equity interest of our joint
venture partner in three LLCs which owned seven long-term care facilities.
Through this acquisition, real estate assets increased by approximately
$18,326,000 and the investment in joint ventures was reduced.
F-10
<PAGE>
Dispositions:
During 2001 we sold 13 facilities resulting in a net gain of $1,232,000.
During 2000 we sold 15 facilities and two land parcels, resulting in a net gain
of $11,756,000. In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," we wrote down to net realizable value 13 facilities
during 2001 and four facilities during 2000 that will be or have been sold. The
resulting $13,640,000 and $2,751,000 charges are included in Real Estate
Depreciation for the years ended December 31, 2001 and 2000, respectively.
F-11
<PAGE>
The following tabulation lists HCPI's total real estate investments at
December 31, 2001 (Dollar amounts in thousands):
<TABLE>
<CAPTION>
Number Mortgage Notes
of Buildings & Total Accumulated Payable
Facility Location Facilities Land Improvements Investments Depreciation (Note 8)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM CARE FACILITIES
Arizona 3 $ 809 $ 9,746 $ 10,555 $ 767 $ ---
Arkansas 6 209 8,233 8,442 3,476 ---
California 13 5,609 21,735 27,344 14,295 ---
Colorado 5 1,891 20,588 22,479 7,150 ---
Florida 9 6,609 28,402 35,011 9,382 ---
Indiana 30 5,505 135,566 141,071 19,503 ---
Kansas 3 788 10,547 11,335 4,315 ---
Maryland 3 1,287 20,755 22,042 8,276 ---
Massachusetts 5 1,587 15,293 16,880 10,356 ---
Michigan 3 451 9,896 10,347 2,220 ---
North Carolina 6 1,342 19,216 20,558 6,327 2,562
Ohio 12 2,365 53,211 55,576 13,845 662
Oklahoma 12 2,368 25,803 28,171 4,329 ---
Tennessee 13 1,807 59,486 61,293 15,017 ---
Texas 5 736 10,200 10,936 3,137 ---
Wisconsin 6 1,147 17,649 18,796 8,451 ---
Other (15 States) 18 6,620 59,849 66,469 16,574 1,867
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Care Facilities 152 41,130 526,175 567,305 147,420 5,091
- ------------------------------------------------------------------------------------------------------------------------------
ACUTE CARE HOSPITALS
California 4 36,836 190,438 227,274 19,799 ---
Texas 3 1,640 19,931 21,571 2,091 ---
Other (8 States) 11 22,987 324,597 347,584 27,792 ---
- ------------------------------------------------------------------------------------------------------------------------------
Total Acute Care Hospitals 18 61,463 534,966 596,429 49,682 ---
- ------------------------------------------------------------------------------------------------------------------------------
CONGREGATE CARE AND ASSISTED LIVING CENTERS
California 7 3,240 34,140 37,380 3,144 ---
Florida 9 4,992 30,948 35,940 3,897 ---
Louisiana 3 1,280 16,095 17,375 2,004 ---
New Jersey 4 1,619 20,098 21,717 2,709 ---
Pennsylvania 3 515 17,207 17,722 3,433 ---
South Carolina 9 1,674 39,247 40,921 6,100 ---
Texas 21 6,008 85,797 91,805 12,095 ---
Washington 3 844 11,530 12,374 1,805 ---
Other (18 States) 24 12,158 128,924 141,082 17,502 ---
- ------------------------------------------------------------------------------------------------------------------------------
Total Congregate Care and Assisted Living Centers 83 32,330 383,986 416,316 52,689 ---
- ------------------------------------------------------------------------------------------------------------------------------
REHABILITATION HOSPITALS
Arizona 1 1,565 7,071 8,636 2,099 ---
Arkansas 2 1,409 19,566 20,975 3,199 ---
Colorado 1 690 8,346 9,036 2,175 ---
Florida 1 2,000 11,269 13,269 6,560 ---
Kansas 2 3,816 23,232 27,048 3,980 ---
Texas 1 1,990 13,123 15,113 5,265 ---
West Virginia 1 --- 14,400 14,400 895 ---
- ------------------------------------------------------------------------------------------------------------------------------
Total Rehabilitation Hospitals 9 $ 11,470 $ 97,007 $ 108,477 $ 24,173 $ ---
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
<TABLE>
Number
of Buildings & Total Accumulated Mortgage Notes
Facility Location Facilities Land Improvements Investments Depreciation Payable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MEDICAL OFFICE BUILDINGS
Arizona 9 $ 3,235 $ 45,014 $ 48,249 $ 2,360 $ 6,643
California 11 26,041 92,476 118,517 13,032 34,307
Florida 5 800 17,514 18,314 1,109 3,525
Indiana 13 13,590 59,167 72,757 5,179 4,337
Massachusetts 1 1,500 23,992 25,492 1,492 13,476
New Jersey 2 3,675 26,794 30,469 1,757 13,000
Texas 11 9,999 92,893 102,892 11,478 31,080
Utah 19 7,528 99,560 107,088 7,120 13,816
Other (11 States) 13 7,382 112,551 119,933 9,064 45,744
- ------------------------------------------------------------------------------------------------------------------------------
Total Medical Office Buildings 84 73,750 569,961 643,711 52,591 165,928
- ------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE LABORATORY AND
BIOTECH RESEARCH FACILITIES
Utah 6 2,335 51,775 54,110 408 13,625
- ------------------------------------------------------------------------------------------------------------------------------
Total Health Care Laboratory and
Biotech Research Facilities 6 2,335 51,775 54,110 408 13,625
- ------------------------------------------------------------------------------------------------------------------------------
PHYSICIAN GROUP PRACTICE CLINICS
California 2 8,070 37,693 45,763 4,765 ---
Florida 9 7,600 14,625 22,225 1,540 ---
Georgia 3 2,100 6,381 8,481 765 ---
North Carolina 2 2,400 3,553 5,953 370 ---
Tennessee 4 2,695 13,609 16,304 1,905 378
Texas 4 1,900 12,179 14,079 1,246 ---
Wisconsin 7 5,225 18,546 23,771 1,588 ---
Other (3 States) 6 2,800 8,190 10,990 829 ---
- ------------------------------------------------------------------------------------------------------------------------------
Total Physician Group Practice Clinics 37 32,790 114,776 147,566 13,008 378
- ------------------------------------------------------------------------------------------------------------------------------
Vacant Land Parcels --- 613 --- 613 --- ---
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED REAL ESTATE OWNED 389 255,881 2,278,646 2,534,527 339,971 185,022
- ------------------------------------------------------------------------------------------------------------------------------
Joint Venture Investments,
Including All Partners' Assets (See Note 6) 10 --- --- 33,404 --- ---
Leasehold Interest (See Note 7) --- --- --- 13,500 --- ---
Financing Leases (See Note 7) 2 --- --- 8,192 --- ---
Mortgage Loans Receivable (See Note 7) 28 --- --- 148,075 --- ---
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO 429 $ 255,881 $ 2,278,646 $ 2,737,698 $ 339,971 $ 185,022
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
(4) OPERATORS
Major Operators:
Listed below are our major operators which represent three percent or more
of our revenue, the investment in properties operated by those operators, and
the percentage of total annualized revenue from these operators for the years
ended December 31, 2001, 2000 and 1999. All of the companies listed below (with
the exception of Centennial Healthcare Corp.) are publicly traded companies and
are subject to the informational filing requirements of the Securities and
Exchange Act of 1934, as amended, and accordingly file periodic financial
statements on Form 10-K and Form 10-Q with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Percentage of Annualized
Total Revenue
Investment at Year Ended December 31,
December 31, 2001 2001 2000 1999
------------------------- --------- ---------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Tenet Healthcare Corporation (Tenet) $ 459,773 18% 19% 18%
HealthSouth Corporation (HealthSouth) 108,477 6 6 5
Kindred Healthcare, Inc. (Kindred) 94,576 5 5 4
Emeritus Corporation (Emeritus) 140,994 5 5 5
HCA, Inc. (HCA) 80,175 5 4 5
Beverly Enterprises, Inc. (Beverly) 90,265 3 4 4
Centennial Healthcare Corp. 54,670 3 3 3
----------------- --------- ---------- ---------
$1,028,930 45% 46% 44%
================= ========= ========== =========
</TABLE>
Certain properties have been subleased or assigned to other operators but
with the original lessee remaining liable on the leases. The investment and
revenue applicable to these subleased properties are not included in the table
above. The percentage of annualized revenue on these subleased facilities was
1%, 1% and 2% in 2001, 2000 and 1999, respectively.
Kindred Healthcare, Inc. (formerly Vencor, Inc.):
We have negotiated a new lease with Kindred Healthcare, Inc. ("Kindred")
for 22 facilities whose leases were scheduled originally to expire in August
2001. For lease renewal purposes, the facilities comprise three groups with
maturities of nine, ten, and eleven years. The annual rent on these facilities
has increased by $3,300,000 to $16,100,000 in the first lease year. Ten
additional facilities were originally leased to Kindred. Of those ten, six have
been leased directly to former Kindred sublessees or third parties for lower
rents to us of an estimated $200,000 annually, three have been subsequently
sold, and one is being considered for lease to a third party.
Troubled Long-Term Care and Assisted Living Operators:
We derive 27% of our income from the long-term care industry. A slowing
economy with lower labor costs, greater availability of nursing aides, less
labor turnover and lower interest costs is expected to continue to improve
nursing home operations, tempered in part by increased liability insurance costs
and lower increases in government reimbursement. While certain long-term care
operators and facilities continue to experience operating problems in part due
to low levels of
F-14
<PAGE>
Medicaid reimbursements in certain states, many others have shown improvement.
However, if the most recent Medicare reimbursement increase is not extended
beyond October 1, 2002 and various states institute Medicaid rate cuts to reduce
budget shortfalls, some operators may again begin feeling the strain of
inadequate reimbursement. Several long-term care facility operators, including
Kindred and Genesis Health Ventures, two of our lessees, have successfully
emerged from bankruptcy proceedings. In addition, two other large long-term care
operators and lessees, Sun Healthcare, which has recently received approval for
its reorganization plan, and Mariner Healthcare which has submitted its plan for
reorganization, may exit bankruptcy during the first half of 2002.
The assisted living industry, from which we derive 15% of our revenue, has
been challenged by overbuilding in certain areas, slower than projected fill-up
rates, margin pressure from lower than projected rents and shortage of capital.
Development activity has slowed and there is improving census in a number of
communities. Various assisted living companies continue their efforts to
restructure their capital, debt and lease structures, while new operators are
emerging in the market with new capital for selective investment.
We cannot assure you that the bankruptcies of certain long-term care
operators and the trouble experienced by assisted living operators will not have
a material adverse effect on our Net Income, FFO or the market value of our
common stock.
(5) BUSINESS COMBINATION
On November 4, 1999, American Health Properties, Inc. (AHE) merged with and
into HCPI (the "Merger") in a stock-for-stock transaction. The Merger resulted
in the issuance of approximately 19,430,115 shares of HCPI's common stock and
4,000,000 depositary shares of our series C cumulative redeemable preferred
stock. Additionally, upon consummation of the Merger, we assumed AHE's debt
comprised of $220 million of senior notes and $56 million of mortgage debt, and
paid $71 million in cash to replace its revolving line of credit.
The transaction was treated as a purchase for financial accounting purposes
and, accordingly, the operating results of AHE have been included in our
consolidated financial statements effective as of November 4, 1999. The
following summarizes the final purchase price (in thousands):
Equity Issued $585,154
AHE Liabilities Assumed 298,911
Bank Credit Facility Balance Assumed 71,000
Cash 12,116
-----------
Total Purchase Price $967,181
===========
Pro Forma Financial Information (Unaudited):
The following unaudited pro forma consolidated statements of income
information present the results of our operations for the year ended December
31, 1999 as though the acquisition of AHE had occurred as of the beginning of
1999:
(Dollar amounts in thousands except per share amounts)
Total Revenues $319,818
Net Income Applicable to Common Shares $169,546
Earnings Per Share
F-15
<PAGE>
Basic $3.32
Diluted $3.26
Pro Forma Net Income applicable to common shares and earnings per basic and
diluted share include $65,189,000 or $1.27 and $1.19 per share in 1999 for Gain
on the Sale of Real Estate.
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the fiscal year or the results that
may occur in the future. The pro forma results include additional interest on
borrowed funds, increased depreciation and decreases in amortization expense
associated with changes in fair value of the AHE depreciable property and other
intangible assets and a reduction in general and administrative expenses.
(6) INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
We have an 80% interest in five joint ventures that lease six long-term
care facilities and a 45%-50% interest in four joint ventures that each operate
an assisted living facility. Since the other members in these joint ventures
have significant voting rights relative to acquisition, sale and refinancing of
assets, we account for these investments using the equity method of accounting.
Combined summarized unaudited financial information of the joint ventures
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
2001 2000
-------------- --------------
(Amounts in thousands)
<S> <C> <C>
Real Estate Investments, Net $ 35,691 $ 37,604
Other Assets 2,770 2,136
------------- --------------
Total Assets $ 38,461 $ 39,740
============= ==============
Notes Payable $ 15,173 $ 14,927
Accounts Payable 2,085 2,632
Other Partners' Deficit (547) (434)
Investments and Advances from HCPI, Net 21,750 22,615
------------- --------------
Total Liabilities and Partners' Capital $ 38,461 $ 39,740
============= ==============
Rental and Interest Income $ 4,321 $ 3,581
============= ==============
Net Loss $ (817) $ (828)
============= ==============
Company's Equity in Joint Venture Operations $ 7 $ (743)
============= ==============
Distributions to HCPI $ 953 $ 1,392
============= ==============
</TABLE>
As of December 31, 2001, we have guaranteed approximately $6.8 million on
notes payable obligations for four of these joint ventures.
In September 2000, we purchased the equity interest of our joint venture
partner in three LLCs previously accounted for as investments in joint ventures
(see Note 3).
F-16
<PAGE>
(7) LOANS RECEIVABLE
The following is a summary of the Loans Receivable:
<TABLE>
<CAPTION>
December 31,
------------------------------------
2001 2000
-------------- --------------
(Amounts in thousands)
<S> <C> <C>
Mortgage Loans (See below) $148,075 $158,895
Financing Leases 8,192 8,192
Leasehold Interests and Other Loans 20,019 20,150
-------------- --------------
Total Loans Receivable $176,286 $187,237
============== ==============
</TABLE>
At December 31, 2001, minimum future principal payments from Loans
Receivable are expected to be approximately $3,295,000 in 2002, $3,136,000 in
2003, $14,456,000 in 2004, $2,668,000 in 2005, $40,883,000 in 2006 and
$111,848,000 in the aggregate thereafter.
The following is a summary of Mortgage Loans Receivable at December 31,
2001:
<TABLE>
<CAPTION>
Final Number Initial
Payment of Principal Carrying
Due Loans Payment Terms Amount Amount
- --------------------------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
2006 3 Monthly payments from $27,700 to $269,000 $ 39,521 $ 41,267
including interest from 9.39% to 11.40%
secured by an acute care hospital located in
Texas and retirement center located in
North Carolina.
2007 2 Monthly payments from $7,987 to $193,600 22,708 23,756
including interest from 10.32% to 10.50%, secured
by an acute care facility in New Mexico and an
assisted living facility in Wisconsin.
2010 1 Monthly payments of $337,400 including 34,760 32,641
interest of 10.90% secured
by a congregate care facility and nine long-
term care facilities operated by Beverly.
2002-2031 13 Monthly payments from $9,900 to $116,100 61,215 50,411
including interest rates from 7.95% to 12.41%
secured by various facilities in various states.
---- ---------- ----------
Totals 19 $158,204 $148,075
==== ========== ==========
</TABLE>
F-17
<PAGE>
(8) NOTES PAYABLE
Senior Notes Payable:
The following is a summary of Senior Notes outstanding at December 31, 2001
and 2000:
<TABLE>
<CAPTION>
Year
Issued 2001 2000 Interest Rate Maturity
--------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
1993 $ 11,000 $ 11,000 6.70-8.00% 2003
1994 5,000 10,000 9.10% 2004
1995 68,000 68,000 6.62-9.00% 2005-2015
1996 115,000 115,000 6.50% 2006
1997 239,000 240,000 7.05-8.16% 2002-2007
1998 240,000 248,000 6.66-7.88% 2003-2006
1999 62,000 62,000 6.92-7.48% 2004
2000 25,000 25,000 9.00% 2004
--------------- ----------------
765,000 779,000
Unamortized Option
Payment Received
Related to 1998
Debt, net 4,158 4,468
Less: Unamortized
Discount (4,928) (5,954)
--------------- ----------------
$ 764,230 $ 777,514
=============== ================
</TABLE>
The weighted average interest rate on the Senior Notes was 7.24% and 7.25%
for 2001 and 2000 and the weighted average balance of the Senior Note borrowings
was approximately $774,892,000 and $773,965,000 during 2001 and 2000,
respectively. Original issue discounts are amortized over the term of the Senior
Notes. If held to maturity, the first required Senior Note maturities would be
$116,000,000 in 2002, $31,000,000 in 2003, $92,000,000 in 2004, $231,000,000 in
2005, $135,000,000 in 2006 and $160,000,000 in the aggregate thereafter. As of
February 2002, we have redeemed $99,000,000 of Senior Notes on maturity.
Convertible Subordinated Notes Payable:
During 2000, we paid off $100,000,000 of 6% Convertible Subordinated Notes
issued in 1993 at a gain of $274,000.
Mortgage Notes Payable:
At December 31, 2001, we had a total of $185,022,000 in Mortgage Notes
Payable secured by 37 health care facilities with a net book value of
approximately $325,195,000. Interest rates on the Mortgage Notes ranged from
3.20% to 10.63%. Required principal payments on the Mortgage Notes are expected
to be $6,018,000 in 2002, $12,232,000 in 2003, $13,485,000 in 2004, $15,827,000
in 2005, $7,606,000 in 2006 and $129,854,000 in the aggregate thereafter.
F-18
<PAGE>
During 2001, we assumed secured debt of $18,600,000 in connection with the
acquisition of the first two phases of a $126,000,000 commitment to acquire
entities controlled by The Boyer Company (see Note 3).
During 2000, we completed a secured debt transaction which resulted in loan
proceeds of $83,000,000 on a portfolio of 12 medical office buildings and
physician clinics with an investment value of approximately $138,000,000. The
loan features an average coupon of 8.12% (8.43% effective rate based upon a 30
year amortization thereafter for the remainder of the ten year term). These
proceeds were initially invested in reducing the borrowings under our revolving
lines of credit and were used to fund the final payment on our convertible
subordinated notes paid off in 2000.
Bank Notes:
We have two unsecured revolving credit lines aggregating $395,000,000 with
certain banks. The credit lines for $188,000,000 and $207,000,000 expire on
October 30, 2002 and November 3, 2003, respectively, and bear an annual facility
fee of 0.20% and 0.30%, respectively. These agreements provide for interest at
the Prime Rate, the London Interbank Offered Rate (LIBOR) plus 0.95% (LIBOR plus
1.05% for the $188,000,000 credit line) or at a rate negotiated with each bank
at the time of borrowing. An additional fee of 0.125% is paid on borrowings when
borrowings exceed 50% of the $395,000,000 capacity. Interest rates incurred by
HCPI ranged from 1.55% to 7.88% and 5.79% to 9.50% on maximum short-term bank
borrowings of $204,500,000 and $256,300,000 for 2001 and 2000, respectively. The
weighted average interest rates were approximately 5.20% and 7.68% on weighted
average short-term bank borrowings of $100,622,000 and $192,625,000 for the same
respective periods.
(9) COMMITMENTS
We have commitments to acquire six medical office buildings $32,000,000. We
have outstanding commitments to fund additional development of facilities on
existing properties of approximately $3,600,000, and are committed to fund
$29,000,000 for construction of new health care facilities.
(10) COMMON STOCK
In May 2001, we issued 4,025,000 shares of common stock at $34.80 per share
realizing net proceeds of $133,000,000. Since March 2001, we have realized
proceeds of an additional $28,900,000 from the sale of common stock at an
average price per share of $35.44 under our new Dividend Reinvestment and Stock
Purchase Plan.
(11) PREFERRED STOCK
Preferred Stock is comprised of three series of cumulative redeemable
preferred stock summarized as follows:
<TABLE>
<CAPTION>
Dividend Callable at Par
Issuance Shares Issued Issue Price Rate on or After
------------------ -------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
7.875% series A 2,400,000 $25/share 7.875% September 30, 2002
8.70% series B 5,385,000 $25/share 8.70% September 30, 2003
8.60% series C 4,000,000 $25/share 8.60% October 27, 2002
</TABLE>
F-19
<PAGE>
Dividends on the series A, series B, and series C preferred stock are
payable quarterly in arrears on the last day of March, June, September and
December. The series A, series B and series C preferred stock have no stated
maturity, are not subject to any sinking fund or mandatory redemption and are
not convertible into any other securities of HCPI. The carrying value of
preferred stock approximates fair value.
(12) OTHER EQUITY
Other equity consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
2001 2000
-------------- --------------
(Amounts in thousands)
<S> <C> <C>
Unamortized Balance on Deferred Compensation $ 4,379 $ 3,353
Notes Receivable From Officers and Directors for
Purchase of Common Stock 2,429 1,919
Accumulated Comprehensive Loss (See Note 2) 1,140 ---
-------------- --------------
Total Other Equity $ 7,948 $5,272
============== ==============
</TABLE>
Accumulated comprehensive loss is a reduction to net income in calculating
comprehensive income. Comprehensive income is the change in equity from
non-owner sources. Comprehensive income for the years ended December 31, 2001
and 2000 was $120,026,000 and $133,767,000, respectively.
(13) EARNINGS PER COMMON SHARE
We compute earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic earnings per common
share is computed by dividing Net Income applicable to common shares by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share are calculated including the effect of
dilutive securities. Approximately 800,000 options to purchase shares of common
stock that had an exercise price in excess of the average market price of the
common stock during the period were not included because they are not dilutive.
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
For Year Ended December 31,
-----------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Common Share:
Net Income Applicable to Common
Shares $96,266 53,879 $1.79 $108,867 51,057 $2.13 $78,450 34,792 $2.25
Dilutive Options (See Note 16) --- 96 --- 43 --- 69
----------------- ------------------ ----------------
Diluted Earnings Per Common Share $96,266 53,975 $1.78 $108,867 51,100 $2.13 $78,450 34,861 $2.25
</TABLE>
F-20
<PAGE>
(14) FUNDS FROM OPERATIONS
We are required to report information about operations on the basis that we
use internally to measure performance under Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, effective beginning in 1998.
We believe that Funds From Operations (FFO) is the most important
supplemental measure of operating performance for a real estate investment
trust. Because the historical cost accounting convention used for real estate
assets requires straight-line depreciation (except on land) such accounting
presentation implies that the value of real estate assets diminishes predictably
over time. Since real estate values instead have historically risen and fallen
with market conditions, presentations of operating results for a real estate
investment trust that uses historical cost accounting for depreciation could be
less informative. The term FFO was designed by the real estate investment trust
industry to address this problem.
We adopted the definition of FFO prescribed by the National Association of
Real Estate Investment Trusts (NAREIT). FFO is defined as Net Income applicable
to common shares (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate depreciation and real estate related amortization,
and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis.
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered as
an alternative to net income. FFO, as defined by HCPI, may not be comparable to
similarly entitled items reported by other real estate investment trusts that do
not define it exactly as the NAREIT definition.
Below are summaries of the calculation of FFO for the years ended December
31, 2001, 2000 and 1999 (all amounts in thousands):
<TABLE>
<CAPTION>
2001 2000 1999
------------ ------------- ---------------
<S> <C> <C> <C>
Net Income Applicable to Common Shares $ 96,266 $108,867 $ 78,450
Real Estate Depreciation and Amortization 84,098 72,590 44,789
Joint Venture Adjustments 243 1,917 1,584
Gain on Sale of Real Estate Properties (1,232) (11,756) (10,303)
Gain on Extinguishment of Debt --- (274) ---
------------ ------------- ---------------
Funds From Operations $179,375 $171,344 $114,520
============ ============= ===============
</TABLE>
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. The carrying amount for Cash and Cash Equivalents approximates fair
value because of the short-term maturity of those instruments. Fair values for
Mortgage Loans Receivable and Senior Notes and Mortgage Notes Payable are based
on the estimates of management and on rates currently prevailing for comparable
loans and instruments of comparable maturities, and are as follows:
F-21
<PAGE>
<TABLE>
<CAPTION>
December 31, 2001 December 31, 2000
------------------------------ -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------- ------------- -------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Mortgage Loans Receivable $148,075 $143,319 $158,895 $153,952
Senior Notes and Mortgage Notes Payable $949,252 $975,617 $954,428 $923,762
</TABLE>
(16) STOCK INCENTIVE PLAN
Directors, officers and key employees of HCPI are eligible to participate
in our 2000 Stock Incentive Plans (Plan). As of November 5, 1999, pursuant to
the terms of the merger with AHE, 787,000 stock options with an average exercise
price of $30 were issued in exchange for AHE stock options outstanding as of the
date of the merger. A summary of the status of our Plan and the options issued
in the AHE merger at December 31, 2001, 2000 and 1999 and changes during the
years then ended is presented in the following table and narrative:
<TABLE>
<CAPTION>
2001 2000 1999
------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Stock Incentive Plan (Options) (000's) Price (000's) Price (000's) Price
- ------------------------------------- ---------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 3,285 $28 2,729 $31 1,309 $32
Granted 1,717 34 1,383 24 1,425 28
Exercised (586) 25 (55) 26 (5) 20
Forfeited (13) (772) -- -- --
---------- ---------- ----------
Outstanding, end of year 4,403 31 3,285 28 2,729 31
Exercisable, end of year 803 31 1,199 30 1,166 28
Weighted average fair value
of options granted during the year $1.09 $0.47 $0.73
Incentive Stock Awards
- -------------------------------------
Issued 86 78 58
Canceled (1) (3) --
</TABLE>
The incentive stock awards (Awards) are granted at no cost to the employees
or directors. The Awards generally vest and are amortized over five year periods
(four years for directors). The stock options generally become exercisable on
either a one year or a five year schedule after the date of the grant.
The following table describes the options outstanding as of December 31,
2001.
<TABLE>
<CAPTION>
Options
Total Options Weighted Weighted Average Exercisable At Weighted
Outstanding Exercise Average Contractual Life December 31, 2001 Average
(000's) Price Exercise Price Remaining (Years) (000's) Exercise Price
- ------------------- ------------- ----------------- ------------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
1,827 $22-$30 $25 7 344 $27
1,189 $30-$35 $33 8 457 $33
1,387 $35-$40 $36 9 2 $35
- ------------------- ---------------------
4,403 803
=================== =====================
</TABLE>
F-22
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following ranges of assumptions:
risk-free interest rates of 4.87% to 6.54%; expected dividend yields of 9.48% to
11.64%; expected lives of 10 years; and expected volatility of .17% to .19%.
We account for stock options under Accounting Principles Board Opinion 25
(APB 25), Accounting for Stock Issued to Employees, which is permitted under
FASB Statement No. 123 (FASB 123), Accounting for Stock Based Compensation,
issued in 1995. Had compensation cost for the Plans been determined instead in
accordance with rules set out in FASB 123, our Net Income and Basic Earnings Per
Common Share on a pro forma basis would have been lower by approximately
$1,800,000 and $0.03 per basic share, $650,000 or $0.01 per basic share, and
$500,000, or $0.01 per basic share for the years ended December 31, 2001, 2000
and 1999, respectively.
During the years ended December 31, 2001 and 2000, respectively, we made
loans totaling $607,000 and $422,000 secured by stock in HCPI to directors,
officers and key employees. The interest rate charged is based on the prevailing
applicable federal rate as of the inception of the loan. Loans secured by stock
totaling $2,429,000 and $1,919,000 were outstanding at December 31, 2001 and
2000, respectively, and are classified as other equity on the balance sheet.
(17) DIVIDENDS
Common stock dividend payment dates are scheduled approximately 50 days
following each calendar quarter. On January 23, 2002, the Board of Directors
declared a dividend of $0.80 per share paid on February 20, 2002 to stockholders
of record on February 4, 2002.
In order to qualify as a REIT, we must generally, among other requirements,
distribute at least 90% of our taxable income to our stockholders. HCPI and
other REITs generally distribute 100% of taxable income to avoid taxes on the
remaining 10% of taxable income.
Per share dividend payments made by HCPI to the stockholders were
characterized in the following manner for tax purposes:
<TABLE>
<CAPTION>
2001 2000 1999
------------- -------------- --------------
<S> <C> <C> <C>
Common Stock
-------------------------------
Ordinary Income $1.8098 $2.3824 $2.0261
Capital Gains Income -- .1352 .2494
Return of Capital 1.2902 .4224 .5045
------------- -------------- --------------
Total Dividends Paid $3.1000 $2.9400 $2.7800
============= ============== ==============
7.875% Preferred Stock Series A
-------------------------------
Ordinary Income $1.9688 $1.8633 $1.7514
Capital Gains Income -- .1055 .2174
------------- -------------- --------------
Total Dividends Paid $1.9688 $1.9688 $1.9688
============= ============== ==============
8.70% Preferred Stock Series B
-------------------------------
Ordinary Income $2.1750 $2.0584 $1.9350
Capital Gains Income -- .1166 .2402
------------- -------------- --------------
Total Dividends Paid $2.1750 $2.1750 $2.1752
============= ============== ==============
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
8.60% Preferred Stock Series C
-------------------------------
Ordinary Income $2.1500 $2.0348 $ .6376
Capital Gains Income -- .1152 .0791
------------- -------------- --------------
Total Dividends Paid $2.1500 $2.1500 $ .7167
------------- -------------- --------------
</TABLE>
Dividends on all series of preferred stock are paid on the last day of each
quarter.
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
-------- ---------- ------------ -----------
2001 (Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 78,365 $ 84,450 $ 84,137 $ 85,508
Gain on Sale of Real Estate Properties $ (774) $ 532 $ 537 $ 937
Net Income Applicable to $ 19,799 $ 28,675 $ 17,848 $ 29,944
Common Shares
Dividends Paid Per Common Share $ .76 $ .77 $ .78 $ .79
Basic Earnings Per Common Share $ .39 $ .54 $ .32 $ .54
Diluted Earnings Per Common Share $ .39 $ .54 $ .32 $ .53
2000
Revenue $ 82,252 $ 82,096 $ 82,281 $ 83,178
Gain on Sale of Real Estate Properties $ 684 $ 3,029 $ 421 $ 7,622
Net Income Applicable to
Common Shares $ 26,929 $ 28,281 $ 23,276 $ 30,381
Dividends Paid Per Common Share $ .72 $ .73 $ .74 $ .75
Basic Earnings Per Common Share $ .53 $ .55 $ .46 $ .60
Diluted Earnings Per Common Share $ .52 $ .55 $ .46 $ .60
</TABLE>
(19) NEW PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board released Statements
of Financial Accounting Standards No. 141 "Business Combinations," No. 142
"Goodwill and Other Intangible Assets" and No. 143 "Accounting for Asset
Retirement Obligations" and, in August 2001, No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." The effect of these pronouncements
on our financial statements is not expected to be material.
F-24
<PAGE>
APPENDIX I
Tenet Healthcare Corporation
SET FORTH BELOW IS CERTAIN CONDENSED FINANCIAL DATA OF TENET HEALTHCARE
CORPORATION ("TENET") WHICH IS TAKEN FROM TENET'S ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED MAY 31, 2001 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
("THE COMMISSION") UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), AND THE TENET QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED NOVEMBER 30, 2001 AS FILED WITH THE COMMISSION.
The information and financial data contained herein concerning Tenet was
obtained and has been condensed from Tenet's public filings under the Exchange
Act. The Tenet financial data presented includes only the most recent interim
and fiscal year end reporting periods. We can make no representation as to the
accuracy and completeness of Tenet's public filings but have no reason not to
believe the accuracy and completeness of such filings. It should be noted that
Tenet has no duty, contractual of otherwise, to advise us of any events which
might have occurred subsequent to the date of such publicly available
information which could affect the significance or accuracy of such information.
Tenet is subject to the information filing requirements of the Exchange
Act, and, in accordance herewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Such reports, proxy statements and other
information may be inspected at the offices of the Commission at 450 Fifth
Street, N.W. Washington D.C., and should also be available at the following
Regional Offices of the Commission: Room 1400, 75 Park Place, New York, New York
10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Such reports and other information concerning Tenet can
also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, Room 1102, New York, New York 10005.
i
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar amounts in millions, except par values)
November 30, May 31,
2001 2001
------------ ---------
ASSETS
Cash and cash equivalents $ 63 $ 62
Short-term investments in debt securities 103 104
Accounts and notes receivable, less
allowances for doubtful accounts
($325 at November 30 and $333 at May 31) 2,377 2,386
Inventories of supplies, at cost 220 214
Deferred income taxes 160 155
Other assets 347 305
------- -------
Total current assets 3,270 3,226
------- -------
Investments and other assets 360 395
Property, plant and equipment net 6,308 5,976
Intangible assets, at cost
Less accumulated amortization
($669 at November 30 and $606 at May 31) 3,485 3,398
------- -------
$13,423 $12,995
======= =======
ii
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar amounts in millions, except par values and share amounts)
<TABLE>
<CAPTION>
November 30, May 31,
2001 2001
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 35 $ 25
Accounts payable 803 775
Accrued expenses 513 608
Other current liabilities 875 758
-------- -------
Total current liabilities 2,226 2,166
-------- -------
Long-term debt, net of current portion 4,321 4,202
Other long-term liabilities and minority interests 1,029 994
Deferred income taxes 546 554
Common stock, $.075 par value; authorized
700,000,000 shares; 333,313,865 shares
issued at November 30, 2001 and 329,222,000
shares issued at May 31, 2001 25 25
Other shareholders' equity 5,533 5,124
Treasury stock, at cost, 7,125,208 shares at
November 30, 2001 and 3,754,708 shares at May 31, 2001 (257) (70)
-------- --------
Total shareholders' equity 5,301 5,079
-------- --------
$ 13,423 $ 12,995
======== ========
</TABLE>
iii
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 2001 May 31, 2001
----------------- ------------
<S> <C> <C>
Net operating revenues $ 6,691 $ 12,053
---------- ---------
Operating expenses 5,387 9,809
Depreciation and amortization 300 554
Interest expense, net of capitalized portion 183 456
Impairment and other unusual charges 99 143
---------- ---------
Total costs and expenses 5,969 10,962
---------- ---------
Investment earnings 19 37
Minority interests in income of consolidated subsidiaries (19) (14)
Net gain on disposals of facilities
and long-term investments --- 28
---------- ---------
Income from continuing operations before
income taxes 722 1,142
Taxes on income (306) (464)
---------- ---------
Income from continuing operations 416 678
---------- ---------
Extraordinary charge from early extinguishment
of debt, net of taxes (172) (35)
---------- ---------
Net income $ 244 $ 643
========== =========
</TABLE>
iv
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 2001 May 31, 2001
----------------- ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,018 $ 1,818
--------- ----------
(Includes changes in all operating assets and liabilities)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (415) (601)
Purchase of new business, net of cash acquired (273) (105)
Proceeds from sales of facilities, investments and
other assets --- 132
Other items (27) ---
--------- ----------
Net cash used in investing activities (715) (574)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of other borrowings (1,749) (2,945)
Proceeds from other borrowings 2,600 1,387
Proceeds from sales of new senior notes 1,952 ---
Repurchase of senior and senior subordinated notes (2,991) ---
Purchases of treasury stock (187) ---
Proceeds from sales of common stock --- 15
Other items 73 226
--------- ----------
Net cash used in financing activities (302) (1,317)
--------- ----------
Net increase/(decrease) in cash and cash equivalents 1 (73)
Cash and cash equivalents at beginning of year 62 135
--------- ----------
Cash and cash equivalents at end of year $ 63 $ 62
--------- ----------
</TABLE>
v
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>3
<FILENAME>dex33.txt
<DESCRIPTION>AMEND. #1 TO SECOND AMENDED & RESTATED BYLAWS
<TEXT>
<PAGE>
EXHIBIT 3.3
Effective as of September 6, 2001
AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED BYLAWS OF
HEALTH CARE PROPERTY INVESTORS, INC.
The following sets forth an amendment to the Second Amended and Restated
Bylaws (the "Bylaws") of Health Care Property Investors, Inc., a Maryland
corporation, which amendment shall be effective as of September 6, 2001.
1. The first sentence of Article III, Section 1 of the Bylaws shall be
deleted and replaced with the following sentence:
"The number of directors shall be eight (8) until changed by amendment
to this Section of the Bylaws duly adopted by the Board of Directors
or stockholders."
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.12
<SEQUENCE>4
<FILENAME>dex412.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT DATED 8/17/2001
<TEXT>
<PAGE>
EXHIBIT 4.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August ___,
2001, is entered into by and between Health Care Property Investors, Inc., a
Maryland corporation (the "Company"), and the parties identified on the
signature page hereof as a "Unitholder" (collectively, the "Unitholders").
RECITALS
--------
WHEREAS, the Company, the Unitholders and HCPI/Utah II, LLC, a
Delaware limited liability company (the "Operating LLC") have entered into that
certain Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") providing, among other things, for the contribution of certain
property by the Unitholders to the Operating LLC and the contribution of cash by
the Company to the Operating LLC; and
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Contribution Agreement that the parties hereto enter into
this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. The following capitalized terms, as
used in this Agreement, have the following meanings:
"Agreement" means this Registration Rights Agreement, as it
may be amended, supplemented or restated from time to time.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York, Los Angeles,
California or Salt Lake City, Utah are authorized by law to close.
"Closing Price" means (i) the closing price of a share of
Common Stock on the principal exchange on which shares of Common Stock are then
trading, if any, or (ii) if the Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, (1) the last sales price (if
the Common Stock is then listed as a National Market Issue under the NASD
National Market System) or (2) the mean between the closing representative bid
and asked prices (in all other cases) for the Common Stock as reported by NASDAQ
or such successor quotation system or (iii) if the Common Stock is not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation system,
the mean between the closing bid and asked prices for the Common Stock.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Contribution Agreement" has the meaning set forth in the
recitals to this Agreement.
"Demand Registration" has the meaning set forth in Section
3.1(a) hereof.
"Demand Registration Statement" has the meaning set forth in
Section 3.1(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchangeable LLC Units" means LLC Units which may be
exchanged for Common Stock pursuant to the LLC Agreement.
"Filing Date" has the meaning set forth in Section 2.1 hereof.
"Full Conversion Date" has the meaning set forth in Section
2.1 hereof.
"Holder" means any Person (including a Unitholder) who is the
record or beneficial owner of any Registrable Security or any assignee or
transferee of such Registrable Security (including assignments or transfers of
Registrable Securities to such assignees or transferees as a result of the
foreclosure on any loans secured by such Registrable Securities) unless such
Registrable Security is acquired in a sale pursuant to a registration statement
under the Securities Act or pursuant to a transaction exempt from registration
under the Securities Act, in each such case where the security sold in such
transaction may be resold without subsequent registration under the Securities
Act.
"Inspectors" has the meaning set forth in Section 3.1(h).
"Issuance Registration Statement" has the meaning set forth in
Section 2.1.
"LLC Agreement" means the Amended and Restated Limited
Liability Company Agreement of the Operating LLC dated as of the date of this
Agreement, as the same may be amended, modified or restated from time to time.
"LLC Units" has the meaning set forth in the LLC Agreement.
"Operating LLC" has the meaning set forth in the recitals to
this Agreement.
"Person" means an individual or a corporation, partnership,
limited liability company, association, trust, or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Piggyback Registration Statement" means any registration
statement of the Company in which Registrable Securities are included pursuant
to Section 3.1 hereof.
2
<PAGE>
"Records" has the meaning set forth in Section 3.1(h).
"Registration Expenses" has the meaning set forth in Section
3.4.
"Registrable Securities" means shares of Common Stock of the
Company issued upon exchange of Exchangeable LLC Units pursuant to the terms of
the LLC Agreement at any time owned, either of record or beneficially, by any
Holder unless and until (i) a registration statement covering such shares has
been declared effective by the Commission and the shares have been issued by the
Company to Holder upon exchange of Exchangeable LLC Units pursuant to the
effective registration statement or have been sold or transferred by Holder to
another Person pursuant to the effective registration statement, (ii) such
shares are sold pursuant to the provisions of Rule 144 under the Securities Act
(or any similar provisions then in force) ("Rule 144"), (iii) such shares are
held by a Holder who is not an affiliate of the Company within the meaning of
Rule 144 (a "Rule 144 Affiliate") and may be sold pursuant to Rule 144(k) under
the Securities Act, (iv) such shares are held by a Holder who is a Rule 144
Affiliate and all such shares may be sold pursuant to Rule 144 within a period
of three months in accordance with the volume limitations set forth in Rule
144(e)(1), or (iv) such shares have been otherwise transferred in a transaction
that would constitute a sale under the Securities Act and such shares may be
resold without subsequent registration under the Securities Act.
"Reinstatement Period" has the meaning set forth in Section
3.1.
"Resale Prospectus" has the meaning set forth in Section 3.5.
"Resale Registration Statement" has the meaning set forth in
Section 3.5.
"S-3 Expiration Date" means the date on which Form S-3 (or a
similar successor form of registration statement) is not available to the
Company for the registration of Registrable Securities pursuant to the
Securities Act.
"Secondary Offering Securities Holders" has the meaning set
forth in Section 3.1(b).
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Demand Registration Statement or a Piggyback
Registration Statement.
"Supplemental Rights Period" has the meaning set forth in
Section 3.1.
"Unitholders" has the meaning set forth in the preamble to
this Agreement.
ARTICLE II.
REGISTRATION
Section 2.1 Registration Statement Covering Issuance of
Common Stock. Subject to the provisions of Article III hereof, the Company will
-----------
file with the Commission a registration statement on Form S-3 (the "Issuance
Registration Statement") under Rule 415
3
<PAGE>
under the Securities Act covering the issuance to Holders of shares of Common
Stock in exchange for Exchangeable LLC Units, such filing to be made within the
two (2) week period following the date (the "Filing Date") which is the later of
(i) a date which is fourteen (14) days prior to the first date on which the
Exchangeable LLC Units issued pursuant to the Contribution Agreement may be
exchanged for shares of Common Stock pursuant to the provisions of the LLC
Agreement or (ii) such other date as may be required by the Commission pursuant
to its interpretation of applicable federal securities laws and the rules and
regulations promulgated thereunder. The Company may, in its sole discretion,
also include in such Issuance Registration Statement any shares of Common Stock
to be issued in exchange for securities of HCPI/Utah, LLC, a Delaware limited
liability company. The Company shall use its reasonable efforts to cause the
Issuance Registration Statement filed with the Commission to be declared
effective by the Commission as soon as practicable following the filing, and
within sixty (60) days after filing. In the event the Company is unable to cause
the Issuance Registration Statement to be declared effective by the Commission,
then the rights of the Holders set forth in Sections 3.1 and 3.2 hereof shall
apply to Common Stock received by Holders upon exchange of the Exchangeable LLC
Units for shares of Common Stock. Notwithstanding the availability of rights
under Section 3.1 hereof, the Company shall continue to use its reasonable
efforts to cause the Issuance Registration Statement to be declared effective by
the Commission and if it shall be declared effective by the Commission, the
obligations of the Company under Section 3.1 hereof shall cease. The Company
agrees to use its reasonable efforts to keep the Issuance Registration Statement
continuously effective (a) until the earlier of (i) the S-3 Expiration Date, or
(ii) the first date (the "Full Conversion Date") on which no Exchangeable LLC
Units (other than those held by the Company) remain outstanding, and (b) during
any Reinstatement Period.
ARTICLE III.
REGISTRATION RIGHTS
Section 3.1 Registration Rights if Form S-3 is Not Available.
The following provisions shall apply with respect to Registrable Securities
during the period, if any, beginning on the S-3 Expiration Date (or, if the S-3
Expiration Date shall occur before the 30th day prior to the first date on which
the Exchangeable LLC Units issued pursuant to the Contribution Agreement may be
exchanged for shares of Common Stock, beginning on such 30th prior day) and
ending on the date when the Company would no longer be obligated to maintain the
applicable registration statement in effect pursuant to the terms of Section 2.1
if the S-3 Expiration Date had not occurred (the "Supplemental Rights Period");
provided, however, that the Supplemental Rights Period shall not include any
- -------- -------
period following the S-3 Expiration Date and prior to the Full Conversion Date
if during that period (the "Reinstatement Period") the Company shall again be
entitled to use Form S-3 (or a similar successor form of registration statement)
for registration of the Registrable Securities. During the Supplemental Rights
Period, the Holders shall have the following rights:
(a) Demand Rights. Holders may make a written demand
for registration under the Securities Act of all or part of the Registrable
Securities (a "Demand Registration"); provided, however, that (i) the Company
-------- -------
shall not be obligated to effect more than one Demand Registration for Holders
in any twelve month period, and (ii) the number of Registrable Securities
proposed to be sold by the Holders making such written demand either (x) shall
be all the Registrable Securities owned by all Holders of all Registrable
Securities or
4
<PAGE>
(y) shall have an estimated market value at the time of such demand (based upon
the then market price of a share of Common Stock) of at least $1,000,000. The
Company shall file any registration statement required by this Section 3.1(a) (a
"Demand Registration Statement") with the Commission within thirty (30) days of
receipt of the requisite Holder demand and shall use its reasonable efforts to
cause the Demand Registration Statement to be declared effective by the
Commission as soon as practicable thereafter. The Company shall give written
notice of the proposed filing of the Demand Registration Statement to the
Holders of Registrable Securities and Exchangeable LLC Units as soon as
practicable (but in no event less than ten (10) days before the anticipated
filing date), and such notice shall offer such Holders the opportunity to
participate in such Demand Registration and to register such number of shares of
Registrable Securities as each such Holder may request. The Company shall use
its reasonable efforts to keep each such Demand Registration Statement
continuously effective for a period of forty five (45) days, unless the offering
pursuant to the Demand Registration Statement is an underwritten offering and
the managing underwriter requires that the Demand Registration Statement be kept
effective for a longer period of time, in which event the Company shall maintain
the effectiveness of the Demand Registration Statement for such longer period up
to one hundred twenty (120) days (such period, in each case, to be extended by
the number of days, if any, during which Holders were not permitted to make
offers or sales under the Demand Registration Statement by reason of Section 3.3
hereof). The Company may elect to include in any Demand Registration Statement
additional shares of Common Stock to be issued by the Company, subject, in the
case of an underwritten secondary Demand Registration, to cutback by the
managing underwriters. A registration shall not constitute a Demand Registration
under this Section 3.1(a) until the Demand Registration Statement has been
declared effective.
(b) Piggyback Rights. If the Company at any time
during the Supplemental Rights Period proposes to file a registration statement
under the Securities Act with respect to an offering of shares of Common Stock
for its own account or for the account of any holders of shares of its Common
Stock, in each case solely for cash (other than an Issuance Registration
Statement or a registration statement (i) on Form S-8 or any successor form to
Form S-8 or in connection with any employee or director welfare, benefit or
compensation plan, (ii) in connection with an exchange offer or an offering of
securities exclusively to existing security holders of the Company or its
subsidiaries or (iii) relating to a transaction pursuant to Rule 145 of the
Securities Act), the Company shall give written notice of the proposed
registration to the record owners of Registrable Securities and Exchangeable
LLC Units at least twenty (20) days prior to the filing of the registration
statement. The Holders of Registrable Securities shall have the right to
request that all or any part of the Registrable Securities be included in the
registration by giving written notice to the Company within ten (10) days after
the giving of the foregoing notice by the Company; provided, however, (A) if
-------- -------
the registration relates to an underwritten primary offering on behalf of the
Company and the managing underwriters of the offering determine in good faith
that the aggregate amount of securities of the Company which the Company,
Holders of Registrable Securities and holders of other piggyback registration
rights propose to include in the registration statement exceeds the maximum
amount of securities that could practicably be included therein, the Company
will include in the registration, up to such maximum amount, first, the
securities which the Company proposes to sell, and second, pro rata, the
Registrable Securities and the securities proposed to be included by any
holders of other piggyback registration rights, and (B) if the registration is
an underwritten secondary registration on behalf of any of the other security
holders of the Company (the "Secondary Offering Security
5
<PAGE>
Holders") and the managing underwriters determine in good faith that the
aggregate amount of securities which the Holders of Registrable Securities, the
Secondary Offering Security Holders and the holders of other piggyback
registration rights propose to include in the registration exceeds the maximum
amount of securities that could practicably be included therein, the Company
will include in the registration, up to such maximum amount, first, the
securities to be sold for the account of the Secondary Offering Security
Holders, and second, pro rata, the Registrable Securities and the securities
proposed to be included by any holders of other piggyback registration rights.
The Company shall use its commercially reasonable efforts to cause, but shall
not be obligated to cause, the managing underwriter or underwriters of a
proposed underwritten offering to permit the Registrable Securities requested to
be included in a piggyback registration to be included on the same terms and
conditions as any similar securities of the Company included therein. (It is
understood, however, that the underwriters shall have the right to terminate
entirely the participation of the Holders of Registrable Securities if the
underwriters eliminate entirely the participation in the registration of all the
other holders electing to include securities in the registration (other than the
Company and the Secondary Offering Security Holders) because it is not
practicable to include such securities in the registration.) If the registration
is not an underwritten registration, then all of the Registrable Securities
requested to be included in the registration shall be included. Registrable
Securities proposed to be registered and sold pursuant to an underwritten
offering for the account of the Holders of Registrable Securities shall be sold
to prospective underwriters selected by such Holders and approved by the Company
and on the terms and subject to the conditions of one or more underwriting
agreements negotiated between the Company, the Secondary Offering Security
Holders, the Holders of Registrable Securities and any other holders demanding
registration and the prospective underwriters. Registrable Securities need not
be included in any registration statement pursuant to this provision if in the
opinion of counsel to the Company (a copy of which opinion is delivered to the
record owners of Registrable Securities) registration under the Securities Act
is not required for public distribution of the Registrable Securities. The
Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 3.1(b) prior to the effectiveness of the
registration statement whether or not any holder has elected to include any
Registrable Securities in the registration statement.
(c) Company Repurchase. Upon receipt by the Company
of a registration demand pursuant to Section 3.1(a), the Company may, but will
not be obligated to, purchase for cash from any Holder so requesting
registration all, but not less than all, of the Registrable Securities which are
the subject of the request at a price per share equal to the average of the
Closing Prices of a share of Common Stock for the ten (10) trading days
immediately preceding the date of receipt by the Company of the registration
request. In the event the Company elects to purchase the Registrable Securities
which are the subject of a registration request, the Company shall notify the
Holder within five Business Days of the date of receipt of the request by the
Company, which notice shall indicate (i) that the Company will purchase for cash
the Registrable Securities held by the Holder which are the subject of the
request, (ii) the price per share, calculated in accordance with the preceding
sentence, which the Company will pay the Holder and (iii) the date upon which
the Company shall purchase the Registrable Securities, which date shall not be
later than the tenth business day after receipt of the registration request. If
the Company so elects to purchase the Registrable Securities which are the
subject of a registration request, then upon such purchase the Company shall be
relieved of its obligations under this Section 3.1 with respect to such
Registrable Securities.
6
<PAGE>
Section 3.2 Additional Registration Procedures. In connection
with any registration statement covering Registrable Securities filed by the
Company pursuant to Section 2.1 or 3.1 hereof:
(a) Each Holder agrees to provide in a timely manner
information requested by the Company regarding the proposed distribution by that
Holder of the Registrable Securities and all other information reasonably
requested by the Company in connection with the preparation of the registration
statement covering the Registrable Securities.
(b) The Company will, if requested by any of the
Holders, prior to filing a registration statement or prospectus, or any
amendment or supplement thereto in connection with any Demand Registration
Statement or Piggyback Registration Statement, furnish to each Selling Holder
and each underwriter, if any, of the Registrable Securities covered by such
registration statement or prospectus copies of such registration statement or
prospectus or any amendment or supplement thereto as proposed to be filed, and
thereafter furnish to such Selling Holder and underwriter, if any, such number
of conformed copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder or underwriter may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(c) After the filing of the registration statement,
the Company will promptly notify each Selling Holder of Registrable Securities
covered by the registration statement of any stop order issued or threatened by
the Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
(d) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will use reasonable
efforts to register or qualify the Registrable Securities under such securities
or blue sky laws of those jurisdictions in the United States (where an exemption
is not available) as any Selling Holder or managing underwriter or underwriters,
if any, reasonably (in light of the Selling Holder's intended plan of
distribution) requests; provided, however, that the Company will not be required
-------- -------
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction.
(e) In connection with any Demand Registration
Statement or Piggyback Registration Statement, the Company will enter into
customary agreements (including an underwriting agreement, if any, in customary
form) as are reasonably required in order to expedite or facilitate the
disposition of Registrable Securities pursuant to the Demand Registration
Statement or Piggyback Registration Statement. Each Selling Holder participating
in an underwritten offering shall also enter into and perform its or his
obligations under the underwriting agreement.
7
<PAGE>
(f) The Company shall cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) The Company will immediately notify each Selling
Holder of such Registrable Securities, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the occurrence
of an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statement therein, in light of the circumstances then
existing, not misleading and promptly make available to each Selling Holder a
reasonable number of copies of any such supplement or amendment.
(h) The Company will make available for inspection by
any Selling Holder of such Registrable Securities, any underwriter participating
in any disposition pursuant to such Registrable Securities, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder
or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
discharge their due diligence responsibility under the Securities Act, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any Inspectors in connection with the discharge of their
due diligence responsibility. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Selling Holder of such Registrable Securities agrees that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company or its Affiliates or otherwise
disclosed by it unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.
(i) In connection with a disposition of the
Registrable Securities in which there is a participating underwriter or
underwriters, the Company will furnish to each Selling Holder and to each
underwriter, a signed counterpart, addressed to such Selling Holder or
underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a
comfort letter or comfort letters from the Company's independent public
accountants (to the extent permitted by the standards of the American Institute
of Certified Public Accountants), each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as the
case may be, as the Holders of a majority of the Registrable Securities included
in such offering or the managing underwriter or underwriters therefor reasonably
requests.
(j) The Company will otherwise use its best efforts
to comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of twelve (12) months,
8
<PAGE>
beginning within three (3) months after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder (or any successor rule or regulation hereafter adopted by the
Commission).
Section 3.3 Material Developments; Suspension of Offering.
(a) Notwithstanding the provisions of Sections 2.1 or
3.1 hereof or any other provisions of this Agreement to the contrary, the
Company shall not be required to file a registration statement or to keep any
registration statement effective if the negotiation or consummation of a
transaction by the Company or any of its subsidiaries is pending or an event has
occurred, which negotiation, consummation or event would require additional
disclosure by the Company in the registration statement of material information
which the Company (in the judgment of management of the Company) has a bona
----
fide business purpose for keeping confidential and the nondisclosure of which in
- ----
the registration statement might cause the registration statement to fail to
comply with applicable disclosure requirements; provided, however, that the
-------- -------
Company (i) will promptly notify the Holders of Registrable Securities otherwise
entitled to registration of the foregoing and (ii) may not delay, suspend or
withdraw the registration statement for such reason more than twice in any
twelve (12) month period or three times in any twenty-four (24) month period or
for more than ninety (90) days at any time. Upon receipt of any notice from the
Company of the happening of any event during the period the registration
statement is effective which is of a type specified in the preceding sentence or
as a result of which the registration statement or related prospectus contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances under which they were made not misleading, Holders
agree that they will immediately discontinue offers and sales of the Registrable
Securities under the registration statement (until they receive copies of a
supplemental or amended prospectus that corrects the misstatements or omissions
and receive notice that any post-effective amendment has become effective). If
so directed by the Company, Holders will deliver to the Company any copies of
the prospectus covering the Registrable Securities in their possession at the
time of receipt of such notice. In the event the Company shall give notice of
the happening of an event of the kind described in this Section 3.3(a), the
Company shall extend the period during which the affected registration statement
is required to be maintained pursuant to this Agreement by the number of days
during the period from and including the date of the giving of notice pursuant
to this Section 3.3(a) to the date when the Company shall make available a
prospectus supplemented or amended to conform with the requirements of the
Securities Act.
(b) If all reports required to be filed by the
Company pursuant to the Exchange Act have not been filed by the required date
without regard to any extension, or if the consummation of any business
combination by the Company has occurred or is probable for purposes of Rule 3-05
or Article 11 of Regulation S-X under the Securities Act, upon written notice
thereof by the Company to the Holders, the rights of the Holders to acquire
Registrable Securities pursuant to the Issuance Registration Statement or to
offer, sell or distribute any Registrable Securities pursuant to any Demand
Registration Statement or Piggyback Registration Statement or to require the
Company to take action with respect to the registration of any Registrable
Securities pursuant to this Agreement shall be suspended until the date on which
the
9
<PAGE>
Company has filed such reports or obtained and filed the financial
information required by Rule 3-05 or Article 11 of Regulation S-X to be included
or incorporated by reference, as applicable, in the Issuance Registration
Statement, the Demand Registration Statement or the Piggyback Registration
Statement and the Company shall notify the Holders as promptly as practicable
when such suspension is no longer required.
Section 3.4 Registration Expenses. In connection with any
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses incurred in connection with the registration
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including the
reasonable fees and expenses of counsel to the Company), (iii) printing
expenses, (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) the fees and expenses incurred in connection with the listing of
the Registrable Securities on each securities exchange on which similar
securities issued by the Company are then listed, (vi) fees and disbursements of
counsel for the Company and the independent public accountants of the Company,
and (vii) the fees and expenses of any experts retained by the Company in
connection with such registration. The Holders shall be responsible for the
payment of any and all other expenses incurred by them in connection with the
registration and sale of Registrable Securities, including, without limitation,
brokerage and sales commissions, underwriting fees, discounts and commissions
attributable to the Registrable Securities, fees and disbursements of counsel
representing the Holders, and any transfer taxes relating to the sale or
disposition of the Registrable Securities.
Section 3.5 Indemnification by the Company. The Company
agrees to indemnify and hold harmless each Selling Holder, its officers,
directors, employees, representatives, and agents, and each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, actions, damages, liabilities, costs and expenses (including, without
limitation, but subject to the provisions of Section 3.7 hereof, reasonable
attorneys' fees and disbursements caused by any untrue statement or alleged
untrue statement of a material fact contained in any Demand Registration
Statement or Piggyback Registration Statement (individually, a "Resale
Registration Statement") or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or arising out of any untrue statement or alleged untrue statement of a material
fact contained in any prospectus contained in a Resale Registration Statement at
the time it became effective (a "Resale Prospectus"), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by such
Selling Holder or on such Selling Holder's behalf expressly for inclusion
therein; provided, however, that the Company will not be liable in any case to
-------- -------
the extent that any such claim, loss, damage, liability or expense arises out of
or is based upon any untrue statement or omission contained in a Resale
Prospectus which was corrected in a supplement or amendment thereto if such
claim is brought by a purchaser of Registrable Securities from the Selling
Holder and the Selling Holder failed to deliver to such purchaser the supplement
or amendment to the Resale Prospectus in a timely manner.
10
<PAGE>
Section 3.6 Indemnification by Holders of Registrable
Securities. Each Selling Holder of Resale Registrable Securities covered by a
Registration Statement agrees to indemnify and hold harmless the Company, its
officers, directors and agents and each Person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the indemnity set forth in Section 3.5
from the Company to Selling Holders, but only with respect to information
relating to such Selling Holder furnished in writing by such Selling Holder or
on such Selling Holder's behalf expressly for use in any Resale Registration
Statement or Resale Prospectus or any amendment or supplement thereto. Each
Holder also agrees to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act on substantially the same basis as that of
the indemnification of the Company provided in this Section 3.6.
Section 3.7 Conduct of Indemnification Proceedings. Each
indemnified party shall give reasonably prompt notice to each indemnifying party
of any action or proceeding commenced against it in respect of which indemnity
may be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 3.5 or 3.6 above, unless and to the extent it did
not otherwise learn of such action and the lack of notice by the indemnified
party results in the forfeiture by the indemnifying party of substantial rights
and defenses and (ii) shall not, in any event, relieve the indemnifying party
from any obligations to the indemnified party other than the indemnification
obligation provided under Section 3.5 or 3.6 above. If the indemnifying party so
elects within a reasonable time after receipt of notice, the indemnifying party
may assume the defense of the action or proceeding at the indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
--------
however, that if the defendants in any such action or proceeding include both
- -------
the indemnified party and the indemnifying party and the indemnified party
reasonably determines based upon advice of legal counsel experienced in such
matters, that there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense, which counsel shall be chosen by the indemnified party and
approved by the indemnifying party, which approval shall not be unreasonably
withheld; provided further, that it is understood that the indemnifying party;
-------- -------
shall not be liable for the fees, charges and disbursements of more than one
separate firm. If the indemnifying party does not assume the defense, after
having received the notice referred to in the first sentence of this Section,
the indemnifying party will pay the reasonable fees and expenses of counsel for
the indemnified party; in that event, however, the indemnifying party will not
be liable for any settlement effected without the written consent of the
indemnifying party. If an indemnifying party assumes the defense of an action or
proceeding in accordance with this Section, the indemnifying party shall not be
liable for any fees and expenses of counsel for the indemnified party incurred
thereafter in connection with that action or proceeding except as set forth in
the proviso in the second sentence of this Section 3.7. Unless and until a final
judgment is rendered that an indemnified party is not entitled to the costs of
defense under the provisions of this Section, the indemnifying party shall
reimburse, promptly as they are incurred, the indemnified party's costs of
defense.
11
<PAGE>
Section 3.8 Contribution.
(a) If the indemnification provided for in Section
3.5 or 3.6 hereof is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by indemnified party as a result of
such losses, claims, damages or liabilities as between the Company on the one
hand and each Selling Holder on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of each Selling Holder in
connection with such statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or such Selling Holder, and the Company's and the
Selling Holder's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(b) The Company and the Selling Holders agree that it
would not be just and equitable if contribution pursuant to this Section 3.8
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
Section 3.8(a). The amount paid or payable by an indemnifying party as a result
of the losses, claims, damages or liabilities referred to in Sections 3.5 and
3.6 hereof shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.8, no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities of such Selling Holder were offered to the public
exceeds the amount of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 3.9 Participation in Underwritten Registrations. No
Holder may participate in any underwritten registration hereunder unless the
Holder (a) agrees to sell his or its Registrable Securities on the basis
provided in the applicable underwriting arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents in customary form as reasonably required under
the terms of such underwriting arrangements.
Section 3.10 Holdback Agreements. Each Holder whose
securities are included in a Demand Registration Statement or Piggyback
Registration Statement agrees not to effect any sale or distribution of the
securities registered or any similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 under the Securities Act, during the fourteen (14)
days prior to, and during the ninety (90)-day period beginning on, the effective
date of such registration statement (except as part of such registration), if
and to the extent requested in writing by the Company in
12
<PAGE>
the case of a non-underwritten public offering or if and to the extent requested
in writing by the managing underwriter or underwriters in the case of an
underwritten public offering.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 Specific Performance. The parties hereto
acknowledge that there would be no adequate remedy at law if any party fails to
perform any of its obligations hereunder, and accordingly agree that each party,
in addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of the obligation of any other
party under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction,
Section 4.2 Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the prior written consent of the
Company and the Holders holding at least two-thirds (2/3rds) of the then
outstanding Registrable Securities and Exchangeable LLC Units. No failure or
delay by any party to insist upon the strict performance of any covenant, duty,
agreement or condition of this Agreement or to exercise any right or remedy
consequent upon any breach thereof shall constitute a waiver of any such breach
or any other covenant, duty, agreement or condition.
Section 4.3 Notices. Any notice required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given (a) when delivered by hand or upon transmission by telecopier or similar
facsimile transmission device, (b) on the date delivered by a courier service,
or (c) on the third Business Day after mailing by registered or certified mail,
postage prepaid, return receipt requested, in any case addressed as follows:
(a) if to any Holder, to c/o The Boyer Company, L.C.,
127 South 500 East, Suite 310, Salt Lake City, Utah 84102, or to such other
address and to such other Persons as the Holders may hereafter notify the
Company in writing; and
(b) if to the Company, to Health Care Property
Investors, Inc., 4675 MacArthur Court, Suite 900, Newport Beach, California
92660 (Attention: Edward J. Henning), or to such other address as the Company
may hereafter specify in writing.
Section 4.4 Successors and Assigns. The rights and
obligations of the Holders under this Agreement shall not be assignable by any
Holder to any Person that is not a Holder. This Agreement shall be binding upon
the parties hereto, the Holders and their respective successors and assigns
(including lenders in foreclosure).
Section 4.5 Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
13
<PAGE>
Section 4.6 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of California
without regard to the conflicts of law provisions thereof.
Section 4.7 Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 4.8 Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the subject matter of this Agreement.
Section 4.9 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of any provision of this Agreement.
Section 4.10 Selling Holders Become Party to this Agreement.
By asserting or participating in the benefits of registration of Registrable
Securities pursuant to this Agreement, each Holder agrees that it or he will be
deemed a party to this Agreement and be bound by each of its terms.
Section 4.11 Rule 144. The Company covenants that it will file
any reports required to be filed by it under the Securities Act and the Exchange
Act to the extent required from time to time to enable Holders to sell
Registrable Securities without registration under the Securities Act within the
limitations of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
filed such reports.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By: ________________________________
Name: Edward J. Henning
Title: Senior Vice President, General
Counsel and Corporate Secretary
UNITHOLDERS
THE BOYER COMPANY, L.C.,
a Utah limited liability company, in
its capacity as Manager of each
limited liability company named below
as a "Unitholder" and in its capacity
as General Partner of each limited
partnership named below as a
"Unitholder"
By: ________________________________
Name: Kem C. Gardner
Title: President and Manager
<TABLE>
<CAPTION>
Property Unitholder
- -------- ----------
<S> <C>
[OLD MILL II] BOYER OLD MILL II, L.C., a Utah limited liability company
[ARUP I/ARUP II] BOYER-RESEARCH PARK ASSOCIATES, LTD., a Utah limited partnership
[ARUP III] BOYER RESEARCH PARK ASSOCIATES VII, L.C., a Utah limited liability company
CHIMNEY RIDGE, L.C., a Utah limited liability company
[MYRIAD I/MYRIAD III] BOYER-FOOTHILL ASSOCIATES, LTD., a Utah limited partnership
[MYRIAD II] BOYER RESEARCH PARK ASSOCIATES VI, L.C., a Utah limited liability company
[STANSBURY] BOYER STANSBURY II, L.C., a Utah limited liability company
[RANCHO VISTOSO] BOYER RANCHO VISTOSO, L.C., a Utah limited liability company
[WESLEY] BOYER-ALTA VIEW ASSOCIATES, LTD., a Utah limited partnership
[HCA SUPPLY] BOYER KAYSVILLE ASSOCIATES, L.C., a Utah limited liability company
[TATUM BOYER TATUM HIGHLANDS DENTAL CLINIC, L.C., a Utah limited liability company
DENTAL]
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
[LANSING] AMARILLO BELL ASSOCIATES, a Utah general partnership
[EVANSTON] BOYER EVANSTON, L.C., a Utah limited liability company
[DENVER I/ BOYER DENVER MEDICAL, L.C., a Utah limited liability company
DENVER II]
[NORTHWEST II] BOYER NORTHWEST MEDICAL CENTER TWO, L.C., a Utah limited liability company
[CALDWELL] BOYER CALDWELL MEDICAL, L.C., a Utah limited liability company
</TABLE>
16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>5
<FILENAME>dex107.txt
<DESCRIPTION>HCPI 2000 STOCK INCENTIVE PLAN EFFECTIVE 3/23/2000
<TEXT>
<PAGE>
EXHIBIT 10.7
HEALTH CARE PROPERTY INVESTORS, INC.
2000 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of the 2000 Stock Incentive Plan (the "Plan") of Health
Care Property Investors, Inc. (the "Company") is to promote the interests of
the Company and its stockholders by strengthening the Company's ability to
attract, motivate and retain employees, consultants and directors of training,
experience and ability, and to provide a means to encourage stock ownership
and proprietary interest in the Company to valued employees, consultants and
directors of the Company upon whose judgment, initiative, and efforts the
continued financial success and growth of the business of the Company largely
depend. The Plan is a new plan of the Company which also amends, restates,
merges and continues the Second Amended and Restated Directors Stock Incentive
Plan of Health Care Property Investors, Inc. (the "Directors Plan"). Upon the
approval of the Company's stockholders of this Plan, the Directors Plan will
terminate and be of no further force or effect. Any outstanding awards under
the Directors Plan as of the date of the stockholders' approval of the Plan
shall be administered as herein stated and such awards may be reissued under
the Plan if they are subsequently forfeited or expire before being exercised.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Based Award" means an award, as described in Section
7(g), that, if paid, must be paid in cash and that are neither denominated in
nor have a value derived from the value of, nor an exercise or conversion
privilege at a price related to, shares of Common Stock.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee of the Board (or
another committee of the Board assuming the functions of the Committee under
this Plan).
(e) "Common Stock" means the $1.00 par value Common Stock of the
Company.
(f) "Company" means Health Care Property Investors, Inc.
(g) "Consultant" means any consultant or adviser if (i) the
consultant or adviser renders bona fide services to the Company; (ii) the
services rendered by the consultant or adviser are not in connection with the
offer or sale of securities in a capital-raising transaction and do not
directly or indirectly promote or maintain a market for the Company's
securities;
<PAGE>
and (iii) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.
(h) "Date of Grant" means with respect to the Special Option,
January 4, 2000 and with respect to any other Incentive Award granted to
Directors, the last Thursday of April of each year (beginning April 28, 1997).
(i) "Director" means a member of the Board who is not an Employee.
(j) "Directors Plan" means the Second Amended and Restated
Directors Stock Incentive Plan.
(k) "Disability" means the total and permanent incapacity of an
Employee or Director, due to physical impairment or legally established mental
incompetence, to perform the usual duties of an Employee or a member of the
Board, as applicable, which disability shall be determined on the basis of (i)
medical evidence by a licensed physician designated by the Company or (ii)
evidence that the Employee or Director has become entitled to receive primary
benefits as a disabled employee under the Social Security Act in effect on the
date of such disability.
(l) "Dividend Equivalents" means the right, under such terms as
are determined in the discretion of the Committee, to receive the equivalent
value (in cash or Common Stock) of dividends paid on Common Stock, awarded
pursuant to Section 7(e).
(m) "Effective Date" means March 23, 2000.
(n) "Eligible Person" means any Employee, Consultant or Director.
(o) "Employee" means any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any of its
present or future parent or subsidiary corporations.
(p) "Fair Market Value" means for a share of Common Stock as of a
given date shall be the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any
(or as reported on any composite index which includes such principal
exchange), on such date, or if shares were not traded on such date, then on
the next preceding date on which a trade occurred.
(q) "Incentive Award" means an Option, Dividend Equivalent,
Incentive Stock Award, or Cash Based Award granted under the Plan.
(r) "Incentive Stock Award" means a right to the grant or
purchase, at a price determined by the Committee, of Common Stock of the
Company which is nontransferable and
2
<PAGE>
subject to substantial risk of forfeiture until specific conditions are met.
Conditions may be based on continuing employment or attainment of performance
goals which are related to one or more of the Performance Criteria or a
combination thereof.
(s) "NAREIT" means The National Association of Real Estate
Investment Trusts (or successor thereto).
(t) "NAREIT Total Return" means the average Total Return for the
healthcare equity segment as published in the NAREIT Performance Indices by
NAREIT.
(u) "Option" means a nonqualified or nonstatutory stock option
and with respect to grants made to Directors, also includes a Special Option,
as defined in Section 9(a)(i).
(v) "Participant" means any Eligible Person selected to
participate in an Incentive Award pursuant to Section 5(a).
(w) "Performance Criteria" means the following business criteria
with respect to the Company, any subsidiary or any division or operating unit:
(i) net income, (ii) pre-tax income, (iii) operating income, (iv) cash flow,
(v) earnings per share, (vi) return on equity, (vii) return on invested
capital or assets, (viii) cost reductions or savings, (ix) funds from
operations, (x) appreciation in the fair market value of Common Stock and (xi)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
(x) "Permissible Termination" means a Director's (i) death, (ii)
Disability, (iii) removal from the Board without cause (not including a
failure to be re-elected) or (iv) Retirement from the Board.
(y) "Plan" means the 2000 Stock Incentive Plan as set forth
herein, which may be further amended from time to time.
(z) "Retirement" means the Participant (i) reached age sixty five
and completed five years of service as an Employee or a Board member or (ii)
reached the age of sixty and completed fifteen years of service as an Employee
or a Board member.
(aa) "Section 162(m) Participant" means any key Employee
designated by the Committee as a key Employee whose compensation for the
fiscal year in which the key Employee is so designated or a future fiscal year
may be subject to the limit on deductible compensation imposed by Section
162(m) of the Code.
(bb) "Total Return" means for any person for any calendar year the
sum of (X) the per share Fair Market Value as of December 31 of such year
minus the per share Fair Market Value of the Common Stock as of January 1 of
such year and (Y) the aggregate dividends paid to stockholders during such
calendar year, divided by (Z) the per share Fair Market Value as
3
<PAGE>
of January 1 of such year, as such definition may be amended by NAREIT.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 3(e) and Section 10 of
the Plan, the number of shares of Common Stock that may be issued or
transferred or exercised pursuant to Incentive Awards under the Plan after the
Effective Date shall not exceed 2,500,000 shares, plus the number of shares
authorized and available for issuance under the Directors Plan as of the date
of the stockholders' approval of the Plan; provided, however, that of the
authorized number of shares under the Plan, the number of shares that may be
issued or transferred or exercised pursuant to Incentive Stock Awards or
Dividend Equivalents under the Plan after the Effective Date shall not exceed
500,000 shares.
(b) Subject to the provisions of Section 10, the maximum number
of shares of Common Stock with respect to which options or rights may be
granted to any Participant during any one calendar year is 750,000 shares (the
"Award Limit"). To the extent required by Section 162(m) of the Code, shares
subject to Options which are canceled continue to be counted against the Award
Limit.
(c) The shares of Common Stock to be delivered under the Plan
shall be made available, at the discretion of the Board or the Committee,
either from authorized but unissued shares of Common Stock or from previously
issued shares of Common Stock reacquired by the Company, including shares
purchased on the open market.
(d) If any Incentive Award expires or is canceled without having
been fully exercised, or is exercised in whole or in part for cash as
permitted by this Plan, the number of shares subject to such Incentive Award
or other right but as to which such Incentive Award was not exercised prior to
its expiration, cancellation or exercise may again be optioned, granted or
awarded hereunder, subject to the limitations of Sections 3(a) and 3(b).
Furthermore, any shares subject to Incentive Awards which are adjusted
pursuant to Section 10 and become exercisable with respect to shares of stock
of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Sections
3(a) and 3(b). Shares of Common Stock which are delivered by the Participant
or withheld by the Company upon the exercise of an Incentive Award, in payment
of the exercise price thereof, may again be optioned, granted or awarded
hereunder, subject to the limitations of Sections 3(a) and 3(b). If any
Incentive Award is forfeited or repurchased by the Company, such share may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 3(a) and 3(b).
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee. The Committee
shall consist
4
<PAGE>
solely of two members appointed by and holding office at the pleasure of the
Board, each of whom is both an "outside director" for purposes of Section
162(m) of the Code and a "non-employee director" as defined by Rule 16b-3
under the Securities Exchange Act of 1934 ("Rule 16b-3"). The Committee may
include more than two members appointed by the Board so long as such
additional members are "outside directors" for purposes of Section 162(m) of
the Code and are a "non-employee director" as defined by Rule 16b-3 or, if not
a "non-employee director" at the time of any Incentive Award grant, the grant
of an Incentive Award must otherwise satisfy an exemption under Rule 16b-3.
Committee members may resign at any time by delivering written notice to the
Board. Vacancies in the Committee may be filled by the Board.
(b) The Committee has and may exercise such powers and authority
of the Board as may be necessary or appropriate for the Committee to carry out
its functions as described in the Plan. The Committee has authority in its
discretion to determine the Eligible Persons to whom, and the time or times at
which, Incentive Awards may be granted and the number of shares subject to
each Incentive Award. The Committee also has authority to interpret the Plan,
and to determine the terms and provisions of the respective Incentive Awards
agreements and to make all other determinations necessary or advisable for
Plan administration. The Committee has authority to prescribe, amend, and
rescind rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee shall be final, conclusive, and
binding upon all parties.
(c) No member of the Board or the Committee shall be liable for
any action or determination made in good faith by the Board or the Committee
with respect to the Plan or any Incentive Award under it.
(d) If NAREIT amends its definition of Total Return or the NAREIT
Total Return is no longer available, the Committee may redefine Total Return
and NAREIT Total Return to correspond to such amended definition or to replace
such definition.
5. ELIGIBILITY.
(a) Any Employee or Consultant, who has been determined by the
Committee to be a key Employee or Consultant, and any Director is eligible to
receive Incentive Awards under the Plan. The Committee has authority, in its
sole discretion, to determine and designate from time to time those Eligible
Persons who are to be granted Incentive Awards, and the type and amount of
Incentive Award to be granted.
(b) Each Incentive Award shall be evidenced by a written
instrument and may include any other terms and conditions consistent with the
Plan, as the Committee may determine. If grants of Incentive Awards, at the
discretion of the Committee, are intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, the award
agreements shall contain such terms and conditions as may be necessary to meet
the
5
<PAGE>
applicable provisions of Section 162(m) of the Code.
6. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS
(a) The Committee, in its discretion, may determine whether an
Incentive Award is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant an Incentive Award to a Section 162(m) Participant,
including Incentive Stock Awards, Dividend Equivalents, and Cash Based Awards,
which vests or becomes exercisable or payable upon the attainment of
performance goals which are related to one or more of the Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
any Incentive Award granted under Section 7 or Section 8 which may be granted
to one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in
writing, (i) designate one or more Section 162(m) Participants, (ii) select
the Performance Criteria applicable to the fiscal year or other designated
fiscal period or period of service, (iii) establish the various performance
targets, in terms of an objective formula or standard, and amounts of such
Incentive Awards, as applicable, which may be earned for such fiscal year or
other designated fiscal period or period of service and (iv) specify the
relationship between Performance Criteria and the performance targets and the
amounts of such Incentive Awards, as applicable, to be earned by each Section
162(m) Participant for such fiscal year or other designated fiscal period or
period of service. Following the completion of each fiscal year or other
designated fiscal period or period of service, the Committee shall certify in
writing whether the applicable performance targets have been achieved for such
fiscal year or other designated fiscal period or period of service. In
determining the amount earned by a Section 162(m) Participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designated fiscal period or period of
service.
(d) Furthermore, notwithstanding any other provision of the Plan,
any Incentive Award which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described
in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to
the extent necessary to
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conform to such requirements.
7. TERMS AND CONDITIONS OF STOCK OPTIONS, DIVIDEND EQUIVALENTS AND CASH
BASED AWARDS.
(a) The purchase price of Common Stock under each Option shall be
determined by the Committee, and may not be less than 100% of the Fair Market
Value of the Common Stock on the date of the grant.
(b) Options may be exercised as determined by the Committee but
in no event after ten years from the date of grant; provided, however, that in
the event of the Participant's Retirement (or if the Participant retires with
the consent of the Company or any subsidiary thereof at an earlier age), death
or Disability while employed by the Company, all Options, right to credit or
credits for Dividend Equivalents and Cash Based Awards then outstanding under
the Plan shall be fully vested and immediately exercisable or immediately
payable.
(c) Except as set forth below, upon the exercise of an Option,
the purchase price shall be payable in full in cash, or, in the discretion of
the Committee, by the assignment and delivery to the Company of shares of
Common Stock owned by the optionee (or issuable to the Participant upon
exercise of the Option); or in the discretion of the Committee, by a
promissory note secured by shares of Common Stock bearing interest at a rate
determined by the Committee but not less than the minimum rate permitted by
the Internal Revenue Service; or by a combination of any of the above. Any
shares so assigned and delivered to the Company in payment or partial payment
of the purchase price shall be valued at their Fair Market Value on the
exercise date. The Committee may, in its discretion and upon the request of
the optionee, issue shares of Common Stock upon the exercise of an Option
directly to a brokerage firm or firms to be selected by the Committee, without
payment of the purchase price by the optionee but upon delivery of an
irrevocable guarantee by such brokerage firm or firms of the payment of such
purchase price. No payment by an assignment of shares, by a promissory note or
by any combination thereof, or by the guarantee of a brokerage firm or firms
as described above, shall be allowed unless such payments are allowed under
applicable requirements of Federal and state tax, securities and other laws,
rules and regulations and by any regulatory authority having jurisdiction.
(d) The Committee may, in its sole discretion, authorize all or a
portion of the Options to be granted to an optionee to be on terms which
permit transfer by such optionee to (i) any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, including adoptive relationships, any person
sharing the household (other than a tenant or employee) of the optionee
("Family Members"), (ii) a trust in which such Family Members have more than
fifty percent of the beneficial interest, (iii) a foundation in which such
Family Members or the optionee control the management of assets, or (iv) any
other entity in which such Family Members or the optionee own more than fifty
percent of the
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voting interests, provided that (w) there may be no consideration for any such
transfer, (x) the stock option agreement pursuant to which such options are
granted must expressly provide for transferability in a manner consisted with
this Section, (y) the Committee, in its sole discretion, shall approve any
transfer in advance, and (z) subsequent transfers of transferred options shall
be prohibited except by will or the laws of descent and distribution.
Following transfer, any such options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer. The
events of termination of employment of Section 14(d) shall continue to be
applied with respect to the original optionee, following which the options
shall be exercisable by the transferee only to the extent, and for the periods
specified in Section 14.
(e) The right to be credited with Dividend Equivalents may be
granted to a Participant in the discretion of the Committee. The Committee
shall determine (i) the number of shares of Common Stock subject to the
Dividend Equivalents, (ii) the period during which Dividend Equivalents shall
be credited to the Participant's account, (iii) the timing of payment to the
Participant of Dividend Equivalents credited to the Participant's account and
(iv) any other limitations and conditions as it deems appropriate with respect
to the crediting and payment of Dividend Equivalents. In addition, the
Committee, in its discretion, may determine whether a right to be credited
with Dividend Equivalents is to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code.
(f) No fractional shares shall be issued pursuant to the exercise
of an Option or the determination of Dividend Equivalents nor shall any cash
payment be made in lieu of fractional shares.
(g) Cash Based Awards may be granted to Participants at the
discretion of the Committee, which provide Participants with the opportunity
to earn a cash payment based upon the level of performance of the Company
relative to one or more Performance Criteria established by the Committee for
an award cycle as determined by the Committee, consisting of any period of
time up to five years. For each award cycle, the Committee shall determine
the amount of the Cash Based Award, the Performance Criteria, the performance
target levels as to each of the Performance Criteria and the weighting of the
Performance Criteria, if more than one Performance Criteria is applicable.
Cash Based Awards to Section 162(m) Participants that are either granted or
become vested, exercisable or payable based on attainment of one or more
Performance Criteria shall only be granted as performance-based compensation
under Section 162(m)(4)(C)of the Code. Cash Based Awards may be subject to
any condition imposed by the Committee, including a reservation of the right
to revoke a Cash Based Award at any time before it is paid.
(h) An Option held by, those rights to credits of Dividend
Equivalents granted to, and Dividend Equivalents credited to a person who was
an Eligible Person at the time such Option and right to credits or credits of
Dividend Equivalents were granted shall expire immediately if and when the
Participant ceases to be an Eligible Person, except as follows:
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(i) If the employment or service of a Participant is
terminated by the Company or any subsidiary thereof other than for
cause, for which the Company shall be the sole judge, then the Options
and/or the right to credits or credits of Dividend Equivalents shall
expire eight months thereafter unless by their terms they expire
sooner. During said period, the Options may be exercised and credits
of Dividend Equivalents made in accordance with their terms, but only
to the extent allowable on the date of termination of employment.
(ii) In the event of the Participant's Retirement or if
the Participant retires with the consent of the Company or any
subsidiary thereof at an earlier age, the Options and/or right to
credits or credits of Dividend Equivalents of the Participant shall
expire three years thereafter unless by their terms they expire
sooner. During said period, the Options may be exercised and credits
of Dividend Equivalents made in accordance with their terms, but only
to the extent allowable on the date of Retirement, subject to the
accelerated vesting of such Options and/or rights to credits or
credits of Dividend Equivalents on the date of Retirement.
(iii) In the event of the Participant's death or Disability
while employed by the Company, the Options and/or right to credits or
credits of Dividend Equivalents of the Participant shall expire three
years after the date of death or Disability of the Participant unless
by their terms they expire sooner. In the event of the Participant's
death or Disability within the eight months referred to in
subparagraph (i) above, the Options and/or right to credits or credits
of Dividend Equivalents shall expire one year after the date of death
or Disability of the Participant unless by their terms they expire
sooner. In the event of the Participant's death or Disability within
the three-year period referred to in subparagraph (ii) above, the
Options and/or right to credits or credits of Dividend Equivalents
shall expire upon the later of three years after Retirement or one
year after the date of death or Disability of the Participant unless
by their terms they expire sooner.
(i) The Committee may in its sole discretion determine, with
respect to an Incentive Award, that any Participant who is on leave of absence
for any reason shall be considered as still in the employ of the Company,
provided that rights to such Incentive Award during a leave of absence shall
be limited to the extent to which such right was earned or vested at the
commencement of such leave of absence.
8. TERMS AND CONDITIONS OF INCENTIVE STOCK AWARDS.
(a) All shares of Incentive Stock Awards granted or sold pursuant
to the Plan shall be subject to the following conditions:
(i) The shares may not be sold, transferred or otherwise
alienated or
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hypothecated until the restrictions are removed or expire.
(ii) The Committee may require the Participant to enter
into an agreement providing that the certificates representing
Incentive Stock Awards granted or sold pursuant to the Plan shall
remain in the physical custody of the Company until all restrictions
are removed or expire.
(iii) Each certificate representing Incentive Stock Awards
granted pursuant to the Plan shall bear a legend making appropriate
reference to the restrictions imposed.
(iv) The Committee may impose other conditions on any
shares granted or sold pursuant to the Plan as it may deem advisable,
including, without limitation, restrictions under the Securities Act
of 1933, as amended, under the requirements of any stock exchange upon
which such shares or shares of the same class are then listed and
under any blue sky or other securities laws applicable to such shares.
(b) The restrictions imposed under subparagraph (a) above upon
Incentive Stock Awards shall lapse in accordance with a schedule or other
conditions as determined by the Committee; provided, however, in the event of
the Participant's Retirement (or if the Participant retires with the consent
of the Company or any subsidiary thereof at an earlier age), death or
Disability while employed by the Company, all Incentive Stock Awards then
outstanding under the Plan shall be fully vested and immediately exercisable
and all restrictions shall immediately cease.
(c) The Committee, in its discretion, may determine whether an
Incentive Stock Award is to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code.
(d) Subject to the provisions of subparagraph (a) above, the
holder thereof shall have all rights of a stockholder with respect to the
Incentive Stock Awards granted or sold, including the right to vote the shares
and receive all dividends and other distributions paid or made with respect
thereto.
(e) Except as set forth below, the purchase price (if any) for
shares of Incentive Stock Awards shall be payable in full in cash; or by the
assignment and delivery to the Company of shares of Common Stock owned by the
holder of the Incentive Stock Awards; or by a promissory note secured by
shares of Common Stock bearing interest at a rate equal to the minimum rate
permitted by the Internal Revenue Service; or by a combination of any of the
above. Any shares so assigned and delivered to the Company in payment or
partial payment of the purchase price shall be valued at their Fair Market
Value on the purchase date. The Committee may, in its discretion and upon the
request of the holder, issue shares of the Incentive Stock Award directly to a
brokerage firm or firms to be selected by the Committee, without payment of
the purchase price by the holder but upon delivery of an irrevocable
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<PAGE>
guarantee by such brokerage firm or firms of the payment of such purchase
price. No payment by an assignment of shares, by a promissory note or by any
combination thereof, or by the guarantee of a brokerage firm or firms as
described above, shall be allowed unless such payments are allowed under
applicable requirements of Federal and state tax, securities and other laws,
rules and regulations and by any regulatory authority having jurisdiction.
9. TERMS AND CONDITIONS OF INCENTIVE AWARDS TO DIRECTORS
(a) With respect to grants of Options to Directors:
(i) Each Director who was serving in such capacity as of
January 4, 2000 (a "Year 2000 Director") was granted on
January 4, 2000 an Option to acquire 21,000 shares of Common Stock
(the "Special Option").
(ii) Prior to the termination of the Plan, for each of
year 2000, 2001 and 2002, each Year 2000 Director who is serving
in such capacity on the applicable Date of Grant shall be granted on
such Date of Grant:
(A) 400 shares of Incentive Stock Awards; and
(B) If in the preceding calendar year the Total
Return for the Company exceeds by three percentage points the
NAREIT Total Return, an Option to acquire an additional 3,000
shares of Common Stock.
(iii) Prior to the termination of the Plan, on each Date of
Grant beginning in 2003 and thereafter, each Year 2000 Director who is
serving in such capacity on each Date of Grant shall be granted on
each Date of Grant beginning in 2003:
(A) An Option to acquire 7,000 shares of Common
Stock;
(B) 400 shares of Incentive Stock Awards; and
(C) If in the preceding calendar year the Total
Return for the Company exceeds by three percentage points the
NAREIT Total Return, an Option to acquire an additional 3,000
shares of Common Stock.
(iv) Prior to the termination of the Plan, each Director,
other than a Year 2000 Director, who is serving in such capacity on
each Date of Grant shall be granted on each Date of Grant:
(A) An Option to acquire 7,000 shares of Common
Stock;
(B) 400 shares of Incentive Stock Awards; and
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<PAGE>
(C) If in the preceding calendar year the Total
Return for the Company exceeds by three percentage points the
NAREIT Total Return, an Option to acquire an additional 3,000
shares of Common Stock.
(v) Each Option will be evidenced by a written instrument
including terms and conditions consistent with the Plan, as the
Committee may determine. The purchase price of Common Stock under each
Option will be the Fair Market Value of the Common Stock on the Date
of Grant. Notwithstanding any other provision to the contrary
contained in the Plan, each Option will expire not later than ten
years from the Date of Grant.
(vi) The Special Option granted under the Plan shall be
exercisable in the following cumulative installments: (A) the Special
Option with respect to 7,000 shares of Common Stock shall be
exercisable by any Year 2000 Director on the last Thursday of April,
2001 so long as such Year 2000 Director is a member of the Board on
the last Thursday of April, 2000, (B) the Special Option with
respect to 7,000 shares of Common Stock shall be exercisable by any
Year 2000 Director on the last Thursday of April, 2002 so long as such
Year 2000 Director is a member of the Board on the last Thursday of
April, 2001, and (C) the Special Option with respect to 7,000 shares
of Common Stock shall be exercisable by any Year 2000 Director on the
last Thursday of April, 2003 so long as such Year 2000 Director is a
member of the Board on the last Thursday of April, 2002. Each Option
granted under the Plan, other than a Special Option, may not be
exercised for a period of one year after the Date of Grant. After an
Option, other than a Special Option, becomes exercisable, such Option
may be exercised with respect to all shares of Common Stock covered
thereby during its term as provided hereunder. Notwithstanding the
foregoing, upon a Director's Permissible Termination, all Options then
outstanding under the Plan shall be fully vested and immediately
exercisable.
(vii) Upon the exercise of an Option, the purchase price
will be payable in full in cash; or by the assignment and delivery to
the Company of shares of Common Stock owned by the holder of the
Option (or issuable to the Director upon exercise of the Option);
or by a promissory note secured by shares of Common Stock bearing
interest at a rate equal to the minimum rate permitted by the Internal
Revenue Service; or by a combination of any of the above. Any shares
so assigned and delivered to the Company in payment or partial
payment of the purchase price will be valued at their Fair Market
Value on the exercise date. No payment by an assignment of shares or
by a promissory note or by any combination thereof will be allowed
unless such payments are allowed under applicable requirements of
Federal and state tax, securities and other laws, rules and
regulations and by any regulatory authority having jurisdiction.
(viii) Subject to subparagraph (v), each Option granted to a
Director will
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<PAGE>
expire at the time the Director ceases to be a Director, except as
follows:
(A) If the service of the Director is terminated
by the Company other than for cause, for which the Company
will be the sole judge, then the Option will expire eight
months after the date of termination unless by the Option's
terms it expires sooner.
(B) In the event of the Director's Retirement or
the Director retires with the consent of the Company at an
earlier age, the Option will expire three years after the
date of termination unless by the Option's terms it
expires sooner.
(C) In the event of the Director's death or
Disability while serving in such capacity, the Option will
expire three years after the date of death or Disability of
the Director unless by the Option's terms it expires sooner.
In the event of the Director's death or Disability within the
eight months referred to in subparagraph (A) above, the
Option will expire one year after the death or Disability of
the Participant unless by the Option's terms it expires
sooner. In the event of the Director's death or Disability
within the three-year period referred to in subparagraph (B)
above, the Option will expire upon the later of three years
after Retirement or one year after the date of death or
Disability of the Director unless by the Option's terms it
expires sooner.
(b) All shares of Incentive Stock Awards granted pursuant to the
Plan to Directors will be subject to the following conditions:
(i) Each grant of 400 shares of an Incentive Stock Award
shall vest at a rate of 100 shares per year with the first 100 shares
beginning one year after the Date of the Grant.
(ii) The unvested portion of any Incentive Stock Award
grant shall be forfeited to the Company upon termination of a
director's membership on the Board unless such Director's termination
is a Permissible Termination.
(iii) All Incentive Stock Awards shall become vested
immediately upon a Director's Permissible Termination.
(iv) Incentive Stock Awards may not be sold, transferred or
otherwise alienated or hypothecated until the restrictions are removed
or expire.
(v) Each certificate representing an Incentive Stock Award
granted pursuant to the Plan will bear a legend making appropriate
reference to the restrictions imposed.
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(vii) The Committee may impose other conditions on any
shares granted or sold pursuant to the Plan as it may deem advisable,
including, without limitation, restrictions under the Securities Act
of 1933, as amended, under the requirements of any stock exchange upon
which such shares or shares of the same class are then listed and
under any blue sky or other securities laws applicable to such shares.
(viii) Unless and until any shares of an Incentive Stock
Award are forfeited to the Company as provided in subsection (b)
above, the holder thereof will have all rights of a stockholder with
respect to the Incentive Stock Award granted or sold, including the
right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
10. ADJUSTMENT PROVISIONS.
(a) Subject to Sections 10(b), if the outstanding shares of
Common Stock of the Company are increased, decreased, or exchanged for a
different number or kind of shares or other securities, or if additional
shares or new or different shares or other securities are distributed with
respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other distribution with respect to such shares
of Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (i) the maximum number and kind of shares provided
in Section 3, (ii) the number and kind of shares or other securities subject
to the then outstanding Incentive Awards, and (iii) the price for each share
or other unit of any other securities subject to then outstanding Incentive
Awards without change in the aggregate purchase price or value as to which
such Incentive Awards remain exercisable or subject to restrictions.
(b) Despite the provisions of Section 10(a), upon a Change in
Control (as defined below) all Incentive Awards then outstanding under the
Plan will be fully vested and exercisable and all restrictions will
immediately cease, unless provisions are made in connection with such
transaction for the continuance of the Plan and the assumption or the
substitution for such Incentive Awards of new incentive awards covering the
stock of a successor employer corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and prices.
In addition, subject to the preceding sentence with respect to grants of
Options which are outstanding on the date of a Change in Control, such
Options, to the extent then exercisable (including Options which become
exercisable by a Change in Control), shall not expire until the later of the
date specified in the Participant's stock option agreement or the third
anniversary after the date of the Participant's termination of employment or
service with the Company; provided, however, that in no event shall such
Options be exercisable more than ten (10) years from the date of grant.
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A Change in Control shall be deemed to occur if:
(i) any Person (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) is
or becomes the Beneficial Owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities ("Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i), the
following shall not constitute a Change of Control: (a) any
acquisition directly from the Company, (b) any acquisition by the
Company or any corporation controlled by the Company, (c) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company, (d) any acquisition by a Person of 25% of the Outstanding
Company Voting Securities as a result of an acquisition of common
stock of the Company by the Company which, by reducing the number
of shares of common stock of the Company outstanding, increases the
proportionate number of shares beneficially owned by such Person to
25% or more of the Outstanding Company Voting Securities; provided,
however, that if a Person shall become the beneficial owner of 25% or
more of the Outstanding Company Voting Securities by reason of a share
acquisition by the Company as described above and shall, after such
share acquisition by the Company, become the beneficial owner of any
additional shares of common stock of the Company, then such
acquisition shall constitute a Change of Control or (e) any
acquisition pursuant to a transaction which complies with subsection
(iii) of this Section 9(b)
(ii) during any period of two consecutive years
(not including any period prior to the execution of this Plan),
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a
transaction described in Sections 9(b)(i), (ii) or (iv)) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (K) of
the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for
election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at
least a majority thereof;
(iii) the consummation by the company of a merger or
consolidation of the Company with any other corporation (or other
entity), other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than 66-K% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a
recapitalization of the Company
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<PAGE>
(or similar transaction) in which no Person acquires more than
25% of the combined voting power of the Company's then outstanding
securities shall not constitute a Change in Control; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(c) Adjustments under Section 10(a) and 10(b) shall be made by
the Committee, whose determination as to what adjustments shall be made and
the extent thereof shall be final, binding, and conclusive. No fractional
interest shall be issued under the Plan on account of any such adjustments.
(d) In the event of a pending or threatened takeover bid or
tender offer and pursuant to which 10% or more of the outstanding securities
of the company is acquired, whether or not deemed a tender offer under
applicable state or Federal laws, or in the event that any person makes any
filing under sections 13(d) or 14(d) of the Securities Exchange Act of 1934
with respect to the Company, the Committee may in its sole discretion, without
obtaining stockholder approval, at the time of any one or more of the
following actions to the extent permitted in Section 14 with respect to all
Eligible Persons and Participants:
(i) Accelerate the exercise dates of any outstanding
Option, make all outstanding Options or Cash Based Awards fully
vested and exercisable, accelerate the crediting of Dividend
Equivalents or make all credits in a Participant's account
immediately payable;
(ii) Determine that all or any portion of conditions
associated with an Incentive Stock Award have been met;
(iii) Pay cash to any or all Option or Dividend Equivalent
holders in exchange for the cancellation of their outstanding
nonstatutory Options or Dividend Equivalents; or
(iv) Make any other adjustments or amendments to the Plan
and outstanding Incentive Awards and substitute new Incentive Awards.
11. TAX WITHHOLDING.
The Company shall be entitled to require payment in cash or deduction
from other compensation payable to each Participant of any sums required by
Federal, state or local tax law to be withheld with respect to the issuance,
vesting, exercise or payment of any Incentive Award. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such
Participant to elect to have the Company withhold shares of Common Stock
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<PAGE>
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
Notwithstanding any other provision of the Plan, the number of shares of
Common Stock which may be withheld with respect to the issuance, vesting,
exercise or payment of any Incentive Award (or which may be repurchased from
the Participant of such Incentive Award within six months after such shares of
Common Stock were acquired by the Participant from the Company) in order to
satisfy the Participant's Federal and state income and payroll tax liabilities
with respect to the issuance, vesting, exercise or payment of the Incentive
Award shall be limited to the number of shares which have a Fair Market Value
on the date of withholding or repurchase equal to the aggregate amount of such
liabilities based on the minimum statutory withholding rates for Federal and
state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.
12. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to
the Plan shall confer upon any Participant any right to continue in the employ
of the Company or any of its subsidiaries or affect the right of the Company
to terminate the employment of any Participant at any time with or without
cause.
(b) No shares of Common Stock shall be issued or transferred
pursuant to an Incentive Award unless and until all then applicable
requirements imposed by Federal and state securities and their laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any
stock exchanges upon which the Common Stock may be listed, having been fully
met. As a condition precedent to the issuance of shares pursuant to the grant
or exercise of an Incentive Award, the Company may require the Participant to
take any reasonable action to meet such requirements.
(c) No Participant and no beneficiary or other person claiming
under or through such Participant shall have any right, title or interest in
or to any shares of Common Stock allocated or reserved under the Plan or
subject to any Incentive Award except as to such shares of Common Stock, if
any, that have been issued or transferred to such Participant.
(d) The Company may make such provisions as they deem appropriate
to withhold any taxes the Company determines it is required to withhold in
connection with any Incentive Award.
(e) The Company may make a loan to a Participant in connection
with (i) the exercise of an Option in an amount not to exceed the aggregate
exercise price of the Option being exercised and the grossed up amount of any
Federal and state taxes payable in connection with such exercise for the
purpose of assisting such optionee to exercise such Option and (ii) the
vesting of an Incentive Stock Award in an amount equal to the grossed up
amount of any Federal and state taxes payable as a result of such vesting. Any
such loan may
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<PAGE>
be secured by shares of Common Stock or other collateral deemed adequate by the
Committee and shall comply in all respects with all applicable laws and
regulations. The Committee may adopt policies regarding eligibility for such
loans, the maximum amounts thereof and any terms and conditions not specified in
the Plan upon which such loans shall be made. In no event shall the interest
rate be less than the minimum rate established by the Internal Revenue Service
for the purpose of the purchase and sale of property.
(f) The forms of Options and/or the right to credits or credits
for Dividend Equivalents granted under the Plan may contain such other
provisions as the Committee may deem advisable. Without limiting the foregoing
and if so authorized by the Committee, the Company may, with the consent of
the Participant, and at any time or from time to time, cancel the right to
credits or credits for Dividend Equivalents or all or a portion of any Option
granted under the Plan then subject to exercise and discharge its obligation
in respect of the Option and/or the right to credits or credits for Dividend
Equivalents either by payment to the Participant of an amount of cash equal to
the excess, if any, of the Fair Market Value, at such time, of the shares
subject to the portion of the Option and/or the right to credits or credits
for Dividend Equivalents so cancelled over the aggregate purchase price
specified in the Option and/or the right to credits or credits for Dividend
Equivalents covering such shares, or by issuance or transfer to the
Participant of shares of Common Stock with a Fair Market Value, at such time,
equal to any such excess, or by a combination of cash and shares. Upon any
such payment of cash or issuance of shares, (i) there shall be charged against
the aggregate limitations set forth in Section 3(a) a number of shares equal
to the number of shares so issued plus the number of shares purchasable with
the amount of any cash paid to the Participant on the basis of the Fair Market
Value as of the date of payment, and (ii) the number of shares subject to the
portion of the Option so cancelled, less the number of shares so charged
against such limitations, shall thereafter be available for other grants.
(h) No Incentive Award shall be granted which would violate the
Company's articles of incorporation or which would cause the Company to not
qualify as a real estate investment trust.
(i) No Participant may make an election under Section 83(b) of
the Code regarding any Incentive Award without the prior consent of the
Committee in its sole discretion.
(j) No Incentive Award and no right under the Plan, contingent or
otherwise, shall be assignable or transferable or subject to any encumbrance,
pledge or charge of any nature, subject to the provisions of Section 7(d),
except that, under such rules and regulations as the Company may establish
pursuant to the terms of the Plan, a beneficiary may be designated with
respect to an Incentive Award in the event of death of a Participant. If such
beneficiary is the executor or administrator of the estate of the Participant,
any rights with respect to such Incentive Award may be transferred to the
person or persons or entity (including a trust) entitled thereto under the
will of the holder of such Incentive Award.
18
<PAGE>
(k) Notwithstanding any other provision of the Plan, the Plan,
and any Incentive Award granted or awarded to any individual who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan and Incentive Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule.
13. APPROVAL OF PLAN BY STOCKHOLDERS.
The Plan shall be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial
adoption of the Plan. Incentive Awards may be granted or awarded prior to such
stockholder approval, provided that such Incentive Awards shall not be
exercisable nor shall such Incentive Awards vest prior to the time when the
Plan is approved by the stockholders, and provided further that if such
approval has not been obtained at the end of said twelve-month period, all
Awards previously granted or awarded under the Plan shall thereupon be
canceled and become null and void. In addition, if the Board determines that
Incentive Awards other than Options which may be granted to Section 162(m)
Participants should continue to be eligible to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria
must be disclosed to and approved by the Company's stockholders no later than
the first stockholder meeting that occurs in the fifth year following the year
in which the Company's stockholders previously approved the Performance
Criteria.
14. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any subsidiary. Nothing in the
Plan shall be construed to limit the right of the Company (a) to establish any
other forms of incentives or compensation for Employees, Directors or
Consultants of the Company or any subsidiary or (b) to grant or assume options
or other rights or awards otherwise than under the Plan in connection with any
proper corporate purpose including but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, limited liability company, firm or association
15. AMENDMENT AND TERMINATION.
19
<PAGE>
(a) The Committee shall have the power, in its discretion, to
amend, suspend or terminate the Plan at any time. No such amendment shall,
without approval of the stockholders of the Company, except as provided in
Section 10 of the Plan, increase the number of shares of Common Stock subject
to the Plan or make any other change to the Plan that would require
stockholder approval as a matter of applicable law, stock exchange regulation
or exemptive condition. In addition, subject to Section 10(a), no amendment to
the Plan shall permit repricing of any outstanding Incentive Awards.
(b) The Committee may, with the consent of a Participant, make
such modifications in the terms and conditions of an Incentive Award agreement
as it deems advisable including accelerating the vesting and exercise dates of
any outstanding Options and making grants of Common Stock equal to all
outstanding credits of Dividend Equivalents; provided, however, no
modifications of an Incentive Award agreement shall permit repricing of any
outstanding Incentive Awards.
(c) No amendment, suspension or termination of the Plan shall,
without the consent of the Participant, alter, terminate, impair or adversely
affect any right or obligation under any Incentive Award previously granted
under the Plan.
16. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
This 2000 Stock Incentive Plan shall become effective upon adoption
by the Board and the holders of a majority of the outstanding shares at a
meeting of the stockholders of the Company. Unless previously terminated, the
Plan shall terminate on April 28, 2008. If not approved, this 2000 Incentive
Plan shall not take effect and the Second Amended and Restated Directors Stock
Incentive Plan shall remain in full force and effect.
20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>6
<FILENAME>dex1013.txt
<DESCRIPTION>HCPI AMENDED & RESTATED EXECUTIVE RETIREMENT PLAN
<TEXT>
<PAGE>
EXHIBIT 10.13
AMENDED AND RESTATED
HEALTH CARE PROPERTY INVESTORS, INC.
EXECUTIVE RETIREMENT PLAN
<PAGE>
AMENDED AND RESTATED EXECUTIVE RETIREMENT PLAN
----------------------------------------------
PREAMBLE
--------
The principal objective of this Amended and Restated Executive
Retirement Plan is to ensure the payment of a competitive level of retirement
income in order to attract, retain, and motivate selected executives. The Plan
is designed to provide a benefit which, when added to other retirement income
of the executive, shall meet the objective described above. Eligibility for
participation in the Plan shall be limited to executives selected by a
committee of the Board of Directors. This Plan amends and restates the
Company's Executive Retirement Plan which became effective on May 1, 1988 and
was previously twice amended, effective as of January 1, 1993 and May 1, 2000.
As amended and restated, this Plan shall become effective on November 30, 2001.
SECTION 1
---------
DEFINITIONS
-----------
1.1 "Accrued Benefit" means, as of any determination date, (i) in the case
- ---
of a Participant who has not attained age 65 or the date of the determination,
the Participant's retirement benefit to begin at his Normal Retirement Date and
(ii) in the case of a Participant who has attained age 65 as of the date of the
determination, the Participant's benefit to be begin as of the date of the
determination; determined pursuant to Section 3.1 or Section 3.4, respectively,
and based on the Participant's Final Average Earnings and Years of Service as
of the Participant's Normal Retirement Date, or date of the determination, as
the case may be.
1.2 "Change in Control" means a "Change in Control" of the Company, as
- ---
"Change in Control" is defined in the Company's Employment Agreement with the
Company's Chief Executive Officer, as such definition may be amended from time
to time.
2
<PAGE>
1.3 "Committee" means the Compensation Committee of the Board of Directors
- ---
of the Company, which the Board of Directors has given authority to administer
this Plan.
1.4 "Company" means Health Care Property Investors, Inc.
- ---
1.5 "Disability" means any termination from the Company's employment during
- ---
the life of a Participant and prior to age 65 by reason of a Participant's
total and permanent disability, as determined by the Committee, in its sole and
absolute discretion. A Participant, who makes application for and qualifies for
disability benefits under the Company's disability plan or under any similar
plan provided by the Company, as now in effect or as hereinafter amended (the
"LTD Plans"), shall qualify for Disability under this Plan, unless the
committee determines that the Participant is not totally and permanently
disabled. A Participant who fails to qualify for disability benefits under the
LTD Plans (whether or not the Participant makes application for disability
benefits thereunder) shall not be deemed to be totally and permanently disabled
under this Plan, unless the Committee otherwise determines, based upon the
opinion of a qualified physician or medical clinic selected by the Committee to
the effect that a condition of total and permanent disability exists.
1.6 "Earnings" means total annual cash compensation, including base
- ---
salary, annual incentive awards, and deferred compensation. Specifically
excluded from "Earnings" shall be the value of stock grants (and dividends
therefrom), stock options, automobile allowances and any severance benefits or
any payments triggered by a change in control (as defined in the applicable
plan, agreement or other document) of the Company. A Participant's "Annual
Earnings" shall consist of the base salary paid to the Participant during any
fiscal year of the Company, any bonuses payable to the Participant with respect
to such year, determined on the accrual method, and any
3
<PAGE>
compensation which the Participant deferred with respect to such year pursuant
to the terms of any qualified or non-qualified retirement or deferred
compensation plan of the Company.
1.7 "Final Average Earnings" means, with respect to any Participant, the
- ---
average of the Participant's three highest, not necessarily consecutive, Annual
Earnings.
1.8 "Participant" means an employee of the Company designated as a
- ---
Participant by the Committee. An employee shall become a Participant in the
Plan as of the date he or she is individually selected by, and specifically
named in the resolutions of, the Committee to be included in the Plan.
1.9 "Plan" means the Company's Amended and Restated Executive Retirement
- ---
Plan.
1.10 "Retirement" means the termination of a Participant's employment with
- ----
the Company on one of the retirement dates specified in Section 2.1.
1.11 "Service" means a Participant's total years of employment with the
- ----
Company from date of hire to date of termination of employment, including
employment with National Medical Enterprises, Inc., immediately preceding
employment with the Company.
1.12 "Surviving Spouse" means (i) in the case of a Participant who retires
- ----
from the Company's employment, the spouse of a Participant who is legally
married to the Participant on the date of the Participant's Retirement and (ii)
in the case of a Participant who dies while employed by the Company, the spouse
of a Participant who is legally married to the Participant on the date of the
Participant's death.
4
<PAGE>
1.13 "Trust," "Trust Agreement," "Trust Fund" and "Trustee" have the
- ----
meanings set forth in Section 6.
1.14 "Years of Service" shall be the number of full and partial years of
- ----
Service, with proration for any partial Year of Service based on the number of
completed months of Service in such year.
1.15 Where appearing in the Plan, the masculine gender shall be deemed to
- ----
include the feminine gender, and the singular may include the plural, unless
the context clearly indicates the contrary.
SECTION 2
---------
ELIGIBILITY FOR BENEFITS
------------------------
2.1 Each Participant is eligible to retire and receive a benefit under this
- ---
Plan beginning on one of the following dates:
(a) "Normal Retirement Date," which is the first day of the month following
the month in which the Participant reaches age 65 and has completed 5
Years of Service.
(b) "Early Retirement Date," which is the first day of any month following
the month in which the Participant reaches age 55 and has completed 5
Years of Service.
(c) "Postponed Retirement Date," which is the first day of the month
following the Participant's Normal Retirement Date in which the
Participant terminates employment with the Company.
2.2 Except as otherwise provided in the Plan, no benefits are payable
- ---
hereunder unless the Participant retires on an Early Retirement, Normal
Retirement or Postponed Retirement Date.
5
<PAGE>
2.3 If any Participant entitled to a benefit under this Plan is discharged
- ---
for cause, or enters into competition with the Company, or interferes with the
relations between the Company and any person, firm or entity with whom the
company does business or engages in any activity that would result in any
decrease or loss by the Company, the rights of such Participant to a benefit
under this Plan, including the rights of a Surviving Spouse to a benefit, shall
be forfeited, unless the Committee determines that such activity is not
detrimental to the best interests of the Company. However, if the individual
ceases such activity and notifies the Committee of this action, then the
Participant's right to receive a benefit, and any right of a Surviving Spouse
to a benefit, may be restored within 60 days of said notification, unless the
Committee at its sole discretion determines that the prior activity has caused
serious injury to the Company, which determination shall be final and
conclusive.
SECTION 3
---------
AMOUNT AND FORM OF RETIREMENT BENEFIT
-------------------------------------
3.1 The annual retirement benefit payable to a Participant for his lifetime
- ---
at a Normal Retirement Date under the Plan shall be equal to 30% of Final
Average Earnings plus 4% of Final Average Earnings times Years of Service after
age 60 to a maximum of 5 years.
3.2 The annual benefit payable to a Participant for his lifetime at an
- ---
Early Retirement Date shall be equal to the benefit determined in Section 3.1
multiplied by the following factors according to the Years of Service of the
Participant on Early Retirement Date and the age of the Participant on the date
the benefit begins:
<TABLE>
<CAPTION>
Service Reduction Factor Age Reduction Factor
- ---------------------------------------------------- ----------------------------------------------
Completed Years of Service
and Under Age 60 Factor Age When Benefit Begins Factor*
- ------------------------------ --------------- ------------------------- --------------
<S> <C>
4 0%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5 50 60 75%
6 60 61 80
7 70 62 85
8 80 63 90
9 90 64 95
10 or more 100 65 100
</TABLE>
* .417% for each month between whole ages.
Completed Years of Service
and Age 60 and Over Factor
- ------------------------------ ------------------
4 0%
5 or more 100%
3.3 The annual benefit payable to a Participant for his lifetime at a
- ---
Postponed Retirement Date shall be equal to 30% of Final Average Earnings plus
4% of Final Average Earnings times Years of Service after age 60.
3.4 The benefit determined under this Plan shall be payable in the form of
- ---
an annuity for the Participant and his spouse (if any), as provided below, or
in any other form approved by the Committee and elected by the Participant.
SECTION 4
---------
PAYMENT OF RETIREMENT BENEFITS
------------------------------
4.1 Benefits payable in accordance with Section 3 shall begin on
- ---
the Participant's date of Retirement or, in the case of Early Retirement, on
the first day of any month following the Participant's Early Retirement Date
but not later than his Normal Retirement Date, as the Participant may elect.
Benefits shall continue to be paid on the first day of each succeeding month.
The last payment shall be on the later of the first day of the month in which
the retired Participant dies or, if the Participant has a Surviving Spouse, the
first day of the month in which the Surviving Spouse dies, unless the
Participant elects another form of benefit in accordance with Section 3.4.
7
<PAGE>
4.2 Any Participant who is under Disability upon reaching his Normal
- ---
Retirement Date shall be paid his retirement benefit under Section 3.1. Upon a
Participant's Disability while an employee of the Company, the Participant
shall continue to accrue Years of Service during his Disability to the maximum
amount permitted by Section 3.1 until the earliest of (a) his recovery from
Disability, (b) his 65th birthday or (c) his death. For the purpose of
determining the Participant's benefit hereunder, the Participant's Final
Average Earnings shall be determined on the basis of his Earnings up to the
date of Disability.
SECTION 5
---------
DEATH BENEFITS PAYABLE
----------------------
5.1 If a Participant should die before or after the Participant's
- ---
Retirement and has a Surviving Spouse, the Surviving Spouse shall receive an
annual benefit for her lifetime equal to 50% of the amount of the Participant's
retirement benefit determined in accordance with Section 3.
5.2 A Surviving Spouse's benefits shall be payable monthly, and shall begin
- ---
on the first day of the month following the month in which the Participant
dies. The last payment shall be on the first day of the month in which the
Surviving Spouse dies.
SECTION 6
---------
ESTABLISHMENT AND FUNDING OF TRUST
----------------------------------
6.1 If a Participant so elects, upon a Participant's Retirement, and in
- ---
any event, immediately prior to a Change in Control, the Company shall
establish a Trust as a part of the Plan in order to implement and carry out the
provisions of the Plan and to finance the benefits under the Plan. The Company
shall establish the Trust by entering into a Trust Agreement with a Trustee
selected by the Committee. The Trust shall be an irrevocable grantor Trust
within the meaning of sections 671
8
<PAGE>
through 679 of the Internal Revenue Code of 1986, as amended, and the Company
shall be treated as the owner of the Trust for income tax purposes. It is
intended that the Trust shall be in such form as may be necessary for the Plan
to be deemed unfunded for purposes of the Employee Retirement Income Security
Act of 1974, as amended.
6.2 The Trustee of the Trust shall maintain a Trust Fund. The
- ---
administration and management of the Trust Fund shall be set forth in the Trust
Agreement, the terms of which shall be consistent with the provisions of this
Plan. Nothing in the Trust Agreement shall impair the rights of a Participant
nor shall the agreement limit the obligations of the Company under this Plan.
6.3 Upon a Participant's Retirement, if a Participant has elected to have
- ---
the Company establish a Trust under Section 6.1, and in any event, immediately
prior to a Change in Control, the Company shall make a contribution of cash to
the Trust in an amount which is equal to the present value of the Accrued
Benefits of all Participants, as determined by the Committee as of the date of
the Participant's Retirement or Change in Control, as the case may be. Annually
thereafter, commencing on the last day of the first fiscal year ending after
the date of the Participant's Retirement or Change in Control, as the case may
be, the Company shall make additional contributions to the Trust as the
Committee shall determine are necessary in order to continue to fully fund the
Accrued Benefits of all Participants as of such date.
6.4 In the event of the establishment and funding of a Trust under Section
- ---
6.1, all benefits payable to a Participant after the date of the establishment
of the Trust shall be paid from the Trust Fund. To the extent the Trust Fund is
insufficient to pay all required benefits under the Plan, payment of benefits
shall be made from the general assets of the Company. Upon the satisfaction of
9
<PAGE>
all of the Plan's liabilities to all Participants and their Surviving Spouses,
any assets remaining the Trust shall be returned to the Company.
SECTION 7
---------
MISCELLANEOUS
-------------
7.1 The Committee may, at its sole discretion, terminate, suspend, or amend
- ---
this Plan at any time or from time to time, in whole or in part. However, no
amendment or suspension of the Plan shall affect a Participant's right to
receive an Accrued Benefit, or a retired Participant's or Surviving Spouse's
right to continue to receive a benefit in accordance with this Plan.
7.2 Nothing contained herein shall confer upon any Participant the right to
- ---
be retained in the service of the Company, nor shall it interfere with the
Company's right to discharge or otherwise deal with Participants without regard
to the existence of this Plan.
7.3 To the maximum extent permitted by law, no benefit under this Plan
- ---
shall be assignable or subject to any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment, or encumbrances of any kind.
7.4 The Committee may adopt rules and regulations to assist it in
- ---
administering the Plan.
7.5 Each Participant shall receive a copy of this Plan, and the Committee
- ---
shall make available for inspection by any Participant a copy of the rules and
regulations used by the Committee in administering the Plan.
7.6 This Plan is established under and shall be construed according to the
- ---
Employee Retirement Income Security Act of 1974, as amended.
10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>7
<FILENAME>dex1021.txt
<DESCRIPTION>AMENDED & RESTATED LIMITED LIABILITY CO. 8/17/2000
<TEXT>
<PAGE>
EXHIBIT 10.21
================================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
HCPI/UTAH II, LLC
a Delaware limited liability company
Dated as of August ___, 2001
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <c> <C> <C>
ARTICLE 1. DEFINED TERMS....................................................................................1
ARTICLE 2. ORGANIZATIONAL MATTERS..........................................................................20
Section 2.1 Formation....................................................................20
Section 2.2 Name.........................................................................20
Section 2.3 Registered Office and Agent; Principal Place of Business; Other Places
of Business...............................................................20
Section 2.4 Power of Attorney............................................................21
Section 2.5 Term.........................................................................22
ARTICLE 3. PURPOSE.........................................................................................22
Section 3.1 Purpose and Business.........................................................22
Section 3.2 Powers.......................................................................22
Section 3.3 Specified Purposes...........................................................23
Section 3.4 Representations and Warranties by the Members; Disclaimer of Certain
Representations...........................................................23
ARTICLE 4. CAPITAL CONTRIBUTIONS...........................................................................25
Section 4.1 Capital Contributions of the Initial Members.................................25
Section 4.2 Additional Members...........................................................25
Section 4.3 Loans........................................................................25
Section 4.4 Additional Funding and Capital Contributions.................................25
Section 4.5 No Interest; No Return.......................................................26
ARTICLE 5. DISTRIBUTIONS...................................................................................26
Section 5.1 Requirement and Characterization of Distributions............................26
Section 5.2 Distributions in Kind........................................................27
Section 5.3 Amounts Withheld.............................................................27
Section 5.4 Distributions Upon Liquidation...............................................28
Section 5.5 Restricted Distributions.....................................................28
Section 5.6 Distributions of Proceeds from Sale of Real Properties and Refinancing
Debt......................................................................28
ARTICLE 6. ALLOCATIONS.....................................................................................29
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss..................29
Section 6.2 General Allocations..........................................................30
Section 6.3 Additional Allocation Provisions.............................................31
Section 6.4 Tax Allocations..............................................................33
Section 6.5 Other Provisions.............................................................33
Section 6.6 Amendments to Allocation to Reflect Issuance of Additional Membership
Interests.................................................................34
</TABLE>
1
<PAGE>
<TABLE>
<S> <c> <C> <C>
ARTICLE 7. MANAGEMENT AND OPERATION OF BUSINESS............................................................34
Section 7.1 Management...................................................................34
Section 7.2 Certificate of Formation.....................................................38
Section 7.3 Restrictions on Managing Member's Authority..................................38
Section 7.4 Compensation of the Managing Member..........................................43
Section 7.5 Other Business of Managing Member............................................44
Section 7.6 Contracts with Affiliates....................................................45
Section 7.7 Indemnification..............................................................45
Section 7.8 Liability of the Managing Member.............................................47
Section 7.9 Other Matters Concerning the Managing Member.................................47
Section 7.10 Title to Company Assets......................................................48
Section 7.11 Reliance by Third Parties....................................................48
ARTICLE 8. RIGHTS AND OBLIGATIONS OF MEMBERS...............................................................49
Section 8.1 Limitation of Liability......................................................49
Section 8.2 Managing of Business.........................................................49
Section 8.3 Outside Activities of Members................................................49
Section 8.4 Return of Capital............................................................50
Section 8.5 Rights of Non-Managing Members Relating to the Company.......................50
Section 8.6 Exchange Rights..............................................................51
Section 8.7 Fiduciary Duties.............................................................53
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS..........................................................54
Section 9.1 Records and Accounting.......................................................54
Section 9.2 Fiscal Year..................................................................54
Section 9.3 Reports......................................................................54
Section 9.4 Cooperation Regarding Tax Matters Relating to Contributed Properties.........54
ARTICLE 10. TAX MATTERS....................................................................................55
Section 10.1 Preparation of Tax Returns...................................................55
Section 10.2 Tax Elections................................................................55
Section 10.3 Tax Matters Partner..........................................................56
Section 10.4 Organizational Expenses......................................................56
ARTICLE 11. TRANSFERS AND WITHDRAWALS......................................................................56
Section 11.1 Transfer.....................................................................56
Section 11.2 Transfer of Managing Member's Membership Interest............................56
Section 11.3 Non-Managing Members' Rights to Transfer.....................................57
Section 11.4 Substituted Members..........................................................59
Section 11.5 Assignees....................................................................59
Section 11.6 General Provisions...........................................................59
</TABLE>
2
<PAGE>
<TABLE>
<S> <c> <C> <C>
ARTICLE 12. ADMISSION OF MEMBERS...........................................................................61
Section 12.1 Admission of Successor Managing Member.......................................61
Section 12.2 Admission of Additional Members..............................................61
Section 12.3 Amendment of Agreement and Certificate.......................................62
Section 12.4 Limitation on Admission of Members...........................................62
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION.......................................................63
Section 13.1 Dissolution..................................................................63
Section 13.2 Exchange of Non-Managing Member Units........................................64
Section 13.3 Winding Up...................................................................64
Section 13.4 Deemed Distribution and Recontribution.......................................65
Section 13.5 Rights of Members............................................................66
Section 13.6 Notice of Dissolution........................................................66
Section 13.7 Cancellation of Certificate..................................................66
Section 13.8 Reasonable Time for Winding-Up...............................................66
Section 13.9 Liability of Liquidator......................................................66
ARTICLE 14. PROCEDURES FOR ACTIONS AND CONSENTS OF MEMBERS; AMENDMENTS; MEETINGS...........................67
Section 14.1 Procedures for Actions and Consents of Members...............................67
Section 14.2 Amendments...................................................................67
Section 14.3 Meetings of the Members......................................................67
ARTICLE 15. GENERAL PROVISIONS.............................................................................68
Section 15.1 Addresses and Notice.........................................................68
Section 15.2 Titles and Captions..........................................................68
Section 15.3 Pronouns and Plurals.........................................................68
Section 15.4 Further Action...............................................................69
Section 15.5 Binding Effect...............................................................69
Section 15.6 Creditors....................................................................69
Section 15.7 Waiver.......................................................................69
Section 15.8 Counterparts.................................................................69
Section 15.9 Applicable Law...............................................................69
Section 15.10 Entire Agreement.............................................................69
Section 15.11 Invalidity of Provisions.....................................................70
Section 15.12 Limitation to Preserve REIT Status...........................................70
Section 15.13 No Partition.................................................................71
Section 15.14 Non-Managing Member Representative...........................................71
Exhibit A Member Information............................................................................A-1
Exhibit B Notice of Exchange............................................................................B-1
Exhibit C Reimbursement Agreement.......................................................................C-1
Schedule 1.1 Reduced Tax Protection Period Property
Schedule 7.3 Existing Indebtedness
</TABLE>
3
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
HCPI/UTAH II, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
(this "Agreement") is made and entered into as of August __, 2001, by and among
Health Care Property Investors, Inc., a Maryland corporation (the "Managing
Member"), and the Persons whose names are set forth on Exhibit A as attached
---------
hereto (the "Non-Managing Members" and together with the Managing Member, the
"Members"), for the purpose of forming HCPI/Utah II, LLC, a Delaware limited
liability company (the "Company").
WHEREAS, the Managing Member, the Company, and each of the
parties identified on the signature page of that certain Contribution Agreement
dated as of the date hereof (the "Contribution Agreement") (collectively, the
"Transferor"), have entered into the Contribution Agreement, providing for the
contribution of certain assets to, and the acquisition of certain interests in,
the Company;
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Contribution Agreement that the parties hereto enter into
this Agreement;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1.
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Accounting Firm" has the meaning set forth in Section 7.3.H
hereof.
"Act" means the Delaware Limited Liability Company Act, as it
may be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Sectign 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.4.A
hereof.
"Additional Member" means a Person admitted to the Company as
a Member pursuant to Section 4.2 hereof.
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant Fiscal Year, after giving effect to the following
adjustments:
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decrease such deficit by any amounts that such Member
is obligated to restore pursuant to this Agreement or by operation of
law upon liquidation of such Member's Membership Interest or is deemed
to be obligated to restore pursuant to Regulation Section 1.704-1(b)
(2)(ii)(c) or the penultimate sentence of each of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
increase such deficit by the items described in
Regulations Section 1.704-1(b) (2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended to
comply with the provisions of Regulations Section 1.704-1(b) (2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the
event that: the Managing Member (i) declares or pays a dividend on its
outstanding REIT Shares in REIT S`ares or makes a distribution to all Members of
its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its
outstanding REIT Shares or (iii) effects a reverse stock split or otherwise
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Adjustment Factor shall be adjusted by multiplying the Adjustment Factor in
effect immediately prior to such adjustment by a fraction, (1) the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has occurred as of such time) and (2)
the denominator of which shall be the actual number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, split,
subdivision, reverse split or combination (assuming for such purposes that such
dividend, distribution, split, subdivision, reverse split or combination has not
occurred as of such time). Any adjustments to the Adjustment Factor shall become
effective immediately after the effective date of such event, retroactive to the
record date, if any, for such event.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly Controlling or Controlled by or under common Control with
such Person.
"Aggregate Sharing Amount" means$ with respect to any taxable
disposition of a Real Property, an amount equal to the excess, if any, of (i)
the Property Appreciation with respect to all Real Properties being sold or
previously sold by the Company; over (ii) the Unit Appreciation with respect to
all Real Properties being sold or previously sold by the Company.
"Agreement" means this Amended and Restated Limited Liability
Company Agreement of HCPI/Utah II, LLC, as it may be amended, supplemented or
restated from time to time.
"Appraisal" means, with respect to any assets, the written
opinion of an independent third party experienced in the valuation of similar
assets in the general location of the property being appraised, selected by the
Managing Member in good faith. Such opinion may be in the form of an opinion by
such independent third party that the value for such property or asset as set by
the Managing Member is fair, from a financial point of view, to the Company.
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"Appraised Value" means, with respect to any asset, including
any Contributed Property, the value of such asset as determined by Appraisal.
"Assignee" means a Person to whom one or more LLC Units have
been Transferred in a manner permitted under this Agreement, but who has not
become a Substituted Member, and who has the rights set forth in Section 11.5
hereof.
"Available Cash" means, with respect to any period for which
such calculation is being made:
the sum, without duplication, of:
the Company's net income or net loss (as the
case may be) for such period determined in accordance with
GAAP,
depreciation and all other noncash charges
to the extent deducted in determining net income or net loss
for such period pursuant to the foregoing clause (a)(1),
the amount of any reduction in reserves of
the Company (including, without limitation, reductions
resulting because the Managing Member determines such amounts
are no longer necessary), and
all other cash received (including, but not
limited to, Capital Contributions, amounts previously accrued
as net income and amounts of deferred income but excluding any
net amounts borrowed by the Company for such period) that was
not included in determining net income or net loss for such
period pursuant to the foregoing clause (a)(1);
less the sum, without duplacation, of:
----
all principal debt payments made during such
period by the Company,
capital expenditures made by the Company
during such period,
all other expenditures and payments not
deducted in determining net income or net loss for such period
pursuant to the foregoing clause (a)(1) (including amounts
paid in respect of expenses previously accrued),
any amount included in determining net
income or net loss for such period pursuant to the foregoing
clause (a)(1) that was not received by the Company during such
period, and
the amount of any increase in reserves
(including, without limitation, working capital reserves)
established during such period that the Managing Member
determines are necessary or appropriate in its sole and
absolute discretion.
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Notwithstanding the foregoing, Available Cash shall not include (i) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Company, (ii) Disposition Proceeds or (iii)
the proceeds of Refinancing Debt.
"Bankruptcy Law" meafs Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Beneficial Ownership" means ownership of REIT Shares by a
Person who is or would be treated as an owner of such REIT Shares either
actually or constructively through the application of Section 544 of the Code,
as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficially Own,"
"Beneficially Owned," "Beneficially Owns" and "Beneficial Owner" shall have the
correlative meanings.
"Built-in Gain" means the excess of the gross fair market
value of one or more of the Real Properties or Successor Properties over the
adjusted tax basis of such property or properties (as the case may be) for
federal income tax purposes, as determined as of the Effective Date, as reduced
from time to time in accordance with applicable provisions of the Code and
Regulations.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Los Angeles, California or Salt Lake
City, Utah are authorized or required by law to close.
"Call Notice" means a written notice to the Non-Managing
Members informing them of the Mafaging Member's election to call their
Non-Managing Member Units pursuant to Section 13.2 hereof.
"Capital Account" means, with respect to any Member, the
Capital Account maintained for such Member on the Company's books and records in
accordance with the following provisions:
To each Member's Capital Account, there shall be
added such Member's Capital Contributions, such Member's allocable
share of Net Income and any items of income or gain specially allocated
pursuant to Section 6.3 hereof, and the amount of any Company
liabilities assumed by such Member or that are secured by any property
distributed to such Member.
From each Member's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Member pursuant to any provision of this Agreement,
such Member's allocable share of Net Loss and any items of loss or
deductions specially allocated pursuant to Section 6.3 hereof, and the
amount of any liabilities of such Member assumed by the Company or that
are secured by any property contributed by such Member to the Company.
In the event any interest in the Company is
Transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to
the extent that it relates to the Transferred interest.
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In determining the principal amgunt of any liability
for purposes of subsections (a) and (b) above there shall be taken into
account Code Section 752(c) and any other applicable provisions of the
Code and Regulations.
The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations
Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied
in a manner consistent with such Regulations. If the Managing Member
shall determine that it is prudent to modify the manner in which the
Capital Accounts are maintained in order to comply with such
Regulations, the Managing Member may make such modification provided
that such modification will not change the amounts distributable to any
Member without such Member's Consent. The Managing Member also shall
(i) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Members and the amount of
Company capital reflected on the Company's balance sheet, as computed
for book purposes, in accordance with Regulations Section 1.704-1(b)
(2)(iv)(q) and (ii) make any appropriate modifications in the event
that unanticipated events might otherwise cause this Agreement not to
compdy with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Member, the
amount of money and the initial Gross Asset Value of any Contributed Property
that such Member contributes to the Company pursuant to Section 4.1, Section 4.2
or Section 4.4 hereof.
"Cash Amount" means an amount of cash equal to the product of
(a) the Value of a REIT Share and (b) the REIT Shares Amount determined as of
the applicable Valuation Date.
"Certificate" means the Certificate of Formation of the
Company filed in the office of the Secretary of State of the State of Delaware,
as amended from time to time in accordance with the terms hereof and the Act.
"Charter" means the Articles of Incorporation of the Managing
Member, as amended, supplemented or restated from time to time.
"Closing Price" means the closing price of a REIT Share on the
New York Stock Exchange.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time or any successor statute thereto, as interpreted by
the applicable Regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
"Company" means the limited liability company formed under the
Act and pursuant to this Agreement, and any successor thereto.
"Company Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b) (2) for the phrase "partnership minimum gain,"
and the amount of Company Minimum Gain, as well as any net increase or decrease
in Company Minimum Gain, for a Fiscal Year shall be determined in accordance
with the rules of Regulations Section 1.704-2(d).
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<PAGE>
"Consent" means the consent to, approval of, or vote on a
proposed action by a Member given in accordance with Article 14 hereof.
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"Consent of the Non-Managing Members" means the Consent of a
Majority in Interest of the Non-Managing Members, which Consent shall be
obtained prior to the taking of any action for which it is required by this
Agreement and, except as otherwise provided in this Agreement, may be given or
withheld by a Majority in Interest of the Non-Managing Members, in their
reasonable discretion.
"Constructive Ownership" means ownership of REIT Shares, or
any other interest in an entity by a Person who is or would be treated as an
owner thereof either actually or constructively through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructively Own," "Constructively Owned," "Constructively Owns" and
"Constructive Owner" shall have the correlative meanings.
"Contribution Agreement" means the Contribution Agreement of
even date herewith, by and between the Managing Member, the Company and the
parties identified on the signature page thereto.
"Control" means, when used with respect to any Person, the
possession directly or indirectly, of the power to direct or cause the direction
of the management and policies of that Person, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have correlative meanings.
"Custodian" means any receiver, trustee, assignee, liquidator
or other similar official under any Bankruptcy Law.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar ifstruments guaranteeing
payment or other performance of obligations by such Person; (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property gwned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof; and (iv) lease
obligations of such Person that, in accordance with GAAP, should be capitalized.
"Depreciation" means, for each Fiscal Year or other applicable
period, an amount equal to the federal income tax depreciation, amortization or
other cost recovery deduction allowable with respect to an asset for such year
or other period, except that, if the Gross Asset Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such year
or period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
period is zero, Depreciation shall be determined with
6
<PAGE>
reference to such beginning Gross Asset Value using any reasonable method
selected by the Managing Member.
"Development Agreement" means the Development Agreement of
even date herewith, by and between the Company, as "Owner", and The Boyer
Company, L.C., a Utah limited liability company.
"Dissolution Protection Period" means the period beginning on
the Effective Date and ending either (i) on the date on which the Initial
Threshold Test has been satisfied, if the Initial Threshold Test is satisfied at
any time prior to the third (3rd) anniversary of the Effective Date or (ii) on
the date on which the Subsequent Threshold Test is satisfied if the Initial
Threshold Test is not satisfied at any time prior to the third (3rd) anniversary
of the Effective Date.
"Disposition Proceeds" means the net proceeds (including a
reduction for any amount used for the repayment of any Debt and the payment of
any costs related thereto) received by the Company upon the taxable disposition
of some, but not all, of the Real Properties.
"Effective Date" means the date on which the transactions
contemplated by the Contribution Agreement to be consummated on the Initial
Closing Date are consummated at which time the contributions set forth on
Exhibit A that are to be effective on the Effective Date shall become effective.
- ---------
With respect to any future contributions, the Effective Date shall be the date
that such contributions are completed.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excess LLC Units" means any LLC Units held by a Non-Managing
Member to the extent that, if such LLC Units were exchanged for the REIT Shares
Amount pursuant to Section 8.6 hereof, such Non-Managing Member would
Beneficially Own or Constructively Own REIT Shares in excess of the Ownership
Limit or otherwise in violation of the Charter.
"Exchange" has the meaning set forth in Section 8.6.A hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Existing Indebtedness" has the meaning set forth in Section
7.3E(3) hereof.
"First Exchange Date" means the "Second Exchange Date" as
defined in that certain Amended and Restated Limited Liability Company Agreement
of HCPI/Utah, LLC dated as of January 20, 1999, as amended on June 30, 1999,
November 12, 1999, January 12, 2000, March 1, 2000, December 1, 2000, March 16,
2001, and March 30, 2001.
"First Traunch Non-Managing Member Units" has the meaning set
forth in Section 8.6.A hereof.
7
<PAGE>
"Fiscal Year" means the fiscal year of the Company, which
shall be the calendar year.
"Flip-Over Event" means the occurrence of a merger of the
Managing Member with and into another Person or the consolidation of the
Managing Member with another Person, or the merger of another Person with and
into the Managing Member or the sale or transfer of assets of the Managing
Member to another Person if, as a result of such merger, consolidataon or
transfer of assets the holder of Rights issued under the Rights Agreement would
be entitled under Section 13 of the Rights Agreement (or a comparable provision
in the event the Rights Agreement is amended) to purchase shares of common stock
of such other Person (including the Managing Member as the successor to such
other Person or as the surviving corporation) (the "Successor Person").
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be its fair market value,
as agreed to by such Member and the Managing Member, and set forth on
Exhibit A with respect to that Member.
---------
The Gross Asset Values of all Company assets
immediately prior to the occurrence of any event described in clause
(1), clause (2), clause (3), or clause (4) hereof shall be adjusted to
equal their respective gross fair market values, as determined by the
Managing Member using such reasonable method of valuation as it may
adopt, as of the following times:
the acquisition of an additional interest in
the Company (other than in connection with the execution of
this Agreement but including, without limitation, acquisitions
pursuant to Section 4.2 hereof or contributions or deemed
contributions by the Managing Member pursuant to Section 4.4
hereof) by a new or existing Member in exchange for more than
a de minimis Capital Contribution, if the Managing Member
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the
Members in the Company;
the distribution by the Company to a Member
of more than a de minimis amount of Company property as
consideration for an interest in the Company, if the Managing
Member reasonably determines that such adjustment is necessary
or appropriate to reflect the relative economic interests of
the Members in the Company;
the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b) (2)(ii)(g); and
at such other times as the Managing Member
shall reasonably determine necessary or advisable in order to
comply with Regulations Sections 1.704-1(b) and 1.704-2.
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<PAGE>
The Gross Asset Value of any Company asset
distributed to a Member shall be the gross fair market value of such
asset on the date of distribution as determined by the distributee and
the Managing Member, provided that, if the distributee is the Managing
Member or if the distributee and the Managing Member cannot agree on
such a determination, such gross fair market value shall be determined
by Appraisal.
At the election of the Managing Member, the Gross
Asset Values of Company assets shall be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant
to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b) (2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this subsection (d) to the extent that the Managing Member
reasonably determines that an adjustment pursuant to subsection (b)
above is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this subsection
(d).
If the Gross Asset Value of a Company asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such
asset for purposes of computing Net Income and Net Loss.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the United States accounting profession, which are
applicable to the facts and circumstances on the date of determination.
"HCPI/Stansbury" shall mean HCPI/Stansbury, LLC, a Delaware
limited liability company and Subsidiary of the Company.
"Incapacity" or "Incapacitated" means, (i) as to any Member
who is an individual, death, total physical disability or entry by a court of
competent jurisdiction adjudicating such Member incompetent to manage his or her
person or his or her estate; (ii) as to any Member that is a corporation or
limited liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or limited liability company or the revocation
of its charter; (iii) as to any Member that is a partnership, the dissolution
and commencement of winding up of the partnership; (iv) as to any Member that is
an estate, the distribution by the fiduciary of the estate's entire interest in
the Company; (v) as to any trustee of a trust that is a Member, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Member, the bankruptcy of such Member. For purposes of this definition,
bankruptcy of a Member shall be deemed to have occurred when (a) the Member
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Member under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Member is adjudged as bankrupt
or insolvent, or a final and non-appealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the
9
<PAGE>
Member, (c) the Member executes and delivers a general assignment for the
benefit of the Member's creditors, (d) the Member files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against the Member in any proceeding of the nature described in clause
(b) above, (e) the Member seeks, consents to or acquiesces in the appointment
of a trustee, receiver or liquidator for the Member or for all or any
substantial part of the Member's properties, (f) any proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within 120
days after the commencement thereof, (g) the appointment without the Member's
consent or acquiescence of a trustee, receiver or liquidator has not been
vacated or stayed within 90 days of such appointment, or (h) an appointment
referred to in clause (g) above is not vacated within 90 days after the
expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of its status as (a) the Managing Member or (b) a director of the
Managing Member or an officer or employee of the Company or the Managing Member
and (ii) such other Persons (including Affiliates of the Managing Member or the
Company) as the Managing Member may designate from time to time (whether before
or after the event giving rise to potential liability), in its sole and absolute
discretion.
"Initial Closing Date" has the meaning set forth in the
Contribution Agreement.
"Initial Non-Managing Members" means the Non-Managifg Members
who acquired their Non-Managing Member Units in exchange for the Real Properties
or the one hundred percent (100%) interest in HCPI/Stansbury.
"Initial Threshold Test" means a test which will be satisfied
on the date on which ninety percent (90%) of the LLC Units issued by the Company
to the Initial Non-Managing Members have been disposed of pursuant to a Taxable
Disposition or series of Taxable Dispositions.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Liquidating Event" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.3.A
hereof.
"LLC Distribution Date" means the date established by the
Managing Member for the payment of actual distributions declared by the Managing
Member pursuant to Sections 5.1 and 5.2, which date shall be the same as the
date established by the Managing Member for the payment of dividends to holders
of REIT Shares.
"LLC Record Date" means the record date established by the
Managing Member for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall be the same as the record date established by
the Managing Member for a dividend to holders of REIT Shares.
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<PAGE>
"LLC Units" means the Managing Member Units and the
Non-Managing Member Units, collectively.
"Majority in Interest of the Non-Managing Members" means those
Non-Managing Members (other than the Managing Member in its capacity as a holder
of Non-Managing Member Units) holding in the aggregate more than 50% of the
aggregate outstanding Non-Managing Member Units (other than those held by the
Managing Member).
"Majority of Remaining Members" means Non-Managing Members
owning a majority of the Non-Managing Member Units held by Non-Managing Members.
"Make-Whole Payment" has the meaning set forth in Section
7.3.G hereof.
"Managing Member" means Health Care Property Investors, Inc.,
a Maryland corporation, in its capacity as a Member, or any successor Managing
Member designated pursuant to the terms of this Agreement.
"Managing Member Shortfall" has the meaning set forth in
Section 5.1.A(2) hereof.
"Managing Member Unit" means a single unit of Membership
Interest of the Managing Member issued pursuant to Article 4 hereof, as the same
may be modified from time to time as provided in this Agreement. The ownership
of Managing Member Units may (but need not in the sole and absolute discretion
of the Managing Member) be evidenced in the form of a certificate for Managing
Member Units.
"Member Minimum Gain" means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Regulations Section 1.704-2(i) wath respect to "partner
nonrecourse debt minimum gain."
"Member Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b) (4) for the phrase "partner nonrecourse debt."
"Member Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2) for the phrase "partner nonrecourse
deductions," and the amount of Member Nonrecourse Deductions with respect to a
Member Nonrecourse Debt for a Fiscal Year shall be determined in accordance with
the rules of Regulations Section 1.704-2(i)(2).
"Members" means the Persons owning Membership Interests,
including the Managing Member, Non-Managing Members and any Additional and
Substitute Members, named as Members in Exhibit A attached hereto, which Exhibit
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A may be amended from time to time.
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"Membership Interest" means an ownership interest in the
Company representing a Capital Contribution by a Member and includes any and all
benefits to which the holder of such a Membership Interest may be entitled as
provided if this Agreement, together with all obligatigns of such Person to
comply with the terms and provisions of this Agreement.
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<PAGE>
A Membership Interest may be expressed as a number of Managing Member Units or
Non-Managing Member Units, as applicable.
"Net Income" or "Net Loss" means, for each Fiscal Year of the
Company, an amount equal to the Company's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Income
(or Net Loss) pursuant to this definition of "Net Income" or "Net Loss"
shall be added to (or subtracted from, as the case may be) such taxable
income (or loss);
Any expenditure of the Company described in Code
Section 705(a)(2)(b) or treated as a Code Section 705(a)(2)(b)
expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Net Income (or Net Loss)
pursuant to this definition of "Net Income" or "Net Loss," shall be
subtracted from (or added to, as the case may be) such taxable income
(or loss);
In the event that the Gross Asset Value of any
Company asset is adjusted pursuant to subsection (b) or subsection (c)
of the definition of "Gross Asset Value," the amount of such adjustment
shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Net Income or Net Loss;
In lieu of the depreciation, amortization and other
cost recovery deductions that would otherwise be taken into account in
computing such taxable income or loss, there shall be taken into
account Depreciation for such Fiscal Year;
To the extent that an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Member's interest in the Company, the amount of such adjustment shall
be treated as an item of gain (if the adjustment increases the basis of
t`e asset) or loss (if the adjustment decreases t`e basis of the asset)
from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
Notwithstanding any other provision of this
definition of "Net Income" or "Net Loss," any item allocated pursuant
to Section 6.3.A hereof shall not be taken into account in computing
gain, loss or deduction available to be allocated pursuant to Section
6.3.A hereof shall be determined by applying rules analogous to those
set forth in this definition of "Net Income" or "Net Loss."
"NMM Sharing Amount" means, with respect to any taxable
disposition of a Real Property, the product equal to (i) the Sharing Amount
multiplied by (ii) the NMM Sharing Percentage.
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"NMM Sharing Percentage" means a percentage equal to 1%
multiplied by a fraction with the numerator equal to the number of Non-Managing
Member Units then outstanding and the denominator equal to the number of
Non-Managing Member Units issued by the Company to all Initial Non-Managing
Members; provided, however, any NMM Units reduced pursuant to Section 8.6.D
hereof shall be subtracted from the denominator of such fraction.
"Non-Managing Member" means any Member other than the Managing
Member (except to the extent the Managing Member holds Non-Managing Member
Units).
"Non-Managing Member Representative" means Steven B. Ostler
until a successor Non-Managing Member Representative shall have been appginted
pursuant to Section 15.14 hereof and, thereafter, shall mean the person
appointed and then acting as the Non-Managing Member Representative hereunder.
"Non-Managing Member Unit" means a single unit of Membership
Interest issued to a Non-Managing Member pursuant to Section 4.1 hereof, as the
same may be modified from time to time as provided in this Agreement. The
ownership of Non-Managing Member Units shall be evidenced in the form of a
certificate for Non-Managing Member Units.
"Nonrecourse Debt Amount" means the amount of nonrecourse debt
of the Company allocable to the Non-Managing Members, as determined from time to
time in the reasonable discretion of the Non-Managing Member representative and
communicated to the Company and the Managing Member. Each Non-Managing Member
shall be solely responsible for ensuring that the Non-Managing Member
Representative properly informs the Managing Member and the Company regarding
Nonrecourse Debt Amount allocable to such Non-Managing Member. The Non-Managing
Member Representative has informed the Managing Member and the Company that the
Nonrecourse Debt Amount allgcable to the Non-Managing Members as of the date of
this Agreement is One Million Three Hundred Eighty-Five Thousand Two Hundred
Eighty-Two Dollars ($1,385,282.00).
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b) (1), and the amount of Nonrecourse Deductions for
a Fiscal Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Exchange" means the Notice of Exchange
substantially in the form of Exhibit B attached to this Agreement.
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"One Hundred Member Limit" has the meaning set forth in
Section 11.6.E hereof.
"Ownership Limit" means 9.8% of the number or value (whichever
is more restrictive) of outstanding REIT Shares. The number of REIT Shares shall
be determined by the Board of Directors of the Managing Member, in good faith,
which determination shall be conclusive for all purposes hereof.
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"Payment Quarter" has the meaning set forth in Section 5.1.A
hereof.
"Percentage Interest" means, as to a Member holding a
Membership Interest, its interest in the Company as determined by dividing the
LLC Units owned by such Member by the total number of LLC Units then outstanding
as specified in Exhibit A attached hereto, as it may be modified or supplemented
---------
from time to time.
"Person" means an individual or a corporation, partnership,
trust, unincorporated organization, association, limited liability company or
other entity.
"Preferred Return Per Unit" means with respect to each
Non-Managing Member Unit outstanding on a LLC Record Date an amount initially
equal to zero, and increased cumulatively on each LLC Record Date by an amount
equal to the product of (i) the cash dividend per REIT Share declared by the
Managing Member for holders of REIT Shares on that LLC Record Date, multiplied
by (ii) the Adjustment Factor in effect on that LLC Record Date; provided,
however, that the increase that shall occur in accordance with the foregoing on
the first LLC Record Date subsequent to June 30, 2001 shall be the foregoing
product of (i) and (ii) above multiplied by a fraction, the numerator of which
shall be the number of days in the period commencing on the date hereof and
ending on September 30, 2001, and the denominator of which shall be the number
of days in the period commencing on July 1, 2001 and ending on September 30,
2001.
"Preferred Return Shortfall" means, for any holder of
Non-Managing Member Units, the amount (if any) by which (i) the Preferred Return
Per Unit with respect to all Non-Managing Member Units held by such holder
exceeds (ii) the aggregate amount previously distributed with respect to such
Non-Managing Member Units pursuant to Section 5.1.A(1), Section 5.6.A(1) or
Section 5.6.B(1) hereof, together with cumulative interest accruing thereon at
the Prime Rate from the applicable LLC Record Date to the date of distribution.
"Prime Rate" means on any date, a rate equal to the annual
rate on such date announced by the Bank of New York to be its prime, base or
reference rate for 90-day unsecured loans to its corporate borrowers of the
highest credit standing but in no event greater than the maximum rate then
permitted under applicable law. If the Bank of New York discontinues its use of
such prime, base or reference rate or ceases to exist, the Managing Member shall
designate the prime, base or reference rate of another state or federally
chartered bank based in New York to be used for the purpose of calculating the
Prime Rate hereunder (which rate shall be subject to limitation by all
applicable usury laws).
"Properties" means any assets and property of the Company such
as, but not limited to, interests in real property (including the Real
Properties) and personal property, including, without limitation, fee interests,
interests in ground leases, interests in limited liability companies, joint
ventures or partnerships, interests in mortgages, and Debt instruments as the
Company may hold from time to time.
"Property Appreciation" means, with respect to a taxable
disposition of a Real Property, the excess of the sales price paid in such
disposition (including amounts paid through the assumption of debt) over the
initial Gross Asset Value of such Real Property.
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"Real Properties" has the meaning set forth in Section
7.3.E(2) hereof.
"Recourse Debt Amount" means, initially, a number equal to the
Total Required Debt Amount minus the Nonrecourse Debt Amount, but which number
shall in no event be less than zero. The Members acknowledge that the Recourse
Debt Amount, the Total Required Debt Amount and the Nonrecourse Debt Amount may
change as a result of any subsequent contribution of Property by a Non-Managing
Member to the Company or other events, including but not limited to, the
repayment or substitution of Company indebtedness. In such event, the
Non-Managing Member Representative shall provide the Managing Member and the
Company with advance written notice of the new Recourse Debt Amount, the
guarantee of which is necessary to prevent the recognition of gain by the
Non-Managing Members (or their direct or indirect owners), provided the accuracy
of such Recourse Debt Amount (and the components thereof) shall be subject to
the approval of the Managing Member, not to be unreasonably withheld. Such
notice shall be provided not less than thirty (30) days in advance of the date
such changes are to be effective, along with schedules which support the need
for such changes; provided, however, that in the event such changes are required
by reason of any repayment or substitution of indebtedness with respect to which
the Company has delivered notice to the Non-Managing Member Representative a
notice pursuant to Section 7.3.E(4) below, the foregoing notice shall be timely
if delivered not less than seven (7) days in advance of the date such changes
are to be effective. To the extent the Non-Managing Member reasonably cannot
determine the new Nonrecourse Debt Amount (or the components thereof) at the
time such notice is delivered, the notice shall include the Non-Managing
Member's best estimate of such amounts with periodic updates as such amounts
reasonably can be determined. Neither the Managing Member nor the Company shall
be responsible or liable in any way for making such determinations or for
requesting updates to information previously delivered to the Managing Member or
the Company.
"Reduction" has the meaning set forth in Section 8.6.D hereof.
"Reduction Date" has the meaning set forth in Section 8.6.D
hereof.
"Reduction Units" has the meaning set forth in Section 8.6.D
hereof.
"Refinancing Debt" means any Debt (other than indebtedness to
the Managing Member or any Affiliate of the Managing Member), the repayment of
which is secured by all or any portion of the Real Properties.
"Refinancing Debt Proceeds" means the net proceeds from any
Refinancing Debt incurred by the Company which remain after the repayment of any
Debt with proceeds of the Refinancing Debt and all costs related to the
Refinancing Debt.
"Regulations" means the applicable income tax regulations
under the Code, whether such regulations are in proposed, temporary or final
form, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section
6.3.A(7) hereof.
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<PAGE>
"REIT" means a real estate investment trust qualifying under
Code Section 856, et seq.
"REIT Member" means a Member or Assignee that is, or has made
an election to qualify as, a REIT.
"REIT Payment" has the meaning set forth in Section 15.12
hereof.
"REIT Requirements" has the meaning set forth in Section 5.1.B
hereof.
"REIT Share" means a share of the Common Stock of the Managing
Member, par value $1.00 per share.
"REIT Shares Amount" means a number of REIT Shares equal to
the product of (a) the number of Tendered Units and (b) the Adjustment Factor;
provided, however, that, in the event that the Managing Member issues Rights to
all holders of REIT Shares as of a certain record date, with the record date for
such Rights issuance falling within the period starting on the date of the
Notice of Exchange and ending on the day immediately preceding the Specified
Exchange Date, which Rights will not be distributed before the relevant
Specified Exchange Date, then the REIT Shares Amount shall also include such
Rights that a holder of that number of REIT Shares would be entitled to receive,
expressed, where relevant hereunder, in a number of REIT Shares determined by
the Managing Member in good faith. So long as the holder of Tendered Units is
not an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as
those terms are defined in the Rights Agreement), the number of REIT Shares
referenced in the preceding sentence shall be adjusted for the issuance,
distribution and triggering of exercisability of the Rights governed by the
Rights Agreement (so long as the Rights shall not previously have been redeemed
or expired pursuant to the Rights Agreement) which adjustment shall be satisfied
by issuing, together with the REIT Shares Amount, either (i) if Rights may be
issued under the Rights Agreement, the aggregate number of Rights issuable under
the Rights Agreement with respect to a number of REIT Shares equal to the REIT
Shares Amount, or (ii) in the event Rights may no longer be issued under the
Rights Agreement, a number of REIT Shares necessary to reflect equitably the
dilution in REIT Shares resulting from the exercise of Rights (but only if the
REIT Shares Amount is issued subsequent to the occurrence of an event that
results in a reduction in the purchase price attributable to the Rights in the
manner provided in Section 11(a)(ii) of the Rights Agreement (or any comparable
provision in the event the Rights Agreement is amended), and prior to a
Flip-Over Event), or (iii) if the REIT Shares Amount is issued concurrently with
or subsequent to a Flip-Over Event, the number of shares of common stock of the
Successor Person necessary to reflect equitably the dilution in REIT Shares
resulting from the exercise of Rights.
"Related Party" means, with respect to any Person, any other
Person whose actual ownership, Beneficial Ownership or Constructive Ownership of
shares of the Managing Member's capital stock would be attributed to the first
such Person under either (i) Code Section 544 (as modified by Code Section
856(h)(1)(B) ) or (ii) Code Section 318 (as modified by Code
Section 856(d)(5)).
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"Replacement Indebtedness" has the meaning set forth in
Section 7.3.E(3) hereof.
"Rights" means rights, options, warrants or convertible or
exchangeable securities entitling the Managing Member's shareholders to
subscribe for or purchase REIT Shares, or any other securities or property.
"Rights Agreement" means the Rights Agreement, dated as of
July 27, 2000, by and between the Managing Member and The Bank of New York, as
the same may be supplemented or amended from time to time.
"SEC" means the Securities and Exchange Commission.
"Second Exchange Date" means that date which is one year after
the last Non-Managing Member Unit is issued pursuant to the Contribution
Agreement or, if such day is not a Business Day, the next following Business
Day.
"Second Traunch Non-Managing Member Units" has the meaning set
forth in Section 8.6.A hereof.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Sharing Amount" means, with respect to any taxable
disposition of a Real Property, the excess, if any, of the Aggregate Sharing
Amount over the Sharing Amounts, if any, previously used for purposes of
calculating Reduction Units pursuant to Section 8.6.D.
"Sharing Percentage" means, with respect to a Non-Managing
Member or Assignee, its share of the NMM Sharing Percentage based on its share
of the Non-Managing Member Units and, with respect to the Managing Member, one
hundred percent (100%) minus the NMM Sharing Percentage.
"Specified Exchange Date" means (A) in the case of an Exchange
pursuant to Section 8.6.A hereof, (i) the First Exchange Date if a Notice of
Exchange is received by the Managing Member not less than thirty (30) days prior
to the First Exchange Date in respect of any First Traunch Non-Managing Member
Unit, (ii) the sixtieth (60th) calendar day (or, if such day is not a Business
Day, the next following Business Day) after the receipt by the Managing Member
of a Notice of Exchange if such notice is received by the Managing Member
pursuant to the provisions of Section 8.6.A hereof more than sixty (60) calendar
days prior to the Second Exchange Date in respect of any Second Traunch
Non-Managing Member Unit, (iii) the Second Exchange Date if a Notice of Exchange
as received by the Managing Member less than sixty (60) but not less than thirty
(30) calendar days prior to the Second Exchange Date in respect of any Second
Traunch Non-Managing Member Unit, or (iv) in all other events, the thirtieth
(30th) calendar day (or, if such day is not a Business Day, the next following
Business Day) after the receipt by the Managing Member of a Notice of Exchange;
provided, however, that, notwithstanding any other provisions set forth herein,
in no event shall a Specified Exchange Date as to any LLC Unit occur prior to
the first anniversary of the issuance of such LLC Unit by the Company; provided,
further, that the Specified Exchange Date, as well as the closing of an
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<PAGE>
Exchange on any Specified Exchange Date, may be deferred, in the Managing
Member's sole and absolute discretion, for such time (but in any event not more
than 150 days in the aggregate) as may reasonably be required to effect, as
applicable, (i) necessary funding arrangements, (ii) compliance with the
Securities Act or other law (including, but not limited to, (a) state "blue
sky" or other securities laws and (b) the expiration or termination of the
applicable waiting period, if any, under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended) and (iii) satisfaction or waiver of other
commercially reasonable and customary closing conditions and requirements for a
transaction of such nature, and (B) in the case of the delivery of a Call
Notice pursuant to Section 13.2 hereof, the 10th calendar day (or, if such day
is not a Business Day, the next following Business Day) after the mailing to
the applicable Non-Managing Members of a Call Notice.
"Subsequent Threshold Test" means a test which will be
satisfied on the date on which eighty percent (80%) of the LLC Units issued by
the Company to the Initial Non-Managing Members have been disposed of pursuant
to a Taxable Disposition or series of Taxable Dispositions.
"Substituted Member" means an Assignee who is admitted as a
Member to the Company pursuant to Section 11.4 hereof. The term "Substituted
Member" shall not include any Additional Member.
"Subsidiary" means, with respect to any Person other than the
Company, any corporation or other entity of which a majority of (i) the voting
power of the voting equity securities or (ii) the outstanding equity interests
is owned, directly or indirectly, by such Person; provided, however, that, with
respect to the Company, "Subsidiary" means solely a partnership or limited
liability company (taxed, for federal income tax purposes, as a partnership and
not as an association or publicly traded partnership taxable as a corporation)
of which the Company is a member unless the Managing Member has received an
unqualified opinion from independent counsel of recognized standing, or a ruling
from the IRS, that the ownership of shares of stock of a corporation or other
entity will not jeopardize the Managing Member's status as a REIT, in which
event the term "Subsidiary" shall include the corporation or other entity which
is the subject of such opinion or ruling.
"Successor Person" has the meaning set forth in the
definition of Flip-Over Event.
"Successor Properties" means real properties acquired by the
Company in connection with a Tax-Free Disposition of any Real Property or
Successor Property.
"Tax-Free Disposition" means the disposition of property in a
transaction that is not subject to tax under the Code, including by virtue of
the provisions of Section 1031 of the Code.
"Tax Items" has the meaning set forth in Section 6.4 hereof.
"Tax Protection Period" means the period of time beginning on
the Effective Date and ending on the first to occur of (i) the tenth (10th)
anniversary of the Effective Date, or (ii) the date on which the Subsequent
Threshold Test has been satisfied; provided, however, that
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18
<PAGE>
notwithstanding the foregoing, with respect to the Real Properties listed on
Schedule 1.1, the fourth (4th) anniversary shall be substituted for the tenth
(10th) anniversary in this definition.
"Taxable Disposition" means a transaction or event in which a
LLC Unit has either (a) been disposed of in a taxable transaction (including,
without limitation, any Exchange pursuant 8.6.A hereof) or (b) otherwise
received a "step up" in tax basis to its fair market value at the time of such
"step up" (e.g., as a result of the death of a holder of LLC Units who is an
individual).
"Tendered Units" has the meaning set forth in Section 8.6.A
hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A
hereof.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Company or a
related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the Company.
"Total Required Debt Amount" as of the date of this Agreement
is Seven Million Eight Hundred Ninety-Eight Thousand Two Hundred Eighty-Two
Dollars ($7,898,282.00); provided, however, the Total Required Debt Amount is
subject to change pursuant to the provisions contained in the definition of
"Recourse Debt Amount" above.
"Total Units" has the meaning set forth in Section 8.6.D.
hereof.
"Transfer," when used with respect to an LLC Unit or all or
any portion of a Membership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law. The terms
"Transferred" and "Transferring" have correlative meanings.
"Transferor" shall have the meaning set forth in the Recitals.
"Transferred Properties" means the "Properties" as that term
is defined in the Contribution Agreement, except for the Properties known as
"HCPI/Stansbury and HCPI/Wesley" which are to be contributed to HCPI/Stansbury
and HCPI/Wesley respectively, and shall also mean a one hundred percent (100%)
membership interest in HCPI/Stansbury and HCPI/Wesley.
"Triggering Event" has the meaning set forth in Section 7.3.G
hereof.
"Unit Amount" means, with respect to a taxable disposition of
a Real Property, a number of LLC Units equal to the product of (i) the number of
LLC Units outstanding at the time of such disposition, and (ii) the Unit
Portion.
"Unit Appreciation" means, with respect to any taxable
disposition of a Real Property, the product of the (i) Unit Amount and (ii)
excess of the Value at the time of such disposition over $34.80.
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"Unit Portion" means, with respect to a taxable disposition
of a Real Property, a number determined by dividing (i) the net cash flow
(ignoring payments made by the Company under any Debt related to such Property)
produced by such Real Property for the twelve month period immediately prior to
such disposition, by (ii) the net cash flow (ignoring payments made by the
Company under any Debt related to all Real Properties) produced by all Real
Properties held by the Company for the twelve month period immediately prior to
such disposition.
"Valuation Date" means (a) in the case of a tender of LLC
Units for