<PAGE>
FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NUMBER: 333-29485
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 27, 1997)
$100,000,000
HEALTH CARE PROPERTY INVESTORS, INC.
MEDIUM-TERM NOTES, SERIES C
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------
Health Care Property Investors, Inc. (the "Company") may offer its Medium-
Term Notes, Series C (the "Notes"), from time to time in an aggregate initial
offering price of up to $100,000,000 subject to reduction as a result of the
sale by the Company of certain other Securities. Each Note will mature on a
Business Day nine months or more from the date of issue, as specified in a
pricing supplement hereto (each, a "Pricing Supplement"), and may be subject
to redemption by the Company or repayment at the option of the Holder thereof,
in each case, in whole or in part, prior to its Stated Maturity Date, as set
forth therein and specified in the applicable Pricing Supplement.
The interest rate, if any, or the formula for the determination of any such
interest rate, applicable to each Note and other variable terms of the Notes
as described herein will be established by the Company at the date of issue of
such Note and will be set forth therein and specified in a Pricing Supplement.
Interest rates, interest rate formulae and such other variable terms are
subject to change by the Company, but no change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or definitive form (a "Definitive Note"), as set forth in the
applicable Pricing Supplement, in denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement. Each Book-Entry Note will be represented by one or more fully
registered global securities deposited with or on behalf of The Depository
Trust Company (or such other depositary as is identified in an applicable
Pricing Supplement) (the "Depositary") and registered in the name of the
Depositary or the Depositary's nominee. Interests in Book-Entry Notes will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary (with respect to its participants) and the
Depositary's participants (with respect to beneficial owners).
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will bear interest at fixed rates (the "Fixed Rate Notes") or at floating
rates (the "Floating Rate Notes"). The applicable Pricing Supplement will
specify whether a Floating Rate Note is a Regular Floating Rate Note, Floating
Rate/Fixed Rate Note or Inverse Floating Rate Note and whether its rate of
interest is determined by reference to one or more of the CD Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an "Interest
Rate Basis"), or any other interest rate basis or formula, as adjusted by any
Spread and/or Spread Multiplier and will specify such other terms applicable
to such Note. See "Description of Notes." Interest on Fixed Rate Notes will
accrue from their date of issue and, unless otherwise specified in the
applicable Pricing Supplement, will be payable semiannually in arrears on June
15 and December 15 of each year and at Maturity. Unless otherwise specified in
an applicable Pricing Supplement, the rate of interest on each Floating Rate
Note will be reset daily, weekly, monthly, quarterly, semiannually or
annually, as set forth therein and specified in the applicable Pricing
Supplement, and interest on each Floating Rate Note will accrue from its date
of issue and will be payable in arrears monthly, quarterly, semiannually or
annually, as specified in the applicable Pricing Supplement, and at Maturity.
Notes may also be issued with original issue discount, and such Notes may or
may not currently pay interest.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY SUPPLEMENT
HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........... 100% .125%-.750% 99.875%-99.250%
- ------------------------------------------------------------------------------
Total.............. $100,000,000 $125,000-$750,000 $99,875,000-$99,250,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Goldman, Sachs & Co. or NationsBanc Capital Markets, Inc. (each an "Agent"
and, collectively, the "Agents"), will purchase the Notes, as principal,
from the Company, for resale to investors and other purchasers at varying
prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent, or, if so specified in an applicable
Pricing Supplement, for resale at a fixed public offering price. Unless
otherwise specified in an applicable Pricing Supplement, any Note sold to
an Agent as principal will be purchased by such Agent at a price equal to
100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale (as described
below) of a Note of identical maturity. If agreed to by the Company and
the applicable Agent, such Agent may utilize its reasonable efforts on an
agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in an applicable
Pricing Supplement. The Company will pay a commission to each Agent,
ranging from .125% to .750% of the principal amount of a Note, depending
upon its Stated Maturity, sold through such Agent. See "Plan of
Distribution."
(2) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $280,000.
---------------
The Notes are being offered on a continuing basis by the Company through the
Agents. Unless otherwise specified in an applicable Pricing Supplement, the
Notes will not be listed on any securities exchange and there can be no
assurance that the Notes offered by this Prospectus Supplement will be sold or
that there will be a secondary market for the Notes. The Company reserves the
right to cancel or modify the offer made hereby without notice. The Company or
an Agent, if it solicits the offer on an agency basis, may reject any offer to
purchase Notes in whole or in part. See "Plan of Distribution."
---------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC CAPITAL MARKETS, INC.
---------------
The date of this Prospectus Supplement is July 21, 1997.
<PAGE>
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS, AS
PRINCIPAL, ON A FIXED OFFERING PRICE BASIS, SUCH AGENT(S) MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
SUCH NOTES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
----------------
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture
(the "Indenture") between the Company and The Bank of New York, as trustee
(the "Trustee"). The following summary of certain provisions of the Notes and
of the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus are a part. Capitalized terms used but not defined
herein have the meanings given to them in the Indenture or the Notes, as the
case may be. The term "Debt Securities," as used in this Prospectus
Supplement, refers to all securities issued and issuable from time to time
under the Indenture and includes the Notes. The following description of Notes
will apply unless otherwise specified in an applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be unsecured general obligations of the Company and will rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Indenture does not limit the
aggregate principal amount of Debt Securities which may be issued thereunder
and Debt Securities may be issued thereunder from time to time in one or more
series up to the aggregate principal amount from time to time authorized by
the Company for each series. The Company may, from time to time, without the
consent of the Holders of the Notes, provide for the issuance of Notes or
other Debt Securities under the Indenture in addition to the $100,000,000
aggregate initial offering price of Notes offered hereby and the other Debt
Securities previously issued, if any.
Except as described under "Description of the Debt Securities--Certain
Covenants of the Company--Limitation on Borrowing Money" in the Prospectus,
the Indenture does not contain any other provisions that would afford Holders
of Debt Securities protection in the event of a highly leveraged transaction,
reorganization, restructuring, change in control, merger or similar
transaction involving the Company that may adversely affect Holders of Debt
Securities.
The Notes will be offered on a continuing basis and will mature on any
business day nine months or more from the date of issue, as specified in an
applicable Pricing Supplement. Unless otherwise specified in an applicable
Pricing Supplement, interest-bearing Notes will either be Fixed Rate Notes or
Floating Rate Notes as specified in the applicable Pricing Supplement. Notes
may be issued at significant discounts from their principal amount payable at
the Stated Maturity Date (or on any prior date on which the principal or an
installment of principal of a Note becomes due and payable, whether by the
declaration of acceleration, call for redemption at the option of the Company,
repayment at the option of the Holder or otherwise) (each such date, a
"Maturity"), and some Notes may not bear interest. The Notes will be
denominated in United States dollars and payments of principal of, and
premium, if any, and interest on, the Notes will be made in United States
dollars.
Interest rates, interest rate formulae and other variable terms of the Notes
are subject to change by the Company from time to time, but no such change
will affect any Note already issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in fully registered form as a Book-Entry Note or a
Definitive Note, in denominations of $1,000 and integral multiples thereof,
unless otherwise specified in the applicable Pricing Supplement. Book-Entry
Notes may be transferred or exchanged only through the Depositary. See "Book-
Entry
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Notes." Registration of transfer of Definitive Notes will be made at the
office or agency of the Company maintained by the Company for such purpose in
the Borough of Manhattan, The City of New York. No service charge will be made
by the Company or the Trustee for any such registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith (other than exchanges pursuant to the Indenture not involving any
transfer).
Payments of principal of, and premium and interest, if any, on Book-Entry
Notes will be made by the Company through the Trustee to the Depositary. See
"Book-Entry Notes." In the case of Definitive Notes, payment of principal or
premium, if any, at the Maturity of each Definitive Note will be made in
immediately available funds upon presentation of the Definitive Note at the
office or agency of the Company maintained by the Company for such purpose in
the Borough of Manhattan, The City of New York, or at such other place as the
Company may designate (or, in the case of any repayment on an Optional
Repayment Date, upon presentation of the Definitive Note in accordance with
the provisions thereon as described below). Payment of interest due at
Maturity will be made to the person to whom payment of the principal of the
Definitive Note shall be made. Payment of interest due on Definitive Notes
other than at Maturity will be made at the office or agency of the Company
maintained by the Company for such purpose or, at the option of the Company,
may be made by check mailed to the address of the Person entitled thereto as
such address shall appear in the registry books of the Company.
Notwithstanding the foregoing, a Holder of $10,000,000 or more in aggregate
principal amount of Definitive Notes having the same Interest Payment Dates
will, at the option of the Company, be entitled to receive interest payments
(other than at Maturity) by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to the applicable Interest Payment Date.
Such wire instructions, upon receipt by the Trustee, shall remain in effect
until revoked by such Holder.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise indicated in an applicable Pricing Supplement, Notes will
not be subject to any sinking fund. The Notes will be redeemable at the option
of the Company prior to the Stated Maturity Date only if an Initial Redemption
Date is specified therein and in the applicable Pricing Supplement. If so
indicated in the applicable Pricing Supplement, Notes will be subject to
redemption at the option of the Company on any date on and after the
applicable Initial Redemption Date specified in such Pricing Supplement. On or
after the Initial Redemption Date, if any, the related Note may be redeemed at
any time in whole or from time to time in part in increments of $1,000 at the
option of the Company at the applicable Redemption Price, together with
interest thereon payable to the date of redemption, on notice given not more
than 60 nor less than 30 days prior to the date of redemption and in
accordance with the provisions of the Indenture. "Redemption Price," with
respect to a Note, will initially mean a percentage, the Initial Redemption
Percentage, of the principal amount of such Note to be redeemed specified in
the applicable Pricing Supplement and shall decline at each anniversary of the
Initial Redemption Date by a percentage, the Annual Redemption Percentage
Reduction, if any, specified in the applicable Pricing Supplement, of the
principal amount to be redeemed until the Redemption Price is 100% of such
principal amount.
REPAYMENT AT THE OPTION OF THE HOLDER
If so indicated in an applicable Pricing Supplement, Notes will be repayable
by the Company in whole or in part at the option of the Holders thereof on
their respective Optional Repayment Dates specified in such Pricing
Supplement. If no Optional Repayment Date is indicated with respect to a Note,
such Note will not be repayable at the option of the Holder prior to the
Stated Maturity Date. Any repayment in part will be in increments of $1,000
provided that any remaining principal amount of such Note will be an
authorized denomination of such Note. Unless otherwise provided in an
applicable Pricing Supplement, the repayment price for any Note so repaid will
be 100% of the principal amount to be repaid, together with interest thereon
payable to the date of repayment. For any Note to be so repaid the Note must
be received, together with the form thereon entitled "Option to Elect
Repayment" duly completed, by the Trustee at the Corporate Trust Office (or
such other
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address of which the Company shall from time to time notify the Holders) not
more than 60 nor less than 30 days prior to the Optional Repayment Date.
Exercise of such repayment option by the Holder will be irrevocable.
While the Book-Entry Notes are represented by global securities held by or
on behalf of the Depositary, and registered in the name of the Depositary or
the Depositary's nominee, the Depositary or its nominee will be the Holder of
such Book-Entry Notes and therefore will be the only entity that can exercise
a right to repayment. In order to ensure that the Depositary or its nominee
will timely exercise a right to repayment with respect to a particular Book-
Entry Note, the beneficial owner of such Book-Entry Note must instruct the
participant through which it holds an interest in such Book-Entry Note to
notify the Depositary of its desire to exercise a right of repayment.
Different firms may have different deadlines for accepting instructions from
their customers. Accordingly, beneficial owners of Book-Entry Notes should
consult the participants through which they own their interest in the Book-
Entry Notes for the respective deadlines for such participants. All notices
shall be executed by a duly authorized officer of such participant (with
signature guaranteed) and shall be irrevocable. In addition, such beneficial
owners of Book-Entry Notes shall effect delivery of such Book-Entry Notes at
the time such notices of election are given to the Depositary by causing the
participant to transfer such beneficial owner's interest in the Book-Entry
Notes, on the Depositary's records, to the Trustee. Conveyance of notices and
other communications by the Depositary to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners of the Book-Entry Notes will be governed by agreements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended, and any other
securities laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may be held or
resold or, at the discretion of the Company, may be surrendered to the Trustee
for cancellation.
INTEREST
General
Unless otherwise specified in an applicable Pricing Supplement, each Note
will bear interest from the date of issue at the rate per annum or, in the
case of a Floating Rate Note, pursuant to the interest rate formula, stated
therein and in the applicable Pricing Supplement until the principal thereof
is paid or made available for payment. Interest will be payable in arrears on
each Interest Payment Date specified in the applicable Pricing Supplement on
which an installment of interest is due and payable and at Maturity. Unless
otherwise specified in an applicable Pricing Supplement, the first payment of
interest on any Note originally issued between a record date and the related
Interest Payment Date will be made on the Interest Payment Date immediately
following the next succeeding record date to the registered Holder on such
next succeeding record date. Unless otherwise specified in an applicable
Pricing Supplement, a "record date" shall be the fifteenth day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, each Fixed
Rate Note will bear interest from, and including, the date of issue, or the
most recent date to which interest has been paid or duly provided for, to, but
excluding, the Interest Payment Date or Maturity, as the case may be, at the
rate per annum stated on the face thereof until the principal amount thereof
is paid or made available for payment. Unless otherwise specified in an
applicable Pricing Supplement, interest on Fixed Rate Notes will be computed
on the basis of a 360-day year of twelve 30-day months.
Interest on Fixed Rate Notes will be payable semiannually, unless otherwise
specified in an applicable Pricing Supplement, on June 15 and December 15 of
each year and at Maturity. If any Interest Payment Date or
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the Maturity of a Fixed Rate Note falls on a day that is not a Business Day,
the related payment of principal, premium, if any, or interest will be made on
the next succeeding Business Day as if made on the date such payment was due,
and no interest will accrue on the amount so payable for the period from and
after such Interest Payment Date or Maturity, as the case may be.
Floating Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. Each applicable Pricing
Supplement will specify certain terms with respect to which such Floating Rate
Note is being delivered, including: whether such Floating Rate Note is a
"Regular Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse
Floating Rate Note," the Interest Rate Basis or Bases, Initial Interest Rate,
Interest Reset Dates, Interest Reset Period, record dates, Interest Payment
Dates, Index Maturity, maximum interest rate and minimum interest rate, if
any, and the Spread and/or Spread Multiplier, if any, and if one or more of
the specified Interest Rate Bases is LIBOR, the Designated LIBOR Page, as
described below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," an "Inverse Floating Rate Note" or as having an
Addendum attached, such Floating Rate Note will be designated a "Regular
Floating Rate Note" and, except as described below or in an applicable
Pricing Supplement, bear interest at the rate determined by reference to
the applicable Interest Rate Basis (i) plus or minus the applicable Spread,
if any, and/or (ii) multiplied by the applicable Spread Multiplier, if any.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Regular Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period from the Original Issue Date to the Initial Interest
Reset Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in an applicable Pricing
Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (i) the interest rate in effect for the period from
the Original Issue Date to the Initial Interest Reset Date will be the
Initial Interest Rate, and (ii) the interest rate in effect commencing on,
and including, the Fixed Rate Commencement Date to Maturity shall be the
Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement, or if no such Fixed Interest Rate is so specified, the interest
rate in effect thereon on the day immediately preceding the Fixed Rate
Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in an applicable Pricing
Supplement, such Floating Rate Note will bear interest equal to the Fixed
Interest Rate specified in the related Pricing Supplement minus the rate
determined by reference to the Interest Rate Basis (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any. Commencing on the Initial Interest Reset Date, the rate
at which interest on such Inverse Floating Rate Note is payable shall be
reset as of each Interest Reset Date; provided, however, that the interest
rate in effect for the period from the Original Issue Date to the Initial
Interest Reset Date will be the Initial Interest Rate.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating
Rate Note shall bear interest in accordance with the terms described in such
Addendum and the applicable Pricing Supplement.
Unless otherwise provided in the applicable Pricing Supplement, the interest
rate with respect to each Interest Rate Basis will be determined in accordance
with the applicable provisions below. Except as set forth above or in an
applicable Pricing Supplement, the interest rate in effect on each day shall
be (a) if such day is an
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Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding such Interest Reset Date or (b) if
such day is not an Interest Reset Date, the interest rate determined as of the
Interest Determination Date immediately preceding the next preceding Interest
Reset Date.
Interest on Floating Rate Notes will be determined by reference to an
"Interest Rate Basis," which may be one or more of (i) the "CD Rate," (ii) the
"Commercial Paper Rate," (iii) the "Eleventh District Cost of Funds Rate,"
(iv) the "Federal Funds Rate," (v) "LIBOR," (vi) the "Prime Rate," (vii) the
"Treasury Rate," or (viii) such other Interest Rate Basis or interest rate
formula as may be set forth in the applicable Pricing Supplement; provided,
however, that with respect to a Floating Rate/Fixed Rate Note, the interest
rate commencing on the Fixed Rate Commencement Date and continuing, unless
otherwise specified in the applicable Pricing Supplement, until Maturity shall
be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement, or if no such Fixed Interest Rate is so specified, the
interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the Interest
Rate Basis or Bases will be calculated. The Spread, Spread Multiplier, Index
Maturity and other variable terms of the Floating Rate Notes are subject to
change by the Company from time to time, but no such change will affect any
Floating Rate Note previously issued or as to which an offer has been accepted
by the Company.
Each applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually, annually or such other specified period (each, an
"Interest Reset Period") and the dates on which such Interest Rate will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Date will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly,
the Wednesday of each week (with the exception of weekly reset Treasury Rate
Notes which will reset the Tuesday of each week, except as specified below);
(iii) monthly, the third Wednesday of each month (with the exception of
Eleventh District Cost of Funds Rate Notes, all of which reset monthly, which
will reset on the first calendar day of the month); (iv) quarterly, the third
Wednesday of March, June, September and December of each year; (v)
semiannually, the third Wednesday of the two months specified in the
applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the fixed rate of interest in
effect for the period from the Fixed Rate Commencement Date until Maturity
shall be the Fixed Interest Rate or the interest rate in effect on the day
immediately preceding the Fixed Rate Commencement Date, as specified in the
applicable Pricing Supplement. If any Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day, such Interest
Reset Date will be postponed to the next succeeding day that is a Business
Day, except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis, if such Business Day falls in the next
succeeding calendar month, such Interest Reset Date will be the immediately
preceding Business Day. As used herein, "Business Day" means, unless otherwise
specified in the applicable Pricing Supplement, any day that in The City of
New York, is not a day on which banking institutions are authorized or
required by law or regulation to close and, with respect to Notes as to which
LIBOR is an applicable Interest Rate Basis, is also a London Business Day. As
used herein, "London Business Day" means any day on which dealings in deposits
of United States dollars are transacted in the London interbank market.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any interest period and (ii) a minimum numerical limitation, or
floor, on the rate at which interest may accrue during any interest period. In
addition to any maximum interest rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on Floating Rate
Notes will in no event be higher than the maximum rate permitted by California
law, as the same may be modified by United States law of general application.
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Each Floating Rate Note will bear interest from the date of issue at the
rates specified therein until the principal thereof is paid or otherwise made
available for payment. Except as provided below or in an applicable Pricing
Supplement, the Interest Payment Dates in the case of Floating Rate Notes
which reset: (i) daily, weekly or monthly, will be the third Wednesday of each
month or the third Wednesday of March, June, September and December of each
year as specified in the applicable Pricing Supplement; (ii) quarterly, will
be the third Wednesday of March, June, September and December of each year;
(iii) semiannually, will be the third Wednesday of the two months of each year
specified in the applicable Pricing Supplement; and (iv) annually, will be the
third Wednesday of the month of each year specified in the applicable Pricing
Supplement and, in each case, at Maturity. If any Interest Payment Date for
any Floating Rate Note (other than an Interest Payment Date at Maturity) would
otherwise be a day that is not a Business Day, such Interest Payment Date will
be postponed to the next succeeding day that is a Business Day except that in
the case of a Floating Rate Note as to which LIBOR is an applicable Interest
Rate Basis, if such Business Day falls in the next succeeding calendar month,
such Interest Payment Date will be the immediately preceding Business Day. If
the Maturity of a Floating Rate Note falls on a day that is not a Business
Day, the payment of principal, premium, if any, and interest will be made on
the next succeeding Business Day, and no interest on such payment shall accrue
for the period from and after such Maturity.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation on Floating Rate Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded to the nearest cent (with one-half cent being rounded upward).
Unless otherwise specified in the applicable Pricing Supplement, interest
payments on Floating Rate Notes will equal the amount of interest accrued from
and including the next preceding Interest Payment Date in respect of which
interest has been paid (or from and including the date of issue, if no
interest has been paid with respect to such Floating Rate Notes), to but
excluding the related Interest Payment Date; provided, however, that the
interest payments on Floating Rate Notes made at Maturity will include
interest accrued to but excluding the date of Maturity.
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its face amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated. Unless
otherwise specified in the applicable Pricing Supplement, the interest factor
for each such day will be computed by dividing the interest rate applicable to
such day by 360, in the case of Notes for which the Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of
days in the year in the case of Notes for which the Interest Rate Basis is the
Treasury Rate. Unless otherwise specified in an applicable Pricing Supplement,
the interest factor for Notes for which the interest rate is calculated with
reference to two or more Interest Rate Bases will be calculated in each period
in the same manner as if only one of the applicable Interest Rate Bases
applied as specified in the applicable Pricing Supplement and the Notes.
The interest rate applicable to each Interest Rate Reset Period commencing
on the Interest Reset Date with respect to such Interest Rate Reset Period
will be the rate determined as of the applicable Interest Determination Date.
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date with respect to the CD Rate, the Commercial Paper Rate, the
Federal Funds Rate and the Prime Rate will be the second Business Day
preceding each Interest Reset Date for the related Note; the Interest
Determination Date with respect to the Eleventh District Cost of Funds Rate
will be the last working day of the month immediately preceding each Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index; the Interest Determination Date with
respect to LIBOR will be the second London Business Day preceding each
Interest Reset Date. With respect to the Treasury Rate, unless otherwise
specified in an applicable Pricing Supplement, the Interest Determination Date
will be the day in the week in which the related Interest Reset Date falls on
which day Treasury Bills (as defined below) are normally auctioned
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(Treasury Bills are normally sold at auction on Monday of each week, unless
that day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday); provided, however, that if an auction is held on the Friday of the
week preceding the related Interest Reset Date, the related Interest
Determination Date will be such preceding Friday; and provided, further, that
if an auction falls on any Interest Reset Date, then the related Interest
Reset Date will instead be the first Business Day following such auction.
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to a Floating Rate Note the interest rate of
which is determined with reference to two or more Interest Rate Bases will be
the latest Business Day which is at least two Business Days prior to such
Interest Reset Date for such Floating Rate Note on which each Interest Rate
Basis is determinable. Each Interest Rate Basis will be determined on such
date, and the applicable interest rate will take effect on the related
Interest Reset Date.
Unless otherwise provided in the applicable Pricing Supplement, The Bank of
New York will be the "Calculation Agent." Upon request of the Holder of any
Floating Rate Note, the Calculation Agent will provide the interest rate then
in effect and, if determined, the interest rate that will become effective as
a result of a determination made for the next Interest Reset Date with respect
to such Floating Rate Note. Unless otherwise specified in the applicable
Pricing Supplement, the "Calculation Date," if applicable, pertaining to any
Interest Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date, or, if such day is not a Business Day,
the next succeeding Business Day or (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
CD Rate. CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date relating to a CD Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the CD Rate (a "CD Rate Interest Determination Date"), the rate
on such date for negotiable certificates of deposit having the Index Maturity
specified in the applicable Pricing Supplement as published by the Board of
Governors of the Federal Reserve System in "Statistical Release H.15(519),
Selected Interest Rates" or any successor publication ("H.15(519)") under the
heading "CDs (Secondary Market)," or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the rate on such CD Rate Interest
Determination Date for negotiable certificates of deposit of the Index
Maturity specified in the applicable Pricing Supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Certificates of
Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
CD Rate Interest Determination Date, of three leading nonbank dealers in
negotiable United States dollar certificates of deposit in The City of New
York selected by the Calculation Agent (after consultation with the Company)
for negotiable certificates of deposit of major United States money market
banks for negotiable certificates of deposit with a remaining maturity closest
to the Index Maturity designated in the applicable Pricing Supplement in an
amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as set forth above, the CD Rate with respect to such CD
Rate Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at the
rates (calculated with reference to the Commercial Paper Rate and the Spread
and/or Spread Multiplier, if any) specified in such Commercial Paper Rate
Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date relating to
a Commercial Paper Rate Note or any Floating Rate Note
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for which the interest rate is determined with reference to the Commercial
Paper Rate (a "Commercial Paper Rate Interest Determination Date"), the Money
Market Yield (as defined below) on such date of the rate for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement as
published in H.15(519) under the heading "Commercial Paper." In the event that
such rate is not published by 3:00 P.M., New York City time, on the related
Calculation Date, then the Commercial Paper Rate will be the Money Market
Yield on such Commercial Paper Rate Interest Determination Date of the rate
for commercial paper having the Index Maturity specified in the applicable
Pricing Supplement as published in Composite Quotations under the heading
"Commercial Paper" (with an Index Maturity of one month or three months being
deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If by 3:00 P.M., New York City time, on the related Calculation
Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate on such Commercial Paper Rate
Interest Determination Date will be calculated by the Calculation Agent and
will be the Money Market Yield of the arithmetic mean of the offered rates at
approximately 11:00 A.M., New York City time, on such Commercial Paper Rate
Interest Determination Date of three leading dealers of commercial paper in
The City of New York selected by the Calculation Agent (after consultation
with the Company) for commercial paper having the Index Maturity designated in
the applicable Pricing Supplement placed for an industrial issuer whose bond
rating is "Aa", or the equivalent, from a nationally recognized securities
rating agency, provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate determined on such Commercial Paper Rate Interest
Determination Date will be the Commercial Paper Rate in effect on such
Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
Money Market Yield = D x 360 X 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
Eleventh District Cost of Funds Rate. Eleventh District Cost of Funds Rate
Notes will bear interest at the rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the Spread and/or Spread Multiplier,
if any) specified in such Eleventh District Cost of Funds Rate Notes and in
any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, with respect to any Interest Determination
Date relating to an Eleventh District Cost of Funds Rate Note or any Floating
Rate Note for which the interest rate is determined with reference to the
Eleventh District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate
Interest Determination Date"), the rate equal to the monthly weighted average
cost of funds for the calendar month preceding such Eleventh District Cost of
Funds Rate Interest Determination Date as set forth under the caption "11th
District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on such
Eleventh District Cost of Funds Rate Interest Determination Date. If such rate
does not appear on Telerate Page 7058 on any related Eleventh District Cost of
Funds Rate Interest Determination Date, the Eleventh District Cost of Funds
Rate for such Eleventh District Cost of Funds Rate Interest Determination Date
shall be the monthly weighted average cost of funds paid by member
institutions of the Eleventh Federal Home Loan Bank District that was most
recently announced (the "Index") by the FHLB of San Francisco as such cost of
funds for the calendar month preceding the date of such announcement. If the
FHLB of San Francisco fails to announce such rate for the calendar month next
preceding such Eleventh District Cost of Funds Rate Interest Determination
Date, then the Eleventh District Cost of Funds Rate for such Eleventh District
Cost of Funds Rate Interest Determination Date will be the Eleventh District
Cost of Funds Rate in effect on such Eleventh District Cost of Funds Rate
Interest Determination Date.
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Federal Funds Rate. Federal Funds Rate Notes will bear interest at the rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in such Federal Funds Rate Notes and in
any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to
a Federal Funds Rate Note or any Floating Rate Note for which the interest
rate is determined with reference to the Federal Funds Rate (a "Federal Funds
Rate Interest Determination Date"), the rate on such date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)" or, if
not published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on such Federal Funds Rate Interest Determination Date as
published in Composite Quotations under the heading "Federal Funds/Effective
Rate." If by 3:00 P.M., New York City time, on the related Calculation Date
such rate is not published in either H.15(519) or Composite Quotations, then
the Federal Funds Rate on such Federal Funds Rate Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the rates for the last transaction in overnight United States dollar federal
funds arranged by three leading brokers of federal funds transactions in The
City of New York selected by the Calculation Agent (after consultation with
the Company) prior to 9:00 A.M., New York City time on such Federal Funds Rate
Interest Determination Date; provided, however that if the brokers so selected
by the Calculation Agent are not quoting as mentioned in this sentence, the
Federal Funds Rate with respect to such Federal Funds Rate Interest
Determination Date will be the Federal Funds Rate in effect on such Federal
Funds Rate Interest Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified
in such LIBOR Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in United States
dollars having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date, that appear on the
Designated LIBOR Page specified in the applicable Pricing Supplement as of
11:00 A.M. London time, on that LIBOR Interest Determination Date, if at
least two such offered rates appear (unless, as aforesaid, only a single
rate is required) on such Designated LIBOR Page, or (b) if "LIBOR Telerate"
is specified in the applicable Pricing Supplement, the rate for deposits in
United States dollars having the Index Maturity designated in the
applicable Pricing Supplement commencing on the second London Business Day
immediately following that LIBOR Interest Determination Date that appears
on the Designated LIBOR Page specified in the applicable Pricing Supplement
as of 11:00 A.M. London time, on that LIBOR Interest Determination Date. If
fewer than two offered rates appear, or no rate appears, as applicable,
LIBOR in respect of the related LIBOR Interest Determination Date will be
determined as if the parties had specified the rate described in clause
(ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the applicable Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent (after consultation with the Company), to provide the
Calculation Agent with its offered quotation for deposits in United States
dollars for the period of the Index Maturity designated in the applicable
Pricing Supplement, commencing on the second London Business Day
immediately following such LIBOR Interest Determination Date, to prime
banks in the London interbank market at approximately 11:00 A.M., London
time, on such LIBOR Interest Determination Date and in a principal amount
that is representative for a single transaction in United
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States dollars in such market at such time. If at least two such quotations
are provided, LIBOR determined on such LIBOR Interest Determination Date
will be the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR determined on such LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M., New York City time, on such LIBOR Interest
Determination Date by three major banks in The City of New York selected by
the Calculation Agent (after consultation with the Company) for loans in
United States dollars to leading European banks, having the Index Maturity
designated in the applicable Pricing Supplement and in a principal amount
that is representative for a single transaction in United States dollars in
such market at such time; provided, however, that if the banks so selected
by the Calculation Agent are not quoting as mentioned in this sentence,
LIBOR determined on such LIBOR Interest Determination Date will be LIBOR in
effect on such LIBOR Interest Determination Date.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of
major banks for United States dollar deposits, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the United States dollar deposits. If neither LIBOR Reuters
nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR
will be determined as if LIBOR Telerate had been specified.
Prime Rate. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in such Prime Rate Notes and any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a
Prime Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Prime Rate (a "Prime Rate Interest
Determination Date"), the rate on such date as such rate is published in
H.15(519) under the heading "Bank Prime Loan." If such rate is not published
prior to 3:00 P.M., New York City time, on the related Calculation Date, then
the Prime Rate shall be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the Reuters Screen USPRIME1 Page (as
hereinafter defined) as such bank's prime rate or base lending rate as in
effect for that Prime Rate Interest Determination Date. If fewer than four
such rates appear on the Reuters Screen USPRIME1 Page for such Prime Rate
Interest Determination Date, the Prime Rate shall be the arithmetic mean of
the prime rates or base lending rates quoted on the basis of the actual number
of days in the year divided by a 360-day year as of the close of business on
such Prime Rate Interest Determination Date by four major money center banks
(which may include affiliates of the Agents) in The City of New York selected
by the Calculation Agent (after consultation with the Company). If fewer than
four such quotations are so provided, then the Prime Rate shall be the
arithmetic mean of four prime rates quoted on the basis of the actual number
of days in the year divided by a 360-day year as of the close of business on
such Prime Rate Interest Determination Date as furnished in The City of New
York by the major money center banks, if any, that have provided such
quotations and by a reasonable number of substitute banks or trust companies
(which may include affiliates of the Agents) to obtain four such prime rate
quotations, provided such substitute banks or trust companies are organized
and doing business under the laws of the United States, or any state thereof,
each having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or state authority.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor Money
Rates Service (or any successor service) on the "USPRIME1" page or such other
page as may replace the USPRIME1 page on that service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such Treasury Rate Notes and in any
applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Determination Date relating to a
Treasury Rate Note or any Floating Rate Note for which the interest rate is
determined by reference to the Treasury Rate (a "Treasury Rate Interest
Determination Date"), the rate applicable to the most recent auction of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
specified in the applicable Pricing Supplement, as such rate is published in
H.15(519) under the heading "Treasury Bills-auction average (investment)" or,
if not published by 3:00 P.M., New York City time, on the related Calculation
Date, the auction average rate (expressed as a bond equivalent on the basis of
a year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the auction of Treasury Bills having the Index
Maturity designated in the applicable Pricing Supplement are not reported as
provided by 3:00 P.M., New York City time, on such Calculation Date, or if no
such auction is held in a particular week, then the Treasury Rate will be
calculated by the Calculation Agent and will be a yield to maturity (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary market
bid rates, as of approximately 3:30 P.M., New York City time, on such Treasury
Rate Interest Determination Date, of three leading primary United States
government securities dealers (which may include one or both of the Agents)
selected by the Calculation Agent (after consultation with the Company), for
the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement; provided, however,
that if the dealers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate with respect to such Treasury
Rate Interest Determination Date will be the Treasury Rate in effect on such
Treasury Rate Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to Notes, including the determination of an
Interest Rate Basis, the specification of an Interest Rate Basis, calculation
of the interest rate applicable to a Floating Rate Note, its Interest Payment
Dates or any other matter relating thereto may be modified by the terms as
specified under "Other Provisions" on the face thereof or in an Addendum
relating thereto, if so specified on the face thereof and in the applicable
Pricing Supplement.
DISCOUNT NOTES
Notes may be issued at a price less than their stated redemption price at
Maturity, resulting in such Notes being treated as issued with original issue
discount for Federal income tax purposes ("Discount Notes"). Such Discount
Notes may currently pay no interest or interest at a rate which at the time of
issuance is below market rates. See "Material Federal Income Tax
Considerations." Certain additional considerations relating to any Discount
Notes may be described in the Pricing Supplement relating thereto.
INDEXED NOTES
Notes also may be issued with the principal amount payable at Maturity
and/or interest to be paid thereon to be determined with reference to the
price or prices of specified commodities or stocks, the exchange rate of one
or more specified currencies (including a composite currency such as the
European Currency Unit) relative to an indexed currency, interest rate
indices, interest rate or exchange rate swap indices or such other price or
exchange rate or other financial index or indices as may be specified in such
Note ("Indexed Notes"), as set forth in an applicable Pricing Supplement.
Holders of such Notes may receive a principal amount at Maturity that is
greater than or less than the face amount of the Notes depending upon the
relative value at Maturity of the specified indexed item. Information as to
the method for determining the principal amount payable at Maturity, certain
historical information with respect to the specified indexed item or items and
tax considerations associated with investment in Indexed Notes will be set
forth in the applicable Pricing Supplement.
An investment in Notes indexed, as to principal or interest or both, to one
or more values of currencies (including exchange rates and swap indices
between currencies), commodities or interest rate or other indices entails
significant risks that are not associated with similar investments in a
conventional fixed-rate debt security.
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If the interest rate of such a Note is so indexed, it may result in an
interest rate that is less than that payable on a conventional fixed-rate debt
security issued at the same time, including the possibility that no interest
will be paid, and, if the principal amount of such a Note is so indexed, the
principal amount payable at Maturity may be less than the original purchase
price of such Note if allowed pursuant to the terms of such Note, including
the possibility that no principal will be paid. The secondary market for such
Notes will be affected by a number of factors independent of the
creditworthiness of the Company and the value of the applicable currency,
commodity or interest rate index, including the volatility of the applicable
currency, commodity or interest rate index, the time remaining to the maturity
of such Notes, the amount outstanding of such Notes and market interest rates.
The value of the applicable currency, commodity or interest rate index depends
on a number of interrelated factors, including economic, financial and
political events, over which the Company has no control. Additionally, if the
formula used to determine the principal amount or interest payable with
respect to such Notes contains a multiple or leverage factor, the effect of
any change in the applicable currency, commodity or interest rate index may be
increased. The historical experience of the relevant currencies, commodities
or interest rate indices should not be taken as an indication of future
performance of such currencies, commodities or interest rate indices during
the term of any Note. The credit ratings assigned to the Company's Medium-Term
Note program are reflective of the Company's credit status, and are not in any
respect reflective of the potential impact of the factors discussed above or
any other factors on the market value of the Notes. Accordingly, prospective
investors should consult their own financial and legal advisors as to the
risks entailed by an investment in such Notes and the suitability of such
Notes in light of their particular circumstances.
Notwithstanding anything to the contrary contained herein or in the
Prospectus, for purposes of determining the rights of a Holder of a Note
indexed as to principal in respect of voting for or against amendments to the
Indenture and modifications and the waiver of rights thereunder, the principal
amount of such Indexed Note shall be deemed to be equal to the face amount
thereof upon issuance. The method for determining the amount of principal
payable at Maturity will be specified in the applicable Pricing Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same Original Issue Date,
Stated Maturity Date and otherwise having identical terms and provisions will
be represented by a single global security (each, a "Registered Global
Security"); provided, however, that if by reason of the foregoing, a single
Registered Global Security would exceed $200,000,000 in aggregate principal
amount, one Registered Global Security will be issued to represent each
$200,000,000 of aggregate principal amount and an additional Registered Global
Security will be issued to represent any remaining principal amount. Each
Registered Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depositary. Except as set forth below, Registered
Global Securities may not be transferred except as a whole by the Depositary
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any
nominee to a successor of the Depositary or a nominee of such successor.
The Depository Trust Company, New York, New York ("DTC"), will be the
initial Depositary with respect to the Notes. DTC has advised the Company and
the Agents that it is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Agents), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by DTC
only through participants.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"), does not discuss all of the tax consequences that may be relevant to
a holder in light of his particular circumstances and does not purport to deal
with persons in special tax situations, such as financial institutions,
insurance companies, tax-exempt organizations, regulated investment companies,
dealers in securities or currencies, persons holding Notes as a hedge against
currency risks or as a position in a "straddle" for tax purposes, or persons
whose functional currency (as defined in Section 985 of the Code) is not the
United States dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). BECAUSE THE EXACT
PRICING AND OTHER TERMS OF THE NOTES WILL VARY, NO ASSURANCE CAN BE GIVEN THAT
THE CONSIDERATIONS DESCRIBED BELOW WILL APPLY TO A PARTICULAR ISSUANCE OF
NOTES. CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATING
TO THE OWNERSHIP OF PARTICULAR NOTES (WHERE APPLICABLE) WILL BE SUMMARIZED IN
THE PRICING SUPPLEMENT RELATING TO SUCH NOTES. PERSONS CONSIDERING THE
PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate the income of which is
subject to United States Federal income taxation regardless of its source,
(iv) a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust, or (v) any other person whose income or gain in respect of a Note
is effectively connected with the conduct of a United States trade or
business. The term also includes certain former citizens of the United States.
As used herein, the term "non-U.S. Holder" means a beneficial owner of a Note
that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular
method of accounting for federal income tax purposes).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue
discount ("Discount Notes").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a
Note providing for the payment of any amount other than qualified stated
interest (as hereinafter defined) prior to maturity, multiplied by the
weighted average maturity of such Note). The issue price of each Note in an
issue of Notes equals the first price at which a substantial amount of such
Notes has been sold for money (ignoring sales to bond houses, brokers, or
similar persons or organizations acting in the capacity of underwriters,
placement agents, or wholesalers). The stated redemption price at maturity of
a Note is the sum of all payments provided by the Note other than "qualified
stated interest" payments. The term "qualified stated interest" generally
means stated interest that is unconditionally payable as a series of payments
in cash or property (other than debt instruments of the issuer) at least
annually during the entire term
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of the Note and equal to the outstanding principal balance of the Note
multiplied by a single fixed rate of interest. In addition, under final
Treasury Regulations (the "OID Regulations") promulgated by the Internal
Revenue Service (the "IRS") under the original issue discount provisions of
the Code, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes
with teaser rates or interest holidays), and if the greater of either the
resulting foregone interest on such Note or any "true" discount on such Note
(i.e., the excess of the Note's stated principal amount over its issue price)
equals or exceeds a specified de minimis amount, then the stated interest on
the Note would be treated as original issue discount rather than qualified
stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting for federal income tax purposes). Holders of Notes with a de
minimis amount of original issue discount, as described above, will generally
include such original issue discount in income as capital gain on a pro rata
basis as principal payments are made on the Note. A U.S. Holder of a Discount
Note that matures more than one year from the date of issuance must include
original issue discount in income as ordinary interest for United States
Federal income tax purposes as it accrues under a constant yield method based
on a compounding of interest in advance of receipt of the cash payments
attributable to such income, regardless of such U.S. Holder's regular method
of tax accounting. In general, the amount of original issue discount included
in income by the initial U.S. Holder of a Discount Note is the sum of the
daily portions of original issue discount with respect to such Discount Note
for each day during the taxable year (or portion of the taxable year) on which
such U.S. Holder held such Discount Note. The "daily portion" of original
issue discount on any Discount Note is determined by allocating to each day in
any accrual period a ratable portion of the original issue discount allocable
to that accrual period. An "accrual period" may be of any length and the
accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the final day of
an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Discount Note's adjusted issue
price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period
and appropriately adjusted to take into account the length of the particular
accrual period) and (ii) the amount of any qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of a Discount
Note at the beginning of any accrual period is the sum of the issue price of
the Discount Note plus the amount of original issue discount allocable to all
prior accrual periods minus the amount of any prior payments on the Discount
Note that were not qualified stated interest payments. Under these rules, U.S.
Holders generally will have to include in income increasingly greater amounts
of original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal
to the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder
must include in its gross income with respect to such Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the
total noncontingent principal payments due under the Variable Note by more
than a specified de minimis amount and (b) it provides for stated interest,
paid or compounded at least annually, at current values of (i) one or more
qualified floating rates, (ii) a single fixed rate and one or more qualified
floating rates, (iii) a single objective rate, or (iv) a single fixed rate and
a single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself
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constitute a qualified floating rate, a variable rate is a qualified floating
rate if it is equal to either (1) the product of a qualified floating rate and
a fixed multiple that is greater than 0.65 but not more than 1.35 or (2) the
product of a qualified floating rate and a fixed multiple that is greater than
0.65 but not more than 1.35, increased or decreased by a fixed rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout
the term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable
Note's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute
a qualified floating rate but which is subject to one or more restrictions
such as a maximum numerical limitation (i.e., a cap) or a minimum numerical
limitation (i.e., a floor) may, under certain circumstances, fail to be
treated as a qualified floating rate under the OID Regulations unless such cap
or floor is fixed throughout the term of the Note. An "objective rate" is a
rate (other than a qualified floating rate) that is obtained using a single
fixed formula and that is based on objective financial or economic information
outside of the issuer's control. The OID Regulations also provide that other
variable interest rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Variable Note will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Note's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of the
Variable Note's term. A "qualified inverse floating rate" is any objective
rate where such rate is equal to a fixed rate minus a qualified floating rate,
as long as variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the qualified floating rate. The OID
Regulations also provide that if a Variable Note provides for stated interest
at a fixed rate for an initial period of one year or less followed by a
variable rate that is either a qualified floating rate or an objective rate
for a subsequent period and if the variable rate on the Variable Note's issue
date is intended to approximate the fixed rate (e.g., the value of the
variable rate on the issue date does not differ from the value of the fixed
rate by more than 25 basis points), then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually during
the term of the Note will constitute qualified stated interest and will be
taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true"
discount (i.e., at a price below the Note's stated principal amount) in excess
of a specified de minimis amount. Original issue discount on such a Variable
Note arising from "true" discount is allocated to an accrual period using the
constant yield method described above by assuming that the variable rate is a
fixed rate equal to (i) in the case of a qualified floating rate or qualified
inverse floating rate, the value as of the issue date, of the qualified
floating rate or qualified inverse floating rate, or (ii) in the case of an
objective rate (other than a qualified inverse floating rate), a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. The
qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed
rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides
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for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate
is initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Variable Note provides for a qualified inverse floating
rate). Under such circumstances, the qualified floating rate or qualified
inverse floating rate that replaces the fixed rate must be such that the fair
market value of the Variable Note as of the Variable Note's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse
floating rate, the Variable Note is then converted into an "equivalent" fixed
rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. In each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed
rate debt instrument in the event that such amounts differ from the actual
amount of interest accrued or paid on the Variable Note during the accrual
period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. Generally, if a Variable Note is treated
as a contingent payment obligation, interest payments thereon will be treated
as "contingent interest" payments. Under recently issued Treasury Regulations,
any contingent interest payments on a Variable Note would be includible in
income in a taxable year whether or not the amount of any payment is fixed or
determinable in that year. The amount of interest included in income in any
particular accrual period would be determined by constructing a projected
payment schedule (as determined under the Regulations) for the Variable Note
and applying daily accrual rules similar to those for accruing original issue
discount on Notes issued with original issue discount (as discussed above). If
the actual amount of contingent interest payments is not equal to the
projected amount, an adjustment to income at the time of the payment must be
made to reflect the difference.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable
at the option of the holder prior to their stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based
on daily compounding), through the date of sale, exchange or maturity, and a
portion of the deductions otherwise allowable to the U.S. Holder for interest
on borrowings allocable to the Short-Term Note will be deferred until a
corresponding amount of income is realized. U.S. Holders who report income for
United States Federal income tax purposes under the accrual method, and
certain
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other holders including banks and dealers in securities, are required to
accrue original issue discount on a Short-Term Note on a straight-line basis
unless an election is made to accrue the original issue discount under a
constant yield method (based on daily compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its stated redemption price at maturity
or, in the case of a Discount Note, for an amount that is less than its
adjusted issue price as of the purchase date, such U.S. Holder will be treated
as having purchased such Note at a "market discount," unless such market
discount is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized
on the sale, exchange, retirement or other disposition of, a Note as ordinary
income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time
of such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on an
economic accrual basis. If such Note is disposed of in a nontaxable
transaction (other than as provided in Sections 1276(c) and (d) of the Code),
accrued market discount will be includible as ordinary income to the U.S.
Holder as if such U.S. Holder had sold the Note at its then fair market value.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note
or certain earlier dispositions (including a nontaxable transaction other than
as provided by Sections 1276(c) and (d) of the Code), because a current
deduction is only allowed to the extent the interest expense exceeds an
allocable portion of market discount. A U.S. Holder may elect to include
market discount in income currently as it accrues (on either a ratable or
semiannual compounding basis), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
Note and upon the receipt of certain cash payments and regarding the deferral
of interest deductions will not apply. Generally, such currently included
market discount is treated as ordinary interest for United States Federal
income tax purposes. Such an election will apply to all debt instruments
acquired by the U.S. Holder on or after the first day of the taxable year to
which such election applies and may be revoked only with the consent of the
IRS.
Premium. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S. Holder will be
considered to have purchased the Note with "amortizable bond premium" equal in
amount to such excess. A U.S. Holder may elect to amortize such premium using
a constant yield method over the remaining term of the Note and may offset
interest otherwise required to be included in respect of the Note during any
taxable year by the amortized amount of such excess for the taxable year.
However, if the Note may be optionally redeemed after the U.S. Holder acquires
it at a price in excess of its stated redemption price at maturity, special
rules would apply which could result in a deferral of the amortization of some
bond premium until later in the term of the Note. A U.S. Holder who elects to
amortize bond premium must reduce his tax basis in the Note by the amount of
the premium amortized in any year. Any election to amortize bond premium
applies to all taxable debt obligations then owned and thereafter acquired by
the U.S. Holder and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange or
retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest)
and such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's
adjusted tax basis in a Note generally will equal such U.S. Holder's initial
investment in the Note increased by any original issue discount included in
income (and accrued market discount, if any, if the U.S. Holder has included
such market discount in income) and decreased by the amount of any payments,
other than qualified stated interest payments, received and amortizable bond
premium taken with respect to such Note. Such gain or loss generally will be
long-term capital gain or loss if the
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Note were held for more than one year. The excess of the net long-term capital
gains over the net short term capital losses is taxed at a lower rate than
ordinary income for certain corporate taxpayers. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations on the deductibility of capital losses.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder owns actually
or constructively 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, is a controlled foreign
corporation related directly or indirectly to the Company through stock
ownership, or is a bank receiving interest described in Section 881(c)(3)(A)
of the Code. To qualify for the exemption from taxation, the last United
States payor in the chain of payment prior to payment to a non-U.S. Holder
(the "Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar
years, a statement that (i) is signed by the beneficial owner of the Note
under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement
to the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. In addition, the
Treasury Department has recently issued proposed regulations regarding the
withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms
and clarify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, unless (i) such Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition, and either (a)
such individual has a "tax home" (as defined in Section 911(d)(3) of the Code)
in the United States (unless such gain is attributable to a fixed place of
business in a foreign country maintained by such individual and has been
subject to foreign tax of at least 10%) or (b) the gain is attributable to an
office or other fixed place of business maintained by such individual in the
United States or (ii) the gain is effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder.
If a non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest (including original issue discount) on the Note
is effectively connected with the conduct of such trade or business, the non-
U.S. Holder, although exempt from the withholding tax discussed in the
preceding paragraph, will generally be subject to regular United States income
tax on interest (including any original issue discount) and on any gain
realized on the sale, exchange or other disposition of a Note in the same
manner as if it were a U.S. Holder. See the discussion above regarding U.S.
Holders. In lieu of the certificate described above, such a Holder will be
required to provide to the Company a properly executed Internal Revenue
Service Form 4224 in order to claim an exemption from withholding tax. In
addition, if such non-U.S. Holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest (including original issue discount) on and any gain
recognized on the sale, exchange or other disposition of a Note will be
included in the effectively connected earnings and profits of such non-U.S.
Holder if such interest or gain, as the case may be, is effectively connected
with the conduct by the non-U.S. Holder of a trade or business in the United
States.
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The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments (including original issue discount) made in respect of the
Notes to registered owners who are not "exempt recipients" and who fail to
provide certain identifying information (such as the registered owner's
taxpayer identification number) in the required manner. Generally, individuals
are not exempt recipients, whereas corporations and certain other entities
generally are exempt recipients. Payments made in respect of the Notes to a
U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption
from backup withholding for those non-U.S. Holders who are not exempt
recipients.
Under current Treasury Regulations, payment on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker
is a United States person, a controlled foreign corporation for United States
tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting will be required unless the broker
has in its records documentary evidence that the beneficial owner is not a
United States person and certain other conditions are met or the beneficial
owner otherwise establishes an exemption. Under proposed Treasury Regulations,
backup withholding may apply to any payment which such broker is required to
report if such broker has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the Holder
certifies, under penalties of perjury, that it is not a United States person
or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification for
an exemption from backup withholding and information reporting and the
procedures for obtaining such an exemption, if applicable. Any amounts
withheld under the backup withholding rules from a payment to a beneficial
owner would be allowed as a refund or a credit against such beneficial owner's
United States Federal income tax provided the required information is
furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company
through each of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and NationsBanc Capital Markets, Inc.
(collectively, the "Agents"), who will purchase the Notes, as principal, from
the Company for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as determined by
such Agent, or, if so specified in an applicable Pricing Supplement, for
resale at a fixed public offering price. Unless otherwise specified in an
applicable Pricing Supplement, any Note sold to an Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of identical
maturity. If agreed to by the Company and the applicable Agent, such Agent may
utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in an applicable Pricing Supplement. The Company will pay a
commission to each such Agent, ranging from .125% to .750% of the principal
amount of a Note, depending upon its Stated Maturity, sold through such Agent.
An Agent may sell Notes it has purchased from the Company as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from the
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Company to such dealers. After the initial public offering of Notes, the
public offering price (in the case of Notes to be resold on a fixed public
offering price basis), the concession and the discount may be changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part. The Agents
will have the right, in their discretion reasonably exercised, to reject in
whole or in part any offer to purchase Notes received by them on an agency
basis.
Unless otherwise specified in an applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in New York City on the date of settlement.
In connection with the offering of the Notes purchased by one or more
Agents, as principal, on a fixed price basis, the Agents are permitted to
engage in certain transactions that stabilize the price of the Notes. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Notes. If the Agents create a short position
in the Notes in connection with the offering (i.e., if they sell Notes in an
aggregate principal amount exceeding that set forth in the applicable Pricing
Supplement), the Agents may reduce that short position by purchasing Notes in
the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Notes. In addition,
neither the Company nor any of the Agents makes any representation that the
Agents will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
No Note will have an established trading market when issued. The Notes will
not be listed on any securities exchange. Each of the Agents may from time to
time purchase and sell Notes in the secondary market, but no Agent is
obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or liquidity in the secondary market if one
develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify each of the Agents against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the Agents
may be required to make in respect thereof. The Company has agreed to
reimburse each of the Agents for certain other expenses.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indenture
referred to herein.
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PROSPECTUS
HEALTH CARE PROPERTY INVESTORS, INC.
SECURITIES
Health Care Property Investors, Inc. (the "Company") may offer from time to
time, in one or more series, its unsecured debt securities (the "Debt
Securities"), shares of its Preferred Stock, par value $1.00 per share (the
"Preferred Stock") and shares of its Common Stock, par value $1.00 per share
(the "Common Stock"). The Debt Securities, the Preferred Stock and the Common
Stock are collectively referred to herein as the "Securities." The Securities
will have an aggregate Offering price of $385,000,000 and will be offered on
terms to be determined at the time of the Offering.
In the case of Debt Securities, the specific title, the aggregate principal
amount, the purchase price, the maturity, the rate and time of payment of any
interest, any redemption or sinking fund provisions, any conversion provisions
and any other specific term of the Debt Securities will be set forth in the
accompanying supplement to this Prospectus (the "Prospectus Supplement")
and/or a related pricing supplement (the "Pricing Supplement"). In the case of
Preferred Stock, the specific number of shares, designation, stated value per
share, liquidation preference per share, issuance price, dividend rate (or
method of calculation), dividend payment dates, any redemption or sinking fund
provisions, any conversion rights and any other specific term of the series of
Preferred Stock will be set forth in the accompanying Prospectus Supplement.
In the case of Common Stock, the specific number of shares and issuance price
per share will be set forth in the accompanying Prospectus Supplement. The
Prospectus Supplement will also disclose whether the Securities will be listed
on a national securities exchange and if they are not to be listed, the
possible effects thereof on their marketability.
Securities may be sold directly, through agents from time to time or through
underwriters or dealers, which may include Merrill Lynch, Pierce, Fenner &
Smith Incorporated. If any agent of the Company or any underwriter is involved
in the sale of the Securities, the name of such agent or underwriter and any
applicable commission or discount will be set forth in the accompanying
Prospectus Supplement. See "Plan of Distribution." The net proceeds to the
Company from such sale also will be set forth in the applicable Prospectus
Supplement.
The Debt Securities, if issued, will rank on parity with all other unsecured
and unsubordinated indebtedness of the Company. See "Description of the Debt
Securities."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
----------------
The date of this Prospectus is June 27, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files, reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at Room 1024 of the offices of
the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and is available for inspection and copying at the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the principal
offices of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a world
wide web site at http://www.sec.gov that contains reports, proxy and other
information regarding registrants that file electronically with the
Commission. Reports, proxy materials and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus and any accompanying Prospectus Supplement do not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement, which may be examined without charge at the public
reference facilities maintained by the Commission at the Public Reference Room
of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies thereof may be obtained from the Commission
upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (ii) Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, (iii) proxy statement dated March 21, 1997, (iv) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, and (v) the
description of the Common Stock contained in the Company's Registration
Statement on Form 10, dated May 7, 1985 (File No. 1-8895), including
amendments dated May 20, 1985 and May 23, 1985, in each case as filed with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference
into this Prospectus and shall be deemed to be a part hereof.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the Offering of the Securities offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be part hereof
from the date of filing such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document, as the case may be, which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of this Prospectus
under Section 10(a) of the Securities Act will also be provided without charge
to each such person, upon written or oral request. Requests for such copies
should be directed to James G. Reynolds, Executive Vice President and Chief
Financial Officer, Health Care Property Investors, Inc., 10990 Wilshire
Boulevard, Suite 1200, Los Angeles, California 90024, (310) 473-1990.
2
<PAGE>
THE COMPANY
Health Care Property Investors, Inc. (the "Company"), a Maryland
corporation, was organized in March 1985 to qualify as a real estate
investment trust. The Company invests 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, physician group practice clinics and
psychiatric facilities.
References herein to the Company include Health Care Property Investors,
Inc. and its wholly-owned subsidiaries, unless the context otherwise requires.
The Company's principal offices are located at 10990 Wilshire Boulevard, Suite
1200, Los Angeles, California 90024, and its telephone number is (310) 473-
1990.
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is the ratio of earnings to fixed charges for the Company
for the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........... 2.77 3.06 3.35 3.67 3.16 3.14
</TABLE>
- --------
(1) In computing the ratios of earnings to fixed charges: (a) earnings have
been based on consolidated income from operations before fixed charges
(exclusive of capitalized interest) and (b) fixed charges consist of
interest on debt including amounts capitalized and the pro rata share of
the partnerships' fixed charges.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement which accompanies
this Prospectus, the net proceeds from the sale of the Securities offered from
time to time hereby will be used for general corporate purposes, including the
repayment of outstanding indebtedness, the acquisition of health care related
properties and the construction thereof.
3
<PAGE>
DESCRIPTION OF THE DEBT SECURITIES
The Debt Securities are to be issued under an existing indenture (the
"Indenture") dated as of September 1, 1993 between the Company and The Bank of
New York, as Trustee (the "Trustee"), which has been filed with the Commission
and incorporated by reference in the Registration Statement of which this
Prospectus is a part. The following summaries of certain provisions of the
Indenture and the Debt Securities do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture to which reference is hereby made for a full
description of such provisions, including the definitions therein of certain
terms and for other information regarding the Debt Securities. Whenever
particular sections or defined terms of the Indenture are referred to, it is
intended that such sections or defined terms shall be incorporated herein by
reference. Copies of the Indenture are available for inspection during normal
business hours at the principal executive offices of the Company, 10990
Wilshire Boulevard, Suite 1200, Los Angeles, California 90024.
The following sets forth certain general terms and provisions of the Debt
Securities offered by this Prospectus and the accompanying Prospectus
Supplement (the "Offered Debt Securities"). Further terms of the Offered Debt
Securities are set forth in the applicable Prospectus Supplement and/or an
applicable Pricing Supplement.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that the Debt
Securities may be issued from time to time in one or more series. All
securities issued under the Indenture will rank equally and ratably with all
other securities issued under the Indenture.
The Debt Securities will be unsecured and will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company. The Debt
Securities are not, by their terms, subordinate in right of payment to any
other indebtedness of the Company.
The Prospectus Supplement and any related Pricing Supplement will describe
certain terms of the Offered Debt Securities, including (a) the title of the
Offered Debt Securities; (b) any limit on the aggregate principal amount of
the Offered Debt Securities and their purchase price; (c) the date or dates on
which the Offered Debt Securities will mature; (d) the rate or rates per annum
(or manner in which interest is to be determined) at which the Offered Debt
Securities will bear interest, if any, and the date from which such interest,
if any, will accrue; (e) the dates on which such interest, if any, on the
Offered Debt Securities will be payable and the Regular Record Dates for such
Interest Payment Dates; (f) any mandatory or optional sinking fund or
analogous provisions; (g) additional provisions, if any, for the defeasance of
the Offered Debt Securities; (h) the date, if any, after which and the price
or prices at which the Offered Debt Securities may, pursuant to any optional
or mandatory redemption or repayment provisions, be redeemed and the other
detailed terms and provisions of any such optional or mandatory redemption or
repayment provisions; (i) whether the Offered Debt Securities are to be issued
in whole or in part in registered form represented by one or more registered
global securities (a "Registered Global Security") and, if so, the identity of
the depositary for such Registered Global Security or Securities; (j) any
applicable material United States federal income tax consequences; and (k) any
other specific terms of the Offered Debt Securities, including any additional
events of default or covenants provided for with respect to such Debt
Securities, and any terms that may be required by or advisable under
applicable laws or regulations.
Principal of, premium, if any, and interest, if any, on the Debt Securities
will be payable at such place or places as are designated by the Company and
set forth in the applicable Prospectus Supplement. Interest, if any, on the
Debt Securities will be paid, unless otherwise provided in the applicable
Prospectus Supplement, by check mailed to the person in whose name the Debt
Securities are registered at the close of business on the record dates
designated in the applicable Prospectus Supplement at the address of the
related holder appearing on the register of Debt Securities. The Trustee will
maintain at an office in the Borough of Manhattan, The City of New York, a
register for the registration of transfers of Debt Securities, subject to any
restrictions set forth in the applicable Prospectus Supplement relating to the
Debt Securities.
4
<PAGE>
Unless otherwise provided in the applicable Prospectus Supplement or Pricing
Supplement, the Debt Securities will be issued only in fully registered form
without coupons, and in denominations of $1,000 or any larger amount that is
an integral multiple of $1,000. Debt Securities may be presented for exchange
and transfer in the manner, at the places and subject to the restrictions set
forth in the Indenture, the Debt Securities and the Prospectus Supplement.
Such services will be provided without charge, other than any tax or other
governmental charge payable in connection therewith, but subject to the
limitations provided in the Indenture.
Debt Securities will bear interest at a fixed rate or a floating rate. The
Debt Securities may be issued at a price less than their stated redemption
price at maturity, resulting in such Debt Securities being treated as issued
with original issue discount for federal income tax purposes ("Original Issue
Discount Debt Securities"). Such Original Issue Discount Debt Securities may
currently pay no interest or interest at a rate which at the time of issuance
is below market rates. Special federal income tax and other considerations
applicable to any such discounted Notes will be described in the Prospectus
Supplement or Pricing Supplement relating thereto.
The Indenture provides that all Debt Securities of any one series need not
be issued at the same time and that the Company may, from time to time, issue
additional Debt Securities of a previously issued series. In addition, the
Indenture provides that the Company may issue Debt Securities with terms
different from those of any other series of Debt Securities and, within a
series of Debt Securities, certain terms (such as interest rate or manner in
which interest is calculated and maturity date) may differ.
CONVERSION RIGHTS
The terms, if any, on which Debt Securities of a series may be exchanged for
or converted into shares of Common Stock, Preferred Stock or Debt Securities
of another series will be set forth in the Prospectus Supplement relating
thereto. To protect the Company's status as a REIT, a holder may not convert
any Debt Security, and such Debt Security shall not be convertible by any
holder, if as a result of such conversion any person would then be deemed to
beneficially own, directly or indirectly, 9.9% or more of the Company's Common
Stock.
GLOBAL DEBT SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more fully registered global Securities (a "Registered Global Security")
that will be deposited with a depositary (a "Depositary") or with a nominee
for a Depositary identified in the Prospectus Supplement relating to such
series and registered in the name of the Depositary or a nominee thereof. In
such case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding registered Debt Securities of the series to be
represented by such Registered Global Security or Securities. Unless and until
it is exchanged in whole for Debt Securities in definitive registered form, a
Registered Global Security may not be transferred except as a whole by the
Depositary for such Registered Security to a nominee of such Depositary or by
a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to
all depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited shall be designated by any dealers,
5
<PAGE>
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in such Registered Global
Security will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by the Depositary for such
Registered Global Security (with respect to interests of participants) and on
the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Registered Global Security for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the
Debt Securities represented by such Registered Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
such Debt Securities in definitive form and will not be considered the owners
or holders thereof under the Indenture. Accordingly, each person owning a
beneficial interest in a Registered Global Security must rely on the
procedures of the Depositary for such Registered Global Security and, if such
person is not a participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a holder under
the Indenture. The Company understands that under existing industry practices,
if the Company requests any action of holders or if an owner of a beneficial
interest in a Registered Global Security desires to give or take any action
which a holder is entitled to give or take under the Indenture, the Depositary
for such Registered Global Security would authorize the participants holding
the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal, premium, if any, and interest payments of Debt Securities
represented by a Registered Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owner of such Registered Global Security.
None of the Company, the Trustee or any other agent of the Company or agent of
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in such Registered Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered
Global Security as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Registered Global Security held through such participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name," and will be responsibility of such
participants.
If the Depositary for any Debt Securities represented by a Registered Global
Security is at any time unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such Debt
Securities in definitive form in exchange for such Registered Global Security.
In addition, the Company may at any time and in its sole discretion determine
not to have any of the Debt Securities of a series represented by one or more
Registered Global Securities and, in such event, will issue Debt Securities of
such series in definitive form in exchange for the Registered Global Security
or Securities representing such Debt Securities. Any Debt Securities issued in
definitive form in exchange for a Registered Global Security will be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions will be based upon directions received
by the Depositary from participants with respect to ownership of beneficial
interests in such Registered Global Security.
6
<PAGE>
CERTAIN COVENANTS OF THE COMPANY
Limitation on Borrowing Money
The Company covenants in the Indenture that it will not create, assume,
incur, or otherwise become liable in respect of, any
(a) Senior Debt (as defined below) unless the aggregate principal amount
of Senior Debt outstanding of the Company will not, at the time of such
creation, assumption or incurrence and after giving effect thereto and to
any concurrent transactions, exceed the greater of (i) 300% of Capital Base
(as defined below), or (ii) 500% of Tangible Net Worth (as defined below);
and
(b) Non-Recourse Debt (as defined below) unless the aggregate principal
amount of Senior Debt and Non-Recourse Debt outstanding of the Company will
not, at the time of such creation, assumption or incurrence and after
giving effect thereto and to any concurrent transactions, exceed 500% of
Capital Base.
For the purpose of this limitation as to borrowing money, "Senior Debt"
shall mean all Debt other than Non-Recourse Debt and Subordinated Debt;
"Debt," with respect to any Person, shall mean (i) its indebtedness, secured
or unsecured, for borrowed money; (ii) Liabilities secured by any existing
lien on property owned by such Person; (iii) Capital Lease Obligations, and
the present value of all payments due under any arrangement for retention of
title (discounted at the implicit rate if known and at 9% otherwise) if such
arrangement is in substance an installment purchase or an arrangement for the
retention of title for security purposes; and (iv) guarantees of obligations
of the character specified in the foregoing clauses (i), (ii) and (iii), to
the full extent of the liability of the guarantor (discounted to present
value, as provided in the foregoing clause (iii), in the case of guarantees of
title retention arrangements); "Capital Lease" shall mean at any time any
lease of Property which, in accordance with generally accepted accounting
principles, would at such time be required to be capitalized on a balance
sheet of the lessee; "Capital Lease Obligation" shall mean at any time the
amount of the liability in respect of a Capital Lease which, in accordance
with generally accepted accounting principles, would at such time be so
required to be capitalized on a balance sheet of the lessee; "Property" shall
mean any interest in any kind of property or asset, whether real, personal or
mixed, or tangible or intangible; "Person" shall mean an individual,
partnership, joint venture, joint-stock company, association, corporation,
trust or unincorporated organization, or a government or agency or political
subdivision thereof; "Non-Recourse Debt" with respect to any Person, shall
mean any Debt secured by, and only by, property on or with respect to which
such Debt is incurred where the rights and remedies of the holder of such Debt
in the event of default do not extend to assets other than the property
constituting security therefor; "Subordinated Debt" shall mean any unsecured
Debt of the Company which is issued or assumed pursuant to, or evidenced by,
an indenture or other instrument which contains provisions for the
subordination of such other Debt (to which appropriate reference shall be made
in the instruments evidencing such other Debt if not contained therein) to the
Debt Securities (and, at the option of the Company, if so provided, to other
Debt of the Company, either generally or as specifically designated); "Capital
Base" shall mean, at any date, the sum of Tangible Net Worth and Subordinated
Debt; "Tangible Net Worth" shall mean, at any date, the net book value (after
deducting related depreciation, obsolescence, amortization, valuation, and
other proper reserves) of the Tangible Assets of the Company at such date,
minus the amount of its Liabilities at such date; "Tangible Assets" shall mean
all assets of the Company (including assets held subject to Capital Leases and
other arrangements pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes) except: (i) deferred
assets other than prepaid insurance, prepaid taxes and deposits; (ii) patents,
copyrights, trademarks, trade names, franchises, goodwill, experimental
expense and other similar intangibles; and (iii) unamortized debt discount and
expense; and "Liabilities" shall mean any date the items shown as liabilities
on the balance sheet of the Company, except any items of deferred income,
including capital gains.
Consolidation, Merger and Sale of Assets
The Company shall not consolidate or merge with or into, or transfer or
lease its assets substantially as an entirety to any person unless the Company
shall be the continuing corporation, or the successor corporation or person to
which such assets are transferred or leased shall be organized under the laws
of the United States or
7
<PAGE>
any state thereof or the District of Columbia and shall expressly assume the
Company's obligations on the Debt Securities and under such Indenture, and
after giving effect to such transaction no Event of Default shall have
occurred and be continuing, and certain other conditions are met.
Additional Covenants
Any additional covenants of the Company with respect to a series of the Debt
Securities will be set forth in the Prospectus Supplement and/or Pricing
Supplement relating thereto.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
the Debt Securities of any series: (a) failure to pay principal of or any
premium on any Debt Security of such series when due; (b) failure to pay any
interest on any Debt Security of such series when due, continued for 30 days;
(c) failure to deposit any sinking fund payment when due in respect of any
Debt Security of such series; (d) failure to perform any other covenant or
warranty of the Company in the Indenture (other than a covenant or warranty
included in the Indenture solely for the benefit of one or more series of Debt
Securities other than that series), continued for 60 days after written notice
by the Trustee to the Company or by the holders of at least 25% in aggregate
principal amount of the Outstanding Debt Securities of such series to the
Company and the Trustee as provided in the Indenture; (e) certain events in
bankruptcy, insolvency, conservatorship, receivership or reorganization of the
Company; (f) an acceleration of any other indebtedness of the Company, in an
aggregate principal amount exceeding $20,000,000, not rescinded or annulled
within 10 days after written notice is given as provided in the Indenture; and
(g) the occurrence of any other Event of Default provided with respect to the
Debt Securities of that series.
If an Event of Default with respect to the Outstanding Debt Securities of
any series occurs and is continuing, either the Trustee or the holders of at
least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series may declare the principal amount of all the Outstanding Debt
Securities of that series to be due and payable immediately. At any time after
the declaration of acceleration with respect to the Debt Securities of any
series has been made, but before a judgment or decree based on acceleration
has been obtained, the holders of a majority in aggregate principal amount of
the Outstanding Debt Securities of that series may, under certain
circumstances, rescind and annul such acceleration.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default with respect to a series of Debt Securities, give to
the holders of the Outstanding Debt Securities of such series notice of all
uncured defaults known to it. Except in the case of default in the payment of
principal, premium, if any, or interest, if any, on any Debt Securities of a
series, the Trustee shall be protected in withholding such notice if the
Trustee in good faith determines that the withholding of such notice is in the
interest of the holders of Outstanding Debt Securities of such series.
The Indenture provides that, subject to the duty of the Trustee during the
continuance of an Event of Default to act with the required standard of care,
the Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders,
unless such holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee and subject
to certain other limitations, the holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of any series will have the right to
direct the time, method and place of conducting any proceedings for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series.
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
8
<PAGE>
MODIFICATION, WAIVER AND AMENDMENT
The Indenture provides that modifications and amendments may be made by the
Company and the Trustee to the Indenture with the consent of the holders of
not less than 66 2/3% in aggregate principal amount of the Outstanding Debt
Securities of each series affected by such modification or amendment;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Outstanding Debt Security affected thereby, (a)
change the Stated Maturity of the principal of, or any installment of
principal of, premium, if any, or interest, if any, on any Debt Security; (b)
reduce the principal amount of, premium, if any, or interest, if any, on any
Debt Security; (c) reduce the amount of principal of an Original Issue
Discount Debt Security payable upon acceleration of the Stated Maturity
thereof; (d) change the place or currency of payment of the principal of,
premium, if any, or interest, if any, on any Debt Security; (e) impair the
right to institute suit for the enforcement of any payment on or with respect
to any Debt Security; or (f) reduce the percentage in aggregate principal
amount of the Outstanding Debt Securities of any series, the consent of whose
holders is required for modification or amendment of the Indenture or for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults.
The holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of each series will be able, on behalf of all holders of the
Debt Securities of that series, to waive compliance by the Company with
certain restrictive provisions of the Indenture, or any past default under the
Indenture with respect to the Debt Securities of that series, except a default
in the payment of principal, premium, if any, or interest, if any, or in
respect of a provision of the Indenture which cannot be amended or modified
without the consent of the holder of each Outstanding Debt Security of the
series affected.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture, with respect to any and all series of Debt Securities (except
for certain specified surviving obligations including, among other things, the
Company's obligation to pay the principal of, premium, if any, or interest, if
any, on any Debt Securities), will be discharged and cancelled upon the
satisfaction of certain conditions, including the payment in full of the
principal of, premium, if any, and interest, if any, on all of the Debt
Securities of such series or the deposit with the Trustee of an amount of cash
sufficient for such payment or redemption, in accordance with the Indenture.
DEFEASANCE
The Company will be able to terminate certain of its obligations under the
Indenture with respect to the Debt Securities of any series on the terms and
subject to the conditions contained in the Indenture, by depositing in trust
with the Trustee cash or U.S. government obligations (or combination thereof)
sufficient to pay the principal of, premium, if any, and interest, if any, on
the Debt Securities of such series to their maturity or redemption date in
accordance with the terms of the Indenture and such Debt Securities.
GOVERNING LAW AND CONSENT TO JURISDICTION
The Debt Securities and the Indenture will be governed by and construed in
accordance with the laws of the State of California.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions with the Company; provided, however, that if the Trustee
acquires any conflicting interest it must eliminate such conflict or resign or
otherwise comply with the Trust Indenture Act of 1939, as amended.
The Indenture provides that, in case an Event of Default should occur and be
continuing, the Trustee will be required to use the degree of care and skill
of a prudent person in the conduct of his or her own affairs in the exercise
of its powers.
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DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Articles of Restatement of the Company (the "Charter Documents"), and the
Board of Directors' resolution or articles supplementary (the "Articles
Supplementary") relating to each series of the Preferred Stock which will be
filed with the Commission and incorporated by reference to the Registration
Statement of which this Prospectus is a part at or prior to the time of the
issuance of such series of Preferred Stock.
GENERAL
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $1.00 par value per share, and 50,000,000 shares of Preferred
Stock, $1.00 par value per share. See "Description of Common Stock."
Under the Charter Documents, the Board of Directors of the Company is
authorized without further stockholder action to establish and issue, from
time to time, up to 50,000,000 shares of preferred stock of the Company, in
one or more series, with such designations, preferences, powers and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon, including, but not limited to, dividend
rights, dividend rate or rates, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price
or prices, and the liquidation preferences as shall be stated in the
resolution providing for the issue of a series of such stock, adopted, at any
time or from time to time, by the Board of Directors of the Company.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference
is made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number
of shares offered; (ii) the amount of liquidation preference per share; (iii)
the initial public offering price at which such Preferred Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence
to cumulate, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion rights; and (vii) any additional voting, dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges,
limitations and restrictions.
The Preferred Stock will, when issued, be fully paid and nonassessable and
will have no preemptive rights. Unless otherwise stated in a Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on a parity as to dividends and distributions
of assets with each other series of the Preferred Stock. The rights of the
holders of each series of the Preferred Stock will be subordinate to those of
the Company's general creditors.
CERTAIN PROVISIONS OF THE CHARTER DOCUMENTS
See "Description of Common Stock--Redemption and Business Combination
Provisions" for a description of certain provisions of the Charter Documents,
including provisions relating to redemption rights and provisions which may
have certain anti-takeover effects.
DIVIDEND RIGHTS
Holders of shares of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company,
out of funds of the Company legally available therefor, cash
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dividends on such dates and at such rates as will be set forth in, or as are
determined by the method described in, the Prospectus Supplement relating to
such series of the Preferred Stock. Such rate may be fixed or variable or
both. Each such dividend will be payable to the holders of record as they
appear on the stock books of the Company on such record dates, fixed by the
Board of Directors of the Company, as specified in the Prospectus Supplement
relating to such series of Preferred Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Preferred Stock. If the Board
of Directors of the Company fails to declare a dividend payable on a dividend
payment date on any series of Preferred Stock for which dividends are
noncumulative, then the holders of such series of Preferred Stock will have no
right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company shall have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series are
declared payable on any future dividend payment dates. Dividends on the shares
of each series of Preferred Stock for which dividends are cumulative will
accrue from the date on which the Company initially issues shares of such
series.
So long as the shares of any series of the Preferred Stock shall be
outstanding, unless (i) full dividends (including if such Preferred Stock is
cumulative, dividends for prior dividend periods) shall have been paid or
declared and set apart for payment on all outstanding shares of the Preferred
Stock of such series and all other series of preferred stock of the Company
(other than Junior Stock, as defined below) and (ii) the Company is not in
default or in arrears with respect to the mandatory or optional redemption or
mandatory repurchase or other mandatory retirement of, or with respect to any
sinking or other analogous fund for, any shares of Preferred Stock of such
series or any shares of any other preferred stock of the Company of any series
(other than Junior Stock), the Company may not declare any dividends on any
shares of Common Stock of the Company or any other stock of the Company
ranking as to dividends or distributions of assets junior to such series of
Preferred Stock (the Common Stock and any such other stock being herein
referred to as "Junior Stock"), or make any payment on account of, or set
apart money for, the purchase, redemption or other retirement of, or for a
sinking or other analogous fund for, any shares of Junior Stock or make any
distribution in respect thereof, whether in cash or property or in obligations
or stock of the Company, other than Junior Stock which is neither convertible
into, nor exchangeable or exercisable for, any securities of the Company other
than Junior Stock.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
voluntary or involuntary, the holders of each series of the Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets or payment is
made to the holders of Common Stock or any other shares of stock of the
Company ranking junior as to such distribution or payment to such series of
Preferred Stock, the amount set forth in the Prospectus Supplement relating to
such series of the Preferred Stock. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the amounts payable
with respect to the Preferred Stock of any series and any other shares of
preferred stock of the Company (including any other series of the Preferred
Stock) ranking as to any such distribution on a parity with such series of the
Preferred Stock are not paid in full, the holders of the Preferred Stock of
such series and of such other shares of preferred stock of the Company will
share ratably in any such distribution of assets of the Company in proportion
to the full respective preferential amounts to which they are entitled. After
payment to the holders of the Preferred Stock of each series of the full
preferential amounts of the liquidating distribution to which they are
entitled, the holders of each such series of the Preferred Stock will be
entitled to no further participation in any distribution of assets by the
Company.
If such payment shall have been made in full to all holders of shares of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes of stock ranking junior to the
Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, or the sale, lease or
conveyance of all or substantially all of the property or business of the
Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
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REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms,
at the times and at the redemption prices set forth in the Prospectus
Supplement relating to such series. Shares of the Preferred Stock redeemed by
the Company will be restored to the status of authorized but unissued shares
of preferred stock of the Company.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Company or by any other method as may be determined by the Company in
its sole discretion to be equitable. From and after the redemption date
(unless default shall be made by the Company in providing for the payment of
the redemption price plus accumulated and unpaid dividends, if any), dividends
shall cease to accumulate on the shares of the Preferred Stock called for
redemption and all rights of the holders thereof (except the right to receive
the redemption price plus accumulated and unpaid dividends, if any) shall
cease.
So long as any dividends on shares of any series of the Preferred Stock or
any other series of preferred stock of the Company ranking on a parity as to
dividends and distributions of assets with such series of the Preferred Stock
are in arrears, no shares of any such series of the Preferred Stock or such
other series of preferred stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares; provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares of Preferred Stock of such series or of shares of
such other series of preferred stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Preferred Stock
of such series, and, unless the full cumulative dividends on all outstanding
shares of any cumulative Preferred Stock of such series and any other stock of
the Company ranking on a parity with such series as to dividends and upon
liquidation shall have been paid or contemporaneously are declared and paid
for all past dividend periods, the Company shall not purchase or otherwise
acquire directly or indirectly any shares of Preferred Stock of such series
(except by conversion into or exchange for stock of the Company) ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of shares of
Preferred Stock to be redeemed at the address shown on the stock transfer
books of the Company. After the redemption date, dividends will cease to
accrue on the shares of Preferred Stock called for redemption and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price without interest.
CONVERSION RIGHTS
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted (mandatorily or otherwise) into shares of Common
Stock or another series of Preferred Stock will be set forth in the Prospectus
Supplement relating thereto. See "Description of Common Stock."
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, the holders of the Preferred Stock will not be entitled to vote for any
purpose.
So long as any shares of Preferred Stock remain outstanding, the Company
shall not, without the consent or the affirmative vote of the holders of a
majority of the shares of each series of Preferred Stock outstanding at the
time given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class) (i) authorize, create or issue, or
increase the authorized or issued amount of, any series of stock ranking prior
to
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such series of Preferred Stock with respect to payment of dividends, or the
distribution of assets on liquidation, dissolution or winding up or
reclassifying any authorized stock of the Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares and (ii) to repeal, amend or
otherwise change any of the provisions applicable to the Preferred Stock of
such series in any manner which materially and adversely affects the powers,
preferences, voting power or other rights or privileges of such series of the
Preferred Stock or the holders thereof; provided, however, that any increase
in the amount of the authorized preferred stock or the creation or issuance of
other series of preferred stock, or any increase in the amount of authorized
shares of such series or of any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Preferred Stock of such series,
shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of the Preferred Stock shall have been
redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Stock of the
Company. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent, dividend and redemption price disbursement agent and
registrar for shares of each series of the Preferred Stock will be set forth
in the Prospectus Supplement relating thereto.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $1.00 per share, and 50,000,000 shares of Preferred
Stock, par value $1.00 per share. The following description is qualified in
all respects by reference to the Charter Documents of the Company, a copy of
which was filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, the Amended and Restated Bylaws of
the Company, a copy of which was filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and the
Rights Agreement between the Company and Bank of New York (successor to
Chemical Trust Company of California), as Rights Agent.
COMMON STOCK
All shares of Common Stock participate equally in dividends payable to
holders of Common Stock when and as declared by the Board of Directors and in
net assets available for distribution to holders of Common Stock on
liquidation, dissolution, or winding up of the Company, have one vote per
share on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights in the election of directors. All issued and
outstanding shares of Common Stock are, and the Common Stock offered hereby
will be upon issuance, validly issued, fully paid and nonassessable. Holders
of the Common Stock do not have preference, conversion, exchange or preemptive
rights. The Common Stock is listed on the New York Stock Exchange (NYSE
Symbol: HCP).
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STOCKHOLDER RIGHTS PLAN
On July 5, 1990, the Board of Directors of the Company declared a dividend
distribution of one right (each, a "Right") for each outstanding share of
Common Stock of the Company to stockholders of record at the close of business
on July 30, 1990. When exercisable, each Right entitles the registered holder
to purchase from the Company one share of the Company's Common Stock at a
price of $47.50 per share, subject to adjustment. Initially, the Rights will
be attached to all outstanding shares of Common Stock, and no separate Rights
Certificates will be distributed. The Board also authorized the issuance of
one Right with respect to each share of Common Stock that shall become
outstanding between July 30, 1990 and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (all as defined in the
Rights Agreement). Each share of Common Stock offered hereby will have upon
issuance one Right attached.
The Rights will become exercisable and will detach from the Common Stock
upon the earlier of (i) the tenth day after the public announcement that any
person or group has acquired beneficial ownership of 15% or more of the
Company's Common Stock, or (ii) the tenth day after any person or group
commences, or announces an intention to commence, a tender or exchange offer
which, if consummated, would result in the beneficial ownership by a person or
group of 30% or more of the Company's Common Stock (the earlier of (i) and
(ii) being the "Distribution Date"). If such person or group acquires
beneficial ownership of 15% or more of the Company's Common Stock (except
pursuant to certain cash tender offers for all outstanding Common Stock
approved by the Board of Directors) or if the Company is the surviving
corporation in a merger and its Common Stock is not changed or exchanged, each
Right will entitle the holder to purchase, at the Right's then current
exercise price, that number of shares of the Company's Common Stock having a
market value equal to twice the exercise price. Similarly, if after the Rights
become exercisable, the Company merges or consolidates with, or sells 50% or
more of its assets or earning power to, another person, each Right will then
entitle the holder to purchase, at the Right's then current exercise price,
that number of shares of the stock of the acquiring company which at the time
of such transaction would have a market value equal to twice the exercise
price.
The Rights may be redeemed in whole, but not in part, at a price of $0.01
per Right by the Board of Directors at any time until ten days following the
public announcement that a person or group has acquired beneficial ownership
of 15% or more of the Company's outstanding Common Stock. The Board of
Directors may, under certain circumstances, extend the period during which the
Rights are redeemable or postpone the Distribution Date. The Rights will
expire on July 30, 2000, unless earlier redeemed.
TRANSFER RESTRICTIONS, REDEMPTION AND BUSINESS COMBINATION PROVISIONS
If the Board of Directors shall, at any time and in good faith, be of the
opinion that direct or indirect ownership of more than 9.9% or more of the
voting shares of capital stock has or may become concentrated in the hands of
one beneficial owner, the Board of Directors shall have the power (i) by lot
or other means deemed equitable by it to call for the purchase from any
stockholder of the Company a number of voting shares sufficient, in the
opinion of the Board of Directors, to maintain or bring the direct or indirect
ownership of voting shares of capital stock of such beneficial owner to a
level of no more than 9.9% of the outstanding voting shares of the Company's
capital stock, and (ii) to refuse to transfer or issue voting shares of
capital stock to any person whose acquisition of such voting shares would, in
the opinion of the Board of Directors, result in the direct or indirect
ownership by that person of more than 9.9% of the outstanding voting shares of
capital stock of the Company. Further, any transfer of shares, options,
warrants, or other securities convertible into voting shares that would create
a beneficial owner of more than 9.9% of the outstanding voting shares shall be
deemed void ab initio and the intended transferee shall be deemed never to
have had an interest therein. The purchase price for any voting shares of
capital stock so redeemed shall be equal to the fair market value of the
shares reflected in the closing sales price for the shares, if then listed on
a national securities exchange, or the average of the closing sales prices for
the shares if then listed on more than one national securities exchange, or if
the shares are not then listed on a national securities exchange, the latest
bid quotation for the shares if then traded over-the-counter, on the last
business day immediately preceding the day on which notices of such
acquisitions are sent by the Company, or, if no such closing sales prices or
quotations are available, then the purchase price shall be equal to
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the net asset value of such stock as determined by the Board of Directors in
accordance with the provisions of applicable law. From and after the date
fixed for purchase by the Board of Directors, the holder of any shares so
called for purchase shall cease to be entitled to distributions, voting rights
and other benefits with respect to such shares, except the right to payment of
the purchase price for the shares.
The Charter Documents require that, except in certain circumstances,
Business Combinations (as defined below) between the Company and a beneficial
holder of 10% or more of the Company's outstanding voting stock (a "Related
Person") be approved by the affirmative vote of at least 90% of the
outstanding voting shares of the Company.
A Business Combination is defined in the Charter Documents as (a) any merger
or consolidation of the Company with or into a Related Person, (b) any sale,
lease, exchange, transfer or other disposition, including without limitation a
mortgage or any other security device, of all or any "Substantial Part" (as
defined below) of the assets of the Company (including without limitation any
voting securities of a subsidiary) to a Related Person, (c) any merger or
consolidation of a Related Person with or into the Company, (d) any sale,
lease, exchange, transfer or other disposition of all or any Substantial Part
of the assets of a Related Person to the Company, (e) the issuance of any
securities (other than by way of pro rata distribution to all stockholders) of
the Company to a Related Person, and (f) any agreement, contract or other
arrangement providing for any of the transactions described in the definition
of Business Combination. The term "Substantial Part" shall mean more than 10%
of the book value of the total assets of the Company as of the end of its most
recent fiscal year ending prior to the time the determination is being made.
The foregoing provisions of the Charter Documents and certain other matters
may not be amended without the affirmative vote of at least 90% of the
outstanding voting shares of the Company.
The Rights and the foregoing provisions may have the effect of discouraging
unilateral tender offers or other takeover proposals which certain
stockholders might deem to be in their interests or in which they might
receive a substantial premium. The Board of Directors' authority to issue and
establish the terms of currently authorized Preferred Stock, without
stockholder approval, may also have the effect of discouraging takeover
attempts. See "Description of Preferred Stock." The Rights and the foregoing
provisions could also have the effect of insulating current management against
the possibility of removal and could, by possibly reducing temporary
fluctuations in market price caused by accumulations of shares of Common
Stock, deprive stockholders of opportunities to sell at a temporarily higher
market price. However, the Board of Directors believes that inclusion of the
Business Combination provisions in the Charter Documents and the Rights may
help assure fair treatment of stockholders and preserve the assets of the
Company.
The foregoing summary of certain provisions of the Rights and the Charter
Documents does not purport to be complete or to give effect to provisions of
statutory or common law. The foregoing summary is subject to, and qualified in
its entirety by reference to, the provisions of applicable law and, the
Charter Documents and the Rights Agreement, copies of which are incorporated
by reference as exhibits to the Registration Statement of which this
Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
Bank of New York acts as transfer agent and registrar of the Common Stock.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS TO THE COMPANY
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific Securities acquired by such holder,
as well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities. Certain federal income tax considerations relevant to holders of
the Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE
ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company elected to be taxed as a real estate investment trust
under Sections 856 through 860 of the Code, commencing with its taxable year
ended December 31, 1985. The Company believes that, commencing with its
taxable year ended December 31, 1985, it has been organized and has operated
in such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can
be given that it has operated or will operate in a manner so as to qualify or
remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof. Latham & Watkins has
acted as tax counsel to the Company in connection with this Prospectus and the
Company's election to be taxed as a REIT.
Latham & Watkins rendered an opinion to the Company as of June 18, 1997 to
the effect that commencing with the Company's taxable year ended December 31,
1985, the Company was organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation would enable it
to continue to meet the requirements for qualification and taxation as a REIT
under the Code. It must be emphasized that this opinion was based on various
assumptions and was conditioned upon certain representations made by the
Company as to factual matters and that Latham & Watkins undertook no
obligation to update this opinion subsequent to such date. In addition, this
opinion was based upon the factual representations of the Company as set forth
in this Prospectus. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet (through actual annual operating
results, distribution levels and diversity of stock ownership) the various
qualification tests imposed under the Code discussed below, the results of
which have not been and will not be reviewed by Latham & Watkins. Accordingly,
no assurance can be given that the actual results of the Company's operation
in any particular taxable year will satisfy such requirements. See "--Failure
to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, the Company will be
subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to
tax at the
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highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a real estate investment trust
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by (b) a
fraction intended to reflect the Company's profitability. Sixth, if the
Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its real estate investment trust ordinary income for such year,
(ii) 95% of its real estate investment trust capital gain net income for such
year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to
any asset (a "Built-in Gain Asset") acquired by the Company from a corporation
which is or has been a C corporation (i.e., generally a corporation subject to
full corporate-level tax) in certain transactions in which the basis of the
Built-in Gain Asset in the hands of the Company is determined by reference to
the basis of the asset in the hands of the C corporation, if the Company
recognizes gain on the disposition of such asset during the 10-year period
(the "Recognition Period") beginning on the date on which such asset was
acquired by the Company, then, to the extent of the Built-in Gain (i.e., the
excess of (a) the fair market value of such asset over (b) the Company's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain would be subject to tax at the highest regular
corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. As provided in IRS Notice 88-19, the results described above with
respect to the recognition of Built-in Gain assume that the Company would make
an election under Treasury Regulations that have not yet been promulgated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or
directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code, (4) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code, (5) the beneficial
ownership of which is held by 100 or more persons, (6) at any time 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 (as defined in the Code to include certain entities) and (7) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) to (4) must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made to be taxed
as a real estate investment trust.
The Company believes it has satisfied conditions (5) and (6). In addition,
the Company's Charter Documents provide for restrictions regarding transfer of
the Company's capital stock, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirement described in
(6) above. Such transfer restrictions are described in "Transfer Restrictions,
Redemption and Business Combination Provisions." There can be no assurance,
however, that such transfer restrictions will, in all cases, prevent a
violation of the stock ownership provisions described in (6) above. The
ownership and transfer restrictions pertaining to a particular class or series
of capital stock will be described in the applicable Prospectus Supplement
pertaining to such class or series.
The Company owns interests in various partnerships. In the case of a REIT
that is a partner in a partnership, Treasury Regulations provide that the REIT
will be deemed to own its proportionate share of the assets of the partnership
and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership will retain the same character in the hands of the
real estate investment trust for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests. Thus, the
Company's proportionate share of the assets, liabilities and items of income
of the partnerships in which the Company is a partner will be treated as
assets, liabilities and items of income of the Company for purposes of
applying the requirements described herein.
17
<PAGE>
The Company owns and operates a number of properties through subsidiaries.
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and such items (as the
case may be) of the REIT. Thus, in applying the requirements described herein,
the Company's "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries
will be treated as assets, liabilities and items of the Company. A qualified
REIT subsidiary will not be subject to federal income tax and the Company's
ownership of the voting stock of a qualified REIT subsidiary will not violate
the restrictions against ownership of securities of any one issuer which
constitutes more than 10% of such issuer's voting securities or more than 5%
of the value of the Company's total assets.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). Third, short-term gain
from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a real estate investment trust
described above only if several conditions are met. First, the amount of rent
must not be based in whole or in part on the income or profits of any person.
However, an amount received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code provides that
rents received from a tenant will not qualify as "rents from real property" in
satisfying the gross income tests if the real estate investment trust, or an
owner of 10% or more of the real estate investment trust, actually or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," the real estate investment trust
generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the real estate investment trust derives no revenue;
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. The Company has represented that it does not and will not (i)
charge rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above), (ii) rent any property to a Related
Party Tenant, (iii) derive rental income attributable to personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent received
under the lease), or (iv) perform services considered to be rendered to the
occupant of the property, other than through an independent contractor from
whom the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
The Company expects to recognize income from the performance of certain
management and administrative services relating to the partnerships in which
it owns interests. At least a portion of this income will not be qualifying
income under the 95% and 75% gross income tests described above. The Company
believes that the
18
<PAGE>
aggregate amount of this service income (and any other nonqualifying income)
in any taxable year will not exceed the limits on nonqualifying income under
the gross income tests described above.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a real estate
investment trust for such year if it is entitled to relief under certain
provisions of the Code. These relief provisions will generally be available if
the Company's failure to meet such tests was due to reasonable cause and not
due to willful neglect, the Company attaches a schedule of the sources of its
income to its federal income tax return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled
to the benefit of these relief provisions. As discussed above under "--
General," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) assets held by the Company's qualified REIT
subsidiaries and the Company's allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or a long-term (at least five years) public debt offering of
the Company), cash, cash items and government securities. Second, not more
than 25% of the Company's total assets may be represented by securities other
than those 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 the Company
may not exceed 5% of the value of the Company's total assets and the Company
may not own more than 10% of any one issuer's outstanding voting securities.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (A) the sum of (i) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-in Gain Asset during its Recognition Period, the Company would be
required, pursuant to IRS regulations which have not yet been promulgated, to
distribute at least 95% of the Built-in Gain (after tax), if any, recognized
on the disposition of such asset. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its REIT taxable income,
as adjusted, it will be subject to tax thereon at regular ordinary and capital
gain corporate tax rates.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable
stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the above distribution requirements for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (1) 85% of its real estate investment trust ordinary
income for such year, (ii) 95% of its real estate investment trust capital
gain income for such year, and (iii) any undistributed taxable income from
prior periods, the Company would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy the annual
distribution requirements set forth above.
19
<PAGE>
TAX RISKS ASSOCIATED WITH THE PARTNERSHIPS
The Company owns interests in various partnerships. The ownership of an
interest in a partnership may involve special tax risks, including the
possible challenge by the IRS of (i) allocations of income and expense items,
which could affect the computation of taxable income of the Company, and (ii)
the status of a partnership as a partnership (as opposed to an association
taxable as a corporation) for federal income tax purposes. If any of the
partnerships were treated as an association taxable as a corporation for
federal income tax purposes, the partnership would be treated as a taxable
entity. In addition, in such a situation, (i) if the Company owned more than
10% of the outstanding voting securities of such partnership, or the value of
such securities exceeded 5% of the value of the Company's assets, the Company
would fail to satisfy the asset tests described above and would therefore fail
to qualify as a REIT, (ii) distributions from any such partnership to the
Company would be treated as dividends, which are not taken into account in
satisfying the 75% gross income test described above and could, therefore,
make it more difficult for the Company to satisfy such test, (iii) the
interest in any such partnership held by the Company would not qualify as a
"real estate asset," which could make it more difficult for the Company to
meet the 75% asset test described above, and (iv) the Company would not be
able to deduct its share of any losses generated by the partnerships in
computing its taxable income. See "--Failure to Qualify" for a discussion of
the effect of the Company's failure to meet such tests for a taxable year. The
Company believes that each of the partnerships in which the Company owns an
interest will be treated for tax purposes as a partnership (rather than an
association taxable as a corporation). No assurance can be given that the IRS
will not successfully challenge the status of the partnerships as
partnerships.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Such a failure to qualify for taxation as a REIT
would reduce the cash available for distribution by the Company to
stockholders and to pay debt service and could have an adverse effect on the
market value and marketability of the Securities. Distributions to
stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company will also be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
STATE AND LOCAL TAXES
The Company may be subject to state or local taxes in other jurisdictions
such as those in which the Company may be deemed to be engaged in activities
or own property or other interests. Such tax treatment of the Company in
states having taxing jurisdiction over it may differ from the federal income
tax treatment described in this summary.
20
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby directly or through
agents, underwriters or dealers, which may include Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the
offer or sale of the Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent set forth, in the Prospectus Supplement. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. The Company may also sell
Securities to an agent as principal. Agents may be entitled under agreements
which may be entered into with the Company to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act,
and may be customers of, engage in transactions with or perform services for
the Company in the ordinary course of business.
If any underwriters are utilized in the sale of Securities in respect of
which this Prospectus is delivered, the Company will enter into an
underwriting agreement with such underwriters and the names of the
underwriters and the terms of the transaction will be set forth in the
applicable Prospectus Supplement, which will be used by the underwriters to
make resales of the Securities in respect of which this Prospectus is
delivered to the public. Underwriters may offer and sell the Securities at a
fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The underwriters may be entitled, under
the relevant underwriting agreement, to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and may
be customers of, engage in transactions with or perform services for the
Company in the ordinary course of business.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale.
Dealers may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
Securities may also be offered and sold, if so indicated in any Prospectus
Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company. Any remarketing firm will
be identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters in connection with the
Securities remarketed thereby. Remarketing firms may be entitled under
agreements which may be entered into with the Company to indemnification by
the Company against certain liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
If so indicated in any Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase Securities from the Company at the public offering price set forth in
the Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will be
subject to only those conditions set forth in the applicable Prospectus
Supplement, and such Prospectus Supplement will set forth the commission
payable for solicitation of such offers.
21
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon for the Company by Latham & Watkins, Los Angeles, California.
Brown & Wood LLP, Los Angeles, California, will act as counsel for any agents
or underwriters. Paul C. Pringle is a partner of Brown & Wood LLP and owns
3,000 shares of the Company's Common Stock.
EXPERTS
The financial statements incorporated by reference in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
22
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR
AGENT. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OF-
FER OR A SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITA-
TION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Notes....................................................... S-2
Material Federal Income Tax
Considerations............................................................ S-14
Plan of Distribution....................................................... S-20
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by
Reference................................................................. 2
The Company................................................................ 3
Ratio of Earnings to Fixed Charges......................................... 3
Use of Proceeds............................................................ 3
Description of the Debt Securities......................................... 4
Description of Preferred Stock............................................. 10
Description of Common Stock................................................ 13
Certain Federal Income Tax Considerations to the Company................... 16
Plan of Distribution....................................................... 21
Legal Matters.............................................................. 22
Experts.................................................................... 22
</TABLE>
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$100,000,000
HEALTH CARE PROPERTY INVESTORS, INC.
MEDIUM-TERM NOTES, SERIES C
--------------------
PROSPECTUS SUPPLEMENT
--------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC CAPITAL MARKETS, INC.
JULY 21, 1997
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