<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HEALTH CARE PROPERTY INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MARYLAND 6798 33-0091377
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4675 MACARTHUR COURT, 9TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
(949) 221-0600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH B. ROATH
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
4675 MACARTHUR COURT, 9TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
(949) 221-0600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ALAN J. SINSHEIMER, ESQ. STEVEN A. ROSEMAN, ESQ.
SULLIVAN & CROMWELL SENIOR VICE PRESIDENT & GENERAL COUNSEL
125 BROAD STREET AMERICAN HEALTH PROPERTIES, INC.
NEW YORK, NEW YORK, 10004 6400 S. FIDDLER'S GREEN CIRCLE, SUITE 1800
(212) 558-4000 ENGLEWOOD, COLORADO 80111
(303) 796-9793
<CAPTION>
<S> <C>
ALAN J. SINSHEIMER, ESQ. PAMELA B. KELLY, ESQ.
SULLIVAN & CROMWELL JONN R. BEESON, ESQ.
125 BROAD STREET LATHAM & WATKINS
NEW YORK, NEW YORK, 10004 633 WEST FIFTH STREET, SUITE 4000
(212) 558-4000 LOS ANGELES, CALIFORNIA 90071-2007
(213) 485-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the date of
the effective time of the merger of American Health Properties, Inc., a Delaware
corporation ("AHP") with and into Health Care Property Investors, Inc., a
Maryland corporation ("HCPI"), under the Agreement and Plan of Merger dated as
of August 4, 1999 between HCPI and AHP (as described in the Joint Proxy
Statement/Prospectus herein).
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT OFFERING PRICE REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per
share(1) 20,444,000(4) $24.319(5) $497,182,365(5) $138,216.70
- ---------------------------------------------------------------------------------------------------------------------------------
Depositary shares, each representing
a one-one-hundredth interest in a
share of 8.60% Series C Cumulative
Redeemable Preferred Stock, par
value $1.00 per share 4,000,000 $18.781(6) $75,124,000(6) $20,884.47
- ---------------------------------------------------------------------------------------------------------------------------------
8.60% Series C Cumulative Redeemable
Preferred Stock, par value $1.00
per share 40,000 Not Applicable Not Applicable Not Applicable(7)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes rights to acquire common stock of HCPI ("Rights"). The Rights are
associated with and trade with the shares of common stock, par value $1.00
per share, of HCPI ("HCPI Common Stock"). The value, if any, attributable to
the Rights is reflected in the market price of the HCPI Common Stock.
(2) This Registration Statement covers the maximum number of shares of HCPI
Common Stock, Depositary Shares, each representing a one-one-hundredth in a
share of 8.60% Series C Cumulative Redeemable Preferred Stock of HCPI (the
"Depositary Shares"), and 8.60% Series C Cumulative Redeemable Preferred
Stock, par value $1.00 per share, of HCPI that are issuable, or to be
reserved for issuance, upon consummation of the merger (the "Merger") of AHP
with and into HCPI, as described in the Joint Proxy Statement/Prospectus
herein.
(3) Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), the prospectus included in this Registration Statement
also relates to Registration Statement No. 333-87713 which relates to a
proposed maximum aggregate price of securities of $466,519,250 and under
which a filing fee of $129,693.00 was paid. Accordingly an additional fee of
$29,408.17 is being paid with this Registration Statement. The registration
fee for the securities registered hereby has been calculated pursuant to
Section 6(b) of the Securities Act.
(4) Represents the number of shares of HCPI Common Stock issuable upon
consummation of the Merger assuming that (i) the outstanding shares of
common stock, par value $.01 per share, of AHP ("AHP Common Stock") are
converted into shares of HCPI Common Stock, (ii) all options to purchase AHP
Common Stock are exercised prior to the Merger and such shares of AHP Common
Stock issuable thereunder are converted into HCPI Common Stock, and (iii)
all deferred directors fees and any dividend equivalent rights appurtenant
thereto, in each case, payable in AHP Common Stock are paid out in AHP
Common Stock prior to the Merger and converted into HCPI Common Stock, each
at an exchange ratio of 0.78.
(5) Estimated solely for the purpose of calculation of the registration fee
pursuant to Rules 457(f) and 457(c) under the Securities Act and based upon
the average ($24.319) of the high ($19 1/16) and low ($18 7/8) prices of the
AHP Common Stock as reported on The New York Stock Exchange Composite
Transactions Tape on September 22, 1999. The Proposed Maximum Offering Price
Per Unit is calculated as the Proposed Maximum Aggregate Offering Price
divided by the Amount To Be Registered.
(6) Estimated solely for the purpose of calculation of the registration fee
pursuant to Rules 457(f) and 457(c) under the Securities Act and based upon
the average ($18.781) of the high ($18 15/16) and low ($18 5/8) prices of
the Depositary Shares representing the AHP Series B Preferred Stock, $.01
par value per share, as reported on The New York Stock Exchange Composite
Transactions Tape on September 22, 1999. The Proposed Maximum Offering Price
Per Unit is calculated as the Proposed Maximum Aggregate Offering Price
divided by the Amount To Be Registered.
(7) Included in the fee payable with respect to the related Depositary Shares.
No additional fee is payable.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8 of the
Securities Act or until this Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8, may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
HEALTH CARE PROPERTY INVESTORS, INC.
AMERICAN HEALTH PROPERTIES, INC.
YOUR VOTE ON OUR PROPOSED MERGER IS VERY IMPORTANT
Dear Stockholders:
The directors of Health Care Property Investors, Inc. and American Health
Properties, Inc. have unanimously approved a proposal to merge AHP into HCPI.
Holders of AHP common stock will receive 0.78 of a share of HCPI common stock
for each share they own. Holders of AHP preferred stock will receive
substantially similar HCPI preferred stock for their shares.
The merger will create the country's leading healthcare real estate
investment trust. The combined company will have substantially greater market
capitalization and substantially better property and operator diversification
than any other healthcare real estate investment trust. By combining the
companies' portfolios, assets and balance sheets into a single corporation, the
merger should give the combined company better access to capital on more
attractive terms and a wider universe of potential investment opportunities than
either company would have alone.
The current holders of AHP common stock will hold approximately 38% of the
common stock of the combined company following the merger. The combined company
will retain the name Health Care Property Investors, Inc. and will be managed by
HCPI's current management team.
HCPI will issue up to approximately 20,444,000 shares of its common stock
and 40,000 shares of its 8.60% series C cumulative redeemable preferred stock in
the merger. HCPI common stock is listed on The New York Stock Exchange under the
symbol "HCP." The depositary shares representing AHP's preferred stock, which
are listed on The New York Stock Exchange, will become depositary shares
representing HCPI series C preferred stock. HCPI intends to request that the
depositary shares trade under the symbol "HCP PrC" after the merger.
The merger is a very positive development for both AHP and HCPI. We are
therefore asking for your support in voting for the merger. Please take the time
to vote by completing and mailing the enclosed proxy card to us. If you do not
vote, the effect will be the same as voting against the merger.
This document provides you with detailed information about the proposed
merger and the scheduled stockholders' meetings. We encourage you to read this
entire document carefully. IN PARTICULAR, PLEASE SEE THE SECTION ENTITLED "RISK
FACTORS" ON PAGE I-13 OF THIS DOCUMENT FOR A DISCUSSION OF RISKS ASSOCIATED WITH
THE MERGER.
Very truly yours,
/s/ KENNETH B. ROATH /s/ JOSEPH P. SULLIVAN
- ------------------------------------ -------------------------------------
Kenneth B. Roath Joseph P. Sullivan
Chairman of the Board, President and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
Health Care Property Investors, Inc. American Health Properties, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED
UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated September 24, 1999 and is
expected to be first mailed to stockholders on September 28, 1999.
<PAGE> 3
INSIDE FRONT COVER
PRO FORMA COMBINED REVENUE BY OPERATOR
<TABLE>
<S> <C> <C>
1 Tenet Healthcare Corp. (NYSE) 18.1%
2 HealthSouth Corp. (NYSE) 5.7%
3 Columbia/HCA Healthcare Corp. (NYSE) 5.0%
4 Emeritus Corp. (ASE) 4.5%
5 Beverly Enterprises (NYSE) 4.2%
6 *Vencor, Inc. (OTC) 3.9%
7 Centennial Healthcare Corp. (NASDAQ) 3.0%
8 Other Publicly Traded Operators 11.9%
9 Non Public Operators & Tenants 43.7%
</TABLE>
* Most Rents Are Guaranteed by Tenet
Healthcare Corp. and Ventas, Inc.
[Pie chart reflecting the percentages indicated in the foregoing table. Each
section of the pie chart is marked with the number adjacent to the appropriate
operator in the foregoing table]
PRO FORMA COMBINED ANNUALIZED REVENUE BY TYPE OF FACILITY
<TABLE>
<S> <C> <C>
1 Long Term Care 27%
2 Acute Care Hospitals 27%
3 Medical Office Buildings 18%
4 Congregate Care/Assisted Living Facilities 16%
5 Physician Group Practice Clinics 7%
6 Rehabilitation Hospitals 5%
</TABLE>
[Pie chart reflecting the percentages indicated in the foregoing table. Each
section of the pie chart is marked with the number adjacent to the appropriate
type of facility in the foregoing table.]
[A picture of a property currently owned by HCPI and a picture of a property
currently owned by AHP]
PRO FORMA COMBINED REVENUE OF STATE
<TABLE>
<CAPTION>
STATE STATE %
- ----- -------
<S> <C>
AK 0.2%
AL 0.3%
AR 2.7%
AZ 2.5%
CA 18.0%
CO 2.4%
CT 0.2%
DE 0.2%
FL 8.7%
GA 3.0%
IA 0.2%
ID 0.5%
IL 0.1%
IN 7.2%
KS 1.9%
KY 0.2%
IA 3.3%
MA 0.8%
MD 1.1%
MI 0.5%
MN 0.8%
MO 1.7%
</TABLE>
<TABLE>
<CAPTION>
STATE STATE %
- ----- -------
<S> <C>
MS 0.2%
MT 0.1%
NC 4.8%
ND 0.3%
NE 0.2%
NJ 1.4%
NM 1.3%
NV 0.6%
NY 0.8%
OH 2.8%
OK 1.7%
OR 0.4%
PA 0.8%
RI 0.6%
SC 2.0%
TN 3.0%
TX 13.5%
UT 5.3%
VA 0.3%
WA 0.5%
WI 2.3%
WV 0.6%
</TABLE>
[A map of the United States identifying those states in which the combined
company will own properties following the merger]
FRONT GATEFOLD
[Collage of seven pictures depicting properties currently owned HCPI and
properties currently owned by AHP]
<PAGE> 4
HEALTH CARE PROPERTY INVESTORS, INC.
4675 MACARTHUR COURT, 9TH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
-------------------------
NOTICE OF SPECIAL MEETING OF COMMON STOCKHOLDERS
TO BE HELD ON NOVEMBER 3, 1999
-------------------------
To the Common Stockholders of Health Care Property Investors, Inc.:
A special meeting of common stockholders of Health Care Property Investors,
Inc., will be held on November 3, 1999, at 10:00 a.m., local time, at the Four
Seasons Hotel, 690 Newport Center Drive, Newport Beach, California 92660, for
the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of August 4, 1999, between HCPI and American Health
Properties, Inc., a Delaware corporation, and to approve the merger of
AHP with and into HCPI as described in the joint proxy
statement/prospectus, in which:
- AHP will be merged with and into HCPI, with HCPI being the surviving
corporation;
- each issued and outstanding share of AHP common stock will be
converted into 0.78 of a share of common stock of HCPI;
- each issued and outstanding share of AHP series B preferred stock will
be converted into one share of HCPI series C preferred stock with
substantially the same rights and preferences as the AHP series B
preferred stock; and
- each existing depositary share representing AHP series B preferred
stock will automatically be converted into one depositary share
representing HCPI series C preferred stock.
2. To transact such other business as may properly come before the HCPI
special meeting or any adjournments or postponements of the HCPI special
meeting, including potential adjournments or postponements of the HCPI
special meeting for the purpose of soliciting additional proxies in
order to approve and adopt the merger.
HCPI'S BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION DECLARING
THE MERGER ADVISABLE AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER.
We have described the merger in more detail in the accompanying joint proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Annex A to the accompanying joint
proxy statement/prospectus.
Only those stockholders whose names appear on our books as owning HCPI
common stock at the close of business on September 23, 1999, are entitled to
notice of, and to vote at, the HCPI special meeting or any adjournments or
postponements of that meeting.
The affirmative vote of holders of two-thirds of the HCPI common stock
issued and outstanding on September 23, 1999 is necessary to approve the merger.
If that vote is not obtained, the merger cannot be completed.
All stockholders of HCPI are cordially invited to attend the HCPI special
meeting in person. Given the significant proportion of votes required to approve
the merger, it is particularly important that your shares be represented at the
special meeting, whether or not you plan to attend in person. To ensure your
representation at the HCPI special meeting, you are urged to complete, sign and
return the enclosed proxy card in the enclosed postage-prepaid
<PAGE> 5
envelope as promptly as possible. You may revoke your proxy in the manner
described in the accompanying joint proxy statement/prospectus at any time
before it is voted at the HCPI special meeting.
By Order of the Board of Directors
/s/ EDWARD J. HENNING
Edward J. Henning
Corporate Secretary
Newport Beach, California
September 24, 1999
<PAGE> 6
AMERICAN HEALTH PROPERTIES, INC.
6400 SOUTH FIDDLER'S GREEN CIRCLE, SUITE 1800
ENGLEWOOD, COLORADO 80111
-------------------------
NOTICE OF SPECIAL MEETING OF COMMON STOCKHOLDERS
TO BE HELD ON NOVEMBER 3, 1999
-------------------------
NOTICE IS HEREBY GIVEN that a special meeting of common stockholders of
American Health Properties, Inc., a Delaware corporation, will be held on
November 3, 1999 at 11:00 a.m., local time, at American Health Properties, Inc.,
6400 South Fiddler's Green Circle, Englewood, Colorado 80111, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of August 4, 1999, between Health Care Property
Investors, Inc., a Maryland corporation, and AHP and to approve the
merger of AHP with and into HCPI as described in the attached joint
proxy statement/prospectus, in which:
- AHP will be merged with and into HCPI, with HCPI being the surviving
corporation;
- each issued and outstanding share of common stock of AHP will be
converted into 0.78 of a share of common stock of HCPI;
- each existing depositary share representing AHP series B preferred
stock will automatically be converted into one depositary share
representing HCPI series C preferred stock; and
- each issued and outstanding share of AHP series B preferred stock will
be converted into one share of HCPI series C preferred stock with
substantially the same rights and preferences as the AHP series B
preferred stock.
2. To transact such other business as may properly come before the AHP
special meeting or any adjournments or postponements of the AHP special
meeting, including potential adjournments or postponements of the AHP
special meeting for the purpose of soliciting additional proxies in
order to approve and adopt the merger.
We have described the merger in more detail in the accompanying joint proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Annex A to the accompanying joint
proxy statement/prospectus.
Only those stockholders whose names appear on our books as owning AHP
common stock at the close of business on September 23, 1999 are entitled to
notice of, and to vote at, the AHP special meeting and any adjournments or
postponements of that meeting.
It is important that your shares be represented at the meeting.
Accordingly, you are urged to complete, sign and return the enclosed proxy card
in the enclosed postage-prepaid envelope as promptly as possible even if you
plan to attend the meeting. If you attend the meeting, you may vote shares
registered in your name in person, even if you have previously returned your
proxy card, so long as you do so before your proxy is voted at the meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of AHP common stock on September 23, 1999 is necessary to approve the merger. If
that vote is not obtained, the merger cannot be completed.
<PAGE> 7
AHP'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER.
By Order of the Board of Directors
/s/ STEVEN A. ROSEMAN
Steven A. Roseman
Corporate Secretary
Englewood, Colorado
September 24, 1999
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CHAPTER ONE................................................. I-1
THE MERGER................................................ I-1
QUESTIONS AND ANSWERS ABOUT THE MERGER.................... I-1
SUMMARY................................................... I-4
The Companies.......................................... I-4
The Combined Company................................... I-4
The Merger............................................. I-4
Votes Required......................................... I-4
Our Recommendations to Stockholders.................... I-5
Opinions of Financial Advisors......................... I-5
Ownership of HCPI Following the Merger................. I-5
Conditions to the Merger............................... I-5
Treatment of AHP Stock Options, Dividend Equivalent
Rights, Deferred Directors Fees....................... I-5
Interest of Executive Officers and Directors of AHP in
the Merger............................................ I-6
Accounting Treatment................................... I-6
Material Federal Income Tax Considerations............. I-6
No Appraisal or Dissenters' Rights..................... I-6
Dividend Reinvestment Plans............................ I-6
The Rights of AHP Stockholders Will Change............. I-6
SELECTED HISTORICAL AND SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA................................ I-7
Selected Historical Financial Data of HCPI............. I-7
Selected Historical Financial Data of AHP.............. I-9
Summary Pro Forma Combined Financial Information....... I-11
Comparative Per Share Data............................. I-12
RISK FACTORS.............................................. I-13
Risk Factors Relating to the Merger.................... I-13
Risk Factors Relating to the Combined Company Following
the Merger............................................ I-14
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS............................................. I-18
THE MERGER................................................ I-20
General................................................ I-20
Background of the Merger............................... I-20
Recommendation of the Board of Directors of HCPI....... I-23
HCPI's Reasons for the Merger.......................... I-23
Recommendation of the Board of Directors of AHP........ I-27
AHP's Reasons for the Merger........................... I-27
Accounting Treatment of the Merger..................... I-30
</TABLE>
i
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Regulatory Matters..................................... I-30
Dividend Reinvestment Plans............................ I-30
Delisting and Deregistration of AHP Common Stock;
Listing of HCPI Common Stock Issued in Connection with
the Merger............................................ I-31
Resales of HCPI Common Stock Issued in Connection with
the Merger; Affiliate Agreements...................... I-31
Absence of Appraisal or Dissenters' Rights............. I-32
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS......................................... I-32
Tax Consequences of the Merger......................... I-32
HCPI's Qualification as a Real Estate Investment
Trust................................................. I-34
Taxation of Taxable U.S. Stockholders.................. I-43
Back up Withholding.................................... I-47
Taxation of Tax-Exempt Stockholders.................... I-47
Taxation of Non-U.S. Stockholders...................... I-47
Other Tax Consequences................................. I-48
THE MERGER AGREEMENT...................................... I-48
The Merger............................................. I-48
Closing and Effective Time of the Merger............... I-48
Conversion of Securities............................... I-48
Treatment of AHP Stock Options......................... I-49
Treatment of AHP Dividend Equivalent Rights............ I-50
Treatment of AHP Deferred Directors Fees............... I-50
Exchange of Stock Certificates......................... I-50
Representations and Warranties......................... I-52
Covenants.............................................. I-53
Conditions to Obligations to Effect the Merger......... I-58
Termination; Termination Fees and Expenses............. I-60
Amendment and Waiver................................... I-62
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................ I-63
Market Prices and Dividends............................ I-63
Comparative Market Data................................ I-63
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........ I-65
OPINION OF FINANCIAL ADVISOR TO HCPI...................... I-72
OPINION OF FINANCIAL ADVISOR TO AHP....................... I-80
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF AHP IN
THE MERGER............................................. I-84
Employment Agreements and Benefit Plans................ I-85
Directors and Officers Insurance and Indemnification... I-87
</TABLE>
ii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CHAPTER TWO................................................. II-1
INFORMATION ABOUT THE SPECIAL MEETINGS AND VOTING......... II-1
THE HCPI SPECIAL MEETING.................................. II-1
Date, Time and Place................................... II-1
Purpose................................................ II-1
HCPI Board of Directors' Recommendation................ II-1
Record Date, Outstanding Shares and Voting Rights...... II-1
Vote Required; Quorum; Shares Beneficially Owned by
HCPI Directors and Officers........................... II-1
Voting of Proxies...................................... II-2
Revocation of Proxies.................................. II-2
Solicitation of Proxies; Expenses...................... II-3
AMERICAN HEALTH PROPERTIES SPECIAL MEETING................ II-3
Date, Time and Place................................... II-3
Purpose................................................ II-3
AHP Board of Directors' Recommendation................. II-3
Record Date, Outstanding Shares and Voting Rights...... II-3
Vote Required; Quorum; Shares Beneficially Owned by AHP
Directors and Officers................................ II-3
Voting of Proxies...................................... II-4
Revocation of Proxies.................................. II-4
Solicitation of Proxies; Expenses...................... II-5
CHAPTER THREE............................................... III-1
LEGAL INFORMATION......................................... III-1
COMPARISON OF RIGHTS OF STOCKHOLDERS OF HCPI AND AHP...... III-1
DESCRIPTION OF HCPI CAPITAL STOCK......................... III-17
General................................................ III-17
Common Stock........................................... III-17
Preferred Stock........................................ III-18
HCPI Series A Preferred Stock.......................... III-18
HCPI Series B Preferred Stock.......................... III-21
HCPI Depositary Shares................................. III-24
HCPI Series C Preferred Stock.......................... III-27
Transfer Restrictions and Redemptions Relating to HCPI
Common Stock.......................................... III-33
Restrictions on Ownership and Transfer Relating to HCPI
Preferred Stock....................................... III-34
Stockholder Rights Plan................................ III-36
Business Combination Provisions........................ III-37
STOCKHOLDER PROPOSALS..................................... III-38
LEGAL MATTERS............................................. III-38
</TABLE>
iii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
EXPERTS................................................... III-39
WHERE YOU CAN FIND MORE INFORMATION....................... III-39
ANNEXES
A. Agreement and Plan of Merger, dated as of August 4, 1999,
between American Health Properties, Inc. and Health Care
Property Investors, Inc.
B. Opinion of Goldman, Sachs & Co., dated August 4, 1999
C. Opinion of Merrill Lynch & Co., dated August 3, 1999
</TABLE>
iv
<PAGE> 12
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY AM I RECEIVING THESE MATERIALS?
A: THE AHP BOARD AND HCPI BOARD HAVE EACH UNANIMOUSLY APPROVED THE MERGER OF AHP
WITH AND INTO HCPI. The merger now requires the approval of HCPI's and AHP's
common stockholders. We are sending you these materials to help you decide
whether to approve the merger.
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: The companies are proposing to merge because they believe that the
combination of their portfolios, assets and balance sheets into a single
corporation will create a healthcare real estate investment trust which will
be the leader among its peers.
As compared to either company standing alone, the combined company:
- will have a greater market capitalization, providing greater liquidity for
investors;
- will have better diversification of property investments;
- should realize economies of scale and greater operating efficiencies; and
- should be viewed by rating agencies and lenders as a better credit risk
over the long term.
As a result, the combined company:
- should have increased funds from operations per share;
- should have better access to capital in the equity and debt markets; and
- should be able to compete more effectively for healthcare property
investments on terms that are accretive.
Q: WHAT WILL HAPPEN TO AHP AS A RESULT OF THE MERGER?
A: Upon the completion of the merger, AHP will merge with and into HCPI and AHP
will cease to exist as a separate company.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Each share of AHP common stock will be converted into 0.78 of a share of HCPI
common stock. HCPI common stock is publicly traded on The New York Stock
Exchange under the symbol "HCP."
Each share of AHP series B preferred stock will be converted into one share
of HCPI series C preferred stock with substantially the same rights and
preferences as the AHP series B preferred stock.
Depositary shares representing the AHP series B preferred stock, which are
publicly traded on The New York Stock Exchange under the symbol "AHE PrB,"
will be automatically converted into depositary shares representing HCPI
series C preferred stock. The depositary shares will continue to be listed on
The New York Stock Exchange. HCPI intends to request that the depositary
shares trade under the symbol "HCP PrC" after the merger.
The merger will not have an effect on the HCPI common stock. Of course, the
number of shares of HCPI common stock outstanding will increase from
approximately 32 million shares to approximately 51 million shares.
Q: WHAT DO I NEED TO DO NOW?
A: After you have read this document carefully, please indicate on the enclosed
proxy card how you want to vote. Sign and mail the proxy card in the enclosed
prepaid return envelope as soon as possible. You should indicate your vote
now, even if you expect to attend your special stockholders meeting and vote
in person. Indicating your vote now will not prevent you from later canceling
or revoking your proxy and changing your vote at any time before it is voted
at your special stockholders meeting and will ensure that your shares are
voted if you later find you cannot attend your special stockholders meeting.
I-1
<PAGE> 13
Q: WHAT SHOULD I DO IF MY BROKER HOLDS MY SHARES IN "STREET NAME"?
A: Please contact your broker to obtain instructions on how to vote your shares.
Q: CAN MY BROKER VOTE MY SHARES WHICH ARE HELD IN "STREET NAME"?
A: Your broker is not able to vote your shares that are held in "street name"
without your instructions. If you do not provide your broker with
instructions on how to vote your shares held in "street name," your broker
will not be permitted to vote your shares on the merger proposal being
presented at your special stockholders meeting. You should therefore contact
your broker to instruct him on how to vote your shares.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You may change your vote in three ways:
- by sending a written notice to the corporate secretary of your company, so
that it is received prior to your special stockholders meeting, stating
that you would like to revoke your proxy;
- by signing a later-dated proxy card and returning it by mail so that it is
received by the corporate secretary of your company prior to your special
stockholders meeting; or
- by attending your special stockholders meeting and voting in person;
however, your attendance alone will not revoke your proxy or change your
vote.
If you have instructed a broker how to vote your shares, you must follow the
directions provided by your broker to change those instructions.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: In order to complete the merger, holders of two-thirds of the outstanding
shares of HCPI common stock and holders of a majority of the outstanding
shares of AHP common stock must approve the merger.
Q: SHOULD I SEND MY CERTIFICATES REPRESENTING MY AHP COMMON STOCK OR
CERTIFICATES REPRESENTING MY AHP PREFERRED STOCK DEPOSITARY SHARES NOW?
A: No. After we complete the merger, HCPI will send holders of AHP common stock
written instructions for exchanging their stock certificates.
Existing depositary shares representing AHP series B preferred stock will
automatically represent HCPI series C preferred stock and holders of
certificates representing AHP depositary shares will not need to exchange
those certificates.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as quickly as possible. We must
first obtain the approval of AHP common stockholders at the AHP special
meeting and the approval of HCPI common stockholders at the HCPI special
meeting. These meetings are scheduled for November 3, 1999. We hope to
complete the merger shortly after that date.
Q: WILL I RECEIVE DIVIDENDS ON MY AHP SHARES BEFORE THE MERGER?
A: The merger agreement permits AHP to pay, prior to the closing, regular
quarterly cash dividends to its stockholders. The parties have agreed in the
merger agreement to coordinate declaring dividends and the related record
dates and payment dates so that AHP stockholders do not receive two
dividends, or fail to receive one dividend, for any single calendar quarter
with respect to their AHP shares and the HCPI shares to be received by them
in the merger.
AHP expects to pay one more quarterly dividend prior to the merger.
Q: WILL I RECEIVE DIVIDENDS ON MY HCPI SHARES BEFORE THE MERGER?
A: HCPI expects to declare its regular quarterly dividend for the fourth quarter
of 1999 and to pay that dividend shortly following the merger to holders of
record of HCPI common stock prior to the merger.
I-2
<PAGE> 14
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both companies file reports and other information with the Securities and
Exchange Commission. You may read and copy this information at the SEC's
public reference facilities. Please call the SEC at 1-800-SEC-0330 for
information about these facilities. This information is also available at the
Internet site the SEC maintains at www.sec.gov and at the offices of The New
York Stock Exchange. You can also request copies of these documents from us.
See "Where You Can Find More Information" on page III-39.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you are an AHP stockholder and you have more questions about the merger,
or you would like additional copies of this joint proxy statement/prospectus,
you can contact:
Georgeson Shareholder Communications Inc.
Church Street Station
P.O. Box 840
New York, New York 10277-1719
(800) 223-2064
or
Attn: Investor Relations
American Health Properties, Inc.
6400 South Fiddler's Green Circle, Suite 1800
Englewood, Colorado 80111
Telephone: (303) 796-9793
Facsimile: (303) 796-9708
If you are an HCPI stockholder and you have more questions about the merger,
or you would like additional copies of this joint proxy statement/prospectus,
you can contact:
Kissel-Blake Inc.
Wall Street Station
P.O. Box 1404
New York, New York 10269-0266
(800) 498-2628
or
Edward J. Henning
Senior Vice President, General Counsel
and Corporate Secretary
Health Care Property Investors, Inc.
4675 MacArthur Court, 9th Floor
Newport Beach, California 92660
Telephone: (949) 221-0600 or (888) 604-1990
Facsimile: (949) 221-0607
I-3
<PAGE> 15
SUMMARY
This summary highlights selected information from this document. It may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
III-39. We have included page references parenthetically to direct you to a more
complete description of the topics in this summary.
THE COMPANIES
HEALTH CARE PROPERTY INVESTORS, INC.
4675 MacArthur Court, 9th Floor
Newport Beach, California 92660
(949) 221-0600 or (888) 604-1990
HCPI is the second oldest real estate investment trust specializing in
health care real estate. HCPI, which is a self-administered real estate
investment trust, owns long-term care facilities, congregate care and assisted
living facilities, acute care and rehabilitation hospitals, medical office
buildings and physician group practice clinics. As of June 30, 1999, HCPI's
gross investment in its properties, including partnership interests and mortgage
loans, was approximately $1.7 billion. HCPI has 352 facilities in 42 states as
of September 21, 1999.
The market value of HCPI's common stock was approximately $809 million as
of September 21, 1999. HCPI has paid regular quarterly dividends and has
increased the dividend paid on its common stock each quarter for the 55
consecutive quarters since its initial public offering in May 1985. As a result,
HCPI has paid $644 million in dividends on its common stock since May 1985.
According to the 1999 edition of Moody's Handbook of Dividend Achievers, which
includes public companies that have increased annual dividends in each of the
past 10 years, HCPI has had the highest percentage dividend growth over the past
10 years among real estate investment trusts. HCPI also believes that it has had
an excellent track record in attracting and retaining key employees. HCPI's five
executive officers have been with the company for 13 years on average.
AMERICAN HEALTH PROPERTIES, INC.
6400 South Fiddler's Green Circle, Suite 1800
Englewood, Colorado 80111
(303) 796-9793
AHP is a self-administered real estate investment trust. AHP owns and
leases a diversified portfolio of healthcare properties with particular focus on
acute care facilities, clinical and medical office properties and long-term care
facilities. As of June 30, 1999, AHP's gross investment in its properties was
approximately $806 million. AHP has 70 facilities in 22 states as of September
21, 1999.
THE COMBINED COMPANY
Upon completion of the merger, the combined company is expected to be the
largest health care oriented real estate investment trust in the nation, with a
total market capitalization of approximately $2.7 billion based on the closing
price of HCPI common stock, the outstanding principal amount of indebtedness and
the liquidation preferences of preferred stock of the two companies on September
21, 1999. The combined company will own approximately 422 facilities, based on
the real estate assets held by HCPI and AHP as of September 21, 1999 with
approximately 21.5 million square feet of operating facilities. Following the
merger, the combined company will continue to be managed by HCPI's current
management team.
THE MERGER (Pages I-20 and I-48)
THE MERGER AGREEMENT IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AS ANNEX A. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT AS IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE MERGER.
VOTES REQUIRED (Pages II-1 and II-3)
The HCPI merger proposal requires the approval of the holders of two-thirds
of the outstanding shares of HCPI common stock held of record on September 23,
1999.
The AHP merger proposal requires the approval of the holders of a majority
of the outstanding shares of AHP common stock held of record on September 23,
1999.
As of September 23, 1999, the directors and executive officers of HCPI and
their affiliates, as a group, owned approximately 1.4% of the outstanding HCPI
common stock. HCPI currently
I-4
<PAGE> 16
expects that all of these holders will vote in favor of the merger.
As of September 23, 1999, the directors and executive officers of AHP and
their affiliates, as a group, owned approximately 0.3% of the outstanding AHP
common stock. AHP currently expects that all of these holders will vote in favor
of the merger agreement.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(Pages II-1 and II-3)
The HCPI board voted unanimously to approve the merger. The HCPI board
believes that the merger is in the best interests of HCPI and its stockholders
and recommends that HCPI stockholders vote FOR the merger.
The AHP board voted unanimously to approve the merger. The AHP board
believes that the merger is in the best interests of AHP and its stockholders
and recommends that AHP stockholders vote FOR the merger.
OPINIONS OF FINANCIAL ADVISORS
(Pages I-72 and I-80)
In deciding to approve the merger, the HCPI board and the AHP board
received opinions from their respective financial advisors.
AHP received an opinion from its financial advisor, Goldman, Sachs & Co.,
as to the fairness of the exchange ratio to AHP common stockholders from a
financial point of view. The full text of the opinion is attached as Annex B to
this joint proxy statement/prospectus and should be read carefully in its
entirety. The opinion of Goldman Sachs is directed to the AHP board and does not
constitute a recommendation to any stockholder with respect to matters relating
to the merger.
HCPI received an opinion from its financial advisor, Merrill Lynch & Co.,
as to the fairness of the exchange ratio to HCPI from a financial point of view.
The full text of the opinion is attached as Annex C to this joint proxy
statement/prospectus and should be read carefully in its entirety. The opinion
of Merrill Lynch is directed to the HCPI board and does not constitute a
recommendation to any stockholder with respect to matters relating to the
merger.
OWNERSHIP OF HCPI FOLLOWING THE MERGER
Based on the shares of AHP common stock outstanding on September 23, 1999,
and assuming that all outstanding options to acquire AHP common stock and
deferred directors fees, together with any related dividend equivalent rights,
are exercised or paid in AHP common stock prior to the completion of the merger,
AHP stockholders will receive up to approximately 20,444,000 shares of HCPI
common stock in the merger. Following the merger, current holders of AHP common
stock will hold approximately 38% of the outstanding voting power of the
combined company.
CONDITIONS TO THE MERGER (Page I-58)
The completion of the merger depends upon meeting a number of conditions,
including:
- - the approval of the merger by the stockholders of each of HCPI and AHP;
- - the absence of any law or any injunction that effectively prohibits or
restricts the merger;
- - completion of the merger on or before January 31, 2000;
- - the receipt of satisfactory legal opinions regarding HCPI's and AHP's real
estate investment trust status for federal income tax purposes and the
treatment of the merger as a reorganization for federal income tax purposes;
- - AHP having paid $40 million to acquire additional investments commencing June
30, 1999, whether paid from proceeds of the deferred exchange of the Kendall
Regional Medical Center or other cash of AHP; and
- - the completion of AHP's 1999 tax year with no corporate tax payable by AHP.
Unless prohibited by law, either HCPI or AHP could elect to waive a
condition in their favor that has not been satisfied and complete the merger
anyway.
TREATMENT OF AHP STOCK OPTIONS, DIVIDEND EQUIVALENT RIGHTS, DEFERRED DIRECTORS
FEES
Each outstanding AHP stock option which has not vested prior to the merger
will vest and become fully exercisable. AHP will use its reasonable efforts to
cause each then outstanding AHP stock option to be surrendered immediately prior
to the completion of the merger, with the holder of the option becoming entitled
to receive cash. Options that are not surrendered will be converted into options
to purchase HCPI common stock based on the exchange ratio.
Each outstanding AHP dividend equivalent right held by executive officers
of AHP will be canceled prior to the merger and holders will
I-5
<PAGE> 17
receive a cash payment from AHP determined in accordance with the holder's
employment contract.
All AHP deferred directors fees and any related dividend equivalent rights
will be assumed by HCPI on the same terms as in effect prior to the merger. The
right to receive AHP common stock for deferred directors fees and any related
dividend equivalent rights will be converted into the right to receive HCPI
common stock.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF AHP IN THE MERGER (Page I-84)
In considering the recommendation of the AHP board, you should be aware
that members of AHP's management and board of directors (who will not continue
with HCPI following the merger) may have interests in the merger that are
different from, or in addition to, your interests as an AHP stockholder or HCPI
stockholder generally. These interests exist because of:
- - acceleration of vesting of stock options; and
- - employment agreements and severance arrangements.
The members of the AHP board and the HCPI board knew about these additional
interests, and considered them, when they approved the merger.
ACCOUNTING TREATMENT (Page I-30)
We will treat the merger under the purchase method for accounting and
financial reporting purposes.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS (Page I-32)
HCPI and AHP have each received legal opinions that the merger will qualify
as a Section 368(a) reorganization for federal income tax purposes based on
representations and warranties of both HCPI and AHP. Accordingly, we expect that
none of HCPI, HCPI's stockholders, AHP or AHP's stockholders will recognize any
gain or loss for United States federal income tax purposes as a result of the
merger, except in connection with any cash that AHP's common stockholders
receive instead of fractional shares of HCPI common stock.
Determining the actual tax consequences of the merger to you as an
individual taxpayer can be complicated. The tax treatment will depend on your
specific situation and many variables not within our control. You should consult
your own tax advisor for a full understanding of the tax consequences of the
merger.
NO APPRAISAL OR DISSENTERS' RIGHTS (Page I-32)
Applicable law does not provide any appraisal rights or dissenters' rights
for HCPI stockholders or AHP stockholders in connection with the merger.
DIVIDEND REINVESTMENT PLANS (Page I-30)
The combined company will offer stockholders an opportunity to participate
in HCPI's dividend reinvestment plan. This dividend reinvestment plan will
provide stockholders with a way of reinvesting quarterly cash dividends in
additional shares of the combined company's common stock, without the payment of
any brokerage commission, service charge or other expense. HCPI's dividend
reinvestment plan will replace AHP's existing dividend reinvestment plan.
Existing participants in AHP's dividend reinvestment plan will automatically be
enrolled in HCPI's dividend reinvestment plan.
THE RIGHTS OF AHP STOCKHOLDERS WILL CHANGE (Page III-1)
The rights of AHP stockholders are determined by Delaware law and by AHP's
certificate of incorporation and bylaws. When the merger is completed, AHP
stockholders will become stockholders of HCPI. The rights of HCPI stockholders
are determined by Maryland law and HCPI's charter and bylaws. As a result of
these different governing laws and organizational documents, the rights of AHP
stockholders will change when they become HCPI stockholders.
I-6
<PAGE> 18
SELECTED HISTORICAL AND SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
audited consolidated financial statements of each of HCPI and AHP for the years
1994 through 1998 and the unaudited consolidated financial statements for each
of HCPI and AHP as of and for the six months ended June 30, 1999 and 1998. This
information is only a summary and you should read it in conjunction with the
historical and unaudited pro forma combined financial statements and related
notes contained in the annual reports, quarterly reports and other information
regarding HCPI and AHP filed with the SEC, which are incorporated by reference
or included in this joint proxy statement/prospectus. See "Where You Can Find
More Information" on page III-39.
SELECTED HISTORICAL FINANCIAL DATA OF HCPI
HCPI's historical consolidated financial data for the annual periods
presented below have been derived from its audited consolidated financial
statements previously filed with the SEC.
The selected historical consolidated financial data for HCPI as of and for
the periods ended June 30, 1999 and 1998 are unaudited and were prepared in
accordance with generally accepted accounting principles applied to interim
financial information. In the opinion of HCPI's management, all adjustments
necessary for a fair presentation of results of operations for such interim
periods have been included. These adjustments consist only of normal recurring
accruals. Because of seasonal and other factors, results for interim periods are
not necessarily indicative of the results to be expected for the full year. This
information is only a summary and you should read it together with HCPI's
historical financial statements and related notes contained in the annual
reports, quarterly reports and other information that HCPI has filed with the
SEC and incorporated by reference. See "Where You Can Find More Information" on
page III-39.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue................ $ 101,433 $ 74,282 $ 161,549 $128,503 $120,393 $105,696 $ 98,996
Net income applicable to
common shares.............. $ 30,835 $ 32,843 $ 78,635 $ 63,542 $ 60,641 $ 80,266(1) $ 49,977
Basic earnings per common
share...................... $ 0.98 $ 1.07 $ 2.56 $ 2.21 $ 2.12 $ 2.83(1) $ 1.87
Diluted earnings per common
share...................... $ 0.98 $ 1.06 $ 2.54 $ 2.19 $ 2.10 $ 2.78(1) $ 1.86
BALANCE SHEET DATA:
Total assets................. $1,512,994 $1,109,083 $1,356,612 $940,964 $753,653 $667,831 $573,826
Debt obligations............. $ 830,002 $ 600,236 $ 709,045 $452,858 $379,504 $299,084 $271,463
Stockholders' equity......... $ 614,205 $ 460,251 $ 595,419 $442,269 $336,806 $339,460 $269,403
OTHER DATA:
Funds from operations(2)..... $ 51,062 $ 46,266 $ 96,255 $ 83,442 $ 80,517 $ 72,911 $ 65,274
Cash flows from operating
activities................. $ 62,432 $ 51,355 $ 112,311 $ 87,544 $ 90,585 $ 71,164 $ 65,519
Cash flows used in investing
activities................. $ 132,949 $ 179,761 $ 417,524 $205,238 $104,797 $ 80,627 $ 61,383
Cash flows provided by (used
in) financing activities... $ 71,429 $ 126,411 $ 305,633 $118,967 $ 15,023 $ 8,535 $(28,418)
Dividends paid on common
shares..................... $ 51,436 $ 41,844 $ 89,210 $ 71,926 $ 65,905 $ 60,167 $ 52,831
Dividends paid per common
share...................... $ 1.37 $ 1.29 $ 2.62 $ 2.46 $ 2.30 $ 2.14 $ 1.98
Ratio of earnings to fixed
charges and preferred stock
dividends.................. 1.91 2.64 2.40 2.92 3.16 3.67 3.35
</TABLE>
- -------------------------
(1) Includes $23,550 or $0.83 and $0.76 per basic and diluted share,
respectively, for gain on the sale of real estate.
(2) HCPI believes that funds from operations is an important supplemental
measure of operating performance. Funds from operations is defined as net
income applicable to common shares (computed in accordance with generally
I-7
<PAGE> 19
accepted accounting principles), excluding gains (or losses) from debt
restructure and sales of property, plus real estate depreciation, and after
adjustments for unconsolidated partnerships and joint ventures. Funds from
operations does not, and is not intended to, represent cash generated from
operating activities in accordance with generally accepted accounting
principles, is not necessarily indicative of cash available to fund cash
needs and should not be considered as an alternative to net income. Funds
from operations, as defined by HCPI, may not be comparable to similarly
titled items reported by other real estate investment trusts that do not
define it in accordance with the definition prescribed by the National
Association of Real Estate Investment Trusts (NAREIT). The following table
represents items and amounts being aggregated to compute funds from
operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- -------- ------- ------- -------- -------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to common
shares........................ $30,835 $32,843 $ 78,635 $63,542 $60,641 $ 80,266 $49,977
Real estate depreciation........ 19,487 13,891 29,577 22,667 20,700 16,691 15,829
Joint venture adjustments....... 892 44 2,096 (720) (824) (496) (532)
Gain on sale of real estate
properties.................... (152) (512) (14,053) (2,047) -- (23,550) --
------- ------- -------- ------- ------- -------- -------
Funds from operations........... $51,062 $46,266 $ 96,255 $83,442 $80,517 $ 72,911 $65,274
======= ======= ======== ======= ======= ======== =======
</TABLE>
I-8
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA OF AHP
AHP's historical consolidated financial data for the annual periods
presented below have been derived from its audited consolidated financial
statements previously filed with the SEC. The selected historical consolidated
financial data for AHP as of and for the periods ended June 30, 1999 and 1998
are unaudited and were prepared in accordance with generally accepted accounting
principles applied to interim financial information. In the opinion of AHP's
management, all adjustments necessary for a fair presentation of results of
operations for such interim periods have been included. This information is only
a summary and should be read together with AHP's historical financial statements
and related notes contained in the annual reports, quarterly reports and other
information that AHP has filed with the SEC that are incorporated by reference.
See "Where You Can Find More Information" on page III-39.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- --------- --------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................. $ 55,591 $ 55,150 $ 112,722 $ 93,465 $ 88,924 $ 91,230 $ 87,027
Income before
extraordinary item and
gain on sale of property
applicable to common
shares.................. $ 21,928 $ 20,993 $ 43,045 $ 42,554 $ 38,800 $ 36,107 $ 32,548
Net income applicable to
common shares........... $ 75,778 $ 20,993 $ 43,045 $ 31,127 $ 38,800 $ 36,107 $ 32,548
Basic per share amounts --
Income before
extraordinary item and
gain on sale of
property applicable to
common shares......... $ .88 $ .88 $ 1.77 $ 1.81 $ 1.65 $ 1.69 $ 1.56
Net income applicable to
common shares......... $ 3.03 $ .88 $ 1.77 $ 1.32 $ 1.65 $ 1.69 $ 1.56
Weighted average common
shares................ 24,988 23,887 24,379 23,505 23,453 21,356 20,835
Diluted per share
amounts --
Income before
extraordinary item and
gain on sale of
property applicable to
common shares......... $ .87 $ .87 $ 1.75 $ 1.80 $ 1.65 $ 1.69 $ 1.56
Net income applicable to
common shares......... $ 3.01 $ .87 $ 1.75 $ 1.31 $ 1.65 $ 1.69 $ 1.56
Weighted average common
shares and dilutive
potential common
shares................ 25,180 24,154 24,605 23,703 23,558 21,421 20,881
BALANCE SHEET DATA:
Total assets.............. $783,832 $ 776,725 $ 753,842 $690,572 $577,882 $586,316 $579,503
Total debt................ $294,703 $ 322,117 $ 308,936 $243,813 $207,101 $207,378 $245,663
Stockholders' equity...... $455,803 $ 421,322 $ 410,865 $414,961 $345,139 $353,060 $307,501
OTHER DATA:
Funds from operations
applicable to common
shares(1)............... $ 32,548 $ 30,591 $ 63,485 $ 57,596 $ 52,945 $ 46,904 $ 44,127
Cash flows from operating
activities.............. $ 36,848 $ 39,806 $ 82,570 $ 70,156 $ 61,241 $ 57,471 $ 54,984
</TABLE>
I-9
<PAGE> 21
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- --------- --------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) investing
activities.............. $(11,300) $(115,017) $(109,667) $(95,530) $(13,717) $(15,098) $(42,740)
Cash flows provided by
(used in) financing
activities.............. $(25,856) $ 54,012 $ 7,861 $ 46,947 $(53,615) $(36,640) $(46,076)
Dividends declared on
common stock............ $ 28,232 $ 26,252 $ 54,464 $ 49,875 $ 47,845 $ 44,095 $ 39,303
Dividends declared per
common share............ $ 1.13 $ 1.09 $ 2.20 $ 2.12 $ 2.04 $ 1.99 $ 1.88
Ratio of earnings to fixed
charges and preferred
stock dividends......... 2.35(3) 2.37(2) 2.19(2) 2.66(2) 2.91 2.54 1.33(2)
</TABLE>
- -------------------------
(1) Funds from operations as defined by the National Association of Real Estate
Investment Trusts (NAREIT). Funds from operations does not, and is not
intended to, represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered
as an alternative to net income. The following table represents items and
amounts being aggregated to compute funds from operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to common
shares............................. $ 75,778 $20,993 $43,045 $31,127 $38,800 $36,107 $32,548
Real estate depreciation............. 10,620 9,598 20,440 15,042 14,145 13,449 12,196
Gain on sale of real estate
property........................... (53,850) -- -- -- -- -- --
Extraordinary loss on debt
prepayment......................... -- -- -- 11,427 -- -- --
Mortgage loan prepayment premium..... -- -- -- -- -- (2,652) --
Relocation accrual................... -- -- -- -- -- -- (617)
-------- ------- ------- ------- ------- ------- -------
Funds from operations applicable to
common shares...................... $ 32,548 $30,591 $63,485 $57,596 $52,945 $46,904 $44,127
======== ======= ======= ======= ======= ======= =======
</TABLE>
(2) Ratio includes a $2,700, $8,300, $11,000 and $30,000 impairment loss
recorded on psychiatric real estate and notes receivable in the six months
ended June 30, 1998, and the years ended December 31, 1998, 1997 and 1994,
respectively.
(3) Ratio excludes a $55,100 gain on sale of properties.
I-10
<PAGE> 22
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
In the table below we present pro forma combined statement of income
information for HCPI and AHP for the fiscal year ended December 31, 1998 and the
six months ended June 30, 1999, as if the merger had occurred on January 1,
1998. We also present pro forma combined balance sheet information for HCPI and
AHP as of June 30, 1999, as if the merger had been completed on June 30, 1999.
The pro forma information gives effect to the merger using the purchase method
of accounting in accordance with the Accounting Principles Board Opinion No. 16.
PLEASE REMEMBER THAT THIS INFORMATION IS ONLY HYPOTHETICAL AND DOES NOT
NECESSARILY REFLECT THE FINANCIAL PERFORMANCE THAT WOULD HAVE ACTUALLY RESULTED
IF THE MERGER HAD BEEN COMPLETED ON THOSE DATES. FURTHERMORE, THIS INFORMATION
DOES NOT NECESSARILY REFLECT FUTURE FINANCIAL PERFORMANCE IF THE MERGER ACTUALLY
OCCURS.
See "Unaudited Pro Forma Combined Financial Information" beginning on page
I-65 of this joint proxy statement/prospectus for a more detailed explanation of
this analysis.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------- -----------------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenue................................................. $ 157,024 $274,271
Net Income Applicable to Common Shares.................. 106,309(1) 121,427
Basic Earnings per Common Share......................... 2.09(1) 2.42
Diluted Earnings per Common Share....................... 2.04(1) 2.41
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS OF
JUNE 30, 1999
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Real Estate Properties, Net............................. 2,130,287
Loans Receivable........................................ 182,165
Total Assets............................................ 2,472,670
Bank Notes Payable...................................... 218,300
Senior Notes Payable.................................... 766,086
Convertible Subordinated Debentures..................... 100,000
Mortgage Notes Payable.................................. 85,680
Total Stockholders' Equity.............................. 1,200,491
</TABLE>
- -------------------------
(1) Includes $54,002 or $1.06 and $1.00 per share on a pro forma basic and
diluted basis, respectively, for gain on the sale of real estate properties.
I-11
<PAGE> 23
COMPARATIVE PER SHARE DATA
Set forth below are the basic and diluted earnings and book value per
common share data separately for HCPI and AHP on a historic basis, for HCPI and
AHP on a pro forma combined basis and for HCPI and AHP on a pro forma combined
basis per AHP equivalent share.
The pro forma data was derived as described under "Summary Pro Forma
Combined Financial Information" above.
The pro forma information per AHP equivalent share shows the effect of the
merger from the perspective of an owner of AHP common stock. The information was
computed by multiplying the pro forma information by the exchange ratio pursuant
to the merger of 0.78.
You should read the information below together with our historical
financial statements and related notes contained in the annual reports,
quarterly reports and other information that HCPI and AHP have filed with the
SEC and incorporated by reference. See "Where You Can Find More Information" on
page III-39. Please remember that the HCPI/AHP pro forma combined data and AHP
pro forma equivalent data below is only hypothetical and does not necessarily
reflect the financial performance that would have actually resulted if the
merger had been completed before the periods presented. Furthermore, that data
does not necessarily reflect future financial performance if the merger actually
occurs.
<TABLE>
<CAPTION>
HCPI AHP HCPI/AHP AHP
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
DATA DATA COMBINED DATA EQUIVALENT DATA
---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Year Ended December 31, 1998.............. $ 2.56 $ 1.77 $ 2.42 $ 1.89
Six Months Ended June 30, 1999............ .98 3.03(1) 2.09 1.63
DILUTED EARNINGS PER COMMON SHARE
Year Ended December 31, 1998.............. 2.54 1.75 2.41 1.88
Six Months Ended June 30, 1999............ .98 3.01(1) 2.04 1.59
BOOK VALUE PER COMMON SHARE
As of December 31, 1998................... 13.15 12.19 17.82 13.90
As of June 30, 1999....................... 13.31 14.24 17.94 13.99
</TABLE>
- ---------------
(1) Includes $2.15 and $2.14 for gain on sale of properties on a basic and
diluted basis, respectively.
I-12
<PAGE> 24
RISK FACTORS
In addition to general investment risks and the other information contained
in or incorporated by reference into this joint proxy statement/prospectus, you
should carefully consider the following factors in evaluating the proposals to
be voted on at the HCPI special meeting and the AHP special meeting.
RISK FACTORS RELATING TO THE MERGER
FIXED MERGER CONSIDERATION MAY NOT REFLECT CHANGES IN SHARE VALUE
The price and value of HCPI common stock and AHP common stock fluctuate as
those securities trade on The New York Stock Exchange. As a result, the price
and value of each company's common stock at the time the merger is completed may
be different from the price and value of those securities which existed on the
date the exchange ratio of 0.78 was determined. This difference could be caused
by changes in the operations and prospects of HCPI or AHP, general market and
economic conditions or other factors which are beyond the control of either
company.
FOLLOWING THE MERGER, AHP COMMON STOCKHOLDERS WILL REALIZE A DECREASE IN
COMMON STOCK DISTRIBUTIONS
The distribution declared on each share of AHP common stock and paid during
the third quarter of 1999 was $0.565 and the distribution declared on HCPI
common stock and paid during the third quarter of 1999 was $0.70. As a result,
the distribution paid during the third quarter of 1999 on 0.78 of a share of
HCPI common stock (the exchange ratio for each share of AHP common stock in the
merger) would have been $0.546. Although HCPI has consistently paid and
increased dividends in the past, there can be no assurance that HCPI will
continue to pay or increase dividends consistent with historical levels, or at
all, in the future.
THE COMBINED COMPANY MAY NOT REALIZE THE EXPECTED BENEFITS FROM THE MERGER,
SUCH AS COST SAVINGS, OPERATING EFFICIENCIES AND OTHER SYNERGIES DUE TO
INCREASED DEMANDS ON ITS MANAGEMENT'S RESOURCES FOLLOWING THE MERGER
HCPI and AHP entered into the merger agreement with the expectation that
the merger will result in a number of benefits to the combined company,
including cost savings, operating efficiencies and other synergies. The combined
company does not currently anticipate retaining any of AHP's senior executive
officers following the merger. Many management duties within HCPI are presently
the responsibility of a fixed number of executives and employees, and following
the merger, management of the combined company will be the responsibility of
those same executives and employees. Unforeseen difficulties in managing the
larger combined company, coupled with the increased demands on management's
time, may cause the disruption of, or a loss of momentum in, the activities of
the combined company's business which could adversely affect the business,
financial condition and operating results of the combined company. HCPI intends
to hire additional personnel, some of which may be current employees of AHP, to
address the increased demands on management's time. HCPI cannot assure you,
however, that it will be successful in attracting, hiring, assimilating or
retaining additional personnel in the future.
AS A RESULT OF THE MERGER THE COMBINED COMPANY WILL INCUR TRANSACTION COSTS
THAT MAY EXCEED OUR ESTIMATES
We estimate that, as a result of the merger, the combined company will
incur transaction costs of approximately $50 million, including investment
banking, legal and accounting fees and payments to executive officers. The
amount of the transaction costs is a preliminary estimate and is subject to
change. Actual transaction costs may substantially exceed our estimates and
I-13
<PAGE> 25
could have an adverse effect on the financial condition and operating results of
the combined company.
THE FAIRNESS OPINIONS OBTAINED BY HCPI AND AHP WILL NOT REFLECT CHANGES IN THE
RELATIVE VALUE OF THE COMPANIES SINCE THE MERGER AGREEMENT WAS SIGNED
HCPI does not intend to obtain an updated fairness opinion of Merrill Lynch
& Co., and AHP does not intend to obtain an updated fairness opinion of Goldman,
Sachs & Co. Changes in the operations and prospects of HCPI or AHP, general
market and economic conditions and other factors which are beyond the control of
HCPI or AHP, on which the opinions of Merrill Lynch and Goldman Sachs are based,
may alter the relative value of the companies. Therefore, although the opinions
of Merrill Lynch and Goldman Sachs address the fairness of the merger
consideration from a financial point of view at the time the merger agreement
was approved and signed, they will not address the fairness of the merger
consideration at the time the merger is completed.
IF THE MERGER IS NOT COMPLETED THE COMPANIES WILL NOT REALIZE THE BENEFIT OF
THE RESOURCES AND CAPITAL THEY HAVE EXPENDED OR WILL EXPEND IN THE PURSUIT OF
THE MERGER
The merger may not be completed. If the merger is not completed, HCPI and
AHP will have incurred substantial expenses for which no ultimate benefit will
have been received by either HCPI or AHP. Additionally, if the merger agreement
is terminated, AHP may be required to pay HCPI up to $18.7 million as a
termination fee. Both HCPI and AHP may be required to reimburse the other for
merger expenses up to $2 million. See "The Merger Agreement -- Termination Fees
and Expenses." In addition, AHP's business may be adversely affected if the
merger is not completed, due to the restrictions placed on AHP's ability to run
its business by the merger agreement, including restrictions on the acquisition
of new properties except in specified circumstances.
RISK FACTORS RELATING TO THE COMBINED COMPANY FOLLOWING THE MERGER
THE HEALTH CARE INDUSTRY IS HEAVILY REGULATED BY THE GOVERNMENT, WHICH MAY
ADVERSELY AFFECT THE COMBINED COMPANY'S RENTAL AND DEBT PAYMENT REVENUE
The health care industry is heavily regulated by federal, state and local
laws. Government regulation of the health care industry will affect the combined
company because:
- the financial ability of lessees and mortgage payors to make rent and
debt payments to the combined company may be affected by government
regulations such as licensure, certification for participation in
government programs, and government reimbursement; and
- additional rents received by the combined company will be, in some cases,
based on its lessees' gross revenue from operations.
The ability of a facility to generate revenue and profit, among other
attributes, will determine the underlying value of that facility to the combined
company. As health insurers and governmental agencies attempt to limit the cost
of hospital and other healthcare services and to reduce the utilization of
health care facilities, a reduction in future revenue or slower revenue growth
may occur.
Prospective Payment System. On July 1, 1998, the federal government began
to implement the congressionally mandated prospective payment system for
Medicare payments to long-term care facilities. Under the prospective payment
system, long-term care facilities are paid a case-mix adjusted federal per diem
rate for Medicare-covered services they provide. The per diem rate is calculated
to cover routine service costs, ancillary costs and capital-related costs. The
phased-in implementation of the prospective payment system for long-term care
facilities began with the first cost-reporting period beginning on or after July
1, 1998. The prospective payment system is expected to be substantially
implemented by the end of 2001.
I-14
<PAGE> 26
Implementation of the prospective payment system will affect each long-term care
facility to a different degree depending upon the amount of revenue it derives
from Medicare patients.
Long-term care facilities may need to restructure their operations to
accommodate the new Medicare prospective payment system reimbursement. Due in
part to the potential negative effect of the prospective payment system on the
financial condition of long-term care facilities, including the ability of
long-term care operators to make interest and principal payments on outstanding
borrowings, Standard & Poor's placed many long-term care facility companies on a
"credit watch" in November 1998. In early March 1999, Standard & Poor's lowered
the ratings of several long-term care facility companies because of the impact
of the prospective payment system, particularly those companies with substantial
debt. The companies included Vencor, Inc. (see footnote (1) on Page I-24),
Genesis Health Ventures, Integrated Health Services, Inc., Sun Healthcare Group
and Mariner Post-Acute Network, Inc., all of which are currently lessees of
HCPI.
Fraud and Abuse. Various federal and state governments have considered or
passed laws and regulations that attempt to eliminate fraud and abuse of the
Medicare, Medicaid and other governmental payor programs by prohibiting, among
other things, payment arrangements that include compensation for patient
referrals. In addition, the Balanced Budget Act of 1997 strengthens the federal
anti-fraud and abuse laws to provide for stiffer penalties for fraud and abuse
violations. Violations of these laws may result in the imposition of criminal
and civil penalties, including possible exclusion from reimbursement programs.
Violations of these laws and regulations may jeopardize a lessee's ability to
operate a facility or to make rent and debt payments, potentially resulting in
an adverse effect on the financial condition and operating results of the
combined company. The combined company's lease arrangements with lessees may
also be subject to these fraud and abuse laws.
Licensure Risks. Health care facilities generally must obtain licensure to
operate. Failure to obtain licensure or loss of licensure would prevent a
licensed facility from operating. These events could adversely affect the
facility operator's ability to make rent and debt payments. State and local laws
also may regulate expansion, including the addition of new beds or services or
acquisition of medical equipment, and occasionally the contraction of health
care facilities by requiring certificate of need or other similar approval
programs. In addition, health care facilities are subject to the Americans with
Disabilities Act and building and safety codes which govern access to and
physical design requirements and building standards for facilities.
Environmental Matters. A wide variety of federal, state and local
environmental and occupational health and safety laws and regulations affect
healthcare facility operations. Under various federal, state and local
environmental laws, ordinances and regulations, an owner of real property or a
secured lender may be liable for the costs of removal or remediation of
hazardous or toxic substances at, under or disposed of in connection with such
property, as well as other potential costs relating to hazardous or toxic
substances (including government fines and damages for injuries to persons and
adjacent property). These laws often impose liability without regard to whether
the owner or secured lender knew of, or was responsible for, the presence or
disposal of hazardous or toxic substances and may be imposed on the owner or
secured lender in connection with the activities of an operator of the property.
The cost of any required remediation, removal, fines or personal or property
damages and the owner's or secured lender's liability for these costs could
exceed the value of the property, or the assets of the owner or secured lender.
In addition, the presence of hazardous or toxic substances, or the failure to
properly dispose of or remediate these substances, may adversely affect the
combined company's ability to sell or rent a property or to borrow using a
property as collateral which, in turn, would reduce the combined company's
revenue.
Although the mortgage loans that each of HCPI and AHP has provided and
leases covering each of HCPI's and AHP's properties require borrowers and
lessees to indemnify
I-15
<PAGE> 27
HCPI or AHP, respectively for some environmental liabilities, the scope of these
obligations may be limited. We cannot assure you that any borrower or lessee
would be able to fulfill its indemnification obligations to the combined
company.
Medicare and Medicaid Programs. Sources of revenue for lessees and
mortgage payors may include the federal Medicare program, state Medicaid
programs, private insurance carriers, health care service plans and health
maintenance organizations, among others. You should expect efforts to reduce
costs by these payors to continue, which may result in reduced or slower growth
in reimbursement for services provided by some of the combined company's
lessees. In addition, the failure of any of the combined company's lessees and
mortgage payors to comply with various laws and regulations could jeopardize
their ability to continue participating in the Medicare and Medicaid programs.
Cost Control. The health care industry has continually faced challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care facilities
into extended care and home care settings, from nursing homes into assisted
living facilities and the vertical and horizontal consolidation of health care
providers. The pressure to control health care costs intensified during 1994 and
1995 as a result of the national health care reform debate and continued into
1997 as Congress attempted to slow the rate of growth of federal health care
expenditures as part of its effort to balance the federal budget. In addition to
the reforms enacted and considered by Congress from time to time, state
legislatures periodically consider various health care reform proposals. Changes
in the law, new interpretations of existing laws, and changes in payment
methodology may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by both government and other third-party payors.
These changes may be applied retroactively. The ultimate timing or effect of
legislative efforts cannot be predicted and may affect the combined company in
adverse ways.
IF AHP OR HCPI FAILS TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST UNDER THE
INTERNAL REVENUE CODE PRIOR TO THE MERGER, THAT FAILURE COULD RESULT IN A
SIGNIFICANT TAX LIABILITY FOR THE COMBINED COMPANY
Each of AHP and HCPI believes that it has been organized and has operated
in a manner which would allow it to qualify as a real estate investment trust
under the Internal Revenue Code and each company intends to operate so as to
qualify as a real estate investment trust under the Internal Revenue Code
through and including the completion of the merger. It is possible, however,
that either AHP or HCPI has been organized or has operated in a manner which
would not allow it to qualify as a real estate investment trust, or that AHP's
or HCPI's future operations could cause it to fail to qualify. Qualification as
a real estate investment trust requires a company to satisfy numerous
requirements (some on an annual and others on a quarterly basis) established
under highly technical and complex Internal Revenue Code provisions for which
there are only limited judicial and administrative interpretations and involves
the determination of various factual matters and circumstances not entirely
within a company's control. If a company fails to qualify as a real estate
investment trust in any taxable year, it will be subject to federal income tax,
including any applicable alternative minimum tax, on its taxable income at
regular corporate rates. Unless that company is entitled to relief under
applicable statutory provisions, it would be disqualified from treatment as a
real estate investment trust for the four taxable years following the year
during which it lost qualification. The combined company would be required to
pay any tax arising due to a failure of AHP or HCPI to qualify as a REIT prior
to the merger, and this tax could be material. In addition, a failure of AHP or
HCPI to qualify as a real estate investment trust prior to the merger could
adversely affect the combined company's ability to qualify as a real estate
investment trust after the merger.
I-16
<PAGE> 28
Davis, Graham & Stubbs LLP has rendered an opinion to the effect that,
based on the facts, representations and assumptions stated therein, commencing
with its taxable year ended December 31, 1987, AHP was organized in conformity
with the requirements for qualification and taxation as a real estate investment
trust under the Internal Revenue Code, and its method of operation has enabled
and its proposed method of operation will enable AHP to meet, through the
effective time of the merger, the requirements for qualification and taxation as
a real estate investment trust under the Internal Revenue Code. The Davis,
Graham & Stubbs LLP opinion assumes, among other things, the accuracy of an
opinion rendered by Sullivan & Cromwell with respect to the characterization of
AHP's psychiatric group preferred stock and dividends thereon, which Sullivan &
Cromwell opinion is based on the facts, representations and assumptions stated
therein. In addition, Latham & Watkins has rendered an opinion with respect to
HCPI's tax status as a real estate investment trust, described below. An opinion
of counsel is not binding on the Internal Revenue Service or any court, and no
ruling has been or will be sought from the Internal Revenue Service as to AHP's
or HCPI's qualification as a real estate investment trust under the Internal
Revenue Code. Accordingly, there can be no assurance that the Internal Revenue
Service will not take a position contrary to one or more positions reflected in
these opinions or that these opinions will be upheld by the courts if challenged
by the Internal Revenue Service.
IF THE COMBINED COMPANY WERE TO LOSE ITS TAX STATUS AS A REAL ESTATE
INVESTMENT TRUST IT WOULD HAVE SIGNIFICANT ADVERSE CONSEQUENCES TO THE
COMBINED COMPANY AND THE VALUE OF ITS STOCK
If the combined company fails to qualify as a real estate investment trust,
the following will occur:
- The combined company would not be allowed a deduction for distributions
to stockholders in computing its taxable income and would be subject to
federal income tax at regular corporate rates;
- The combined company also could be subject to the federal alternative
minimum tax and possibly increased state and local taxes; and
- Unless the combined company is entitled to relief under statutory
provisions, it could not elect to be subject to tax as a real estate
investment trust for four taxable years following the year during which
it was disqualified.
As a result of all these factors, the combined company's failure to qualify
as a real estate investment trust could impair the combined company's ability to
expand its business and raise capital, could substantially reduce the funds
available for distribution to its stockholders, including former AHP
stockholders, and could adversely affect the value of the combined company's
capital stock following the merger.
In addition, if the combined company fails to qualify as a real estate
investment trust, all distributions to stockholders would be subject to tax as
ordinary income to the extent of its current and accumulated earnings and
profits, the combined company would not be required to make distributions to
stockholders and corporate distributees could be eligible for the dividends
received deduction.
Although HCPI believes that it is organized and operates in a manner that
will allow it to qualify as a real estate investment trust, no assurance can be
given that the combined company will continue to be organized or be able to
operate in a manner so as to qualify or remain qualified as a real estate
investment trust for tax purposes.
Latham & Watkins has rendered an opinion that, commencing with HCPI's
taxable year ended December 31, 1985, HCPI has been organized and has operated
in conformity with the requirements for qualification and taxation as a real
estate investment trust under the Internal
I-17
<PAGE> 29
Revenue Code and that HCPI's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code. See "Material United
States Federal Income Tax Considerations -- HCPI's qualification as a real
estate investment trust."
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject
to risks and uncertainties. These statements may be made directly in this
document or may be "incorporated by reference" to other documents filed with the
SEC. Forward-looking statements include information regarding:
<TABLE>
<S> <C>
synergies timetable for completion of the
efficiencies merger
cost savings regulatory changes affecting
returns on capital employed the healthcare industry
capital spending reimbursement available to
asset portfolios lessees and mortgage payors
</TABLE>
The sections of this document which contain forward-looking statements
include, among others:
- "Questions and Answers About the Merger,"
- "Summary,"
- "Selected Historical and Selected Unaudited Pro Forma Combined Financial
Data,"
- "The Merger -- Background of the Merger,"
- "The Merger -- HCPI's Reasons for the Merger,"
- "The Merger -- AHP's Reasons for the Merger,"
- "HCPI Unaudited Pro Forma Combined Financial Statements,"
- "Risk Factors,"
- "The Merger -- Opinion of Financial Advisor to AHP" and
- "The Merger -- Opinion of Financial Advisor to HCPI."
Our forward-looking statements in this document or those documents incorporated
by reference also include, among other things, statements regarding the intent,
belief or expectations of HCPI or AHP and can be identified by the use of words
such as "may," "will," "should," "believes," "expects," "anticipates,"
"intends," "estimates" and other comparable terms.
For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and in the documents which are
incorporated by reference, could affect the future results of HCPI, AHP and the
combined company after completion of the merger, and could cause actual results
or other outcomes to differ materially from those expressed in our
forward-looking statements:
- legislative, regulatory, or other changes in the healthcare industry
which increase the costs of or otherwise affect the operations of HCPI,
AHP or the combined company following the merger;
- changes in the reimbursement available to HCPI's, AHP's or the combined
company's lessees and mortgagors by governmental or private payors,
including changes in Medicare and Medicaid payment levels and the
availability and cost of third party
I-18
<PAGE> 30
insurance coverage, such as those extensive changes to the Medicare and
Medicaid programs contained in the Balanced Budget Act of 1997 intended
to reduce significantly the projected amount of increase in Medicare
spending;
- effects of the recently implemented prospective payment system, which is
expected to decrease reimbursements to skilled nursing and other
healthcare facilities and may have an adverse effect on the operator
revenues at HCPI's, AHP's and the combined company's rehabilitation and
long-term acute care facilities;
- competition for lessees and mortgagors, including with respect to new
leases and mortgages and the renewal or rollover of existing leases;
- competition for the acquisition and financing of healthcare facilities;
- the ability of HCPI's, AHP's or the combined company's lessees and
mortgagors to operate their properties in a manner sufficient to maintain
or increase revenue and to generate sufficient income to make rent and
loan payments;
- changes in national or regional economic conditions, including changes in
interest rates and the availability and cost of capital to HCPI, AHP or
the combined company;
- the availability of financing for HCPI's, AHP's or the combined company's
proposed acquisitions;
- risks associated with multi-tenant medical office buildings, such as
lower than expected occupancy levels, a downturn in market lease rates
for medical office space or higher than expected costs associated with
the maintenance and operation of such facilities;
- the failure to complete the merger;
- potential liability under, and change in, environmental, zoning, tax and
other laws; and
- the general uncertainty inherent in the Year 2000 issue, particularly the
uncertainty of the Year 2000 readiness of third parties who are material
to HCPI's, AHP's and the combined company's business or material to the
businesses of their lessees or borrowers.
HCPI stockholders and AHP stockholders are cautioned not to place undue
reliance on forward looking statements, which speak only as of the date of this
document or the date of any document incorporated by reference.
All subsequent written and oral forward-looking statements attributable to
HCPI or AHP or any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section. Neither HCPI nor AHP undertakes any obligation to release publicly any
revisions to such forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.
I-19
<PAGE> 31
THE MERGER
GENERAL
In the merger, AHP will merge with and into HCPI with HCPI being the
surviving company. Each share of AHP common stock issued and outstanding
immediately prior to the completion of the merger will be automatically
converted into 0.78 of a share of HCPI common stock. Cash will be paid instead
of fractional shares of HCPI common stock. Under the Rights Agreement between
HCPI and the Bank of New York (successor to Manufacturers Hanover Trust Company
of California), as Rights Agent, dated July 5, 1990, as amended, each share of
HCPI common stock issued in the merger will have, upon issuance, one common
stock purchase right attached. See "Description of HCPI Capital Stock --
Stockholder Rights Plan." As of the effective time of the merger, all shares of
AHP common stock will be automatically canceled and retired.
In the merger, each share of AHP series B preferred stock will be
automatically converted into one share of HCPI series C preferred stock with
substantially the same rights and preferences as the AHP series B preferred
stock. As of the effective time of the merger, all shares of AHP series B
preferred stock will be automatically canceled and retired. All shares of AHP
series B preferred stock are held by ChaseMellon Shareholder Services L.L.C., as
depositary, under the Deposit Agreement dated October 27, 1997, among AHP,
ChaseMellon Shareholder Services and the holders from time to time of the AHP
depositary shares representing the AHP series B preferred stock.
The shares of AHP series B preferred stock are represented by depositary
shares, each of which represents a one-one-hundredth interest in a share of AHP
series B preferred stock. It is the depositary shares, and not the AHP series B
preferred stock, which trade on The New York Stock Exchange under the symbol
"AHE PrB." Following the merger, the depositary shares formerly representing AHP
series B preferred stock will remain outstanding but will be automatically
converted into depositary shares of HCPI representing the HCPI series C
preferred stock without any action required on the part of the holder of such
depositary shares. Those depositary shares will continue to be listed for
trading on The New York Stock Exchange. HCPI intends to request that the trading
symbol of the depositary shares be changed to "HCP PrC" following the merger.
In connection with the merger, HCPI will assume AHP's obligations under
AHP's 7.05% Senior Notes Payable Due 2002, AHP's 7.50% Senior Notes Payable Due
2007 and the indentures under which the notes were issued.
This joint proxy statement/prospectus constitutes a prospectus of HCPI,
which is a part of the registration statement on Form S-4 filed by HCPI with the
SEC under the Securities Act of 1933 in order to register the shares of HCPI
common stock, the shares of HCPI series C preferred stock and the HCPI
depositary shares to be issued to AHP stockholders in the merger and a proxy
statement of HCPI in connection with the approval of the merger by HCPI
stockholders. This joint proxy statement/prospectus also constitutes a proxy
statement of AHP in connection with the approval of the merger by AHP
stockholders.
BACKGROUND OF THE MERGER
AHP's historical, current and ongoing fundamental business objective is to
maximize value for its stockholders. To create and enhance that value, AHP
believes that it must achieve substantial size and diversification of assets,
while retaining ongoing access to both debt and equity capital at attractive
prices. The increasing competition for accretive investments in healthcare real
estate, the increasing difficulty real estate investment trusts are facing in
raising funds in the capital markets, and other industry conditions affecting
the healthcare real estate investment trust sector in general caused AHP
management and the AHP board in early 1999
I-20
<PAGE> 32
to begin to explore additional strategic means of achieving AHP's fundamental
business objective. In early June of this year, as part of this process, AHP's
management consulted Goldman, Sachs & Co. for its financial advice.
In the first quarter of 1999, Kenneth B. Roath, HCPI's chairman of the
board, president and chief executive officer, and other members of HCPI's senior
management team, began to explore opportunities to acquire or combine with other
owners of healthcare properties as a strategy toward strengthening HCPI's
earnings growth and enhancing long term stockholder value. As a result of this
process, Mr. Roath contacted Joseph P. Sullivan, AHP's chairman of the board,
president and chief executive officer, on several occasions regarding a possible
strategic combination involving AHP. No significant discussions resulted from
these initial conversations. Mr. Roath and HCPI's management team began to
discuss the potential benefits of a combination with AHP with the HCPI board and
Merrill Lynch & Co., HCPI's financial advisor, near the end of the first
quarter.
At AHP's mid-year board of directors retreat held on June 10 and at the AHP
board meeting on June 11, 1999, AHP management and representatives of Goldman
Sachs reviewed with the AHP board a variety of strategic options which AHP
management had been evaluating throughout early 1999. These options included:
- maintaining AHP's existing operating strategy as a means to increase its
size, diversity and access to capital;
- pursuing a strategic business combination with another healthcare real
estate investment trust to increase AHP's size, diversity and access to
capital;
- increasing leverage on AHP's current portfolio of properties to free up
capital for further investment and growth; and
- selling non-core assets so that the proceeds could be re-deployed in more
accretive long term investments.
After further evaluation and consideration of available strategic
opportunities by AHP management, on June 21, 1999, AHP management and
representatives of Goldman Sachs made presentations to the AHP board regarding
the strategic opportunities available to AHP. The AHP board then determined,
based on those presentations, that consolidation with another healthcare real
estate investment trust appeared to be the most advantageous means of
positioning AHP for the future. A strategic combination could position AHP's
stockholders as investors in a combined company with sufficient size, diversity
and access to capital to foster enhanced future growth. AHP then engaged Goldman
Sachs as its financial advisor to pursue a strategic business combination with
another publicly-held real estate investment trust.
Following a review of potential merger candidates, AHP decided to focus
initially on a combination with HCPI based upon:
- the size, quality and complementary nature of the companies' portfolios;
- the various other factors discussed under "-- AHP's Reasons for the
Merger" below;
- the relatively high ratio of the price of HCPI common stock price to
HCPI's funds from operations as compared to that of its competitors
(which indicated that HCPI might be able to offer a higher premium to the
AHP stockholders than its competitors would be able to offer without
diluting the HCPI stockholders); and
- the fact that on several occasions earlier in the year, Mr. Roath had
informally approached Mr. Sullivan regarding AHP's potential interest in
a strategic combination with HCPI.
I-21
<PAGE> 33
On June 25, 1999, Mr. Sullivan and Mr. Roath met for an informal luncheon.
At that meeting, Mr. Sullivan asked Mr. Roath if HCPI remained interested in
pursuing a possible strategic combination with AHP. Mr. Roath contacted Goldman
Sachs later that day to indicate that HCPI was interested in pursuing such a
transaction.
On June 29, 1999, Mr. Roath and other executive officers of HCPI met with
Goldman Sachs and Merrill Lynch to discuss in general terms a possible
combination of the two companies. Mr. Roath asked AHP to enter into an
exclusivity arrangement under which AHP would agree, for a limited period of
time, not to discuss a potential combination with any company other than HCPI.
AHP was unwilling to agree to this request at that time. AHP did imply, however,
that it might be willing to enter into an exclusive arrangement if HCPI, after
conducting preliminary due diligence, expressed interest at a level that would
preempt the need for AHP to conduct an auction involving other companies.
HCPI and AHP subsequently agreed to maintain the confidentiality of any
non-public information provided to the other during the course of discussions
between the companies. Thereafter, HCPI and AHP exchanged confidential
information and conducted numerous due diligence meetings and telephone calls.
On July 6, 1999, Mr. Roath, several other executive officers of HCPI and
Merrill Lynch, HCPI's financial advisor, met with Mr. Sullivan, two other
executive officers of AHP and Goldman Sachs, AHP's financial advisor, to discuss
a possible transaction. At that time, Mr. Roath shared with AHP his preliminary
thoughts concerning timing, accounting treatment and a possible exchange ratio,
subject to further investigation and discussion between the parties. The parties
did not then agree on any specific terms. Following this meeting, AHP concluded
that HCPI was willing to bid at a preemptive level, and on that basis, HCPI and
AHP executed an agreement on July 8, 1999 formalizing the parties'
confidentiality agreement and granting HCPI the exclusivity arrangement it had
requested the week before.
On July 7, 1999, counsel to HCPI delivered to counsel for AHP a preliminary
draft of the merger agreement. From that date until August 4, 1999, the date on
which the merger agreement was signed, representatives of HCPI, AHP and their
financial and legal advisors negotiated the merger agreement. Throughout this
period, HCPI and AHP continued to conduct due diligence and to consider the
benefits that could be derived from the proposed transaction. Concurrently, AHP
and its financial advisor, Goldman Sachs, continued to monitor the stock price
and activity of other potential merger candidates to evaluate if other
candidates might be able to offer a higher premium to AHP stockholders in a
strategic combination with AHP.
On July 11, 1999, AHP held a board meeting at which Mr. Sullivan briefed
the board on developments since the last AHP board meeting. At this meeting,
Sullivan & Cromwell, legal counsel to AHP, advised the board of its fiduciary
duties to stockholders in exploring strategic alternatives for AHP and Goldman
Sachs presented a summary of the due diligence efforts to date regarding HCPI.
On July 13, 1999, at a special meeting of the HCPI board, Mr. Roath and
representatives of Latham & Watkins, legal counsel to HCPI, made a presentation
to the HCPI board regarding the progress of negotiations with AHP. Following
this presentation, the HCPI board directed Mr. Roath to continue discussions
with AHP.
On July 15, 1999, the HCPI board held a special meeting so that Mr. Roath
could again inform them of the progress of discussions with AHP and review the
terms of the proposed transaction. The HCPI board again directed Mr. Roath to
continue discussions with AHP.
Between July 11, 1999 and August 3, 1999, representatives of HCPI, AHP and
their financial and legal advisors continued to negotiate the exchange ratio and
other terms of the merger.
I-22
<PAGE> 34
At a regular meeting of the HCPI board on July 27, 1999, representatives of
Merrill Lynch and Latham & Watkins made detailed presentations concerning the
material aspects of the proposed transaction, including due diligence conducted
with respect to AHP and the negotiations regarding the terms of the transaction.
Representatives of Latham & Watkins then advised the HCPI board of their duties
to stockholders under Maryland law in considering the transaction. Mr. Roath and
the representatives from Merrill Lynch reviewed the potential benefits and risks
of the merger with the HCPI board, including those discussed below in "-- HCPI's
Reasons for the Merger," and answered questions posed by the HCPI directors.
The AHP board met twice on August 3, 1999 and, at the second meeting,
unanimously approved the merger. At these meetings, the board considered a
variety of factors, including those positive and negative factors listed below
in "-- AHP's Reasons for the Merger," and concluded that the merger was in the
best interests of AHP and its stockholders. At these meetings, Sullivan &
Cromwell reviewed the legal documentation with the board and advised the board
of its fiduciary duties to stockholders in approving the proposed merger and
merger agreement. Representatives of Goldman Sachs made a presentation to the
AHP board regarding the material analyses conducted in reaching its conclusions
and delivered its oral opinion, subsequently confirmed in writing on August 4,
1999, that the exchange ratio pursuant to the merger agreement was fair from a
financial point of view to the common stockholders of AHP. The AHP board
reviewed and discussed the information presented by AHP's management and its
legal and financial advisors and posed questions on the information presented.
At the conclusion of these discussions, the board unanimously approved the
merger.
The HCPI board held a special meeting on August 3, 1999. At this meeting,
representatives of Merrill Lynch and Latham & Watkins again reviewed with the
HCPI board the terms of the transaction. HCPI's senior management informed the
board that the parties had agreed upon an exchange ratio earlier that day.
Representatives of Merrill Lynch delivered the oral opinion of Merrill Lynch,
which was subsequently confirmed in writing, that the exchange ratio was fair to
HCPI from a financial point of view. During the meeting, the HCPI board
considered a number of factors, including those listed below in "-- HCPI's
Reasons for the Merger," unanimously determined that the merger was in the best
interest of HCPI and HCPI's stockholders and adopted a resolution declaring the
merger advisable.
HCPI and AHP executed the merger agreement before the opening of business
on August 4, 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF HCPI
THE HCPI BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST
INTERESTS OF HCPI AND ITS STOCKHOLDERS. ACCORDINGLY, THE HCPI BOARD RECOMMENDS
APPROVAL OF THE HCPI MERGER PROPOSAL.
HCPI'S REASONS FOR THE MERGER
The decision by the HCPI board to enter into the merger agreement reflected
its desire to maximize stockholder value in the changing real estate investment
trust and healthcare industries. The decision process involved, in part, an
assessment of the potential risks and benefits of a strategic merger with AHP
compared to the potential risks and benefits of other strategic alternatives
available to HCPI. During this assessment, the HCPI board reviewed historical
information concerning AHP's business, prospects, financial performance and
condition, management and competitive position. In particular, the HCPI board
considered the following in approving the merger:
- The HCPI board believes, based in part on its financial advisor's
analyses, that the merger would be accretive, on a going-forward basis,
to HCPI's funds from operations per share. Funds from operations is a
widely accepted measure of an equity real estate
I-23
<PAGE> 35
investment trust's operating performance. An increase in funds from operations
per share should result in higher distributions to HCPI common stockholders.
- The HCPI board believes that the merger provides HCPI with the
opportunity to enhance the diversity of its portfolio in a single
transaction, which may reduce the potential adverse effect on the overall
portfolio of fluctuations in the prospects of a particular operator or
segment of the healthcare industry.
The following table demonstrates the effect of the merger on HCPI's
investments by type of facility:
DIVERSIFICATION BY TYPE OF FACILITY
(% OF 1998 REVENUE)
<TABLE>
<CAPTION>
COMBINED
TYPE HCPI COMPANY
- ---- ---- --------
<S> <C> <C>
Long Term Care Facilities.................... 36.3% 27.2%
Acute Care Hospitals......................... 8.6% 26.6%
Medical Office Buildings..................... 17.3% 17.8%
Congregate Care/Assisted Living Facilities... 21.6% 16.0%
Physician Group Practice Clinics............. 10.2% 6.7%
Rehabilitation Hospitals..................... 6.0% 5.5%
Other........................................ 0.0% 0.2%
</TABLE>
The HCPI board also determined that the merger would favorably affect
the diversity in its tenant base. The following table demonstrates the
effect of the merger on HCPI's investments by operator:
CONTRIBUTION TO REVENUE BY OPERATOR
(% OF 1998 REVENUE)
<TABLE>
<CAPTION>
COMBINED
OPERATOR HCPI COMPANY
- -------- ---- --------
<S> <C> <C>
Tenet Healthcare Corporation................. 4.0% 18.1%
HealthSouth Corporation...................... 6.3% 5.7%
Columbia/HCA Healthcare Corp................. 5.3% 5.0%
Emeritus Corporation......................... 5.8% 4.5%
Beverly Enterprises, Inc..................... 6.4% 4.2%
Vencor, Inc.(1).............................. 5.9% 3.9%
Centennial Healthcare Corp................... 4.5% 3.0%
Other Public(2).............................. 15.4% 11.9%
Other Operators/Tenants(3)................... 46.4% 43.7%
</TABLE>
- -------------------------
(1) Subsequent to the signing of the merger agreement, Vencor, Inc. filed for
bankruptcy protection on September 13, 1999. HCPI has recourse against
Ventas, Inc. and Tenet Healthcare Corporation for most of the rents payable
by Vencor under its leases.
(2) No operator in this category accounts for greater than 2.2% of HCPI's or
1.5% of the combined company's 1998 revenue. HCPI has, and the combined
company will have, 18 and 19 operators in this category, respectively.
(3) No operator in this category accounts for greater than 2.7% of HCPI's or
2.6% of the combined company's 1998 revenue. HCPI has, and the combined
company will have, 62 and 70 operators in this category, respectively. The
contribution to revenue in this category includes revenue from in excess of
250 tenants for HCPI and in excess of 400 tenants for the combined company,
all of which are tenants in multi-tenant medical office buildings.
I-24
<PAGE> 36
- The merger will cause an increase in the size of HCPI's market
capitalization. As a result of the merger, HCPI's total capitalization
will increase from approximately $1.8 billion to approximately $2.7
billion and its equity capitalization will increase from approximately
$809 million to $1.3 billion, based on $25.25 per share, the closing
price of HCPI common stock on September 21, 1999. In addition, the
combined company's pro forma 1998 revenue would be approximately 70%
higher than HCPI's 1998 revenue. This increased size affords several
benefits:
(1) The increased number of HCPI shares in the market after the merger
should result in greater liquidity for holders of HCPI common stock.
The HCPI board believes that institutional investors prefer larger
equity capitalization companies when making investment decisions due
to their greater liquidity, which allows the purchase and sale of
larger volumes of shares without disrupting the market for those
shares;
(2) The HCPI board believes that increased equity capitalization of the
combined company and greater liquidity of its stock should result in
a higher earnings multiple and stock price;
(3) The HCPI board believes that the credit rating agencies generally
favor larger equity capitalization companies and view them to be
more stable for unsecured debt investors;
- The HCPI board believes that the greater diversification of the combined
company asset portfolio and resulting enhanced stability of cash flow
will be attractive to lenders.
- The increased attractiveness of the combined company to potential
investors should also result in an improved ability to access favorably
priced equity capital and debt.
- The combined company's anticipated lower cost of capital should enable it
to compete more effectively for healthcare property investments on terms
that are accretive.
- Combining the companies should allow the elimination of several redundant
positions and activities, including the elimination of duplicate
management and public company expenses. In addition, the HCPI board
believes that the merger will allow the combined company to realize
economies of scale by spreading costs over a larger number of properties,
resulting in an improvement to the profit margin. HCPI's management
believes that there will be savings in operating costs and general and
administrative expenses of approximately $8 million on an annualized
basis.
In the course of its deliberations during HCPI board meetings held on July
27, 1999 and August 3, 1999, the HCPI board also considered and reviewed with
HCPI management various issues, including the positive factors listed below:
POSITIVE FACTORS
- In the opinion of HCPI's financial advisor, on August 3, 1999, and based
upon the qualifications and assumptions described in the opinion of
Merrill Lynch, the exchange ratio was fair to HCPI from a financial point
of view. The opinion of Merrill Lynch is described under "Opinion of
Financial Advisor to HCPI."
- The factors considered by Merrill Lynch in its presentation described
under "Opinion of Financial Advisor to HCPI" below.
- The merger is intended to qualify as a tax-free reorganization for
federal income tax purposes.
- HCPI can effectuate the merger through the issuance of equity securities.
I-25
<PAGE> 37
- The HCPI board reviewed the principal terms and conditions of the merger
agreement, including the representations, warranties and covenants and
the conditions to each party's obligation to complete the merger. The
HCPI board considered favorably that the terms of the merger agreement
are reasonable and protective of HCPI's interests. In particular, the
HCPI board considered favorably that:
(1) the conditions to each party's obligation to complete the merger are
typical or likely to be satisfied;
(2) AHP's ability to solicit, facilitate, discuss or enter into an
alternative transaction is restricted in a customary manner; and
(3) depending on the reasons for a termination of the merger agreement,
AHP may be obligated to pay HCPI up to $18.7 million as a
termination fee.
- The HCPI board believes that the overall terms of the merger agreement
are fair to HCPI.
NEGATIVE FACTORS
The HCPI board also considered and reviewed with management the potentially
negative factors listed below relating to the merger:
- The exchange ratio is fixed and not subject to adjustment. Accordingly,
an adverse change in the operations and prospects of AHP, general market
and economic conditions or other factors which are beyond the control of
HCPI may alter the relative value of the companies in a manner adverse to
HCPI.
- The HCPI board considered the risk that the anticipated benefits of the
merger, including cost savings and operating synergies, may not be fully
realized.
- The HCPI board considered the risk that the merger would not be
completed. In evaluating this risk, the HCPI board considered the
particular circumstances under which AHP could terminate the merger
agreement.
- The HCPI board considered the risk that the announcement of the merger
and the efforts necessary to complete the merger could result in a
disruption in the operations of HCPI by, among other things, diverting
management and other resources of HCPI from its day to day business.
- The HCPI board considered that the combined company was likely to incur
transaction costs of approximately $50 million, including investment
banking, legal and accounting fees, and payments to executive officers.
- The HCPI board considered the possible adverse effects on the market for
HCPI common stock and upon HCPI's ability to raise capital in both the
public and private markets that might result if the merger were not
completed.
The foregoing discussion of the information and factors considered by the
HCPI board is not intended to be exhaustive but is believed to include all
material factors considered by the HCPI board. In view of the wide variety of
information and factors considered, the HCPI board did not find it practical to,
and did not, assign any relative or specific weights to the foregoing factors,
and individual directors may have given differing weights to different factors.
The HCPI board did not attempt to analyze the fairness of the exchange ratio in
isolation from considerations as to the businesses of HCPI and AHP, the
strategic merits of the merger or the other considerations referred to above.
The HCPI board did, however, take into account, and placed reliance upon, the
analyses performed by, and the opinion rendered by, Merrill Lynch & Co. as to
the fairness of the exchange ratio to HCPI from a financial point of view.
I-26
<PAGE> 38
RECOMMENDATION OF THE BOARD OF DIRECTORS OF AHP
THE AHP BOARD BELIEVES THAT THE MERGER IS ADVISABLE AND IN THE BEST
INTERESTS OF AHP AND ITS STOCKHOLDERS. ACCORDINGLY, THE AHP BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS APPROVAL OF THE AHP MERGER
PROPOSAL.
AHP'S REASONS FOR THE MERGER
In forming its views about the merger, the AHP board consulted with AHP's
management and its financial and legal advisors and considered a wide variety of
factors, including those listed below:
POSITIVE FACTORS
- In the view of the AHP board, the merger is a strategic combination that
will create a company that is considerably stronger than AHP would be as
an independent company.
- The merger will combine the assets of HCPI and AHP, creating the largest
healthcare real estate investment trust in the nation that will be a
leader among its peers and will strengthen the investment position of
stockholders in both companies.
- The merger is a strategic combination which will create a better platform
for AHP's stockholders' ongoing investment interest.
(1) Because the AHP stockholders will receive stock rather than cash in
the merger, the AHP stockholders will retain an ongoing investment
interest in the combined company, owning approximately 38% of the
common stock of the combined company, and will therefore share in
its future prospects.
(2) For the reasons described below, the combined company should be
stronger than AHP would be on its own. Accordingly, the AHP board
believes there is potential for the combined company to create
better long-term value for AHP stockholders than would be created if
AHP remained an independent company.
(3) The increased market capitalization of the combined company should
result in greater liquidity for holders of common stock of the
combined company. The AHP board believes that institutional
investors prefer larger capitalization companies when making
investment decisions due to their greater liquidity, which allows
the purchase and sale of larger volumes of shares without disrupting
the market for those shares.
- AHP will achieve additional size and diversity and the positive
developments already realized in AHP's portfolio over the past several
years will benefit the combined company.
(1) During the past several years, AHP (a) renewed leases with Tenet
Healthcare Corporation for acute care facilities generating a
substantial portion of revenue, (b) sold the Kendall Regional
Medical Center resulting in a book gain and an increase in
stockholders' equity of approximately $54 million, (c) successfully
refinanced its long-term debt at significantly improved rates, (d)
successfully liquidated most of the psychiatric group portfolio, (e)
redeemed AHP's psychiatric group preferred stock and related
depositary shares, and (f) added more than $200 million in assets to
AHP's healthcare real estate portfolio.
(2) Despite those achievements, AHP's cost of capital has not
significantly improved relative to its competitors and appears
unlikely to improve without significant growth and diversification
of its assets and operator base.
I-27
<PAGE> 39
(3) The additional size and diversity required to promote stockholder
value should be provided by the proposed merger.
- The AHP board believes that HCPI is the most favorable merger candidate
for AHP based upon:
(1) The relatively high ratio, both currently and historically, of the
price of HCPI common stock to its funds from operations as compared
to its competitors.
(2) HCPI's position as the healthcare real estate investment trust
having the highest total market capitalization, with a total market
capitalization of approximately $1.8 billion.
(3) HCPI's diverse portfolio spreads across six different property
types, 42 states, and 88 operators, with no one operator accounting
for more than 7% of HCPI's total revenue.
(4) HCPI is a self-administered, internally-managed real estate
investment trust with experienced senior management, which has
guided HCPI for more than 13 years on average.
- The combined company's portfolio of properties will be substantially
larger and more diversified, both in terms of property type and single
tenant-operator exposure, than AHP's current portfolio of properties. For
example:
(1) AHP earned 61% of its current annualized revenue from acute care
hospitals while on a pro forma basis the combined company would have
earned only 26.6%.
(2) AHP earned 45% of its current annualized revenue from its single
largest tenant, Tenet Healthcare Corporation, while on a pro forma
basis the combined company would have earned only 18.1%.
(3) AHP owned 66 properties as of June 30, 1999, while on a pro forma
basis the combined company would have owned 419 properties as of
June 30, 1999.
(4) The combined company's pro forma revenue for the six months ended
June 30, 1999 would be 2.82 times AHP's revenue for that period.
(5) The book value of the combined company's pro forma assets at June
30, 1999 would be 3.15 times the book value of AHP's June 30, 1999
assets.
(6) The combined company's pro forma common stockholders' equity would
be 2.63 times AHP's June 30, 1999 common stockholders' equity.
(7) Based on the closing prices of the HCPI common stock and the AHP
common stock on August 2, 1999, and based on shares outstanding for
HCPI and AHP on June 30, 1999, the aggregate market value of the
combined company's common stock will be 2.86 times the aggregate
market value of the AHP common stock.
- As a result of increased diversification and size, and because the
overall leverage of the combined company will be relatively conservative,
the AHP board believes that lenders will view the combined company over
the long-term as a better credit risk than AHP.
- Due to economies of scale and elimination of overhead, including the
elimination of a significant portion of compensation currently paid to
AHP's management and personnel, the merger should enable the combined
company to eliminate a substantial amount of overhead currently expended
by HCPI and AHP.
- The AHP board believes that the merger should provide better long-term
value for AHP's stockholders than would be provided by remaining an
independent company,
I-28
<PAGE> 40
leveraging AHP's assets, selling the company or merging with a different
strategic partner.
- The opinion, analysis and presentations of Goldman Sachs described under
"Opinion of Financial Advisor to AHP," including the opinion of Goldman
Sachs to the effect that, as of the date on which the merger agreement
was signed, and based upon and subject to the qualifications and
assumptions described in the opinion, the exchange ratio is fair from a
financial point of view to the holders of AHP common stock. This opinion
is further described under "Opinion of Financial Advisor to AHP" below.
- The combined company's anticipated lower cost of capital should enable it
to compete more effectively for healthcare property investments on terms
that are accretive.
- Based on the closing prices of the HCPI common stock and the AHP common
stock on August 2, 1999, the exchange ratio of 0.78 of a share of HCPI
common stock for each AHP common stock represented a 12.8% premium.
Although HCPI's common stock has declined since then, the AHP board still
believes that the AHP common stockholders will receive HCPI common stock
having a trading value higher than the value at which the AHP common
stock would have traded in the absence of the merger.
- The merger will be completed on a basis that will generally be tax-free
to stockholders and to the combined company.
NEGATIVE FACTORS
- The exchange ratio is fixed at 0.78, so a decrease in the trading price
of HCPI common stock prior to the effective time of the merger will
reduce the trading value of the stock AHP stockholders receive in the
merger.
- In other large real estate investment trust mergers, the stock of the
larger company declined upon announcement of the transaction.
- There is a risk that the anticipated benefits of the merger to AHP
stockholders may not be realized. Changes in the real estate market or
the healthcare real estate investment trust sector in general; possible
HCPI exposure to tenants such as Vencor, Inc. and Sun Healthcare Group,
Inc., which currently represent approximately 5.9% and 1.5%,
respectively, of the annualized revenue of HCPI, and each of which has
announced financial difficulties (Vencor, Inc. filed for bankruptcy
protection on September 13, 1999, however, HCPI has recourse against
Ventas, Inc. and Tenet Healthcare Corporation for most of the rents
payable by Vencor under its leases); the inability to achieve the
anticipated reductions in expenses or other potential difficulties in
integrating the two companies and their respective operations could each
cause some or all of the anticipated benefits of the merger not to be
realized.
- Substantial management time and effort has been and will be required to
effectuate the merger and integrate the businesses of HCPI and AHP. That
time and effort may cause disruption to AHP's and HCPI's operations, the
potential impact of which cannot be quantified.
- Rating agencies might downgrade the debt of HCPI, either because of the
merger or despite it.
- One or more closing conditions might not be satisfied and/or the merger
might not be completed. In evaluating this risk, the AHP board considered
the particular circumstances under which HCPI could terminate the merger
agreement.
I-29
<PAGE> 41
- In order to achieve the expected expense reductions, AHP's experienced
management team will not continue as managers of the combined company.
- AHP common stockholders will initially receive annual dividends on the
HCPI common stock received in the merger that are less than the dividends
AHP stockholders currently receive on the AHP stock they own. See
"Comparative per Share Market Price and Dividend Information -- Market
for Common Stock and Dividends." On a historical basis HCPI has increased
the dividend on its common stock at a rate of $.01 per quarter, or at an
annualized rate of $.16 per share per year since 1994, and AHP has
increased the dividend on its common stock once per year in the first
quarter of each year since 1996 at a rate of $.08 per share per year. If
HCPI continues to increase its dividend at historical rates, and assuming
that AHP would have continued to increase its dividend at historical
rates, current holders of AHP common stock would receive annual per share
dividends on the HCPI common stock received by them in the merger equal
to the annual dividends that they would have received on their AHP common
stock had they remained stockholders of AHP by 2001. The AHP board
considered this and also considered that there can be no assurance that
HCPI will continue to increase or pay a dividend on its common stock in
the future. See "Risk Factors -- Risk Factors Relating to the
Merger -- AHP Common Stockholders Will Realize a Decrease in
Distributions;" and
- The merger will trigger payments to executive officers and other
personnel of AHP who terminate their employment in connection with the
merger. See "-- Interests of Executive Officers and Directors of AHP in
the Merger."
While the AHP board considered all of the foregoing positive and negative
factors, the board did not make separate determinations with respect to each
factor and did not quantify or assign relative weights to those factors. Rather,
the board formed its overall judgment based on the total mix of information
available to it, and the judgments of individual directors may have been
influenced to a greater or lesser degree by their individual views with respect
to different factors.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Purchase accounting for a merger is the same as
the accounting treatment used for the acquisition of any group of assets. The
fair value of the consideration given by HCPI in the merger will be used as the
valuation basis of the combination. The assets acquired and liabilities assumed
of AHP will be recorded at their fair value as of the completion of the merger.
The financial statements of HCPI will reflect the combined operations of HCPI
and AHP from the closing date of the merger.
REGULATORY MATTERS
Neither HCPI nor AHP are aware of any federal or state regulatory approvals
which must be obtained in connection with the merger.
DIVIDEND REINVESTMENT PLANS
The combined company will offer stockholders an opportunity to participate
in HCPI's dividend reinvestment plan. This dividend reinvestment plan will
provide stockholders with a way of reinvesting quarterly cash dividends in
additional shares of the combined company's common stock, without the payment of
any brokerage commission, service charge or other expense. HCPI's dividend
reinvestment plan will replace AHP's existing dividend reinvestment plan.
Existing participants in AHP's dividend reinvestment plan will automatically be
enrolled in HCPI's dividend reinvestment plan.
I-30
<PAGE> 42
HCPI's dividend reinvestment plan includes the following features:
- Participation is voluntary;
- All or any part of quarterly stock dividends can be automatically
reinvested;
- There are no brokerage charges or service fees for purchases made under
the plan;
- Statements are provided to reflect purchases made under the plan; and
- Participants have the flexibility to discontinue participation at any
time.
HCPI's dividend reinvestment plan is substantially similar to AHP's
existing dividend reinvestment plan, except that AHP's dividend reinvestment
plan provides that in addition to reinvesting dividends for additional shares of
AHP common stock, participants may make optional direct cash purchases of up to
$3,000 per quarter, but no less than $50. HCPI intends to adopt a new dividend
reinvestment plan in the near future which will also feature the opportunity to
make direct cash purchases. Following the merger and the adoption of the new
dividend reinvestment plan, HCPI will furnish all stockholders with a prospectus
and related documents describing in detail the terms and conditions of, and
process for participating in, the new dividend reinvestment plan.
DELISTING AND DEREGISTRATION OF AHP COMMON STOCK; LISTING OF HCPI COMMON STOCK
ISSUED IN CONNECTION WITH THE MERGER
The AHP common stock currently is listed for quotation on The New York
Stock Exchange under the symbol "AHE." Upon completion of the merger, AHP common
stock will be delisted from The New York Stock Exchange and deregistered under
the Securities Exchange Act of 1934. Application will be made for the listing of
the shares of HCPI common stock to be issued in the merger on The New York Stock
Exchange under the symbol "HCP." The approval for listing of such shares on The
New York Stock Exchange is a condition to the completion of the merger. See "The
Merger Agreement -- Conditions to Obligations to Effect the Merger." Application
will also be made for the listing on The New York Stock Exchange of the HCPI
depositary shares that will represent the HCPI series C preferred stock.
RESALES OF HCPI COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER; AFFILIATE
AGREEMENTS
HCPI common stock issued in connection with the merger will be freely
transferable, except for shares of HCPI common stock received by persons who are
deemed to be "affiliates," as such term is defined by Rule 144 under the
Securities Act of 1933, of AHP at the time the merger proposal is submitted to
AHP stockholders for approval. Shares of HCPI common stock held by these
affiliates may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act of 1933, or Rule 144 in the case
of those persons who become affiliates of HCPI, or as otherwise permitted under
the Securities Act of 1933. Persons who may be deemed to be "affiliates" of HCPI
or AHP generally include individuals or entities that control, or are controlled
by, or are under the common control with, such party and may include directors
and executive officers of such party as well as principal stockholders of such
party. Pursuant to the terms of the merger agreement, AHP has delivered to HCPI
a list of names of those persons whom it believes to be "affiliates" of AHP,
within the meaning of Rule 144 under the Securities Act of 1933. AHP has agreed
that it will use its reasonable best efforts to cause each person who is
identified as an affiliate in the list referred to above to execute a written
affiliate agreement providing, among other things, that such person will not
sell, transfer or otherwise dispose of any of the shares of HCPI common stock
received as a result of the merger except in compliance with the Securities Act
of 1933 and the accompanying rules and regulations of the SEC.
I-31
<PAGE> 43
ABSENCE OF APPRAISAL OR DISSENTERS' RIGHTS
Neither HCPI stockholders or AHP stockholders are entitled to any appraisal
or dissenters' rights under applicable law as a result of the merger. See
"Comparison of Rights of Stockholders of HCPI and AHP -- Appraisal Rights or
Dissenters' Rights."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES OF THE MERGER
The following is a general summary of the material United States federal
income tax consequences of the merger to HCPI and AHP and to the holders of HCPI
capital stock, AHP common stock and AHP series B preferred stock. The following
discussion is based upon:
- current provisions of the Internal Revenue Code;
- currently applicable Treasury regulations issued under the Internal
Revenue Code;
- judicial and administrative rulings and decisions; and
- the legislative history of the Internal Revenue Code,
all as of the date of this joint proxy statement/prospectus. Legislative,
judicial or administrative changes may be forthcoming that could alter or modify
the statements included in this summary, possibly on a retroactive basis. The
summary does not purport to deal with all aspects of federal income taxation
that may affect particular holders of HCPI capital stock, AHP common stock, or
AHP series B preferred stock in light of their individual circumstances, nor
with holders subject to special treatment under the federal income tax laws,
including:
- life insurance companies;
- tax-exempt organizations;
- financial institutions or broker-dealers;
- traders in securities that elect to mark to market;
- holders owning stock as part of a "straddle," "hedge" or "conversion
transaction;"
- holders whose functional currency is not the U.S. dollar;
- holders who acquired their HCPI capital stock, AHP common stock or AHP
series B preferred stock as a result of the exercise of an employee stock
option or otherwise as compensation; and
- holders of HCPI capital stock, AHP common stock or AHP series B preferred
stock who are neither citizens nor residents of the United States, or
that are foreign corporations, foreign partnerships or foreign estates or
trusts for U.S. federal income tax purposes.
In addition, this summary assumes that each HCPI stockholder and each AHP
stockholder holds his or her shares of HCPI capital stock, AHP common stock and
AHP series B preferred stock as capital assets and this summary does not
consider the effect of any foreign, state or local or other tax laws that may be
applicable to such holders.
HCPI and AHP have not requested, and do not plan to request, any rulings
from the Internal Revenue Service concerning HCPI's or AHP's tax treatment, or
the tax treatment of the merger. The statements in this joint proxy
statement/prospectus and the opinions of counsel referred to in this joint proxy
statement/prospectus are not binding on the Internal Revenue Service or a court.
As a result, neither HCPI nor AHP can assure you that the tax
I-32
<PAGE> 44
considerations or opinions contained in this discussion will not be challenged
by the Internal Revenue Service or sustained by a court if challenged by the
Internal Revenue Service.
EACH HCPI STOCKHOLDER AND EACH AHP STOCKHOLDER IS URGED TO CONSULT THEIR
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF:
- THE MERGER;
- THE ACQUISITION, OWNERSHIP AND SALE OR OTHER DISPOSITION OF HCPI COMMON
STOCK AND HCPI SERIES C PREFERRED STOCK, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES;
- AHP'S AND HCPI'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST
FOR FEDERAL INCOME TAX PURPOSES; AND
- POTENTIAL CHANGES IN THE TAX LAWS.
TAX CONSEQUENCES OF THE MERGER TO AHP, AHP STOCKHOLDERS, HCPI AND HCPI
STOCKHOLDERS
Sullivan & Cromwell, counsel to AHP, has delivered an opinion to AHP and
Latham & Watkins, counsel to HCPI, has delivered an opinion to HCPI based on
facts, representations and assumptions stated in those opinions to the effect
that, for federal income tax purposes:
- the merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code; and
- HCPI and AHP will each be a party to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code.
The Latham & Watkins opinion also provides that no gain or loss will be
recognized by AHP, HCPI or the HCPI stockholders as a result of the merger.
The Sullivan & Cromwell opinion also provides that:
- no gain or loss will be recognized by stockholders of AHP who receive
shares of HCPI stock in exchange for shares of AHP stock pursuant to the
merger, except with respect to cash received in lieu of fractional shares
of HCPI common stock;
- the basis of the HCPI stock received by AHP stockholders in the merger
will be the same as the basis of the AHP stock for which it is exchanged,
less any basis attributable to fractional shares of HCPI common stock for
which cash is received; and
- the holding period of the HCPI stock received by AHP stockholders in the
merger will include the holding period of the AHP stock for which it is
exchanged.
If the merger does not constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, holders of AHP common stock and AHP
series B preferred stock will recognize gain or, except in limited cases, loss
in an amount equal to the difference between:
(a) the fair market value of the consideration received by such holders in
the merger and
(b) their adjusted tax basis in the shares of AHP common stock and/or AHP
series B preferred stock being exchanged.
In addition, if the merger does not constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, AHP will recognize
corporate-level gain, but not loss, for federal income tax purposes equal to the
difference between:
(a) the fair market value of AHP's assets at the effective time of the
merger and
(b) AHP's adjusted tax basis in its assets at the effective time of the
merger,
and HCPI would succeed to any tax liability resulting from this gain in the
merger.
I-33
<PAGE> 45
NON-DEDUCTIBILITY OF PARACHUTE PAYMENTS
It is anticipated that members of AHP management may receive "parachute
payments" in connection with the merger that exceed the limits determined by
Section 280G of the Internal Revenue Code. The "excess" parachute payments will
not be deductible by AHP or its successor.
BACKUP WITHHOLDING
In order to avoid "backup withholding" of federal income tax on payments of
cash to an AHP common stockholder who exchanges AHP common stock in the merger,
an AHP common stockholder must, unless an exception applies under the applicable
law and regulations, provide HCPI with that stockholder's correct taxpayer
identification number on a Substitute Form W-9 and certify under penalties of
perjury that the taxpayer identification number provided is correct and that
such stockholder is not subject to backup withholding. A Substitute Form W-9
will be included as part of the letter of transmittal to be sent to AHP common
stockholders by the exchange agent. If the correct taxpayer identification
number and certifications are not provided, a penalty may be imposed on an AHP
common stockholder by the Internal Revenue Service, and the cash payments
received by an AHP common stockholder in consideration for shares of AHP common
stock in the merger may be subject to backup withholding tax at a rate of 31%.
HCPI'S QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
GENERAL
HCPI elected to be taxed as a real estate investment trust under Sections
856 through 860 of the Internal Revenue Code, commencing with its taxable year
ended December 31, 1985. HCPI believes it has been organized and has operated in
a manner which allows it to qualify for taxation as a real estate investment
trust under the Internal Revenue Code commencing with its taxable year ended
December 31, 1985. HCPI intends to continue to operate in this manner. However,
neither HCPI nor AHP can assure you that HCPI has operated or will continue to
operate in a manner so as to qualify or remain qualified as a real estate
investment trust. See "-- Failure to Qualify."
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following describes the material aspects of these sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust and its stockholders. This summary is qualified in its
entirety by the Internal Revenue Code, relevant rules and treasury regulations
promulgated under the Internal Revenue Code, and administrative and judicial
interpretations of the Internal Revenue Code, and these rules and treasury
regulations.
Latham & Watkins, Los Angeles, California has acted as HCPI's tax counsel
in connection with the merger and HCPI's election to be taxed as a real estate
investment trust. Latham & Watkins has rendered an opinion that, commencing with
HCPI's taxable year ended December 31, 1985, HCPI has been organized and has
operated in conformity with the requirements for qualification and taxation as a
real estate investment trust under the Internal Revenue Code, and HCPI's
proposed method of operation will enable it to continue to meet the requirements
for qualification and taxation as a real estate investment trust under the
Internal Revenue Code. Latham & Watkins undertook no obligation to update its
opinion after it was issued.
The opinion of Latham & Watkins was based on various assumptions and
representations made by HCPI as to factual matters, including representations
made by HCPI in this prospectus and a factual certificate provided by one of
HCPI's officers. Moreover, HCPI's
I-34
<PAGE> 46
qualification and taxation as a real estate investment trust depends upon HCPI's
ability to meet the various qualification tests imposed under the Internal
Revenue Code and discussed below, relating to HCPI's actual annual operating
results, asset diversification, distribution levels, and diversity of stock
ownership, the results of which have not been and will not be reviewed by Latham
& Watkins. Accordingly, neither Latham & Watkins nor HCPI can assure you that
the actual results of HCPI's operation for any particular taxable year will
satisfy the requirements for qualification and taxation as a real estate
investment trust. See "-- Failure to Qualify." Further, the anticipated income
tax treatment described in this joint proxy statement/prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time.
For so long as HCPI continues to qualify for taxation as a real estate
investment trust, HCPI generally will not be required to pay federal corporate
income taxes on its net income that is currently distributed to its
stockholders. This treatment substantially eliminates the "double taxation" that
generally results from investment in a corporation. Double taxation means
taxation once at the corporate level when income is earned and once again at the
stockholder level when that same income is distributed. HCPI will be required to
pay federal income taxes, however, as follows:
- HCPI will be required to pay tax at regular corporate rates on any
undistributed "real estate investment trust taxable income," including
undistributed net capital gains;
- HCPI may be required to pay the "alternative minimum tax" on HCPI's items
of tax preference;
- If HCPI has (a) 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 (b) other nonqualifying income from
foreclosure property, HCPI will be required to pay tax at the highest
corporate rate on this income. Foreclosure property is generally defined
as property acquired through foreclosure or after a default on a loan
secured by the property or on a lease of the property;
- HCPI will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business;
- If HCPI fails to satisfy the 75% or 95% gross income test, as described
below, but has maintained its qualification as a real estate investment
trust, HCPI will be required to pay a 100% tax on an amount equal to (a)
the gross income attributable to the greater of the amount by which HCPI
fails the 75% or 95% gross income test multiplied by (b) a fraction
intended to reflect HCPI's profitability;
- HCPI will be required to pay a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if HCPI fails
to distribute during each calendar year at least the sum of (a) 85% of
HCPI's ordinary income for the year, (b) 95% of HCPI's real estate
investment trust capital gain net income for the year, and (c) any
undistributed taxable income from prior periods;
- If HCPI acquires any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in HCPI's
hands is determined by reference to the basis of the asset in the hands
of the C corporation, and HCPI subsequently recognizes gain on the
disposition of the asset during the ten-year period beginning on the date
on which HCPI acquired the asset, then under treasury regulations not yet
in effect, HCPI will be required to pay tax at the highest regular
corporate tax rate on this gain to the extent of the excess of (a) the
fair market value of the asset over (b) HCPI's adjusted basis in the
asset, in each case determined as of the date on which
I-35
<PAGE> 47
HCPI acquired the asset. A C corporation is generally defined as a
corporation required to pay full corporate-level tax. The results
described in this paragraph with respect to the recognition of gain
assume that HCPI will make an election under Internal Revenue Service
Notice 88-19 and that the availability or nature of that election is not
modified as proposed in President Clinton's Year 2000 Federal Budget
Proposal.
REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
The Internal Revenue Code defines a real estate investment trust as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections
856 through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals,
including specified entities, during the last half of each taxable
year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (5)
and (6) do not apply until after the first taxable year for which an election is
made to be taxed as a real estate investment trust. For purposes of condition
(6), pension funds and other specified tax-exempt entities generally are treated
as individuals, except a "look-through" exception applies with respect to
pension funds.
HCPI believes that it has satisfied conditions (1) through (7) inclusive
during the relevant time periods. In addition, HCPI's charter provides for
restrictions regarding transfer and, in some cases, ownership of shares of its
capital stock. These restrictions are intended to assist HCPI in continuing to
satisfy the share ownership requirements described in (5) and (6) above. These
stock ownership and transfer restrictions are described in "Description of HCPI
Capital Stock -- Transfer Restrictions and Redemptions Relating to HCPI Common
Stock" and "-- Restrictions on Ownership and Transfer Relating to HCPI Preferred
Stock." These restrictions, however, may not ensure that HCPI will, in all
cases, be able to satisfy the share ownership requirements described in (5) and
(6) above. If HCPI fails to satisfy these share ownership requirements, HCPI's
status as a real estate investment trust will terminate. If, however, HCPI
complies with the rules contained in the treasury regulations that require HCPI
to ascertain the actual ownership of its shares and HCPI does not know, or would
not have known through the exercise of reasonable diligence, that it failed to
meet the requirement described in condition (6) above, HCPI will be treated as
having met this requirement. See "-- Failure to Qualify."
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. HCPI has and will continue
to have a calendar taxable year.
I-36
<PAGE> 48
OWNERSHIP OF A PARTNERSHIP INTEREST
HCPI owns, directly or indirectly, interests in various partnerships and
limited liability companies. Income tax regulations provide that if HCPI is a
partner in a partnership or member of a limited liability company, HCPI will be
deemed to own its proportionate share of the assets of the partnership or
limited liability company, as the case may be. Also, HCPI will be deemed to be
entitled to its proportionate share of the income of the partnership or limited
liability company. The character of the assets and gross income of the
partnership or limited liability company, as the case may be, retains the same
character in HCPI's hands for purposes of Section 856 of the Internal Revenue
Code, including satisfying the gross income tests and the asset tests. As a
result, HCPI's proportionate share of the assets and items of income of the
partnerships and limited liability companies in which it owns a direct or
indirect interest are treated as HCPI's assets and items of income for purposes
of applying the requirements described in this joint proxy statement/prospectus,
including the income and asset tests described below. A brief summary of the
rules governing the federal income taxation of partnerships and their partners
is included below in "-- Tax Aspects of the Partnerships."
QUALIFIED REIT SUBSIDIARIES
HCPI owns a number of properties through wholly-owned subsidiaries that
HCPI believes will be treated as "qualified REIT subsidiaries" under Internal
Revenue Code Section 856(i). A qualified REIT subsidiary will not be treated as
a separate corporation, and all assets, liabilities, and items of income,
deduction and credit of a qualified REIT subsidiary will be treated as assets,
liabilities and items of income, deduction and credit, as the case may be, of
the real estate investment trust. In applying the real estate investment trust
requirements described in this joint proxy statement/prospectus, HCPI'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
HCPI's assets, liabilities and items of income, deduction and credit, as the
case may be. A qualified REIT subsidiary will not be subject to federal income
tax, and HCPI's ownership of the voting stock of a qualified REIT subsidiary
will not violate the restrictions against HCPI owning securities of any one
issuer which constitutes more than 10% of that issuer's voting securities or
more than 5% of the value of HCPI's total assets.
INCOME TESTS
HCPI must satisfy two gross income requirements annually to maintain its
qualification as a real estate investment trust:
- First, each taxable year HCPI must derive directly or indirectly at least
75% of its gross income, excluding gross income from prohibited
transactions, from (1) investments relating to real property or mortgages
on real property, including "rents from real property" and, in some
circumstances, interest, or (2) specified types of temporary investments;
and
- Second, each taxable year HCPI must derive at least 95% of its gross
income, excluding gross income from prohibited transactions, from (1) the
real property investments described above, (2) dividends, interest and
gain from the sale or disposition of stock or securities, or (3) any
combination of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any person.
An amount received or accrued generally will not be excluded from the term
"interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
I-37
<PAGE> 49
Rents HCPI receives will qualify as "rents from real property" in
satisfying the gross income requirements for a real estate investment trust
described above only if the following conditions are met:
- the amount of rent must not be based in any way on the income or profits
of any person. An amount received or accrued generally will not be
excluded from the term "rents from real property," however, solely by
reason of being based on a fixed percentage or percentages of receipts or
sales;
- HCPI, or an actual or constructive owner of 10% or more of HCPI's capital
stock, does not actually or constructively own 10% or more of the
interests in a tenant whose rents payable to HCPI are to be included in
"rents from real property;"
- no rent is attributable to personal property, other than personal
property leased in connection with a lease of real property, and for
which the rent attributable to personal property is not greater than 15%
of the total rent received under the lease, (otherwise the portion of
rent attributable to personal property will not qualify as "rents from
real property"); and
- HCPI generally does not operate or manage the property or furnish or
render services to the tenants of the property, subject to a 1% de
minimis exception, other than through an independent contractor from whom
HCPI derives no revenue. HCPI may, however, directly perform 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. Examples of permitted services include the
provision of light, heat, or other utilities, trash removal and general
maintenance of common areas.
HCPI generally does not intend to receive rent which fails to qualify as
"rents from real property." HCPI may, however, have failed to satisfy, and may
continue to fail to satisfy, some of the conditions described above to the
extent these actions will not, based on the advice of HCPI's tax counsel,
jeopardize HCPI's status as a real estate investment trust.
If HCPI fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, HCPI may nevertheless qualify as a real estate investment
trust for the year if HCPI is entitled to relief under the Internal Revenue
Code. Generally, HCPI may avail itself of the relief provisions if:
- HCPI's failure to meet these tests was due to reasonable cause and not
due to willful neglect;
- HCPI 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 HCPI would be
entitled to the benefit of these relief provisions. For example, if HCPI fails
to satisfy the gross income tests because nonqualifying income that HCPI
intentionally accrues or receives exceeds the limits on nonqualifying income,
the Internal Revenue Service could conclude that HCPI's failure to satisfy the
tests was not due to reasonable cause. If these relief provisions do not apply
to a particular set of circumstances, HCPI will not qualify as a real estate
investment trust. As discussed above in "HCPI's Qualification as a Real Estate
Investment Trust -- General," even if these relief provisions apply, and HCPI
retains its status as a real estate investment trust, a tax would be imposed
with respect to HCPI's non-qualifying income. HCPI may not always be able to
maintain compliance with the gross income tests for real estate investment trust
qualification despite its periodic monitoring of its income.
I-38
<PAGE> 50
PROHIBITED TRANSACTION INCOME
Any gain realized by HCPI on the sale of any property held as inventory or
other property held primarily for sale to customers in the ordinary course of
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. HCPI's gain would include HCPI's share of any gain
realized by any of the partnerships or limited liability companies in which HCPI
owns an interest. This prohibited transaction income may also adversely affect
HCPI's ability to satisfy the income tests for qualification as a real estate
investment trust. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business
depends on all the facts and circumstances surrounding the particular
transaction. HCPI intends to hold its properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing and
owning its properties and other properties. HCPI intends to make occasional
sales of its properties as are consistent with HCPI's investment objectives. The
Internal Revenue Service may contend, however, that one or more of these sales
is subject to the 100% penalty tax.
ASSET TESTS
At the close of each quarter of HCPI's taxable year, HCPI also must satisfy
three tests relating to the nature and diversification of HCPI's assets:
- First, at least 75% of the value of HCPI's total assets, including assets
held by HCPI's qualified REIT subsidiaries and HCPI's allocable share of
the assets held by the partnerships and limited liability companies in
which HCPI own an interest, must be represented by real estate assets,
cash, cash items and government securities. For purposes of this test,
real estate assets include stock or debt instruments that are purchased
with the proceeds of a stock offering or a public debt offering with a
term of at least five years, but only for the one-year period commencing
on the date of the offering;
- Second, not more than 25% of HCPI's total assets may be represented by
securities, other than those securities included in the 75% asset test;
and
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities may not exceed 5% of the value of HCPI's
total assets, and HCPI may not own more than 10% of any one issuer's
outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, HCPI
will not lose its status as a real estate investment trust for failure to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If HCPI fails to satisfy the asset tests because HCPI
acquires securities or other property during a quarter, HCPI might be able to
cure this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that quarter. For this purpose, an increase in HCPI's
interests in a partnership or limited liability company will be treated as an
acquisition of a portion of the securities or other property owned by the
partnership or limited liability company. HCPI believes it has maintained and
intends to continue to maintain adequate records of the value of HCPI's assets
to ensure compliance with the asset tests. In addition, HCPI intends to take
such other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If HCPI fails to cure noncompliance with the
asset tests within this time period, HCPI would cease to qualify as a real
estate investment trust.
I-39
<PAGE> 51
ANNUAL DISTRIBUTION REQUIREMENTS
To maintain HCPI's qualification as a real estate investment trust, HCPI is
required to distribute dividends, other than capital gain dividends, to HCPI's
stockholders in an amount at least equal to the sum of:
- 95% of HCPI's "real estate investment trust taxable income"; and
- 95% of HCPI's after tax net income, if any, from foreclosure property;
minus
- the excess of the sum of specified items of noncash income over 5% of
"real estate investment trust taxable income" as described above. HCPI's
"real estate investment trust taxable income" is computed without regard
to the dividends paid deduction and HCPI's net capital gain. In addition,
for purposes of this test, non-cash income means income attributable to
leveled stepped rents, original issue discount on purchase money debt, or
a like-kind exchange that is later determined to be taxable.
In addition, if HCPI disposes of any asset HCPI acquired from a corporation
which is or has been a C corporation in a transaction in which HCPI's basis in
the asset is determined by reference to the basis of the asset in the hands of
the C corporation within the ten-year period following HCPI's acquisition of
such asset, HCPI would be required, under treasury regulations not yet issued,
to distribute at least 95% of the after-tax gain, if any, recognized by HCPI on
the disposition of the asset, to the extent that gain does not exceed the excess
of (a) the fair market value of the asset on the date HCPI acquired the asset
over (b) HCPI's adjusted basis in the asset on the date HCPI acquired the asset.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before HCPI timely files
its tax return for such year and if paid on or before the first regular dividend
payment after such declaration. Except as provided in "-- Taxation of Taxable
U.S. Stockholders," these distributions are taxable to holders of HCPI's stock,
other than tax-exempt entities, as discussed below, in the year in which paid.
This is so even though these distributions relate to the prior year for purposes
of HCPI's 95% distribution requirement. The amount distributed must not be
preferential. To avoid this treatment, every stockholder of the class of stock
to which a distribution is made must be treated the same as every other
stockholder of that class, and no class of stock may be treated other than
according to its dividend rights as a class. To the extent that HCPI does not
distribute all of HCPI's net capital gain or distributes at least 95%, but less
than 100%, of HCPI's "real estate investment trust taxable income," as adjusted,
HCPI will be required to pay tax on this income at regular ordinary and capital
gain corporate tax rates. HCPI believes it has made and intends to continue to
make timely distributions sufficient to satisfy these annual distribution
requirements.
HCPI expects that HCPI's "real estate investment trust taxable income" will
be less than HCPI's cash flow due to the allowance for depreciation and other
non-cash charges in computing "real estate investment trust taxable income."
Accordingly, HCPI anticipates that it will generally have sufficient cash or
liquid assets to enable it to satisfy the distribution requirements described
above. It is possible, however, that HCPI may not have sufficient cash or other
liquid assets to meet these distribution requirements due to timing differences
between the actual receipt of income and actual payment of deductible expenses,
and the inclusion of income and deduction of expenses in arriving at HCPI's
taxable income. If these timing differences occur, in order to meet the
distribution requirements, HCPI may need to arrange for short-term, or possibly
long-term, borrowings or need to pay dividends in the form of taxable stock
dividends.
HCPI may be able to rectify an inadvertent failure to meet the 95%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in HCPI's deduction for
dividends paid for the earlier year. Thus, HCPI may
I-40
<PAGE> 52
be able to avoid being subject to tax on amounts distributed as deficiency
dividends. HCPI will be required, however, to pay interest to the Internal
Revenue Service based upon the amount of any deduction claimed for deficiency
dividends.
Furthermore, HCPI would be required to pay a 4% excise tax on the excess of
the required distribution over the amount, if any, by which HCPI's actual annual
distributions during a calendar year are less than the sum of 85% of HCPI's
ordinary income for the year, 95% of HCPI's capital gain income for the year and
any undistributed taxable income from prior periods. Any taxable income and net
capital gain on which this excise tax is imposed for any year is treated as an
amount distributed during that year for purposes of calculating such tax.
Distributions with declaration and record dates falling in the last three
months of the calendar year, which are made by the end of January immediately
following such year, will be treated for all income tax purposes as made on
December 31 of the prior year.
TAX ASPECTS OF PARTNERSHIPS AND LIMITED LIABILITY COMPANIES IN WHICH HCPI
OWNS AN INTEREST
The ownership of an interest in a partnership or limited liability company
treated as a partnership for federal income tax purposes may involve special tax
risks, including the possible challenge by the Internal Revenue Service of:
- allocations of income and expense items, which could affect the
computation of HCPI's taxable income; and
- the status of the partnership or limited liability company as a
partnership, as opposed to an association taxable as a corporation, for
federal income tax purposes.
If any of the partnerships or limited liability companies in which HCPI
owns an interest were treated as an association taxable as a corporation for
federal income tax purposes, the partnership or limited liability company would
be treated as a taxable entity. In addition, in such a situation, the following
would occur:
- If HCPI owned more than 10% of the outstanding voting securities of the
partnership or limited liability company, or the value of such securities
exceeded 5% of the value of HCPI's assets, HCPI would fail to satisfy the
asset tests described above and would therefore fail to qualify as a real
estate investment trust.
- Distributions from the partnership or limited liability company to HCPI
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 HCPI to satisfy the 75% gross
income test.
- The interest in the partnership or limited liability company held by HCPI
would not qualify as a "real estate asset," which could make it more
difficult for HCPI to meet the 75% asset test described above.
- HCPI would not be able to deduct its share of any losses generated by the
partnership or limited liability company in computing HCPI's taxable
income.
See "-- Failure to Qualify" below for a discussion of the effect of HCPI's
failure to meet such tests for a taxable year. HCPI believes that each of the
partnerships and limited liability companies in which HCPI owns an interest will
be treated as a partnership, rather than an association taxable as a
corporation. HCPI cannot assure you, however, that the Internal Revenue Service
will not successfully challenge the Federal income tax status of the
partnerships and limited liability companies as partnerships.
I-41
<PAGE> 53
FAILURE TO QUALIFY
If HCPI fails to qualify for taxation as a real estate investment trust in
any taxable year, and the relief provisions of the Internal Revenue Code do not
apply, HCPI will be required to pay tax, including any alternative minimum tax
and possibly increased state and local taxes, on HCPI's taxable income at
regular corporate rates. Distributions to stockholders in any year in which HCPI
fails to qualify as a real estate investment trust will not be deductible by
HCPI, and HCPI will not be required to distribute any amounts to HCPI's
stockholders. As a result, HCPI anticipates that its failure to qualify as a
real estate investment trust would reduce the cash available for distribution by
HCPI to its stockholders. In addition, if HCPI fails to qualify as a real estate
investment trust, stockholders will be required to pay tax on all distributions
to them at ordinary income rates to the extent of HCPI's current and accumulated
earnings and profits. In this event, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, HCPI will also be disqualified from taxation as a real
estate investment trust for the four taxable years following the year during
which HCPI lost its qualification. It is not possible to state whether in all
circumstances HCPI would be entitled to this statutory relief. In addition,
President Clinton's Year 2000 Federal Budget Proposal contains a provision
which, if enacted in its present form, would result in the immediate taxation of
all gain inherent in a C corporation's assets upon an election by the
corporation to become a real estate investment trust in taxable years beginning
after January 1, 2000. If enacted, this provision could impose a substantial tax
upon HCPI's re-election to be taxed as a real estate investment trust following
any loss of HCPI's status as a real estate investment trust.
TAX LIABILITIES AND ATTRIBUTES INHERITED FROM AHP
If AHP fails to qualify as a real estate investment trust in any taxable
year, it will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Unless statutory relief provisions apply, AHP would be disqualified from
treatment as a real estate investment trust for the four taxable years following
the year during which it lost qualification. HCPI, as successor-in-interest to
AHP, would be required to pay this tax. The built-in gain rules described under
"HCPI's Qualification as a Real Estate Investment Trust -- General" above would
apply with respect to any assets acquired by HCPI from AHP in connection with
the merger if the merger qualified as a tax-free reorganization under the
Internal Revenue Code and if AHP failed to qualify as a real estate investment
trust at any time during its existence. In that case, if HCPI were not to make
an election under IRS Notice 88-19, AHP would recognize taxable gain as a result
of the merger under the built-in gain rules, notwithstanding that the merger
otherwise qualified as a tax-free reorganization under the Internal Revenue
Code. The liability for any tax due with respect to the gain described above
would be assumed by HCPI in the merger. HCPI intends, however, to make a
protective election under IRS Notice 88-19 with respect to the merger to prevent
the recognition of this gain. Even with this election, under these
circumstances, if HCPI disposed of any of the assets it acquired from AHP during
a specified ten-year period, the gain on this disposition would be subject to
tax at the highest corporate tax rate under the built-in gain rules. In
addition, in connection with the merger, HCPI will succeed to various tax
attributes of AHP if the merger were treated as a tax-free reorganization under
the Internal Revenue Code, including any undistributed C corporation earnings
and profits of AHP. If AHP qualified as a real estate investment trust for all
years prior to the merger and the merger were treated as a tax-free
reorganization under the Internal Revenue Code, then AHP would not have any
undistributed C corporation earnings and profits. If, however, AHP failed to
qualify as a real estate investment trust for any year, then it is possible that
HCPI would acquire undistributed C corporation earnings and profits from AHP. If
HCPI did not distribute these C corporation earnings and profits prior to the
end of its taxable year in which the merger occurs, HCPI would fail to qualify
as a real estate investment trust. In addition, after the merger, the
I-42
<PAGE> 54
asset and income tests described in "HCPI's Qualification as a Real Estate
Investment Trust -- Income Tests" and "-- Asset Tests" will apply to all of
HCPI's assets, including the assets it acquires from AHP, and to all of HCPI's
income, including the income derived from the assets it acquires from AHP. As a
result, the nature of the assets that HCPI acquires from AHP and the income
derived from those assets may have an effect on HCPI's tax status as a real
estate investment trust.
Qualification as a real estate investment trust requires AHP to satisfy
numerous requirements, some on an annual and others on a quarterly basis,
established under highly technical and complex Internal Revenue Code provisions.
These include requirements relating to AHP's:
- actual annual operating results;
- asset diversification;
- distribution levels, including the effect, if any, of the
characterization of AHP's psychiatric group preferred stock on
distribution levels; and
- diversity of stock ownership.
There are only limited judicial and administrative interpretations of these
requirements and qualification as a real estate investment trust involves the
determination of various factual matters and circumstances not entirely within
AHP's control.
Davis, Graham & Stubbs LLP has rendered an opinion to the effect that,
based on the facts, representations and assumptions stated therein, commencing
with its taxable year ended December 31, 1987, AHP was organized in conformity
with the requirements for qualification and taxation as a real estate investment
trust under the Internal Revenue Code, and its method of operation has enabled
and its proposed method of operation will enable AHP to meet, through the
effective time of the merger, the requirements for qualification and taxation as
a real estate investment trust under the Internal Revenue Code. The Davis,
Graham & Stubbs LLP opinion assumes, among other things, the accuracy of an
opinion rendered by Sullivan & Cromwell with respect to the characterization of
AHP's psychiatric group preferred stock and dividends thereon, which Sullivan &
Cromwell opinion is based on the facts, representations and assumptions stated
therein.
Because many of the properties owned by AHP have fair market values in
excess of their tax bases, assuming the merger is treated as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, AHP's tax
basis in the assets transferred in the merger will carry over to HCPI. This
lower tax basis will cause HCPI to have lower depreciation deductions and higher
gain on sale with respect to these properties than would be the case if these
properties had been acquired in a taxable transaction.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used in this summary, the term "U.S. stockholder" means a holder of
shares of HCPI common stock or HCPI series C preferred stock who is, for United
States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or in the District of
Columbia, unless, in the case of a partnership, treasury regulations
provide otherwise;
- an estate which is required to pay United States federal income tax
regardless of the source of its income; or
I-43
<PAGE> 55
- a trust whose administration is under the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in the treasury
regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as United
States persons, will also be considered U.S. stockholders.
DISTRIBUTIONS GENERALLY
Distributions out of HCPI's current or accumulated earnings and profits not
designated as capital gains dividends will constitute dividends taxable to
HCPI's taxable U.S. stockholders as ordinary income. As long as HCPI qualifies
as a real estate investment trust, these distributions will not be eligible for
the dividends-received deduction in the case of U.S. stockholders that are
corporations. For purposes of determining whether distributions to holders of
HCPI common stock are out of HCPI's current or accumulated earnings and profits,
HCPI's earnings and profits will be allocated first to HCPI's outstanding
preferred stock and then to HCPI common stock.
To the extent that HCPI makes distributions, other than capital gain
dividends discussed below, in excess of HCPI's current and accumulated earnings
and profits, these distributions will be treated first as a tax-free return of
capital to each U.S. stockholder. This treatment will reduce the adjusted tax
basis which each U.S. stockholder has in his shares of stock by the amount of
the distribution, but not below zero. Distributions in excess of a U.S.
stockholder's adjusted tax basis in its shares will be taxable as capital gain,
provided that the shares have been held as capital assets. This gain will be
taxable as a long-term capital gain if the shares have been held for more than
one year. Dividends HCPI declares in October, November, or December of any year
and payable to a stockholder of record on a specified date in any of these
months will be treated as both paid by HCPI and received by the stockholder on
December 31 of that year, provided HCPI actually pays the dividend on or before
January 31 of the following year. Stockholders may not include in their own
income tax returns any of HCPI's net operating losses or capital losses.
CAPITAL GAIN DISTRIBUTIONS
Distributions that HCPI properly designates as capital gain dividends will
be taxable to HCPI's taxable U.S. stockholders as gain, to the extent this gain
does not exceed HCPI's actual net capital gain for the taxable year, from the
sale or disposition of a capital asset. Depending on the characteristics of the
assets which produced these gains, and on designations, if any, which HCPI may
make, these gains may be taxable to non-corporate U.S. stockholders at a maximum
20% or 25% rate. U.S. stockholders that are corporations may, however, be
required to treat up to 20% of some capital gain dividends as ordinary income.
If HCPI properly designates any portion of a dividend as a capital gain
dividend, HCPI intends to report to each U.S. stockholder its share of the
capital gain dividend as the amount which bears the same ratio to the total
amount of dividends, as determined for federal income tax purposes, paid to the
U.S. stockholder for the year as the aggregate amount designated as a capital
gain dividend bears to the aggregate amount of all dividends, as determined for
federal income tax purposes, paid on all classes of shares of HCPI's capital
stock for the year.
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS
Distributions HCPI makes, and gain arising from the sale or exchange by a
U.S. stockholder of HCPI's shares, will not be treated as passive activity
income. As a result, U.S. stockholders generally will not be able to apply any
"passive losses" against this income or gain. Distributions HCPI makes, to the
extent they do not constitute a return of capital, generally
I-44
<PAGE> 56
will be treated as investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other disposition of HCPI's
shares, however, may not be treated as investment income depending upon a
stockholder's particular situation.
RETENTION OF NET LONG-TERM CAPITAL GAINS
HCPI may elect to retain, rather than distribute as a capital gain
dividend, HCPI's net long-term capital gains. If HCPI makes this election, it
would pay tax on its retained net long-term capital gains. In addition, to the
extent HCPI designates, a U.S. stockholder generally would:
- include its proportionate share of HCPI's undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of HCPI's taxable year falls;
- be deemed to have paid the capital gains tax imposed on HCPI on the
designated amounts included in the U.S. stockholder's long-term capital
gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by
it; and
- in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains as
required by treasury regulations to be prescribed by the Internal Revenue
Service.
DISPOSITIONS OF HCPI COMMON STOCK
If you are a U.S. stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be capital
if you have held the common stock as a capital asset. This gain or loss, except
as provided below, will be long-term capital gain or loss if you have held the
common stock for more than one year. Long-term capital gains of a non-corporate
U.S. stockholder will generally be subject to a maximum tax rate of 20%. In
general, if you are a U.S. stockholder and you recognize loss upon the sale or
other disposition of common stock that you have held for six months or less, the
loss you recognize will be treated as a long-term capital loss to the extent you
received distributions from HCPI which were required to be treated as long-term
capital gains.
DISPOSITIONS OF HCPI SERIES C PREFERRED STOCK
Upon any sale, exchange or other disposition of HCPI series C preferred
stock to or with a person other than HCPI, a U.S. stockholder will generally
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between:
- the amount of cash and the fair market value of any other property
received on the sale or other disposition less any portion thereof
attributable to accumulated and declared but unpaid distributions that
the selling stockholder is entitled to receive, which would have been
characterized as a dividend to the extent of HCPI's current and
accumulated earnings and profits, and
- the holder's adjusted tax basis in the shares of HCPI series C preferred
stock for tax purposes.
Gain or loss will be capital gain or loss if the shares have been held by
the U.S. stockholder as a capital asset, and, in the case of a non-corporate
U.S. stockholder, will be long-term gain or loss if such shares have been held
for more than one year. In general the maximum rate of tax on these gains for
non-corporate U.S. stockholders will be 20%. Any loss recognized by a U.S.
stockholder upon the sale or other disposition of shares of HCPI series C
I-45
<PAGE> 57
preferred stock that have been held for six months or less, after applying
holding period rules, will generally be treated as long-term capital loss, to
the extent of distributions received by the U.S. stockholder from HCPI that were
required to be treated as long-term capital gains.
REDEMPTION OF HCPI SERIES C PREFERRED STOCK
A redemption of shares of HCPI series C preferred stock will be treated
under Section 302 of the Internal Revenue Code as a distribution taxable as a
dividend (to the extent of HCPI's current and accumulated earnings and profits)
at ordinary income rates, unless the redemption satisfies one of the tests set
forth in Section 302(b) of the Internal Revenue Code and is therefore treated as
a sale or exchange of the redeemed shares. The redemption will be treated as a
sale or exchange if it:
- is "substantially disproportionate" with respect to the holder;
- results in a "complete termination" of the holder's stock interest in
HCPI; or
- is "not essentially equivalent to a dividend" with respect to the holder,
all within the meaning of Section 302(b) of the Internal Revenue Code.
In determining whether any of these tests have been met, shares of HCPI
capital stock (including HCPI common stock and other equity interests in HCPI)
considered to be owned by the holder by reason of constructive ownership rules
set forth in the Internal Revenue Code, as well as shares of capital stock
actually owned by the holder, must generally be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of
the Internal Revenue Code will be satisfied with respect to any particular
holder of HCPI series C preferred stock depends upon the facts and circumstances
at the time that the determination must be made, prospective holders of HCPI
series C preferred stock are advised to consult their tax advisors to determine
the applicable tax treatment.
If a redemption of shares of HCPI series C preferred stock is not treated
as a distribution taxable as a dividend to a particular holder, it will be
treated, as to that holder, as a taxable sale or exchange. As a result, the
holder will recognize gain or loss for federal income tax purposes in an amount
equal to the difference between
- the amount of cash and the fair market value of any property received
(less any portion thereof attributable to accumulated and declared but
unpaid dividends, which would have been characterized as a dividend to
the extent of HCPI's current and accumulated earnings and profits); and
- the holder's adjusted basis in the shares of HCPI series C preferred
stock for tax purposes.
Gain or loss will be capital gain or loss if the shares have been held as a
capital asset, and, in the case of a non-corporate U.S. stockholder, will be
long-term capital gain or loss if the shares have been held for more than one
year. In general, the maximum rate of tax on gains for non-corporate U.S.
stockholders will generally be 20%. Any loss recognized by a U.S. stockholder
upon a redemption treated as a sale or exchange of shares of HCPI series C
preferred stock that have been held for six months or less (after applying
holding period rules) will generally be treated as long-term capital loss, to
the extent of distributions received by the U.S. stockholder from HCPI which
were required to be treated as long-term capital gains.
If a redemption of shares of HCPI series C preferred stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
HCPI series C preferred stock for tax purposes will be transferred to the
holder's remaining shares of capital stock in HCPI, if any. If the holder owns
no other shares of capital stock in HCPI, the holder's basis may be transferred
to a related person or it may be lost entirely.
I-46
<PAGE> 58
BACKUP WITHHOLDING
HCPI reports to its U.S. stockholders and the Internal Revenue Service the
amount of dividends paid during each calendar year and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless the
holder is a corporation or is otherwise exempt and, when required, demonstrates
this fact or provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with the backup
withholding rules. A U.S. stockholder that does not provide HCPI with his
correct taxpayer identification number may also be subject to penalties imposed
by the Internal Revenue Service. Backup withholding is not an additional tax.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, HCPI may be required to
withhold a portion of capital gain distributions to any stockholders who fail to
certify their non-foreign status. See "-- Taxation of Non-U.S. Stockholders" on
page I-47.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The Internal Revenue Service has ruled that amounts distributed as
dividends by a qualified real estate investment trust do not constitute
unrelated business taxable income when received by a tax-exempt entity. Based on
that ruling, except as described below, dividend income from HCPI and gain
arising upon a sale of shares generally will not be unrelated business taxable
income to a tax-exempt stockholder. This income or gain will be unrelated
business taxable income, however, if the tax-exempt stockholder holds its shares
as "debt financed property" within the meaning of the Internal Revenue Code or
if the shares are used in a trade or business of the tax-exempt stockholder.
Generally, debt financed property is property the acquisition or holding of
which was financed through a borrowing by the tax-exempt stockholder.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as unrelated business taxable income as to
some trusts that hold more than 10%, by value, of the interests in the real
estate investment trust. A real estate investment trust will not be a "pension
held REIT" if it is able to satisfy the "not closely held" requirement without
relying upon the "look-through" exception with respect to certain trusts. As a
result of limitations on the transfer and ownership of stock contained in HCPI's
charter, HCPI does not expect to be classified as a "pension-held REIT," and as
a result, the tax treatment described above should be inapplicable to HCPI's
stockholders.
For tax-exempt stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in HCPI's shares will constitute
unrelated business taxable income unless the organization is able to properly
claim a deduction for amounts set aside or placed in reserve for specific
purposes so as to offset the income generated by its investment in HCPI's
shares. These prospective investors should consult their tax advisors concerning
these "set aside" and reserve requirements.
TAXATION OF NON-U.S. STOCKHOLDERS
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of common stock or
preferred stock by persons that are non-U.S. stockholders. As used in this
summary, the term "non-U.S. stockholder" means stockholders of HCPI who are not
U.S. stockholders. In general, non-U.S. stockholders may be subject to special
tax withholding requirements on distributions from HCPI and with respect to
their sale or other disposition of HCPI common stock or HCPI series C preferred
stock, except to the extent reduced or eliminated by an income tax treaty
between the United States and the non-U.S. stockholder's country. A non-U.S.
stockholder
I-47
<PAGE> 59
who is a stockholder of record and is eligible for reduction or elimination of
withholding must file an appropriate form with HCPI in order to claim this
treatment. Non-U.S. stockholders should consult their tax advisors concerning
the federal income tax consequences to them of an acquisition of shares of HCPI
common stock, including the federal income tax treatment of dispositions of
interests in and the receipt of distributions from HCPI.
OTHER TAX CONSEQUENCES
HCPI may be required to pay state or local taxes in state or local
jurisdictions, including those in which HCPI transacts business, and HCPI's
stockholders may be required to pay state or local taxes in state or local
jurisdictions, including those in which they reside. HCPI's state and local tax
treatment may not conform to the federal income tax consequences summarized
above. In addition, the state and local tax treatment of holders of HCPI common
stock or HCPI series C preferred stock may not conform to the federal income tax
consequences summarized above. Consequently, holders of HCPI common stock and
HCPI series C preferred stock should consult their tax advisors regarding the
effect of state and local tax laws on the acquisition, ownership, and
disposition of HCPI common stock and HCPI series C preferred stock.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached as Annex A and is incorporated by
reference in this joint proxy statement/prospectus. The summary is qualified in
its entirety by reference to the merger agreement. We urge all stockholders of
HCPI and AHP to read the merger agreement in its entirety for a more complete
description of the terms and conditions of the merger.
THE MERGER
The merger agreement provides that AHP will be merged with and into HCPI.
At the effective time of the merger, HCPI will continue as the surviving
corporation in accordance with Maryland General Corporation Law. At the
effective time of the merger, all the property, rights, privileges, immunities,
powers and franchises of AHP before the merger will vest in HCPI, and all debts,
liabilities and duties of AHP before the merger will become the debts,
liabilities and duties of HCPI.
CLOSING AND EFFECTIVE TIME OF THE MERGER
The merger will become effective after all conditions in the merger
agreement are met, or waived including the receipt of stockholder approval of
both companies, and after the articles of merger are filed with and accepted for
record by the State Department of Assessments and Taxation of Maryland and a
certificate of merger is filed with and accepted for record by the Secretary of
State of the State of Delaware, unless HCPI and AHP agree to a date no later
than 30 days after the date the articles of merger are accepted for record in
the State of Maryland. The merger agreement provides that the closing of the
merger will take place and the merger will become effective at such time and
date as agreed to by HCPI and AHP. HCPI and AHP have agreed, and they presently
expect, that the closing will occur and the merger will become effective in the
last quarter of 1999.
CONVERSION OF SECURITIES
Treatment of AHP Common Stock and the Exchange Ratio. At the effective
time of the merger, each issued and outstanding share of AHP common stock, other
than shares of AHP common stock held by HCPI or its subsidiaries, which will be
canceled, will be automatically converted into 0.78 of a fully paid and
non-assessable share of HCPI common stock. As of the effective time of the
merger, each share of AHP common stock will be canceled and retired.
I-48
<PAGE> 60
No fractional shares of HCPI common stock will be issued in the merger.
Instead of fractional shares, AHP common stockholders will receive cash. This
cash will be payable out of the net proceeds of the sale or sales by the
exchange agent of the aggregate fractional shares of HCPI common stock otherwise
issuable in the merger. The amount of cash to be received by a holder of AHP
common stock in lieu of a fractional share will be equal to that holder's
proportionate interest in the net proceeds of the sale or sales.
Treatment of AHP Series B Preferred Stock. At the effective time of the
merger, each issued and outstanding share of AHP series B preferred stock will
be converted into one share of HCPI series C preferred stock. As of the
effective time of the merger, each share of AHP series B preferred stock will be
canceled and retired. The terms, designations, preferences, limitations,
privileges and rights, other than par value, of the HCPI series C preferred
stock will substantially the same as those of the AHP series B preferred stock
in respect of which it is issued.
Treatment of AHP Depositary Shares. The AHP depositary shares which
currently represent one-one-hundredth of an interest in a share of AHP series B
preferred stock will remain outstanding but will be automatically converted into
HCPI depositary shares representing one-one hundredth of an interest in HCPI
series C preferred stock. Certificates, called depositary receipts, which
currently evidence the AHP depositary shares will remain outstanding, will
represent HCPI depositary shares, and need not be exchanged.
TREATMENT OF AHP STOCK OPTIONS
Each outstanding AHP stock option which has not vested immediately prior to
the effective time of the merger will become vested and fully exercisable. AHP
and the AHP board will use their reasonable efforts to cause each then
outstanding AHP stock option, whether vested or unvested, to be canceled
immediately prior to the completion of the merger, with the holder of the option
becoming entitled to receive an amount of cash from AHP equal to the product of:
1. the amount by which the product of the closing price per share of HCPI
common stock on The New York Stock Exchange on the most recent trading
day immediately preceding the effective time of the merger, and the
exchange ratio of 0.78, exceeds the exercise price per share of AHP
common stock subject to an AHP stock option, whether vested or unvested;
and
2. the number of shares of AHP common stock issuable under the unexercised
portion of an AHP stock option, less any required withholding of taxes.
This stock option consideration, if any, will be paid by AHP immediately
prior to the effective time of the merger. The cancellation of an AHP stock
option in exchange for the option consideration will be deemed a release of any
and all rights the holder had or may have had in respect of an AHP stock option.
If any AHP stock options are not canceled, those AHP stock options will be
assumed by HCPI and continue in effect on the same terms and conditions as in
effect immediately prior to the effective time of the merger and each of these
remaining options will be converted automatically into a new option to purchase
the number of shares of HCPI common stock determined as provided below, at the
exercise price determined as provided below:
- The number of shares of HCPI common stock to be subject to the new option
will be equal to the product of:
1. the number of shares of AHP common stock subject to the remaining
option immediately prior to the effective time of the merger,
multiplied by;
2. the exchange ratio of 0.78,
I-49
<PAGE> 61
provided that the resulting number of shares of HCPI common stock will be
rounded to the nearest whole share of HCPI common stock.
- The exercise price per share of HCPI common stock under the new option
will be equal to:
1. the exercise price per share of the AHP common stock under the
remaining option, divided by;
2. the exchange ratio of 0.78,
provided that the exercise price will be rounded to the nearest whole cent.
TREATMENT OF AHP DIVIDEND EQUIVALENT RIGHTS
Each outstanding AHP dividend equivalent right, other than those related to
deferred directors fees as described below, will be canceled prior to the
effective time of the merger, with the holder of the dividend equivalent right
becoming entitled to receive an amount of cash from AHP determined under the
terms of the holder's employment contract, less any required withholding of
taxes. This dividend equivalent right consideration will be paid by AHP prior to
the effective time of the merger. The cancellation of an AHP dividend equivalent
right will be deemed a release of any and all rights the holder had or may have
had in respect of an AHP dividend equivalent right.
TREATMENT OF AHP DEFERRED DIRECTORS FEES
All AHP deferred directors fees, and any dividend equivalent rights related
to AHP deferred directors fees will be assumed by HCPI on the same terms and
conditions as in effect immediately prior to the effective time of the merger.
The right to receive AHP common stock for deferred directors fees and any
related dividend equivalent rights to AHP deferred directors fees will be
converted automatically into the right to receive HCPI common stock. The number
of shares of HCPI common stock payable as AHP deferred directors fees, or any
related dividend equivalent rights, accumulated immediately prior to the
effective time of the merger will be equal to the product of:
- the number of shares of AHP common stock payable as AHP deferred
directors fees and any related accumulated dividend equivalent rights
immediately prior to the effective time of the merger; and
- the exchange ratio of 0.78;
provided that any resulting fractional shares of AHP common stock will be
rounded to the nearest whole share of HCPI common stock, and provided further
that, solely with respect to each holder of AHP deferred directors fees and any
related dividend equivalent rights, who is not a director of the surviving
corporation immediately following the effective time of the merger, HCPI will
distribute promptly following the effective time of the merger shares of HCPI
common stock payable as the AHP deferred directors fees and related accumulated
dividend equivalent rights in accordance with the terms and conditions of the
AHP deferred directors fees in effect immediately prior to the effective time of
the merger. Upon the making of this payment, the AHP deferred directors fees and
related accumulated dividend equivalent rights will terminate.
EXCHANGE OF STOCK CERTIFICATES
Surrender of Shares of AHP Common Stock and AHP Series B Preferred Stock;
Stock Transfer Books. HCPI has designated Bank of New York to serve as exchange
agent for the exchange of certificates representing AHP common stock for
certificates representing HCPI common stock and the payment of cash in lieu of
fractional shares and the exchange of
I-50
<PAGE> 62
certificates representing AHP series B preferred stock for certificates
representing HCPI series C preferred stock. Promptly after the effective time of
the merger, the exchange agent will mail to each record holder of certificates
representing shares of AHP common stock and to the sole holder of record of AHP
series B preferred stock, ChaseMellon Shareholder Services L.L.C., as depositary
(as described in more detail below), a letter of transmittal and instructions
for surrendering the certificates for exchange and payment. Holders of
certificates who surrender their certificates to the exchange agent together
with a duly completed and validly executed letter of transmittal, will receive
certificates representing the number of whole shares of HCPI common stock, HCPI
series C preferred stock, cash in lieu of any fractional shares of HCPI common
stock, and any dividends or distributions to which they are entitled. The
surrendered certificates will be canceled.
No Surrender of Depositary Shares. ChaseMellon Shareholder Services,
L.L.C., as depositary under the Deposit Agreement with AHP and holders of
depositary receipts, dated October 27, 1997, is the only holder of record of
shares of AHP series B preferred stock. The AHP series B preferred stock is
represented by depositary shares. Following the merger, the depositary shares
formerly representing the AHP series B preferred stock will automatically be
converted to represent the HCPI series C preferred stock. ChaseMellon will
receive certificates evidencing the HCPI series C preferred stock in exchange
for certificates evidencing the AHP series B preferred stock in connection with
the merger.
HOLDERS OF AHP COMMON STOCK AND AHP SERIES B PREFERRED STOCK SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL LETTER FROM THE
EXCHANGE AGENT.
Holders of AHP depositary receipts representing the depositary shares which
evidence an ownership interest in AHP series B preferred stock will not need to
exchange their depositary receipts as they will be automatically converted into
depositary receipts representing HCPI depositary shares in the merger.
Failure to Exchange. One year after the effective time of the merger, HCPI
can require the exchange agent to deliver to HCPI all unclaimed cash and shares
of HCPI common stock and HCPI series C preferred stock. Thereafter, AHP
stockholders must look only to HCPI for payment of their consideration on their
AHP shares and they will have no greater rights against HCPI than may be
accorded to general creditors of HCPI.
No Liability. Neither HCPI nor the exchange agent will be liable to any
holder of a certificate for shares of HCPI common stock, HCPI series C preferred
stock and any cash payable in lieu of any fractional shares delivered to a
public official under any applicable abandoned property, escheat or similar law.
No Further Registration or Transfer of AHP Common Stock and AHP Series B
Preferred Stock. At the effective time of the merger, there will be no further
registration of transfers of shares of AHP common stock or AHP series B
preferred stock on the records of AHP.
Dividends and Distributions. No dividends or other distributions declared
or made after the effective time of the merger with respect to shares of HCPI
common stock or HCPI series C preferred stock will be paid to the holder of any
shares of HCPI common stock or HCPI series C preferred stock represented by
unsurrendered certificates which previously represented shares of AHP common
stock or AHP series B preferred stock, and no cash payment in lieu of fractional
shares will be paid to any such holder until the holder surrenders the
certificate as provided above. Upon surrender of the certificate, HCPI will pay
to the holder, without interest, any dividends or distributions with respect to
shares of HCPI common stock or HCPI series C preferred stock represented by the
certificate that have become payable between the effective time of the merger
and the time of such surrender.
Lost Certificates. An AHP stockholder must provide an appropriate
affidavit to the exchange agent if any certificates evidencing AHP stock are
lost, stolen or destroyed, in order
I-51
<PAGE> 63
to receive HCPI certificates. HCPI may require the owner of such lost, stolen or
destroyed certificates to deliver a bond as indemnity against any claim that may
be made against HCPI or the exchange agent with respect to any such
certificates.
Voting. HCPI will take all commercially reasonable action so that each
holder of AHP common stock which is converted into HCPI common stock will be
entitled to vote on all matters subject to the vote of holders of HCPI common
stock with a record date on or after the effective date of the merger, whether
or not the holder has surrendered stock certificates in accordance with the
merger agreement.
Withholding Rights. Either HCPI or the exchange agent is entitled to
deduct and withhold from the cash in lieu of any fractional shares of HCPI
common stock payable to any holder of certificates the amounts HCPI or the
exchange agent is required to deduct and withhold from such consideration under
the Internal Revenue Code or any provision of state, local or foreign tax law.
Any amounts withheld will be treated as having been paid to the holder of the
shares of AHP common stock.
REPRESENTATIONS AND WARRANTIES
HCPI and AHP have made representations and warranties in the merger
agreement many of which are qualified as to materiality, many of which are
subject to matters disclosed by the parties, and none of which survive the
completion of the merger. The representations and warranties of HCPI and AHP
relate to, among other things:
- the organization and qualification of themselves and their subsidiaries;
- the authorization, execution, delivery and enforceability of the merger
agreement and related matters;
- their respective capital structures;
- their subsidiaries and their interests and investments in other
companies;
- that the merger will not result in a violation of AHP's or HCPI's
organizational documents or the organizational documents of any of their
subsidiaries, contracts to which HCPI or AHP is a party, or violate any
law, rule or regulation;
- consents and regulatory approvals necessary to complete the merger;
- compliance with laws, required licenses and permits;
- documents and financial statements filed with the SEC and the accuracy of
information contained in those filings;
- the absence of undisclosed liabilities;
- the absence of adverse changes or events;
- litigation;
- taxes and tax returns;
- employee benefit plans;
- properties;
- contracts;
- labor relations;
- intellectual property;
- environmental matters;
I-52
<PAGE> 64
- the opinions received from financial advisors regarding the merger;
- brokers and finders' fees;
- the votes of stockholders required to approve the merger;
- accounting and tax matters;
- insurance;
- the inapplicability of state law takeover provisions;
- the absence of material adverse effects;
- rights plans; and
- their and their affiliate's ownership of the other company's common
stock.
The merger agreement also contains representations and warranties by AHP
relating to:
- the Kendall replacement properties.
COVENANTS
Conduct of Business Prior to the Merger. HCPI and AHP have agreed that,
until the earlier of the termination of the merger agreement or the effective
time of the merger, each of HCPI and AHP and their subsidiaries will:
- maintain its respective qualification as a "real estate investment trust"
under the Internal Revenue Code;
- coordinate with the other the declaration of any dividends in respect of
HCPI common stock and AHP common stock and the record and payment dates
therefor;
- carry on its business in the ordinary course;
- pay its debts and taxes when due, subject to good faith disputes;
- pay or perform other material obligations when due;
- maintain insurance coverage and its books, accounts and records in the
usual manner;
- comply with applicable laws;
- maintain and keep its properties and equipment in good repair, working
order and condition; and
- use all reasonable efforts to preserve intact its present business
organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors and others with which it has business dealings.
During the same period, AHP has agreed that each of AHP and its
subsidiaries will not:
- amend its certificate of incorporation, the certificate of designation
relating to the AHP series B preferred stock or organizational documents;
- except as provided in the merger agreement, issue or authorize the
issuance of additional shares of its capital stock or securities
convertible into capital stock, or any subscriptions, rights, warrants or
options to acquire any convertible securities or capital stock, or any
other securities in substitution for outstanding shares of AHP common
stock, other than upon exercise of outstanding stock options or for the
payment of AHP deferred directors fees and related dividend equivalent
rights;
I-53
<PAGE> 65
- amend or waive any terms of any option, warrant or stock option plan of
AHP or any of its subsidiaries or authorize cash payments for any options
granted under any of such plans;
- take any action with respect to the AHP rights plan;
- declare, set aside or pay any dividend or other distribution in respect
of any of its capital stock other than:
(a) the regular quarterly dividend paid by AHP in an amount not to
exceed $.565 per share of AHP common stock;
(b) the regular quarterly dividend paid by AHP per share of AHP series B
preferred stock; or
(c) dividends or distributions to AHP or one of its subsidiaries;
- split, combine, reclassify or redeem any shares of its capital stock, or
any of its other securities;
- increase the compensation of directors, officers or employees or
otherwise increase employee benefits other than:
(a) as required by law;
(b) under any AHP employee benefit plan;
(c) for salary and benefit increases in the ordinary course of business
to employees other than executive officers;
(d) the acceleration of vesting and the cashing out of options to
purchase AHP common stock, the cashing out of dividend equivalent
rights and the treatment of deferred directors fees and related
dividend equivalent rights as provided in the merger agreement;
(e) under existing agreements or policies previously disclosed in
writing to HCPI;
(f) the amendment of AHP's money purchase pension plan to provide that
severance pay shall be excluded from the definition of compensation;
and
(g) the amendment of AHP's retirement plan for outside directors to
provide for an actuarially equivalent lump sum payment election upon
termination of service as a director;
- sell, lease or encumber any material properties or assets of AHP or any
of its subsidiaries;
- acquire any real property or other material assets, provided that AHP
must notify HCPI of the acquisition of any immaterial assets prior to
their acquisition;
- incur, or prepay any debt other than under existing agreements, or
guarantee the obligations of any other person, or make any loans or
investments in any other person, other than between or with any
wholly-owned subsidiaries;
- enter into any "keep well" or other agreement to maintain the financial
condition of another entity, other than AHP or any of its wholly-owned
subsidiaries;
- make or rescind any material tax elections, settle any tax claims or
amend any material tax return;
- pay any claim or obligation other than in the ordinary course of
business;
I-54
<PAGE> 66
- other than in the ordinary course of business, waive any rights of
substantial value or make any payment of any material liability before it
comes due;
- fail to maintain its existing insurance coverages;
- change its methods of accounting as in effect on March 31, 1999, unless
required by generally accepted accounting principles or the SEC;
- modify or assign any rights under any of AHP's material contracts except
in the ordinary course of business;
- take any action that would cause AHP's representations or warranties made
in the merger agreement not to be true and correct in all material
respects;
- enter into any agreement with any AHP affiliates, other than a subsidiary
of AHP, other than those agreements existing on the date of the merger
agreement or as disclosed to HCPI prior to the date of the merger
agreement;
- consent to the closure of any facility except those closures that are
not, individually or in the aggregate, material to AHP and its
subsidiaries taken as a whole;
- agree to take any action that would prevent the merger from qualifying as
a reorganization as described in Section 368(a) of the Internal Revenue
Code;
- commit any capital expenditures other than as required pursuant to
commitments existing on August 4, 1999 or in the ordinary course of
business;
- initiate or settle any material litigation or arbitration proceeding,
except in connection with the merger agreement; or
- agree to take any of the preceding actions.
Notwithstanding the preceding restrictions on AHP's actions, during the
same period, AHP will be permitted, without the prior consent of HCPI:
- to acquire the properties identified to HCPI prior to the date of the
merger agreement as possible replacement properties for the Kendall
Regional Medical Center;
- to complete the acquisition, development, funding and assumption of debt
of any property for which AHP had entered into a binding agreement as of
August 4, 1999;
- to acquire up to $25,000,000 of additional properties, provided each
acquired property has an initial cash on cash return of at least 9.99%;
- to assume any existing secured debt in connection with permitted
acquisitions, upon the satisfaction of specified conditions;
- to dispose of any AHP real property that is subject to a tenant purchase
option, upon the exercise by the tenant of the purchase option;
- to sell the Sunrise Regional Medical Center for not less than $2 million,
or the Anclote Manor Facility for a price of not less than $1 million,
but not both, if necessary to avoid owing federal income or Internal
Revenue Code Section 4981 excise taxes in respect of its 1999 short
taxable year, provided, however, that if HCPI consents to the terms of
the sale of the Anclote Manor Facility, AHP may also sell the Sunrise
Regional Medical Center, without HCPI's additional consent; and
- to amend or renew any of AHP's leases, and to waive or assign rights or
claims, in the ordinary course of business and not, individually or in
the aggregate, material to AHP and its subsidiaries, taken as a whole.
I-55
<PAGE> 67
During the same period, HCPI has agreed that each of HCPI and its
subsidiaries will not:
- amend its charter or organizational documents except for the adoption of
articles supplementary relating to the HCPI series C preferred stock;
- split, reclassify or redeem any shares of its capital stock, or any of
its other securities;
- declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock except for any
quarterly dividends paid by HCPI or any of its subsidiaries, dividends or
distributions to HCPI or any of its subsidiaries, or as otherwise
provided in the merger agreement; or
- agree to take any of the foregoing actions.
No Solicitation. AHP has agreed to terminate any existing solicitation,
discussion or negotiation with any third party regarding the acquisition by a
third party of 15% or more, of AHP's business, assets or securities. AHP has
also agreed that, without HCPI's consent, it will not:
- solicit or facilitate an Acquisition Proposal, as described below;
- engage in discussions with, or provide any nonpublic information to, any
third party regarding an Acquisition Proposal; or
- enter into any agreement with respect to an Acquisition Proposal.
AHP and the AHP board may, however, furnish nonpublic information to,
and/or participate in discussions or negotiations with, any third party that has
made an unsolicited written Acquisition Proposal if the AHP board:
- determines in good faith, after consulting with its financial advisor,
that the Acquisition Proposal is reasonably capable of being completed on
substantially the terms proposed and would, if consummated, result in a
transaction that would be more favorable to AHP stockholders than the
merger;
- determines in good faith, after consulting with its outside legal
counsel, that the failure to take such action would be inconsistent with
the AHP board's fiduciary duties under applicable law; and
- receives from the third party prior to taking such action a
confidentiality and standstill agreement with material terms no less
favorable to AHP than those contained in the confidentiality agreement
between HCPI and AHP.
When used in this joint proxy statement/prospectus, the term "Acquisition
Proposal" means, with respect to AHP, any proposal or offer from any entity,
other than HCPI or any of its subsidiaries, relating to any:
- acquisition of a business of AHP or any of its subsidiaries that
constitutes 15% or more of AHP's and its subsidiaries' consolidated net
revenue, net income or assets;
- acquisition of 15% or more of any class of equity securities of AHP or
any of its subsidiaries whose business constitutes 15% or more of AHP's
and its subsidiaries' consolidated net revenue, net income or assets;
- tender offer or exchange offer that, if consummated, would result in any
person or entity beneficially owning 15% or more of the capital stock of
AHP; or
- merger, consolidation, business combination, or similar transaction
involving AHP or any of its subsidiaries whose business constitutes 15%
or more of AHP's and its subsidiaries' consolidated net revenue, net
income or assets.
I-56
<PAGE> 68
AHP has agreed to notify HCPI promptly of any inquiries, offers or
proposals or any request for nonpublic information in connection with an
Acquisition Proposal and to furnish to HCPI the material terms and conditions of
any Acquisition Proposal.
The AHP board may not withdraw or modify, in a manner adverse to HCPI, its
approval or recommendation of the merger agreement or the merger. However, if
AHP receives a superior Acquisition Proposal, the AHP board may withdraw or
modify its approval or recommendation of the merger agreement or the merger only
if the AHP board:
- determines in good faith, after consulting its financial advisor, that
the Acquisition Proposal is reasonably capable of being completed on
substantially the terms proposed and would, if consummated, result in a
transaction that would be more favorable to AHP's stockholders than the
merger; and
- determines in good faith, after consulting its outside legal counsel,
that the failure to take such action would be inconsistent with its
fiduciary duties under applicable law.
Nevertheless, the AHP board has agreed to submit the merger agreement to AHP's
stockholders for approval, whether or not the AHP board at any time subsequently
determines that the merger agreement is no longer advisable or recommends that
the stockholders of AHP reject it or otherwise modifies or withdraws its
recommendation. Unless the AHP board has withdrawn its recommendation of the
merger agreement in compliance with the foregoing, AHP has agreed to use all
lawful efforts to secure the required vote of its stockholders in favor of the
of the merger agreement.
Access to Information. HCPI and AHP have agreed to provide access to the
other upon reasonable notice during normal business hours during the period
prior to the effective time of the merger, to all its personnel, properties,
books, contracts, commitments and records. HCPI and AHP have also agreed to
exchange monthly financial reports and development reports and provide further
information on request (subject to their obligations of confidentiality to third
parties). All non-public information received by either party is to be held in
confidence.
Governmental Approvals and Defense of Litigation. HCPI and AHP have agreed
to promptly prepare and file all necessary documentation and to obtain as
promptly as practicable all approvals and authorizations of all third parties
and governmental entities which are necessary to consummate the merger.
HCPI and AHP have also agreed to defend vigorously any litigation or
administrative proceeding adversely affecting the merger.
Director and Officer Insurance and Indemnification. After the effective
time of the merger, HCPI will indemnify and hold harmless each present and
former director and officer of AHP against any expenses, judgments, claims or
liabilities pertaining to any matter existing or occurring at or prior to the
effective time of the merger to the fullest extent permitted under applicable
law. For six years after the effective time of the merger, HCPI will obtain a
new policy of directors' and officers' liability insurance with similar terms to
the directors' and officers' liability insurance policy currently maintained by
AHP. This new policy will provide coverage with respect to claims arising from
facts that occurred on or prior to the effective time of the merger, including
all claims arising out of the merger agreement. HCPI is not obligated, however,
to spend more than $360,000 per year to maintain such insurance coverage.
Employee Benefits. From and after the effective time of the merger, HCPI
will comply with employee benefit plans of AHP in accordance with their terms,
and provide the employees of HCPI and its subsidiaries who were, prior to the
merger, employees of AHP or its subsidiaries, employee benefits which, in the
aggregate, are no less favorable to such employees than the employee benefits
provided to similarly situated employees of HCPI. HCPI and AHP will promptly pay
all compensation and benefits required to be paid under the terms of any
I-57
<PAGE> 69
agreement with any present or former employee or director of AHP in effect as of
the date of the merger agreement. Immediately at the effective time of the
merger, HCPI will honor in accordance with their terms, all employee plans of
AHP, vested or accrued benefit obligations to, and contractual rights of,
current and former employees of AHP.
Affiliate Agreements. No later than 45 days prior to the closing of the
merger, AHP is obligated to provide a list of affiliates (as such term is
defined by Rule 144 under the Securities Act of 1933) of AHP. AHP is also
obligated to notify HCPI regarding any changes in the identity of AHP affiliates
prior to the closing date of the merger. See "The Merger -- Resales of HCPI
Common Stock Issued in Connection with the Merger; Affiliate Agreements."
Tax Treatment of Reorganization. HCPI and AHP have agreed to use their
best efforts to cause the merger to qualify as a reorganization under Section
368(a) of the Internal Revenue Code. HCPI and AHP will also cooperate and use
their best efforts to obtain the opinions of Sullivan & Cromwell, counsel to
AHP, and Latham & Watkins, counsel to HCPI, to the effect that the merger will
qualify for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code.
Further Assurances and Actions. Each of HCPI and AHP has agreed to use its
reasonable efforts to take all appropriate action to do all things necessary,
proper or advisable on its part under applicable laws and regulations to
consummate and make effective the transactions contemplated by the merger
agreement. Notwithstanding anything to the contrary, neither HCPI nor AHP are
precluded from complying with federal securities law. The parties have further
agreed to cooperate with respect to the consolidation of their Texas
subsidiaries.
Stock Exchange Listing. HCPI will use its best efforts to list on The New
York Stock Exchange prior to the effective time of the merger, the shares of
HCPI common stock to be issued in the merger.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of HCPI and AHP to effect the merger are subject
to the satisfaction or waiver of several conditions at or prior to the closing
of the merger, including:
- the stockholders of HCPI and AHP having approved the merger and the
merger agreement in the manner required by the merger agreement;
- no order, decree or injunction or statute, rule or regulation being in
effect that prohibits or restricts the completion of the merger;
- the registration statement on Form S-4 of which this joint proxy
statement/prospectus is a part having become effective and not the
subject of any stop order;
- any material blue sky law, permit or approval having been obtained;
- all filings required to be made prior to the closing of the merger by
either HCPI or AHP with any governmental entity having been made;
- the approval for listing of the shares of HCPI common stock to be issued
in connection with the merger on The New York Stock Exchange upon
official notice of issuance; and
- all consents or approvals of all persons, other than governmental
entities, required for or in connection with the merger agreement or the
transactions contemplated by the merger agreement having been obtained.
I-58
<PAGE> 70
Except as may be waived in writing by AHP, the obligation of AHP to effect
the merger is also subject to the satisfaction of the following conditions:
- the representations and warranties of HCPI in the merger agreement being
true and correct in all material respects as of the date of the effective
time of the merger except:
(a) as contemplated by the merger agreement; and
(b) those representations and warranties that address matters only as of
a particular date, other than the date of the merger agreement,
which must remain true and correct as of that particular date;
- HCPI having performed in all material respects all obligations required
to be performed by it under the merger agreement at or prior to the
effective time of the merger;
- AHP having received a certificate as to the truth of HCPI's
representations and warranties and the performance of HCPI's obligations,
as required by the merger agreement;
- AHP having received an opinion of Sullivan & Cromwell, to the effect that
the merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
- AHP having received the opinion of Latham & Watkins to the effect that
HCPI has qualified to be taxed as a real estate investment trust
commencing with its taxable year ended December 31, 1985 and that HCPI's
proposed method of operation will enable it to continue to qualify for
taxation as a real estate investment trust under the Internal Revenue
Code.
Except as may be waived in writing by HCPI, the obligation of HCPI to
effect the merger is also subject to the satisfaction of the following
conditions:
- the representations and warranties of AHP in the merger agreement being
true and correct in all material respects as of the date of the effective
time of the merger except:
(a) as contemplated by the merger agreement; and
(b) those representations and warranties which address matters only as
of a particular date, other than the date of the merger agreement,
which must remain true and correct as of that particular date;
- AHP having performed in all material respects all obligations required to
be performed by it under the merger agreement at or prior to the
effective time of the merger;
- HCPI having received a certificate as to the truth of AHP's
representations and warranties and the performance of AHP's obligations,
as required by the merger agreement;
- HCPI having received an opinion of Latham & Watkins to the effect that
the merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
- HCPI having received an opinion from each of Davis, Graham & Stubbs LLP
and Sullivan & Cromwell that, taken together, are to the effect that AHP
has qualified to be taxed as a real estate investment trust commencing
with its taxable year ended December 31, 1987 and that AHP's proposed
method of operation will enable it to meet, through the effective date of
the merger, the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code;
- the amount of the equity balance held by BancOne Colorado, N.A., in its
capacity as qualified intermediary for AHP and some of its subsidiaries,
used to acquire properties
I-59
<PAGE> 71
during the period from June 30, 1999 to the effective date of the merger,
plus the amount of cash AHP uses to acquire other properties during that
period totaling at least $40 million;
- AHP having not declared, set aside or paid any dividends or other
distributions with respect to any shares of its capital stock with
respect to its 1999 taxable year except for the regularly quarterly
dividend paid by AHP per share of AHP common or preferred stock, and as
otherwise provided in the merger agreement; and
- AHP not owing any federal income or Internal Revenue Code Section 4981
excise taxes in respect of its short 1999 taxable year.
TERMINATION; TERMINATION FEES AND EXPENSES
Termination. The merger agreement provides that prior to the completion of
the merger, the merger agreement may be terminated:
- upon the mutual consent of HCPI and AHP;
- by either HCPI or AHP if:
(a) the merger has not occurred on or before January 31, 2000, so long
as the terminating party did not prevent completion of the merger by
failing to fulfill any of its obligations under the merger
agreement;
(b) any court or other governmental entity has issued an order, decree
or ruling which cannot be appealed and which makes the merger
illegal or permanently prohibits the completion of the merger;
(c) there has been a material breach of the merger agreement that would
result in the failure to satisfy one of the conditions to the merger
by the other party which is not curable, or, if curable, is not
cured within 30 days after written notice of the breach to the
breaching party; or
(d) the stockholders of HCPI or AHP do not vote to approve the merger or
merger agreement in the manner required by the merger agreement; or
- by HCPI if:
(a) the AHP board withdraws or modifies its recommendation of the merger
in a manner adverse to HCPI;
(b) the AHP board fails to reaffirm approval or recommendation of the
merger or the merger agreement within five business days of a
request to do so by HCPI;
(c) AHP approves or recommends any Acquisition Proposal; or
(d) the AHP board resolves to take any of the above three actions.
Termination Fees. AHP has agreed to pay HCPI up to $18.7 million as a
termination fee if either of the following events occur:
- HCPI terminates the merger agreement because:
(a) the AHP board withdraws or modifies its recommendation of the merger
in a manner adverse to HCPI;
(b) the AHP board fails to reaffirm approval or recommendation of the
merger or the merger agreement within five business days of a
request to do so by HCPI;
(c) AHP approves or recommends any Acquisition Proposal; or
(d) the AHP board resolves to take any of the above actions;
I-60
<PAGE> 72
provided, that AHP will not be obliged to pay the termination fee under
these circumstances if the merger has not occurred on or before January
31, 2000 through no fault of AHP, HCPI has breached the merger agreement
in a manner that would result in the failure of HCPI to satisfy one of
the conditions to the merger; or the required approval of HCPI's
stockholders has not been obtained.
- Prior to the AHP special meeting, a third party makes an Acquisition
Proposal to AHP or to its stockholders, and:
(a) the merger agreement is terminated because AHP stockholders fail to
approve the merger;
(b) HCPI terminates the merger agreement as a result of a breach of the
merger agreement in a manner that would result in the failure of AHP
to satisfy one of the conditions of the merger; or
(c) HCPI terminates the merger agreement because the merger has not
occurred on or before January 31, 2000 through no fault of HCPI.
Expenses. Except as described below, HCPI and AHP will bear their own
expenses in connection with the merger.
If HCPI terminates the merger agreement because:
- the AHP stockholders fail to approve the merger agreement;
- the merger has not occurred on or before January 31, 2000 through no
fault of HCPI;
- AHP has breached the merger agreement in a manner that would result in
the failure of AHP to satisfy one of the conditions of the merger;
- AHP withdraws or modifies its recommendation of the merger in a manner
adverse to HCPI; or
- the AHP board fails to reaffirm its approval or recommendation of the
merger or approves or recommends an Acquisition Proposal
then AHP has agreed to reimburse HCPI, up to a maximum of $2 million, for its
fees and expenses paid in connection with the merger unless AHP would also be
entitled to terminate the merger agreement because:
- the merger has not occurred on or before January 31, 2000 through no
fault of AHP;
- HCPI has breached the merger agreement in a manner that would result in
the failure of HCPI to satisfy one of the conditions to the merger; or
- the required approval of HCPI stockholders has not been obtained.
If AHP terminates the merger agreement:
- because the HCPI stockholders fail to approve the merger agreement
- because HCPI has breached the merger agreement in a manner that would
result in the failure of HCPI to satisfy one of the conditions to the
merger;
- or the merger has not occurred on or before January 31, 2000 through no
fault of AHP.
HCPI has agreed to reimburse AHP, up to a maximum of $2 million, for its
fees and expenses paid in connection with the merger, unless HCPI would also be
entitled to terminate the merger agreement because:
- the merger has not occurred on or before January 31, 2000 through no
fault of HCPI;
I-61
<PAGE> 73
- AHP has breached the merger agreement in a manner that would result in
the failure of HCPI to satisfy one of the conditions to the merger; or
- the required approval of AHP stockholders has not been obtained.
AMENDMENT AND WAIVER
HCPI and AHP may amend the merger agreement at any time, but, after
approval of the merger agreement by the HCPI stockholders and AHP stockholders,
no amendment may be made that by law requires further approval by the
stockholders unless their further approval is obtained.
At any time prior to the agreed upon time for the closing of the merger, or
any other date agreed to by HCPI and AHP, HCPI and AHP may:
- extend the time for the performance of any of the obligations or other
acts of the other party required by the merger agreement;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered in connection with the
merger agreement; and
- waive compliance with any of the agreements or conditions of the other
party contained in the merger agreement.
Extensions or waivers must be in writing and signed by the party granting the
extension or waiver.
I-62
<PAGE> 74
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
At the close of business on September 23, 1999, the record date for the
HCPI special meeting and the AHP special meeting, there were approximately 1,456
holders of record of HCPI common stock and 3,842 holders of record of AHP common
stock.
MARKET PRICES AND DIVIDENDS
HCPI common stock is listed on The New York Stock Exchange under the symbol
"HCP." AHP common stock is listed on The New York Stock Exchange under the
symbol "AHE."
The following table lists the high and low trading prices per share of HCPI
common stock and AHP common stock as reported on The New York Stock Exchange
Composite Transaction Tape based on published financial sources for the
quarterly periods indicated, which correspond to the companies' respective
quarterly fiscal periods for financial reporting purposes.
<TABLE>
<CAPTION>
HCPI AHP
COMMON COMMON
STOCK STOCK
--------------- DIVIDEND --------------- DIVIDEND
HIGH LOW PAID(1) HIGH LOW PAID(2)
---- --- ----------- ---- --- -----------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter.............. 37 3/8 32 7/8 0.60 26 22 7/8 .5250
Second Quarter............. 36 1/8 31 7/8 0.61 26 3/8 23 .5250
Third Quarter.............. 38 3/4 35 1/4 0.62 25 15/16 24 7/16 .5250
Fourth Quarter............. 40 3/8 37 3/16 0.63 28 24 .5250
1998:
First Quarter.............. 39 7/16 35 1/2 0.64 29 26 .5450
Second Quarter............. 37 32 3/4 0.65 28 1/4 24 3/4 .5450
Third Quarter.............. 37 7/8 29 9/16 0.66 26 3/4 21 1/2 .5450
Fourth Quarter............. 35 7/8 28 7/8 0.67 24 19 7/8 .5450
1999:
First Quarter.............. 31 13/16 26 1/2 0.68 21 15/16 17 1/4 .5650
Second Quarter............. 33 1/8 26 7/8 0.69 20 15/16 17 1/8 .5650
Third Quarter (through
September 21, 1999)..... 29 1/8 24 1/16 0.70 20 11/16 17 3/4 .5650
</TABLE>
- -------------------------
(1) HCPI's dividend paid in a particular quarter is for the same quarter.
(2) AHP's dividend paid in a particular quarter is for the preceding quarter.
HCPI has increased its dividend each quarter for the past 55 consecutive
quarters and currently plans to continue paying its quarterly cash dividend
after completion of the merger. The HCPI board may, however, increase or
decrease the per share cash dividend amount.
COMPARATIVE MARKET DATA
The following table presents trading information for HCPI common stock and
AHP common stock for August 3, 1999 and September 21, 1999. August 3, 1999 was
the last full trading day prior to the public announcement of the proposed
merger. September 21, 1999 was the last practicable trading day for which
information was available prior to the date of the first mailing of this joint
proxy statement/prospectus. AHP pro forma equivalent high, low and
I-63
<PAGE> 75
closing stock prices are computed by multiplying the HCPI high, low and closing
stock prices by the exchange ratio of 0.78.
<TABLE>
<CAPTION>
HCPI AHP AHP
COMMON STOCK COMMON STOCK PRO FORMA EQUIVALENT
-------------------------- -------------------------- --------------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
---- --- ----- ---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 3, 1999......... 26 5/16 25 7/8 25 7/8 18 3/8 17 7/8 18 20 1/2 20 3/16 20 3/16
September 21, 1999..... 25 9/16 25 1/4 25 1/4 19 3/8 19 19 1/16 19 15/16 19 11/16 19 11/16
</TABLE>
The market prices of HCPI common stock and AHP common stock fluctuate. As a
result, we urge you to obtain current market quotations of HCPI common stock and
AHP common stock.
I-64
<PAGE> 76
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect
to the merger using the purchase method of accounting, after giving effect to
the pro forma adjustments described in the accompanying notes. The unaudited pro
forma combined balance sheet gives effect to the merger as if it had occurred on
June 30, 1999. The unaudited pro forma combined statements of income for the
year ended December 31, 1998 and the six months ended June 30, 1999 give effect
to the merger as if it had occurred on January 1, 1998.
PLEASE REMEMBER THAT THE INFORMATION PRESENTED IN THE FOLLOWING PRO FORMA
COMBINED FINANCIAL STATEMENTS IS ONLY HYPOTHETICAL AND DOES NOT NECESSARILY
REFLECT THE FINANCIAL PERFORMANCE THAT WOULD HAVE ACTUALLY RESULTED IF THE
MERGER HAD BEEN COMPLETED ON THOSE DATES. FURTHER, THIS INFORMATION DOES NOT
NECESSARILY REFLECT FUTURE FINANCIAL PERFORMANCE IF THE MERGER ACTUALLY OCCURS.
This information is only a summary and you should read it together with the
historical financial statements and related notes contained in the annual
reports, quarterly reports and other information that HCPI and AHP have filed
with the SEC and incorporated by reference. See "Where You Can Find More
Information."
I-65
<PAGE> 77
HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
HEALTH CARE AMERICAN
PROPERTY HEALTH PRO FORMA
INVESTORS, INC. PROPERTIES, INC. ADJUSTMENTS PRO FORMA
--------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Real Estate Investments
Buildings and Improvements............... $1,286,948 $ 707,673 $ 66,323(1) $2,060,944
Accumulated Depreciation................. (208,803) (113,044) 113,044(1) (208,803)
---------- --------- --------- ----------
1,078,145 594,629 179,367 1,852,141
Construction in Progress................. 20,629 21,656 42,285
Land..................................... 163,689 72,172 235,861
---------- --------- --------- ----------
1,262,463 688,457 179,367 2,130,287
Investments in and Advances to
Partnerships............................. 53,404 0 53,404
Loans Receivable........................... 174,460 8,340 (635)(1) 182,165
Other Assets............................... 17,251 12,950 (2,888)(1) 27,313
Cash and Cash Equivalents.................. 5,416 74,085 79,501
---------- --------- --------- ----------
TOTAL ASSETS............................... $1,512,994 $ 783,832 $ 175,844 $2,472,670
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank Notes Payable......................... $ 117,700 $ 51,000 $ 49,600(2) $ 218,300
Senior Notes Payable....................... 551,106 219,219 (4,239)(1) 766,086
Convertible Subordinated Notes due 2000.... 100,000 0 100,000
Mortgage Notes Payable..................... 61,196 24,484 85,680
Accounts Payable, Accrued Expenses and
Deferred Income.......................... 28,273 32,992 61,265
Minority Interests in Partnerships......... 40,514 334 40,848
STOCKHOLDERS' EQUITY
Preferred Stock.......................... 187,847 100,000 (11,850)(1) 275,997
Common Stock............................. 32,044 250 19,238(1) 51,532
Additional Paid-In Capital............... 463,420 515,952 (37,304)(1) 942,068
Cumulative Net Income.................... 570,980 411,374 (411,374)(1) 570,980
Cumulative Dividends..................... (640,086) (571,773) 571,773(1) (640,086)
---------- --------- --------- ----------
Total Stockholders' Equity................. 614,205 455,803 130,483 1,200,491
---------- --------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $1,512,994 $ 783,832 $ 175,844 $2,472,670
========== ========= ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
I-66
<PAGE> 78
HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
HEALTH CARE AMERICAN
PROPERTY HEALTH PRO FORMA
INVESTORS, INC. PROPERTIES, INC. ADJUSTMENTS PRO FORMA
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE
Rental Income..................... $ 84,986 $52,909 $ $137,895
Tenant Reimbursements............. 4,071 1,435 5,506
Interest and Other Income......... 12,376 1,247 13,623
-------- ------- ------- --------
101,433 55,591 157,024
-------- ------- ------- --------
EXPENSE
Interest Expense.................. 25,743 10,675 2,429(3) 38,847
Depreciation / Non Cash Charges... 21,064 10,918 1,710(4) 33,692
Facility Operating Expenses....... 7,758 3,244 11,002
Other Expenses.................... 4,981 4,337 (3,835)(5) 5,483
-------- ------- ------- --------
59,546 29,174 304 89,024
-------- ------- ------- --------
INCOME FROM OPERATIONS.............. 41,887 26,417 (304) 68,000
Minority Interests................ (2,985) (94) (3,079)
Gain on Sale of Real Estate
Properties..................... 152 55,133 55,285
-------- ------- ------- --------
NET INCOME.......................... 39,054 81,456 (304) 120,206
-------- ------- ------- --------
DIVIDENDS TO PREFERRED
STOCKHOLDERS...................... 8,219 4,300 12,519
NET INCOME APPLICABLE TO PSYCHIATRIC
GROUP DEPOSITORY SHARES........... 1,378 1,378
-------- ------- ------- --------
NET INCOME APPLICABLE TO COMMON
SHARES............................ $ 30,835 $75,778 $ (304) $106,309(6)
======== ======= ======= ========
BASIC EARNINGS PER COMMON SHARE..... $ 0.98 $ 3.03 $ 2.09(6)
======== ======= ========
DILUTED EARNINGS PER COMMON SHARE... $ 0.98 $ 3.01 $ 2.04(6)
======== ======= ========
FUNDS FROM OPERATIONS(7)............ $ 51,062 $32,548 $ 2,260(8) $ 85,870(6)
======== ======= ======= ========
DIVIDENDS PER COMMON SHARE.......... $ 1.37 $ 1.13 $ 1.37
======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING-
BASIC............................. 31,353 24,988 (5,500)(9) 50,841
======== ======= ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING-
DILUTED........................... 31,467 25,180 (2,378)(9) 54,269
======== ======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
I-67
<PAGE> 79
HEALTH CARE PROPERTY INVESTORS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
HEALTH CARE AMERICAN
PROPERTY HEALTH PRO FORMA
INVESTORS, INC. PROPERTIES, INC. ADJUSTMENTS PRO FORMA
--------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE
Rental Income.................... $134,158 $105,600 $ $239,758
Tenant Reimbursements............ 2,800 2,099 4,899
Interest and Other Income........ 24,591 5,023 29,614
-------- -------- ------- --------
161,549 112,722 274,271
-------- -------- ------- --------
EXPENSE
Interest Expense................. 36,753 21,609 4,845(3) 63,207
Depreciation/Non Cash Charges.... 32,523 21,354 3,411(4) 57,288
Facility Operating Expenses...... 5,053 5,769 10,822
Impairment Loss on Real Estate
and Notes Receivable........... 8,330 8,330
Other Expenses................... 8,566 9,006 (8,003)(5) 9,569
-------- -------- ------- --------
82,895 66,068 253 149,216
-------- -------- ------- --------
INCOME FROM OPERATIONS........... 78,654 46,654 (253) 125,055
Minority Interests............... (5,540) (189) (5,729)
Gain on Sale of Real Estate
Properties..................... 14,053 0 14,053
-------- -------- ------- --------
NET INCOME....................... 87,167 46,465 (253) 133,379
-------- -------- ------- --------
DIVIDENDS TO PREFERRED
STOCKHOLDERS................... 8,532 8,600 17,132
NET LOSS APPLICABLE TO
PSYCHIATRIC GROUP DEPOSITARY
SHARES......................... (5,180) (5,180)
-------- -------- ------- --------
NET INCOME APPLICABLE TO COMMON
SHARES......................... $ 78,635 $ 43,045 $ (253) $121,427(6)
======== ======== ======= ========
BASIC EARNINGS PER COMMON SHARE.. $ 2.56 $ 1.77 $ 2.42(6)
======== ======== ========
DILUTED EARNINGS PER COMMON
SHARE.......................... $ 2.54 $ 1.75 $ 2.41(6)
======== ======== ========
FUNDS FROM OPERATIONS(7)......... $ 96,255 $ 63,485 $ 4,879(8) $164,619(6)
======== ======== ======= ========
DIVIDENDS PER COMMON SHARE....... $ 2.62 $ 2.20 $ 2.62
======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING -- BASIC........... 30,747 24,379 (4,891)(9) 50,235
======== ======== ======= ========
WEIGHTED AVERAGE SHARES
OUTSTANDING -- DILUTED......... 33,664 24,605 (5,119)(9) 53,150
======== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
I-68
<PAGE> 80
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BALANCE SHEET
(1) Adjustments to reflect (a) the estimated fair value of assets acquired
and liabilities assumed, (b) the elimination of AHP stockholders' equity, (c)
the issuance of HCPI's common stock in exchange for all the outstanding common
stock of AHP and (d) the conversion of AHP series B cumulative redeemable
preferred stock into HCPI series C cumulative redeemable preferred stock.
Components of the estimated purchase price (in thousands):
<TABLE>
<S> <C>
LIABILITIES ASSUMED:
Existing Liabilities Assumed........................... $328,029
Estimated Fair Value Decrease in Liabilities........... (4,239)
Estimated Increase in Bank Credit Facility............. 49,600
--------
Estimated Total Liabilities Assumed.................... 373,390
--------
EQUITY ISSUED:
Preferred Stock (4,000,000 depositary shares valued at
$22.04, the average closing price of AHP series B
cumulative redeemable preferred depositary shares
during the week of August 2, 1999)................... 88,150
Common Stock (19,488,000 shares valued at $25.57 per
share, the average closing price of HCPI common stock
during the week of August 2, 1999)................... 498,386
Estimated Registration Costs........................... (250)
--------
Estimated Equity Issued................................ 586,286
--------
Estimated Total Purchase Price......................... $959,676
========
</TABLE>
Fair value of the real estate properties are based on preliminary
estimates. HCPI is in the process of determining fair values on a
property-by-property basis using the present value of future cash flows.
Senior Notes Payable have been adjusted to estimated fair values based
upon current interest rates.
Estimated allocation of the purchase price (in thousands):
<TABLE>
<S> <C>
Cash and Cash equivalents.............................. $ 74,085
Estimated Real Estate Properties....................... 867,824
Estimated Loans Receivable............................. 7,705
Estimated Other Assets................................. 10,062
--------
Estimated Assets Acquired.............................. $959,676
========
</TABLE>
I-69
<PAGE> 81
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(2) Adjustment to reflect estimated borrowings required to fund the amounts
listed below in connection with the merger (in thousands):
<TABLE>
<S> <C>
AHP executive employment and consulting agreements
costs................................................. $19,200
Estimated cash payments for AHP common stock options and
rights................................................ 9,200(a)
Other AHP employee and director compensation cost....... 3,600
Financial advisory, legal, accounting and other costs... 17,600
-------
$49,600
=======
</TABLE>
- -------------------------
(a) assumes that currently outstanding options to acquire AHP common
stock will not be exercised prior to the completion of the merger
and will instead be converted into the right to receive cash.
STATEMENTS OF INCOME
(3) Adjustment to reflect the effect of (a) the increase in interest
expense related to additional borrowings described in the adjustment described
in Note (2) applying an 8.25% annual interest rate (a change of 0.125% in this
interest rate would result in a $62,000 annual change in this interest expense
adjustment) and (b) the increase in interest expense related to adjusting
assumed liabilities to estimated fair value.
(4) Adjustment to reflect (a) increased depreciation expense associated
with the increase to fair value of the AHP depreciable property using the
straight-line method over a 35-year period and (b) elimination of amortization
expense related to intangible assets which have no continuing value to HCPI
after the merger.
(5) Adjustments to reflect the net reduction in general and administrative
expenses resulting from (a) the elimination of most of AHP's payroll and
corporate office costs, (b) the elimination of duplicative administrative costs
and offset by (c) increased payroll and related costs pertaining to additional
employees required by HCPI due to the merger.
(6) If the adjustments referred to in (5) above had not been made, (a) pro
forma net income applicable to common shares would have been $102,474 and
$113,424 for the six months ended June 30, 1999 and the year ended December 31,
1998, respectively, (b) pro forma basic earnings per common share would have
been $2.02 and $2.26 for the six months ended June 30, 1999 and the year ended
December 31, 1998, respectively, (c) pro forma diluted earnings per common share
would have been $1.96 and $2.26 for the six months ended June 30, 1999 and the
year ended December 31, 1998, respectively, and (d) pro forma funds from
operations would have been $82,035 and $156,616 for the six months ended June
30, 1999 and the year ended December 31, 1998, respectively.
(7) HCPI believes that funds from operations is an important supplemental
measure of operating performance. Funds from operations is defined as net income
applicable to common shares (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructure and
sales of property, plus real estate depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from operations does not,
and is not intended to, represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered as
an alternative to net income. Funds from
I-70
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
operations, as defined by HCPI, may not be comparable to similarly titled items
reported by other real estate investment trusts that do not define it in
accordance with the definition prescribed by the National Association of Real
Estate Investment Trusts (NAREIT).
(8) Adjustment to reflect the effect of the merger upon funds from
operations due to (a) additional interest expense on additional borrowings
discussed in Note (2) and an increase in interest expense related to adjusting
assumed liabilities to estimated fair value, (b) elimination of non-cash
amortization due to the elimination of intangible assets with no future value
after the completion of the merger and (c) impact of adjustments to general and
administrative expenses discussed in Note (5).
(9) Adjustment to reflect the impact of the issuance of HCPI common stock
by applying the exchange ratio of 0.78 to the outstanding AHP common stock.
Assumes that currently outstanding options to acquire AHP common stock will not
be exercised prior to completion of the merger and will instead be converted
into the right to receive cash.
I-71
<PAGE> 83
OPINION OF FINANCIAL ADVISOR TO HCPI
In July, 1999 HCPI retained Merrill Lynch to act as its exclusive financial
advisor in connection with the evaluation of various strategic alternatives
available to HCPI.
On August 3, 1999, Merrill Lynch delivered a fairness opinion to the HCPI
board stating that, as of August 3, 1999, and based upon the assumptions made,
matters considered and limits of review set forth in the opinion, the exchange
ratio in the merger is fair, from a financial point of view, to HCPI.
THE FULL TEXT OF THE MERRILL LYNCH FAIRNESS OPINION, WHICH DISCUSSES
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX C AND IS INCORPORATED
BY REFERENCE. THE DESCRIPTION OF THE MERRILL LYNCH OPINION PROVIDED IN THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
MERRILL LYNCH OPINION. STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS
ENTIRETY.
The Merrill Lynch opinion is addressed to the HCPI board and addresses only
the fairness, from a financial point of view, of the exchange ratio in the
merger and does not address the merits of the underlying decision by HCPI to
engage in the merger and does not constitute, nor should it be construed as, a
recommendation to any stockholder as to how that stockholder should vote at the
special meeting. The exchange ratio was determined on the basis of negotiations
between HCPI and AHP and was approved by the HCPI board.
In connection with the preparation of the fairness opinion, Merrill Lynch,
among other things:
(1) reviewed publicly available business and financial information relating
to HCPI and AHP which it deemed to be relevant;
(2) reviewed information, including financial forecasts, relating to the
business, earnings, funds from operations, cash flow, assets,
liabilities and prospects of HCPI and AHP furnished to it by HCPI and
AHP, as well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the merger furnished to
it by HCPI and AHP, respectively;
(3) conducted discussions with members of senior management of HCPI and AHP
concerning the matters described in items (1) and (2) above, as well as
their respective businesses and prospects before and after giving
effect to the merger and the expected synergies;
(4) reviewed the market prices and valuation multiples for the HCPI common
stock and AHP common stock and compared them with those of publicly
traded companies that it deemed relevant;
(5) reviewed the results of operations of HCPI and AHP and compared them
with those of publicly traded companies that it deemed to be relevant;
(6) participated in discussions and negotiations among representatives of
HCPI and AHP and their financial and legal advisors;
(7) reviewed the potential pro forma affect of the merger;
(8) reviewed a draft dated August 3, 1999 of the merger agreement; and
I-72
<PAGE> 84
(9) reviewed such other financial studies and analyses and took into
account such other matters as it deemed necessary, including its
assessment of general economic, market and monetary conditions.
In preparing its fairness opinion, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available,
and has not assumed any responsibility for independently verifying this
information or undertaken an independent evaluation or appraisal of any of the
assets or liabilities of HCPI and AHP or been furnished with or undertaken any
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of HCPI and AHP. In addition, Merrill Lynch has not assumed any
obligation to conduct any physical inspection of the properties or facilities of
HCPI and AHP. With respect to the financial forecast information and the
expected synergies furnished to or discussed with Merrill Lynch by HCPI and AHP,
Merrill Lynch has assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of HCPI's and AHP's
management as to the expected future financial performance of HCPI and AHP, as
the case may be, and the expected synergies. Merrill Lynch has also assumed that
the final form of the merger agreement is substantially similar to the last
draft reviewed by Merrill Lynch.
Merrill Lynch expressed no opinion as to the price at which HCPI common
stock will trade following consummation of the merger. Merrill Lynch's opinion
does not address the relative merits of the merger and alternate business
combinations with third parties.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to Merrill Lynch as of August 3, 1999, the date of its opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the merger. Merrill Lynch also assumed that each of
HCPI and AHP has qualified as a real estate investment trust for federal income
tax purposes at all times since its respective public offering and will continue
to be so qualified, and the combined company will continue to qualify after the
merger as a real estate investment trust for federal income tax purposes.
At the meeting of the HCPI board held on August 3, 1999, Merrill Lynch
presented financial analyses accompanied by written materials in connection with
the delivery of its opinion. The following is a summary of the material
financial and comparative analyses performed by Merrill Lynch in arriving at its
opinion.
The following summaries of financial analyses include information presented
in tabular format. You should read these tables together with the text of each
summary.
VALUATION OF AHP
Current Market Value and Market Capitalization. Merrill Lynch reviewed
trading information for AHP and, on the basis of this information, calculated
its market value, market capitalization and trading multiples based on the
closing price of its common stock as of August 3, 1999 of $18.00. For this
purpose, Merrill Lynch defined "total market capitalization" as market value of
the AHP common stock, plus liquidation value of the AHP series B preferred
stock, plus total debt minus cash. Merrill Lynch then calculated the market
value of
I-73
<PAGE> 85
AHP as a multiple of projected funds from operations. This analysis indicated
the following multiples for AHP:
<TABLE>
<CAPTION>
PRICE AS A MULTIPLE OF
FISCAL YEAR FUNDS FROM OPERATIONS*
----------- ----------------------
<S> <C>
1999E.......................... 6.9x
2000E.......................... 6.7x
</TABLE>
- -------------------------
* Based on mean estimates of funds from operations provided by First Call
Corporation (an industry service provider of earnings estimates based on an
average of earnings estimates published by various investment banking firms).
Merrill Lynch reviewed HCPI's offer for AHP and, on that basis and using
the publicly available closing price of HCPI common stock and the number of
shares outstanding of HCPI common stock as of August 3, 1999 and using an
estimation of AHP's debt and cost balances as of June 30, 1999 provided by AHP's
management, calculated a total transaction value of $919.2 million as follows:
<TABLE>
<S> <C> <C>
Net Offer Value of HCPI common stock....... $ 504.2 million
Plus: Debt................................. $ 314.8 million
Plus: Perpetual Preferred Shares........... $ 102.0 million
Plus: Cash Out of In-The-Money Options..... $ 0.1 million
Less: Cash................................. $ 1.9 million
------ --------
TOTAL TRANSACTION VALUE.................... $ 919.2 MILLION
</TABLE>
Merrill Lynch also calculated offer price and transaction value as a
multiple of funds from operations based on projections provided by AHP's
management. This analysis indicated the following multiples for AHP:
<TABLE>
<CAPTION>
OFFER PRICE AS A MULTIPLE TRANSACTION VALUE AS
FISCAL YEAR OF FUNDS FROM OPERATIONS A MULTIPLE OF EBITDA
----------- ------------------------- --------------------
<S> <C> <C>
1999E................ 7.4x 5.8x
2000E................ 7.1x 8.3x
</TABLE>
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call Corporation as of August 3, 1999, Merrill Lynch compared financial
and operating information and ratios for AHP with the corresponding financial
and operating information and ratios for a group of publicly traded companies
engaged primarily in the ownership, management, operation and acquisition of
health care facility properties which Merrill Lynch deemed to be reasonably
comparable to AHP. For the purpose of its analyses, the following companies were
used as comparable companies to AHP:
- Health Care Property Investors, Inc.
- Nationwide Health Properties Inc.
- Health Care REIT Inc.
- HRPT Properties Trust
- Universal Health Realty Income Trust
- Healthcare Realty Trust Inc.
- Omega Health Care Investors Inc.
- National Health Investors Inc.
I-74
<PAGE> 86
Merrill Lynch's calculations resulted in the following relevant ranges for
the comparable companies and for AHP as of August 3, 1999:
TRADING VALUATION MULTIPLES
<TABLE>
<CAPTION>
AHP COMPARABLE
COMPANIES
--------------------
LOW MEAN HIGH AHP
---- ---- ---- ----
<S> <C> <C> <C> <C>
Projected 1999 funds from operations.......... 6.5x 7.7x 8.1x 6.9x
Projected 2000 funds from operations.......... 6.1x 7.3x 7.6x 6.7x
</TABLE>
None of the comparable companies is, of course, identical to AHP.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of those results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies, and other factors that could affect
the public trading volume of the comparable companies, as well as that of AHP.
In addition, the multiples of market value to estimated 1999 and projected 2000
funds from operations for the comparable companies are based on projections
prepared by research analysts using only publicly available information.
Accordingly, such estimates may or may not prove to be accurate.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash
flow analyses (i.e., analyses of the present value of the projected levered cash
flows for the periods using the discount rates indicated) of AHP based upon
projections provided by AHP's management of its funds from operations for the
years 1999 through 2003, inclusive. Using the discounted funds from operations
method and the discounted dividend method, this analysis indicated the
following:
DISCOUNTED FUNDS FROM OPERATIONS METHOD
<TABLE>
<CAPTION>
RANGE
---------------
<S> <C>
Discount Rate...................................... 13.0-17.0%
Terminal Value Multiple of 2003 Funds From
Operations per Share............................. 6.5x-8.5x
Equity Value per Share of AHP Common Stock......... $18.21-$24.27
</TABLE>
DISCOUNTED DIVIDEND METHOD
<TABLE>
<CAPTION>
RANGE
---------------
<S> <C>
Discount Rate...................................... 13.0 - 17.0%
Terminal Value Multiple of 2003 Funds From
Operations per Share............................. 6.5x - 8.5x
Present Value of 2001 Cash per Share of AHP Common
Stock............................................ $1.25 - $1.49
Equity Value per Share of AHP Common Stock......... $18.38 - $24.56
</TABLE>
Net Asset Valuation Analysis. Merrill Lynch performed a net asset
valuation for AHP based on an asset-by-asset real estate valuation of AHP's
properties, an estimation of the current value for AHP's other assets and
liabilities, and of AHP's debt balances as of June 30, 1999. For the operating
portfolio of AHP, the valuation used the direct capitalization method on 1999
property net operating income and a range of capitalization rates of 10.5% to
11.5%. These calculations indicated a per share net asset valuation range for
AHP of $21.61 to $25.15.
I-75
<PAGE> 87
VALUATION OF HCPI
Current Market Value and Market Capitalization. Merrill Lynch reviewed
trading information for HCPI and, on the basis of this trading information,
calculated HCPI's market value, market capitalization and trading multiples
based on the closing price of HCPI common stock as of August 3, 1999 of $25.88.
For this purpose, Merrill Lynch defined "total market capitalization" as market
value of HCPI's common stock, plus the liquidation value of perpetual preferred
stock, plus total debt minus cash. Merrill Lynch then calculated the market
value of HCPI as a multiple of projected funds from operations. This analysis
indicated the following multiples for HCPI:
<TABLE>
<CAPTION>
PRICE AS A MULTIPLE OF
FISCAL YEAR FUNDS FROM OPERATIONS*
- ----------- -------------------------
<S> <C>
1999E........................ 8.1x
2000E........................ 7.7x
</TABLE>
- -------------------------
* Based on mean estimates of funds from operations provided by First Call
Corporation
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call Corporation as of August 3, 1999, Merrill Lynch compared financial
and operating information and ratios for HCPI with the corresponding financial
and operating information and ratios for a group of publicly traded companies
engaged primarily in the ownership, management, operation and acquisition of
health care facility properties which Merrill Lynch deemed to be reasonably
comparable to HCPI. For the purpose of its analyses, the following companies
were used as comparable companies to HCPI:
- American Health Properties, Inc.
- Nationwide Health Properties Inc.
- Health Care REIT Inc.
- HRPT Properties Trust
- Universal Health Realty Trust
- Healthcare Realty Trust Inc.
- Omega Health Care Investors Inc.
- National Health Investors Inc.
Merrill Lynch's calculations resulted in the following relevant ranges for
the comparable companies and for HCPI as of August 3, 1999:
TRADING VALUATION MULTIPLES
<TABLE>
<CAPTION>
HCPI COMPARABLE COMPANIES
--------------------------
LOW MEAN HIGH HCPI
------ ------ ------ ----
<S> <C> <C> <C> <C>
Projected 1999 funds from operations....... 6.5x 7.5x 8.1x 8.1x
Projected 2000 funds from operations....... 6.1x 7.1x 7.6x 7.7x
</TABLE>
None of the comparable companies is, of course, identical to HCPI.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies, and other factors that could affect
the public trading volume of the comparable companies, as well as that
I-76
<PAGE> 88
of HCPI. In addition, the multiples of market value to estimated 1999 and
projected 2000 funds from operations for the comparable companies are based on
projections prepared by research analysts using only publicly available
information. Accordingly, such estimates may or may not prove to be accurate.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash
flow analyses (i.e., analyses of the present value of the projected levered cash
flows for the periods using the discount rates indicated) of HCPI based upon
projections provided by HCPI's management of its funds from operations for the
years 1999 through 2003, inclusive. Using the discounted funds from operations
and the discounted dividend method, this analysis indicated the following:
DISCOUNTED FUNDS FROM OPERATIONS METHOD
<TABLE>
<CAPTION>
RANGE
---------------
<S> <C>
Discount Rate...................................... 13.0 - 17.0%
Terminal Value Multiple of 2003 Funds From
Operations per share............................. 7.5x - 9.5x
Equity Value per Share of HCPI Common Stock........ $24.29 - $32.11
</TABLE>
DISCOUNTED DIVIDEND METHOD
<TABLE>
<CAPTION>
RANGE
---------------
<S> <C>
Discount Rate...................................... 13.0 - 17.0%
Terminal Value Multiple of 2003 Funds From
Operations per Share............................. 7.5x - 9.5x
Present Value of 2001 Cash per Share............... $1.56 - $1.86
Equity Value per Share of HCPI Common Stock........ $24.29 -$32.48
</TABLE>
Net Asset Valuation Analysis. Merrill Lynch performed a net asset
valuation for HCPI based on an asset-by-asset real estate valuation of HCPI's
properties, an estimation of the current value for HCPI's other assets and
liabilities, and of HCPI's debt balances as of June 30, 1999. For the operating
portfolio of HCPI, the valuation used the direct capitalization method on 1999
property net operating income and a range of capitalization rates of 10.0% to
11.0%. These calculations indicated a per share net asset valuation range for
HCPI of $24.26 to $28.25.
PRO FORMA MERGER CONSEQUENCES
Comparative Valuation -- Implied Exchange Ratio Analysis. Merrill Lynch
used the results of the valuation analyses of HCPI and AHP described above to
calculate a range of implied exchange ratios for the pro forma combined entity.
This analysis indicated the following:
<TABLE>
<CAPTION>
IMPLIED EXCHANGE RATIOS
--------------------------
COMPARATIVE VALUATION METHOD LOW MEAN HIGH EXCHANGE RATIO*
- ---------------------------- ------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Public Comparables.......... 0.662x 0.834x 1.010x 0.780x
Discounted Cash Flow
Analysis Funds From
Operations Method......... 0.654x 0.753x 0.867x 0.780x
Net Asset Valuation......... 0.716x 0.856x 1.025x 0.780x
</TABLE>
- -------------------------
* Exchange ratio in the merger.
I-77
<PAGE> 89
Pro Forma Combination Analysis. Merrill Lynch analyzed the pro forma
effects resulting from the merger, including the potential impact on AHP's
projected stand-alone funds from operations per share and the anticipated
accretion (i.e., the incremental increase) to HCPI's funds from operations per
share resulting from the merger. Merrill Lynch observed that, after giving
effect to the expected synergies, the merger would be accretive to HCPI's
projected funds from operations per share in each of the following years:
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS FUNDS FROM OPERATIONS
FISCAL YEAR ACCRETION PER SHARE ($) ACCRETION PER SHARE (%)
- ----------- ----------------------- -----------------------
<S> <C> <C>
1999E................ $0.10 3.6%
2000E................ $0.11 3.4%
2001E................ $0.08 3.4%
</TABLE>
Merrill Lynch also observed that the indicated annual dividend per share of
the HCPI common stock on a pro forma basis after giving effect to the merger
would be as follows, implying no reduction in HCPI's current indicated dividend
rate:
<TABLE>
<CAPTION>
COMMON DIVIDENDS PER SHARE OF
FISCAL YEAR HCPI COMMON STOCK
- ----------- -----------------------------
<S> <C>
1999E................... $2.78
2000E................... $2.94
2001E................... $3.10
</TABLE>
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at its fairness opinion.
The preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the process underlying its
fairness opinion. In its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond HCPI's, AHP's and Merrill Lynch's
control. Any estimates contained in Merrill Lynch's analyses are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Estimated values do not purport to be appraisals and
do not necessarily reflect the prices at which businesses or companies may be
sold in the future, and such estimates are inherently subject to uncertainty.
The HCPI board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the merger and because it is
familiar with AHP and its business. Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to a letter agreement dated July 15, 1999, HCPI has paid or has
agreed to pay fees to Merrill Lynch as follows:
(1) a fee of $100,000 on the date of the letter agreement;
(2) an additional fee of $750,000 on the date Merrill Lynch rendered its
opinion; and
(3) on the date that the merger is consummated, 0.55% of the purchase price
as defined in the letter agreement, with any fees paid under items (1) and (2)
above used to offset any amount due under this item (3). The term "purchase
price" means an amount equal to the sum of the aggregate fair market value (as
determined by HCPI and Merrill Lynch on
I-78
<PAGE> 90
August 3, 1999) of the securities to be issued and any other non-cash or cash
consideration delivered to AHP or its security holders in the merger and the
amount of all indebtedness of AHP which is assumed by HCPI in the merger.
HCPI also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with its advisory work, including
the reasonable fees and disbursements of its legal counsel, subject to
limitations, and to indemnify Merrill Lynch and other related persons against
some liabilities arising out of or in conjunction with its rendering of services
under the letter agreement, including liabilities under the federal securities
law.
Merrill Lynch may provide financial advisory and financing services to HCPI
and may receive fees for the rendering of these services. In the ordinary course
of its business, Merrill Lynch may actively trade in the securities of HCPI for
its own account and the account of its customers and, accordingly, may at any
time hold a long or short position in HCPI's securities.
I-79
<PAGE> 91
OPINION OF FINANCIAL ADVISOR TO AHP
At the August 3, 1999 meeting of the AHP board, Goldman Sachs rendered its
oral opinion, which was subsequently confirmed by a written opinion dated August
4, 1999, that as of such date, and based upon and subject to the various
qualifications and assumptions described therein, the exchange ratio of 0.78
shares of HCPI common stock to be received for each share of AHP common stock
pursuant to the merger agreement is fair from a financial point of view to the
holders of AHP common stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AUGUST 4, 1999
WHICH SETS FORTH ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION IS ATTACHED
AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF AHP COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. GOLDMAN SACHS' OPINION IS ADDRESSED TO THE AHP BOARD
AND ADDRESSES ONLY THE FAIRNESS TO THE HOLDERS OF AHP COMMON STOCK OF THE
EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF AHP COMMON STOCK AS TO HOW SUCH HOLDER SHOULD
VOTE WITH RESPECT TO THE MERGER.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the Annual Reports to Stockholders and Annual Reports on Form 10-K of AHP
and of HCPI for each of the three years in the three-year period ended
December 31, 1998;
- interim reports to stockholders and Quarterly Reports on Form 10-Q of
HCPI and AHP;
- other communications from HCPI and AHP to their respective stockholders;
and
- internal financial analyses and forecasts for HCPI and AHP prepared by
their respective managements, including the projected cost savings and
operating synergies projected by the management of AHP resulting from the
merger.
Goldman Sachs also held discussions with members of the senior management
of HCPI and AHP regarding the strategic rationale for, and the potential
benefits of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs reviewed the reported price and trading activity for the AHP
common stock and the HCPI common stock, compared financial and stock market
information for HCPI and AHP with similar information for other companies, the
securities of which are publicly traded, reviewed the financial terms of recent
business combinations in the real estate industry specifically and performed
such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with AHP's consent, that the projected cost savings and operating
synergies projected by the management of AHP resulting from the merger were
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the management of AHP. In addition, Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of HCPI or
AHP or any of their subsidiaries and Goldman Sachs was not furnished with any
such evaluation or appraisal. The opinion was provided for the information and
assistance of the AHP board in connection with its consideration of the merger
and such opinion does not constitute a recommendation as to how any holder of
AHP common stock should vote with respect to such transaction.
I-80
<PAGE> 92
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the AHP board on
August 3, 1999. Goldman Sachs utilized substantially the same type of financial
analysis in connection with providing its written opinion, dated August 4, 1999,
to the AHP board.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
COMPARABLE COMPANIES ANALYSIS
Goldman Sachs reviewed and compared financial information relating to AHP
to corresponding financial information, ratios and public market multiples for
the following publicly traded real estate investment trusts: Universal Health
Realty Income Trust, Health Care REIT Inc., G&L Realty Corporation, Healthcare
Realty Trust, Nationwide Health Properties Inc., National Health Investors Inc.,
LTC Properties Inc. and Omega Healthcare Investors Inc. These companies were
chosen because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to AHP. Like AHP, each of these
companies is a publicly traded real estate investment trust that has investments
in healthcare facilities. The financial information for these companies was
based on the financial statements contained in the respective Quarterly Reports
on Form 10-Q for the period ended March 31, 1999. The financial information
related to HCPI as of and for the period ending June 30, 1999 was based on an
HCPI press release dated July 21, 1999. The financial information related to AHP
as of and for the period ending June 30, 1999 was provided by AHP. In addition,
financial information for these companies, HCPI and AHP is based on information
supplied by Institutional Brokers Estimates System and on the closing market
prices on August 2, 1999. The share prices of Healthcare Realty Trust and
Nationwide Health Properties were adjusted to account for their anticipated
ex-dividend date. Institutional Brokers Estimates System is a data service that
monitors and publishes compilations of earnings estimates by selected research
analysts regarding companies of interest to institutional investors. Goldman
Sachs' analyses of the selected companies compared the following to the results
for HCPI and AHP:
- total market capitalization;
- average daily trading volume for the 30 days prior to August 2, 1999;
- net debt as a percentage of total market capitalization;
- preferred stock as a percentage of total market capitalization;
- the estimated calendar year price/funds from operations multiples for
estimated calendar years 1999 and 2000 based on Institutional Brokers
Estimate System estimates;
- estimated 1998-1999 and 1999-2000 funds from operations growth rate based
on median Institutional Brokers Estimate System estimates;
- the ratio of estimated calendar year price/funds from operations multiple
for estimated calendar year 1999 to estimated 1999/2000 funds from
operations growth rate;
- closing price on August 2, 1999 as a percentage of fifty-two week high
share price; and
- annual dividend yield, based on most recent reported dividend.
I-81
<PAGE> 93
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
SELECTED COMPANIES
---------------------
RANGE MEDIAN AHP HCPI
----------- ------ ---- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Total market capitalization....... $227-$1,883 $982 $852 $1,883
Average daily trading volume...... $0.1-$1.9 $1.1 $1.0 $ 1.7
Net debt as a percentage of total
market capitalization........... 26.1%-52.9% 37.1% 34.4% 43.8%
Preferred Stock as a percentage of
total market capitalization..... 0.0%-27.5% 9.8% 11.7% 10.0%
Price/funds from operations
multiples estimated for 1999*... 6.7x-8.2x 7.7x 6.9x 8.2x
Price/funds from operations
multiples estimated for 2000*... 6.2x-7.7x 7.2x 6.6x 7.7x
Estimated 1998-1999 funds from
operations growth rate*......... 0.3%-10.7% 5.3% 1.6% 5.2%
Estimated 1999-2000 funds from
operations growth rate*......... 3.0%-24.0% 6.0% 5.7% 5.6%
Ratio of price/ 1999 funds from
operations multiple to growth
rate*........................... 0.3-2.5 1.2 1.2 1.5
Closing price on August 2, 1999 as
a percentage of 52-Week High.... 64.0%-91.5% 69.3% 69.3% 70.8%
Annual dividend yield............. 9.6%-14.0% 11.6% 12.4% 10.6%
</TABLE>
- -------------------------
* Based on Institutional Brokers Estimate System estimates.
SELECTED TRANSACTIONS ANALYSIS
Goldman Sachs analyzed information relating to selected transactions in the
public real estate investment trust industry since 1997. Goldman Sachs analyzed:
- the premium or discount of the implied offer price to the target stock
price on the trading day before the particular selected transaction was
announced, and
- the transaction funds from operations multiple as a percentage of the
acquiring company's funds from operations multiple for the particular
selected transaction.
These analyses indicated the following with respect to the merger and the
selected transactions:
<TABLE>
<CAPTION>
SELECTED COMPANIES
------------------------------
AHP/HCPI RANGE MEAN MEDIAN
--------- ------------ ---- ------
<S> <C> <C> <C> <C>
The premium or discount of the
implied offer price to the
target stock price on the
trading day before the
particular selected
transaction was
announced*.................. 12.8% (0.9)%-28.4% 10.8% 10.5%
The transaction funds from
operations multiple as a
percentage of the acquiring
company's funds from
operations multiple for the
particular selected
transaction*................ 95.9% 82.4%-105.4% 95.3% 96.1%
</TABLE>
- -------------------------
* Except for AHP/HCPI, in which case the calculations are based on the closing
market prices on August 2, 1999 and the public announcement of the merger was
on August 4, 1999.
I-82
<PAGE> 94
HISTORICAL EXCHANGE RATIO ANALYSIS
Goldman Sachs analyzed the historical ratios of the closing share prices of
AHP common stock to HCPI common stock (i.e., the implied exchange ratio) during
the period from August 2, 1998 to August 2, 1999. In addition, Goldman Sachs
calculated the implied transaction premiums for the merger for each period noted
below based on the closing share prices of AHP common stock and HCPI common
stock, the historical average prices of such stock for such periods, and an
exchange ratio of 0.78.
<TABLE>
<CAPTION>
PERIOD IMPLIED TRANSACTION PREMIUM
- ------ ---------------------------
<S> <C>
On August 2, 1999................ 12.8%
30 days ended August 2, 1999..... 12.7%
90 days ended August 2, 1999..... 13.9%
180 days ended August 2, 1999.... 18.2%
365 days ended August 2, 1999.... 14.2%
</TABLE>
PRO FORMA MERGER ANALYSIS
Goldman Sachs prepared pro forma analyses of the financial impact of the
transaction using (a) management estimates for HCPI and AHP and (b) street
consensus estimates. For each of the estimated years 1999 and 2000, Goldman
Sachs compared the funds from operations of HCPI common stock, on a stand-alone
basis, to the funds from operations of the common stock of the combined company
on a pro forma basis. Goldman Sachs performed this analysis based on the closing
price for HCPI and AHP on August 2, 1999 and assuming a 0.78 exchange ratio.
Based on such analyses and the street consensus estimates analysis and assuming
savings based on synergies of $8 million in 1999 and $8.5 million in 2000 the
proposed transaction would be accretive to HCPI funds from operations in both of
the above scenarios.
MISCELLANEOUS
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
HCPI or AHP or the merger. The analyses were prepared solely for purposes of
Goldman Sachs' providing its opinion to the AHP board as to the fairness, from a
financial point of view, of the exchange ratio pursuant to the merger agreement
to the holders of AHP common stock and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts or future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of HCPI, AHP, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the AHP board was one of many factors taken into consideration by the
AHP board in making its determination to approve the merger. The foregoing
summary does not purport to be a complete description of the analysis performed
by Goldman Sachs and is qualified by reference to the written opinion of Goldman
Sachs set forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions,
I-83
<PAGE> 95
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The AHP board selected Goldman Sachs as its
advisor because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the merger and because of
Goldman Sachs' familiarity with AHP. Goldman Sachs is familiar with AHP, having
acted as its advisor in connection with, and having participated in some of the
negotiations leading to, the merger agreement, as well as having acted as:
- lead-managing underwriter of an offering of $100 million of 8.60%
cumulative redeemable preferred stock, represented by depositary shares,
in October 1997;
- lead-managing underwriter of an offering of $100 million 7.05% Notes due
2002 in January 1997; and
- lead-managing underwriter of an offering of $120 million of 7.50% Notes
due 2007 in January 1997.
Goldman Sachs is also familiar with HCPI, having acted in connection with the
public offering of securities as:
- lead managing underwriter of an offering of $20 million of 7.875% Notes
due 2006 in November 1998;
- lead managing underwriter of an offering of $15 million of 6.660% Notes
due 2003 in March 1998; and
- lead managing underwriter of an offering of $10 million 7.620% Notes due
2007 in April 1997.
Goldman Sachs may provide investment banking services to HCPI in the future.
Goldman Sachs provides a full range of financial, advisory and security
services and in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of HCPI or AHP for its account and for the accounts of customers.
Pursuant to a letter agreement dated July 10, 1999, the AHP board engaged
Goldman Sachs as its financial advisor and to render an opinion with respect to
the fairness of the exchange ratio pursuant to the merger agreement to holders
of AHP common stock. Pursuant to the terms of the Goldman Sachs engagement
letter, AHP has agreed to pay Goldman Sachs a fee of $175,000 which relates to
any advisory services performed under the letter agreement in 1999 and 2000 and
a fee of 0.75% of the total consideration paid for AHP's equity securities,
including amounts paid to holders of options, warrants and convertible
securities, plus the principal amount of all indebtedness for borrowed money as
set forth on the most recent consolidated balance sheet of AHP prior to the
consummation of the merger against which the fee of $175,000 specified above is
creditable. AHP has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify Goldman
Sachs against liabilities it incurs, including liabilities under the federal
securities laws.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF AHP
IN THE MERGER
In considering the respective recommendations of the AHP board and the HCPI
board, stockholders should be aware that members of AHP's management and of the
AHP board have interests in the merger that are different from, or in addition
to, the interests of HCPI and AHP stockholders generally. The members of the AHP
board and the HCPI board knew about these additional interests, and considered
them, when they approved the merger.
I-84
<PAGE> 96
EMPLOYMENT AGREEMENTS AND BENEFIT PLANS
AHP is a party to employment agreements with Joseph P. Sullivan, Michael J.
McGee, Steven A. Roseman and C. Gregory Schonert (each, an "Executive"). Each of
the employment agreements provides for payments or benefits to be provided by
AHP in the event of the termination of an Executive's employment in specified
circumstances in the event of a change of control of AHP. The consummation of
the merger will result in a change of control of AHP for purposes of the
employment agreements.
If the Executive terminates his employment, accompanied by resignation from
his offices, if any, as an officer and director of AHP and its subsidiaries or
tenders his resignation from employment and from all offices, or if AHP or any
successor terminates an Executive's employment, including by reason of
constructive termination or otherwise, for any reason, within 180 days of a
change of control of AHP, the Executive will be entitled to receive the
following benefits:
- a lump sum severance payment equal to three times the Executive's "final
compensation level". The Executive's final compensation level is the sum
of (1) the greater of the Executive's annual base salary in effect on the
date of termination of employment or the Executive's annual base salary
in effect immediately prior to the change of control of AHP, and (2) a
bonus amount equal to the greater of the Executive's maximum bonus
opportunity under AHP's annual bonus plan in respect of the year of the
Executive's termination of employment determined as of the date of
termination or 112.5% for Mr. Sullivan and 78.75% for Messrs. McGee,
Roseman and Schonert of the amount determined under clause (1) above. The
lump sum severance payment each Executive would receive, assuming
termination occurs during 1999, is: Mr. Sullivan $3,503,000; Mr. McGee
$1,137,000; Mr. Schonert $1,207,000 and Mr. Roseman $1,078,000;
- outplacement benefits, and additional benefits, for the Executive, his
spouse and dependents, under all life, medical, dental, vision and
disability insurance, reimbursement programs, and other perquisites such
as financial counseling, in which the Executive was participating at the
earlier of the date immediately prior to the change of control of AHP and
the time of notice of termination of the Executive's employment, which
benefits will be continued until the earlier to occur of the expiration
of three (3) years following the Executive's date of termination of
employment or the Executive's acceptance of comparable employment;
provided, however, that the medical benefits for Mr. Sullivan and his
spouse and dependents will continue until the date on which he and his
spouse are eligible to be covered by Medicare; provided, further, that
upon an Executive's acceptance of comparable employment, the benefits
under plans and programs of AHP or any successor will be secondary to the
benefits available for the Executive, his spouse and dependents, from the
benefit plans maintained by the Executive's new employer;
- a lump sum payment equal to the pro-rated portion of the Executive's
bonus amount for the year in which date of termination occurs, calculated
in the same manner as for determining the Executive's lump sum severance
payment. The lump sum payment each Executive would receive, assuming
termination on December 31, 1999, is: Mr. Sullivan $618,000; Mr. McGee
$167,000; Mr. Schonert $177,000; and Mr. Roseman $158,000.
- for Mr. Sullivan only, an actuarial equivalent lump sum payment equal to
the present value of the excess of (1) the amount payable to him under
AHP's Supplemental Executive Retirement Plan determined as if he had been
credited with three additional years of age and service (with annual
compensation during such three-year period equal to his final
compensation level), over (2) the amount actually payable to him under
the Supplemental Executive Retirement Plan, assuming payment as a lump
sum. The payment to Mr. Sullivan, assuming termination on December 31,
1999, is estimated to be $1,048,000;
I-85
<PAGE> 97
- for Messrs. McGee, Schonert and Roseman only, a lump sum payment equal to
three years' additional contributions to AHP's Money Purchase Pension
Plan, determined as if the Executive had earned annual compensation
during such three year period equal to the Executive's final compensation
level. The maximum lump sum payment each Executive would receive is
$90,000;
- the immediate acceleration of vesting of all stock options and dividend
equivalent rights held by the Executive. In respect of the cancellation
of the Executive's dividend equivalent rights under each outstanding
stock option held by the Executive, a lump sum payment will be made to
the Executive based on the closing price per share of AHP's common stock
on the most recent trading day immediately prior to the payment date
unless the per-share value of the merger consideration paid to holders of
AHP common stock, determined using the closing price of HCPI common stock
on the most recent trading day immediately prior to payment, is higher.
Based upon the closing price per share of AHP's common stock and HCPI's
common stock (on September 21, 1999), the payment each Executive would
receive with respect to dividend equivalents would be as follows: (A)
with respect to accumulated dividend equivalents that have already
vested: Mr. Sullivan $2,942,000; Mr. McGee $512,000; Mr. Schonert
$596,000 and Mr. Roseman $79,000; (B) with respect to accumulated
dividend equivalents that were unvested but the vesting of which
accelerates as a result of the merger: Mr. Sullivan $276,000; Mr. McGee
$73,000; Mr. Schonert $73,000 and Mr. Roseman $66,000 and (C) with
respect to projected additional dividend equivalents: Mr. Sullivan
$1,956,000; Mr. McGee $516,000; Mr. Schonert $519,000; and Mr. Roseman
$451,000. The projected additional dividend equivalents are projected for
the remainder of the five-year period during which such rights would have
been credited in respect of such stock options under the initial stock
option grant, assuming AHP had continued to declare dividends with the
same frequency as dividends were declared immediately prior to the change
of control of AHP, and using a dividend equivalent crediting rate equal
to the rate used for crediting dividend equivalents in respect of the
most recent dividend actually paid by AHP immediately prior to the first
public announcement of the merger (based on the amount of the actual
dividend paid and the closing price per share of AHP common stock on the
declaration date of such dividend); and
- attorneys' fees and costs incurred by the Executive in connection with a
dispute with AHP relating to the Executive's change of control benefits.
If an Executive terminates employment prior to the merger, the lump sum
payments described above will be made by AHP, and the acceleration of vesting of
stock options and dividend equivalent rights will occur, prior to the merger on
the date that is no later than two (2) business days immediately prior to the
date reasonably determined in good faith by AHP's chief executive officer to be
the date on which the anticipated merger is expected to occur (the "anticipated
change in control date"). The employment agreements provide, however, that in
the event AHP makes the lump sum payments described above in advance of an
expected change of control of AHP, and such change of control does not occur
within ten business days following the anticipated change in control date, the
Executive will repay such payments to AHP.
The employment agreements also provide that HCPI may, following the
termination of the Executive's employment on or within 180 days of a change of
control, elect to retain the Executive as a consultant until the first
anniversary of the Executive's date of termination. Such election must be made
no later than 30 days prior to the date on which the anticipated change of
control date is expected to occur and retaining the Executive as a consultant
will not impair, reduce or eliminate the obligation to pay the benefits and
payments described above. During the consulting period, the Executive will be
reasonably available for consultation with AHP or its successor, scheduled on
reasonable notice and in such a manner so as not to
I-86
<PAGE> 98
interfere significantly with other business activities of the Executive. For
these consulting services, the Executive will receive a fee equal to the greater
of the Executive's annual base salary in effect on the date of termination or
the Executive's annual base salary in effect immediately prior to the change of
control of AHP, and be reimbursed for business and travel expenses associated
with such services.
The employment agreements also provide that if any payment, award, benefit
or distribution, or any acceleration of any payment, award, benefit or
distribution, to or for the benefit of an Executive under the employment
agreement or otherwise would be subject to the excise tax under section 4999 of
the Internal Revenue Code, or interest or penalties with respect to such excise
tax, AHP will make an additional payment to the Executive so that after the
payment of all income and excise taxes on such additional payment and after
taking into account the effects on the Executive's deductions, the Executive
will be in the same after tax position as if no excise tax under section 4999
had been imposed.
Under the terms of AHP's Supplemental Executive Retirement Plan, in the
event Mr. Sullivan's employment terminates effective on or within 180 days
following a change in control of AHP, the benefits provided under that plan will
be paid in an actuarial equivalent single lump sum payment not later than two
(2) business days immediately prior to the date reasonably determined in good
faith by the chairman of the Compensation and Board Affairs Committee of the AHP
board, or a member of the AHP board designated by such chairman, to be the date
on which the anticipated change of control is expected to occur provided that
Mr. Sullivan has tendered his resignation in advance of such date to be
effective on or following such date. If Mr. Sullivan does not tender his
resignation in advance of such date and Mr. Sullivan's employment terminates
effective on or within 180 days following a change in control the actuarial
equivalent single lump sum payment will be made not later than ten working days
following the termination of his employment.
DIRECTORS AND OFFICERS INSURANCE AND INDEMNIFICATION
For a period of six years following the merger, HCPI will maintain in
effect a directors' and officers' liability insurance policy covering the
persons currently covered by AHP's directors' and officers' liability insurance
policy, including AHP's current directors and officers. The new directors' and
officers' liability insurance policy will have coverage in amount and scope at
least as favorable as AHP's existing coverage, provided that HCPI will not be
required to expend in excess of $360,000 per year in payment of the annual
premium for this coverage. If the premium for a policy having comparable
coverage exceeds $360,000 per year, then HCPI will be only obligated to maintain
in place a policy which provides the maximum coverage that is available at an
annual premium of $360,000. HCPI has further agreed to indemnify and hold
harmless, to the fullest extent permitted by applicable law, each present and
former director and officer of AHP against any costs, damages or expenses or
amounts paid in settlement that are incurred in connection with any civil,
criminal, administrative or investigative action that arises out of or pertains
to matters existing or occurring at or prior to the merger.
I-87
<PAGE> 99
CHAPTER TWO
INFORMATION ABOUT THE
SPECIAL MEETINGS AND VOTING
THE HCPI SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting of HCPI stockholders will be held at 10:00 a.m., local
time, on November 3, 1999, at the Four Seasons Hotel, 690 Newport Center Drive,
Newport Beach, California 92660.
PURPOSE
The purpose of the HCPI special meeting is to consider and vote on the
proposal to approve the merger in which AHP would be merged with and into HCPI,
with HCPI continuing as the surviving corporation. HCPI stockholders may also be
asked to transact other business that may properly come before the HCPI special
meeting or any adjournment or postponement of the HCPI special meeting.
HCPI BOARD OF DIRECTORS' RECOMMENDATION
THE HCPI BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY ADOPTED A
RESOLUTION DECLARING THE MERGER ADVISABLE AND RECOMMENDS A VOTE FOR APPROVAL OF
THE HCPI MERGER PROPOSAL.
RECORD DATE, OUTSTANDING SHARES AND VOTING RIGHTS
The HCPI board has fixed the close of business on September 23, 1999 as the
record date for the HCPI special meeting and any adjournments or postponements
thereof. Accordingly, only holders of record of shares of HCPI common stock on
the record date are entitled to notice of, and to vote at, the HCPI special
meeting and any adjournments or postponements thereof. As of the record date,
there were 32,045,576 outstanding shares of HCPI common stock held by
approximately 1,456 holders of record. At the HCPI special meeting, each share
of HCPI common stock will be entitled to one vote.
VOTE REQUIRED; QUORUM; SHARES BENEFICIALLY OWNED BY HCPI DIRECTORS AND OFFICERS
Approval of the HCPI merger proposal requires the affirmative vote of the
holders of at least of two-thirds of the shares of HCPI common stock outstanding
as of the HCPI record date.
The representation, in person or by properly executed proxy, of the holders
of a majority of the shares of HCPI common stock entitled to vote at the HCPI
special meeting is necessary to constitute a quorum at the HCPI special meeting.
Shares of HCPI common stock represented in person or by proxy will be counted
for the purposes of determining whether a quorum is present at the HCPI special
meeting. Shares that abstain from voting on the proposal to approve the merger
agreement will be treated as shares that are present and entitled to vote at the
HCPI special meeting for purposes of determining whether a quorum exists, but
abstentions will have the same effect as votes against approval of the HCPI
merger proposal. If a broker or nominee holding shares of record for a customer
indicates that it does not have discretionary authority to vote as to a
particular matter, those shares, which are referred to as broker non-votes, will
be treated as present and entitled to vote at the HCPI special meeting for
purposes
II-1
<PAGE> 100
of determining whether a quorum exists. Under New York Stock Exchange rules,
brokers and nominees holding shares of record for customers are not be entitled
to vote on the HCPI merger proposal unless they receive specific voting
instructions from the beneficial owner of the shares. Accordingly, broker
non-votes will not be voted in favor of approval of the HCPI merger proposal
meaning that such shares will have the same effect as shares voted against
approval of the HCPI merger proposal.
As of the record date, HCPI's directors and executive officers and their
affiliates, as a group owned approximately 1.4% of the votes represented by the
outstanding shares of HCPI common stock. HCPI's directors and executive officers
have expressed their intent to vote their shares in favor of approval of the
HCPI merger proposal.
VOTING OF PROXIES
All shares of HCPI common stock that are entitled to vote and are
represented at the HCPI special meeting by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at such meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies, other than broker non-votes, will be voted for
approval of the HCPI merger proposal.
If consideration of a motion to adjourn or postpone such meeting to another
time or place for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger, the persons
named in the enclosed form of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment,
except that any shares which were voted against the HCPI merger proposal will
not be voted in favor of the adjournment or postponement of the HCPI special
meeting in order to solicit additional proxies.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked, and the vote
changed, by the person giving it at any time before it is voted. Proxies may be
revoked by:
- sending to the corporate secretary of HCPI, to be received by the
corporate secretary at or before the vote is taken at the HCPI special
meeting, a later-dated written notice stating that you would like to
revoke your proxy and change your vote;
- signing a later-dated proxy relating to the same shares and returning it
to the corporate secretary of HCPI so that it is received by the
corporate secretary before the vote is taken at the HCPI special meeting;
or
- attending the HCPI special meeting and voting in person, although
attendance at the HCPI special meeting will not in and of itself
constitute a revocation of a proxy or change of your vote.
If you have instructed your broker to vote your shares and you wish to
revoke those instructions, you must follow your broker's revocation procedures.
Any written notice of revocation or subsequent proxy should be sent to
Health Care Property Investors, Inc., 4675 MacArthur Court, 9th Floor, Newport
Beach, California 92660, Attention: Corporate Secretary, so as to be received
prior to the HCPI special meeting, or hand delivered to the Corporate Secretary
of HCPI at or before the taking of the vote at the HCPI special meeting.
Stockholders that have instructed a broker to vote their shares must follow
directions received from such broker in order to change their vote or to vote at
the HCPI special meeting.
II-2
<PAGE> 101
SOLICITATION OF PROXIES; EXPENSES
All expenses of HCPI's solicitation of proxies, including the cost of
preparing and mailing this joint proxy statement/prospectus to HCPI
stockholders, will be borne by HCPI. In addition to solicitation by use of the
mail, proxies may be solicited from HCPI stockholders by directors, officers and
employees of HCPI in person or by telephone, facsimile or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. HCPI has retained Kissel-Blake Inc., a proxy
solicitation firm, for assistance in connection with the solicitation of proxies
for the HCPI special meeting at a cost of approximately $12,500 plus
reimbursement of reasonable out-of-pocket expenses. Arrangements will also be
made with brokerage houses, custodians, nominees and fiduciaries for forwarding
of proxy solicitation materials to beneficial owners of shares held of record by
such brokerage houses, custodians, nominees and fiduciaries, and HCPI will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in forwarding such materials.
AMERICAN HEALTH PROPERTIES SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting of AHP stockholders will be held at 11:00 a.m., local
time, on November 3, 1999, at American Health Properties, Inc., 6400 South
Fiddler's Green Circle, Englewood, Colorado 80111.
PURPOSE
The purpose of the AHP special meeting is to consider and vote on a
proposal to approve the merger in which AHP would be merged with and into HCPI,
with HCPI continuing as the surviving corporation.
AHP BOARD OF DIRECTORS' RECOMMENDATION
THE AHP BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY APPROVED THE
MERGER AND RECOMMENDS A VOTE FOR APPROVAL OF THE AHP MERGER PROPOSAL.
RECORD DATE, OUTSTANDING SHARES AND VOTING RIGHTS
The AHP board has fixed the close of business on September 23, 1999 as the
record date for the AHP special meeting and any adjournments or postponements
thereof. Accordingly, only holders of record of AHP common stock on the record
date are entitled to notice of, and to vote at, the AHP special meeting and any
adjournments or postponements thereof. As of the record date, there were
24,984,422 outstanding shares of AHP common stock held by approximately 3,842
holders of record. At the AHP special meeting, each share of AHP common stock
will be entitled to one vote.
VOTE REQUIRED; QUORUM; SHARES BENEFICIALLY OWNED BY AHP DIRECTORS AND OFFICERS
Approval of the AHP merger proposal requires the affirmative vote of the
holders of at least a majority of the shares of AHP common stock outstanding as
of the AHP record date.
II-3
<PAGE> 102
The representation, in person or by properly executed proxy, of the holders
of a majority of the AHP common stock entitled to vote on the AHP record date is
necessary to constitute a quorum at the AHP special meeting. Shares of AHP
common stock represented in person or by proxy will be counted for the purposes
of determining whether a quorum is present at the AHP special meeting. Shares
that abstain from voting on the proposal to approve the merger agreement will be
treated as shares that are present and entitled to vote at the AHP special
meeting for purposes of determining whether a quorum exists, but abstentions
will have the same effect as votes against approval of the AHP merger proposal.
Broker non-votes will be treated as present and entitled to vote at the AHP
special meeting for purposes of determining whether a quorum exists. Under New
York Stock Exchange rules, brokers and nominees holding shares of record for
customers are not entitled to vote on the AHP merger proposal unless they
receive specific voting instructions from the beneficial owner of the shares.
Accordingly, broker non-votes will not be voted in favor of approval of the AHP
merger proposal meaning that such shares will have the same effect as shares
voted against approval of the AHP merger proposal.
As of the record date, AHP's directors and executive officers and their
affiliates, as a group owned approximately 0.3% of the votes represented by the
outstanding shares of AHP common stock. AHP's executive officers have expressed
their intent to vote their shares in favor of approval of the AHP merger
proposal.
VOTING OF PROXIES
All shares of AHP common stock that are entitled to vote and are
represented at the AHP special meeting by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at such meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies, other than broker non-votes, will be voted for
approval of the AHP merger proposal.
If consideration of a motion to adjourn or postpone such meeting to another
time or place for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger, the persons
named in the enclosed form of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment,
except that any shares which were voted against the AHP merger proposal will not
be voted in favor of the adjournment or postponement of the AHP special meeting
in order to solicit additional proxies.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked, and the vote
changed, by the person giving it at any time before it is voted. Proxies may be
revoked by:
- sending to the corporate secretary of AHP, to be received by the
corporate secretary at or before the vote is taken at the AHP special
meeting, a later-dated written notice stating that you would like to
revoke your proxy and change your vote;
- signing a later-dated proxy relating to the same shares and returning it
to the corporate secretary of AHP so that it is received by the corporate
secretary before the vote is taken at the AHP special meeting; or
- attending the AHP special meeting and voting in person, although
attendance at the AHP special meeting will not in and of itself
constitute a revocation of a proxy or change your vote.
II-4
<PAGE> 103
If you have instructed your broker to vote your shares and you wish to
revoke these instructions, you must follow your broker's revocation procedures.
Any written notice of revocation or subsequent proxy should be sent to
American Health Properties, Inc., 6400 S. Fiddler's Green Circle, Suite 1800,
Englewood, Colorado 80111, Attention: Secretary, for receipt prior to the AHP
special meeting, or hand delivered to the Secretary of AHP at or before the
taking of the vote at the AHP special meeting. Stockholders that have instructed
a broker to vote their shares must follow directions received from such broker
in order to change their vote or to vote at the AHP special meeting.
SOLICITATION OF PROXIES; EXPENSES
All expenses of AHP's solicitation of proxies, including the cost of
preparing and mailing this joint proxy statement/prospectus to AHP stockholders,
will be borne by AHP. In addition to solicitation by use of the mail, proxies
may be solicited from AHP stockholders by directors, officers and employees of
AHP in person or by telephone, facsimile or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. AHP has retained Georgeson Shareholder Communications Inc., a
proxy solicitation firm, for assistance in connection with the solicitation of
proxies for the AHP special meeting at an estimated cost of approximately $7,500
plus reimbursement of reasonable out-of-pocket expenses. Arrangements will also
be made with brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such brokerage houses, custodians, nominees and fiduciaries, and
AHP will reimburse such brokerage houses, custodians, nominees and fiduciaries
for their reasonable expenses incurred in forwarding such materials.
II-5
<PAGE> 104
CHAPTER THREE
LEGAL INFORMATION
COMPARISON OF RIGHTS OF STOCKHOLDERS OF HCPI AND AHP
HCPI and AHP are incorporated in Maryland and Delaware, respectively. Upon
consummation of the merger, stockholders of AHP, whose rights as stockholders
are currently governed by Delaware General Corporation Law, the AHP charter, and
the AHP bylaws, will automatically become stockholders of HCPI. As stockholders
of HCPI, their rights will be governed by the Maryland General Corporation Law
and by the HCPI charter and the HCPI bylaws. The following is a summary of the
material differences between the rights of holders of AHP capital stock and the
rights of holders of HCPI capital stock. The following does not purport to be a
complete description of the differences between the rights of HCPI and AHP
stockholders. Such differences may be determined in full by reference to the
Maryland General Corporation Law, the Delaware General Corporation Law, the HCPI
charter, the AHP charter and the HCPI bylaws and AHP bylaws.
The Maryland General Corporation Law, the HCPI charter and HCPI bylaws
contain provisions that may be deemed to have an anti-takeover effect and that
may delay, defer or prevent a change in control of HCPI or other transaction
that an HCPI stockholder might consider in its best interest, including a
transaction that might result in a premium over the market price for the shares
held by HCPI stockholders. These provisions are expected to discourage various
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of HCPI to negotiate first with the
HCPI board. HCPI's management believes that the benefits of these provisions
outweigh the potential disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals might result in an improvement
of their terms. Although similar provisions exist under Delaware law and have
been applicable to AHP, the AHP charter and AHP bylaws do not contain some of
the anti-takeover provisions contained in the HCPI charter.
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
AUTHORIZED CAPITAL STOCK
100,000,000 shares of common stock, par value 100,000,000 shares of common stock, par value
$1.00 per share $.01 per share.
50,000,000 shares of preferred stock, par value 1,000,000 shares of preferred stock, par value
$1.00 per share $.01 per share.
2,760,000 shares of this preferred stock is 350,000 shares of this preferred stock is
designated 7 7/8% Series A Cumulative designated Preferred Stock, Series A.
Redeemable Preferred Stock. 46,000 shares of this preferred stock is
5,750,000 shares of this preferred stock is designated 8.60% Cumulative Redeemable
designated 8.70% Series B Cumulative Preferred Stock, Series B.
Redeemable Preferred Stock. 220,000 shares of this preferred stock is
40,000 shares of this preferred stock is designated Psychiatric Group Preferred Stock.
designated 8.60% Series C Cumulative The AHP board may increase or decrease the
Redeemable Preferred Stock. number of shares of common stock or preferred
Subject to applicable New York Stock Exchange stock, but not below the number of shares of
rules and regulations, the HCPI board may issue, such class or series then outstanding, subject
in its discretion, additional shares of HCPI to the rights of the holders of any class or
common stock or HCPI preferred stock; provided, series of preferred stock and to applicable New
that the total number of shares issued does not York Stock Exchange rules and regulations.
exceed the authorized number of shares of
capital stock.
VOTING RIGHTS
</TABLE>
III-1
<PAGE> 105
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
The Maryland General Corporation Law provides The Delaware General Corporation Law provides
that, unless otherwise provided in a that a corporation may designate the voting
corporation's charter: rights of each class of stock and must specify
- - each share of its capital stock is entitled to the voting rights of such class of stock in the
one vote; certificate of incorporation or the board
- - the presence in person or by proxy of resolutions providing for the issuance of stock.
stockholders entitled to cast a majority of Each holder of AHP common stock is entitled to
all the votes entitled to be cast at a meeting one vote per share and to the same and identical
constitutes a quorum; and voting rights as other holders of AHP common
- - in matters other than the election of stock. AHP's certificate of incorporation
directors or the approval of extraordinary permits the AHP board to issue AHP series B
transactions, a majority of all the votes cast preferred stock in one or more series that may
at a meeting at which a quorum is present is have voting power that differs from that of the
sufficient to approve a matter which properly AHP common stock. Except as may otherwise be
comes before a stockholder meeting. provided in a designation of a series of AHP
The Maryland General Corporation Law limits the series B preferred stock or as otherwise
voting rights of "control shares" held by expressly required by law, holders of AHP series
persons who, directly or indirectly, have the B preferred stock do not have any voting rights.
power to exercise:
- - one-fifth or more, but less than one-third;
- - one-third or more, but less than a majority;
or
- - a majority or more of all voting power in the
election of directors. See "State Law Takeover
Legislation." There is no similar limitation
under the Delaware General Corporation Law.
Subject to the Maryland General Corporation Law,
each holder of HCPI common stock is entitled to
one vote per share and to the same and identical
voting rights as other holders of HCPI common
stock. HCPI's charter permits the HCPI board to
classify and issue HCPI preferred stock in one
or more series that may have voting power that
differs from that of the HCPI common stock.
Except as may otherwise be provided in a
designation of a series of HCPI preferred stock,
holders of outstanding HCPI preferred stock
generally do not have any voting rights. See
"Description of HCPI Capital Stock."
ADVANCE NOTICE PROVISION
The HCPI bylaws provide that with respect to an Delaware law provides that special meetings of
annual meeting of stockholders, nominations of the stockholders of a corporation may be called
persons for election of the HCPI board and the by the corporation's board of directors or by
proposal of business to be considered by such other persons as may be authorized in the
stockholders may be made only: corporation's certificate of incorporation or
- - pursuant to HCPI's notice of the meeting, bylaws.
- - by the HCPI board or At special meetings of stockholders, only the
- - by a stockholder who is entitled to vote at business specified in AHP's notice of meeting
the meeting and has complied with the may be brought before the meeting of
procedures set forth in the HCPI bylaws. stockholders.
Neither the AHP certificate of incorporation nor
the AHP bylaws contain an advance
</TABLE>
III-2
<PAGE> 106
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
ADVANCED NOTICE PROVISION -- (CONTINUED)
With respect to special meetings of notice requirement.
stockholders, only the business specified in
HCPI's notice of meeting may be brought before
the meeting of stockholders. Nominations of
persons for election to the HCPI board may be
made at a special meeting of stockholders:
- - pursuant to HCPI's notice of the meeting,
- - by the HCPI board or
- - provided that the HCPI board has determined
that directors shall be elected at such
meeting, by a stockholder who is entitled to
vote at the meeting and has complied with the
advance notice provisions set forth in the
HCPI bylaws.
Under the HCPI bylaws, in order for a
stockholder to nominate a candidate for the
election as a director or propose business for
consideration at an annual meeting, the
stockholder must generally give notice to the
HCPI Secretary not more then 90 days or less
than 60 days from the first anniversary of the
last annual meeting.
SIZE OF THE BOARD OF DIRECTORS
Under the Maryland General Corporation Law, a The Delaware General Corporation Law provides
corporation must generally have at least three that the certificate of incorporation or the
directors at all times. Subject to this bylaws of a corporation may allow the
provision, a corporation's bylaws may alter the stockholders or the board of directors to fix or
number of directors and authorize a majority of change the number of directors, but a
the entire board of directors to alter within corporation must have at least one director.
specified limits the number of directors set by The AHP board is currently comprised of seven
the corporation's charter or its bylaws. members. The AHP bylaws provide that the number
The number of persons currently constituting the of members of the board of directors shall be
HCPI board is seven. The HCPI charter provides not less than five nor more than nine directors.
that the number persons constituting the HCPI
board may not be less than three nor more than
nine unless changed by an amendment to the HCPI
bylaws. The HCPI bylaws provide that the number
of directors shall be seven and that upon the
occurrence of a default in the payment of
dividends on any class or series of preferred
stock, or any other event, which will entitle
the holders of such stock to elect additional
directors, the number constituting the HCPI
board will be increased by the number of such
additional directors for so long as the right to
elect additional directors remains in effect.
See Capital Stock -- HCPI Series A Preferred
Stock, -- HCPI Series B Preferred Stock,
and -- HCPI Series C Preferred Stock."
CLASSIFICATION OF THE BOARD OF DIRECTORS
</TABLE>
III-3
<PAGE> 107
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
CLASSIFICATION OF THE BOARD OF DIRECTORS -- (CONTINUED)
The directors of HCPI are divided into three Under Delaware General Corporation Law,
classes, with approximately one-third of the directors, unless their terms are staggered, are
directors elected by the stockholders annually. elected at each annual stockholders meeting. The
Consequently, members of the HCPI board serve certificate of incorporation may authorize the
staggered three-year terms. election of directors by one or more classes or
Classification of the HCPI board is intended to series of shares, and the certificate of
assure the continuity and stability of HCPI's incorporation, an initial bylaw or a bylaw
business strategies and policies as determined adopted by a vote of the stockholders may
by the HCPI board. The classified board provide for staggered terms for the directors.
provision of the HCPI bylaws could also have the The directors of AHP are divided into three
effect of making the replacement of incumbent classes, with approximately one-third of the
directors more time consuming and difficult, directors elected by the stockholders annually.
which could delay, defer or prevent an attempt Consequently, members of the AHP board serve
by a third party to obtain control of HCPI or to staggered three-year terms.
pursue another transaction, even though such an
attempt or other transaction might be beneficial
to HCPI or its stockholders. At least two annual
meetings of stockholders, instead of one, will
generally be required to effect a change in a
majority of the HCPI board. Thus, the classified
board provision could increase the likelihood
that incumbent directors will retain their
positions.
ELECTION OF THE BOARD OF DIRECTORS
The Maryland General Corporation Law provides Elections for the AHP board are decided by a
that a corporation's directors shall be elected plurality of the votes cast. Under the bylaws of
by a plurality of the votes cast at a meeting at AHP, a vote on the election of directors shall
which a quorum is present. be by written ballot.
Under the Maryland General Corporation Law, a Under Delaware law, stockholders do not have
corporation's charter may provide that cumulative voting rights unless the certificate
stockholders of a corporation can elect of incorporation so provides. The AHP
directors by cumulative voting. Neither the HCPI certificate of incorporation does not grant
charter nor the HCPI bylaws grant cumulative cumulative voting rights to holders of AHP
voting rights with respect to the election of common stock.
directors to holders of HCPI common stock.
The Maryland General Corporation Law permits the
bylaws of the corporation to provide for the
term of office a director may serve, except that
(1) the term of office of a director may not be
longer than five years or, except in the case of
an initial or substitute director, shorter than
the period between annual meetings and (2) the
term of office of at least one class shall
expire each year. The HCPI charter provides for
a classified board.
REMOVAL OF DIRECTORS
Under the Maryland General Corporation Law, Under Delaware General Corporation Law, in the
unless the corporation's charter provides case of a corporation whose board of directors
otherwise, the stockholders of a corporation is classified, except as otherwise provided in a
with a classified board of corporation's certificate of
</TABLE>
III-4
<PAGE> 108
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
REMOVAL OF DIRECTORS -- (CONTINUED)
directors may remove any director, only for incorporation, the stockholders may remove any
cause, by the affirmative vote of a majority of director only for cause by the vote of a
all the votes entitled to be cast for the majority of all the votes entitled to be cast in
election of directors. The HCPI charter provides the election of the directors. Neither AHP's
that directors may be removed only by the certificate of incorporation nor its bylaws
affirmative vote of the holders of two-thirds of provide for the removal of directors.
the votes entitled to be cast in the election of
the directors or by a unanimous vote of all
other members of the HCPI board.
FILLING VACANCIES
Under the HCPI charter and bylaws, vacancies in Under Delaware law, unless the certificate of
the HCPI board caused by the removal or incorporation or bylaws provide otherwise, the
resignation of a director may be filled by the board of directors of a corporation may fill any
vote of a majority of the remaining directors vacancy on the board, including vacancies
or, if the vacancy is caused by the removal of a resulting from an increase in the number of
director, by the stockholders at an annual or directors.
special meeting, and the appointee shall hold The AHP bylaws provide that the directors,
office for the unexpired term of his whether or not a quorum, may by majority vote,
predecessor, or until his successor is elected choose a successor to hold office for the
or appointed and is qualified. unexpired portion of the term of a class of the
Newly created directorships may be filled by a director whose place has been filled. Vacancies
majority of the entire HCPI board and the resulting from an increase in the numbers may be
appointee shall hold office until the next filled by the directors, whether or not a
election of directors by the stockholders or may quorum, by majority vote.
be filled by the stockholders at an annual or
special meeting.
There is no provision in the Maryland General
Corporation Law providing for the filling of
vacancies on the board of directors by the
Maryland courts.
STANDARD OF CONDUCT FOR DIRECTORS
Under Maryland law, the standard of conduct for Under Delaware law, the standards of conduct for
directors is set forth in Section 2-405.1(a) of directors have developed through written
the Maryland General Corporation Law, which opinions of the Delaware courts in cases decided
requires that a director of a Maryland by them. Generally, directors of Delaware
corporation perform his or her duties in "good corporations are subject to a duty of loyalty, a
faith," with "a reasonable belief" that his or duty of care and a duty of candor to the
her actions are "in the best interests of the stockholders. The duty of loyalty requires
corporation" and with the care of an "ordinarily directors to refrain from self- dealing.
prudent person in a like position . . . under According to the Delaware Supreme Court, the
similar circumstances." duty of care requires "directors . . . in
managing the corporate affairs . . . to use that
amount of care which ordinarily careful and
prudent men would use in similar circumstances"
and the duty of candor requires directors "to
disclose fully and fairly all material
information within the board's control when it
seeks stockholder action." Later case law has
established "gross negligence" as the test for
breach of the standard for the duty of care in
the process of decision-making by directors.
</TABLE>
III-5
<PAGE> 109
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
LIABILITY OF DIRECTORS; INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
The Maryland General Corporation Law requires a Delaware law provides that a corporation may
corporation, unless its charter provides indemnify any person made a party or threatened
otherwise, which HCPI's charter does not, to to be made a party to any type of proceeding,
indemnify a director or officer who has been other than an action by or in the right of the
successful, on the merits or otherwise, in the corporation, because he or she is or was an
defense of any proceeding to which he is made a officer, director, employee or agent of the
party by reason of his service in that capacity. corporation or was serving at the request of the
The Maryland General Corporation Law permits a corporation as a director, officer, employee or
corporation to indemnify its present and former agent of another corporation or entity, against
directors and officers, among others, in expenses, judgments, fines and amounts paid in
connection with any proceeding to which they may settlement actually and reasonably incurred in
be made a party by reason of their service in connection with such proceeding: (1) if he or
those or other capacities unless it is she acted in good faith and in a manner he or
established that: she reasonably believed to be in or not opposed
- - the act or omission of the director or officer to the best interests of the corporation, or (2)
was material to the matter giving rise to the in the case of a criminal proceeding, he or she
proceeding and was committed in bad faith or had no reasonable cause to believe that his
was the result of active and deliberate conduct was unlawful.
dishonesty, A corporation may indemnify any person made a
- - the director or officer actually received an party or threatened to be made a party to any
improper personal benefit in money, property threatened, pending or completed action or suit
or services, or brought by or in the right of the corporation
- - in the case of any criminal proceeding, the because he was an officer, director, employee or
director or officer had reasonable cause to agent of the corporation, or is or was serving
believe that the act or omission was unlawful. at the request of the corporation as a director,
The indemnity may include judgments, penalties, officer, employee or agent of another
fines, settlements and reasonable expenses corporation or other entity, against expenses
actually incurred by the director or officer in actually and reasonably incurred in connection
connection with the proceeding; provided, with such action or suit if he or she acted in
however, that if the proceeding is one by or in good faith and in a manner he or she reasonably
the right of the corporation, indemnification is believed to be in or not opposed to the best
not permitted with respect to any proceeding in interests of the corporation, except that there
which the director or officer has been adjudged may be no such indemnification if the person is
to be liable to the corporation. In addition, a found liable to the corporation unless, in such
director or officer may not be indemnified with a case, the court determines the person is
respect to any proceeding charging improper entitled to such indemnification.
personal benefit to the director or officer in A corporation must indemnify a director,
which the director or officer was adjudged to be officer, employee or agent who successfully
liable on the basis that personal benefit was defends himself in a proceeding to which he or
improperly received. The termination of any she was a party because he or she was a
proceeding by conviction or upon a plea of nolo director, officer, employee or agent of the
contendere or its equivalent or an entry of an corporation against expenses actually and
order of probation prior to judgment creates a reasonably incurred by him or her. Expenses
rebuttable presumption that the director or incurred by an officer or director, or other
officer did not meet the requisite standard of employees or agents as deemed appropriate by the
conduct required for permitted indemnification. board of directors, in defending a civil or
The termination of any proceeding by judgment, criminal proceeding may be paid by the
order or settlement, however, does not create a corporation in advance of the final disposition
presumption that the director or officer failed of such proceeding upon receipt of an
to meet the requisite standard of conduct for undertaking by or on behalf of such director or
permitted indemnification. officer to repay such amount if it shall
In addition, the Maryland General Corporation ultimately be determined that he is not entitled
Law requires HCPI, as a condition to advancing to be indemnified by the corporation.
expenses, to obtain a
</TABLE>
III-6
<PAGE> 110
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
LIABILITY OF DIRECTORS; INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE -- (CONTINUED)
written affirmation by the director or officer The Delaware law indemnification and expense
of his good faith belief that he has met the advancement provisions are not exclusive of any
standard of conduct necessary for other rights which may be granted by the AHP
indemnification by HCPI and a written statement bylaws, a vote of stockholders or disinterested
by or on his behalf to repay the amount paid or directors or otherwise.
reimbursed by HCPI if it is ultimately Under Delaware law, termination of any
determined that the standard of conduct was not proceeding by conviction or upon a plea of nolo
met. contendere or its equivalent shall not, of
The HCPI bylaws provide that HCPI, to the itself, create a presumption that such person is
fullest extent of the Maryland General prohibited from being indemnified.
Corporation Law, will indemnify, and advance The AHP certificate of incorporation provides
expenses to, any person (or the estate of any that each director, officer and employee of the
person) who is or was a party to, or is corporation shall be indemnified by the
threatened to be made a party to, any corporation to the fullest extent permitted by
threatened, pending or complete action, suit or Delaware law.
proceeding, whether or not by or in the right of
HCPI, and whether civil, criminal,
administrative, investigative or otherwise, by
reason of the fact that such person is or was a
director or officer of HCPI, or is or was
serving at the request of HCPI as a director,
officer, trustee, partner, member, agent or
employee of another corporation, partnership,
limited liability company, association, joint
venture, trust or other enterprise.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law permits a As permitted under Delaware General Corporation
Maryland corporation's charter to include a Law, AHP's certificate of incorporation limits
provision expanding or limiting the liability of the personal liability of directors, but not
its directors and officers to the corporation or officers, for monetary damages for breach of
its stockholders for money damages, except for such directors' fiduciary duty, except for
liability resulting from: liability for;
- - actual receipt of an improper benefit or - any breach of the director's duty of loyalty
profit in money, property, or services, in to the corporation or its stockholders;
which case recovery is limited to the actual - acts or omissions not in good faith or which
amount of the benefit or profit actually involve intentional misconduct or a knowing
received, or violation of law;
- - a judgment or other final adjudication adverse - liability under Section 174 of the Delaware
to the person that is entered in a proceeding General Corporation Law for unlawful payment
based on a finding in the proceeding that the of dividends or stock purchases; or
person's action, or failure to act, was the - any transaction from which the director
result of active and deliberate dishonesty and derived an improper personal benefit.
was material to the cause of action The certificate of incorporation further
adjudicated in the proceeding. provides for the elimination or limitation of
The HCPI charter provides that, to the fullest liability to the fullest extent permitted by
extent permitted by law, HCPI directors and Delaware law.
officers are not liable to HCPI or its
stockholders for money damages. However, such
provisions do not limit the availability of
equitable relief to HCPI or its stockholders.
INSPECTION OF BOOKS AND RECORDS
The Maryland General Corporation Law provides Delaware General Corporation Law allows any
that persons who together have stockholder, upon written demand under
</TABLE>
III-7
<PAGE> 111
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
INSPECTION OF BOOKS AND RECORDS -- (CONTINUED)
been stockholders for more than six months and oath stating the purpose thereof, the right
own at least 5% of the outstanding stock of any during usual hours for business to inspect for
class of a Maryland corporation may inspect and any proper purpose the corporation's stock
copy the corporation's books of account and ledger, a list of its stockholders, and its
stock ledger, request and receive a statement of other books and records, and to make copies or
the corporation's affairs and request and extracts therefrom. A proper purpose means a
receive a list of its stockholders. In addition, purpose reasonably related to such person's
any stockholder of a Maryland corporation may interest as a stockholder.
inspect and copy the bylaws, minutes of the
proceedings of stockholders and annual
statements of affairs and request the
corporation to provide a sworn statement showing
all stock and securities issued and all
consideration received by the corporation for
such stock during the preceding twelve months.
CHARTER AMENDMENTS
The Maryland General Corporation Law allows The Delaware General Corporation Law provides
amendment of a corporation's charter if its that unless a higher vote is required in the
board of directors adopts a resolution setting certificate of incorporation, an amendment to
forth the amendment proposed, declaring its the certificate of incorporation of a
advisability, and the stockholders thereafter corporation may be approved by a majority of the
approve such proposed amendment either at a outstanding shares and a majority of the
special meeting called by the board for the outstanding shares of each class entitled to
purpose of approval of such amendment by the vote upon the proposed amendment.
stockholders or, if so directed by the board, at AHP's certificate of incorporation provides that
the next annual stockholders' meeting. At any the corporation reserves the right to amend in
such meeting, the proposed amendment must be any respect any provision of the certificate of
approved by two-thirds of all votes entitled to incorporation, in the manner now or hereafter
vote on the matter. provided by law. However, the affirmative vote
The affirmative vote of holders of at least 90% of the holders of not less than 80% of the
of the voting stock of HCPI, however, is outstanding shares entitled to vote is required
required to repeal or amend the provisions of to repeal, rescind, alter or amend specified
the HCPI charter relating to: provisions on:
- - business combinations, - the number of directors,
- - the minimum and maximum number, and removal, - personal liability of directors,
of directors, and - the provisions requiring that all actions by
- - limitations on ownership of the HCPI's voting stockholders must be made at duly held annual
capital stock or special meetings and may not be taken only
See "Description of HCPI Capital Stock." upon written consent,
- the provisions governing who may call special
meetings and what matters may be considered at
such special meetings,
- the provisions concerning the restrictions on
transfer of shares, and restrictions on
acquisitions and offers by stockholders, and
- the provisions governing amendment of the
certificate of incorporation.
BYLAW AMENDMENTS
Under the Maryland General Corporation Law, the Delaware General Corporation Law provides that a
exclusive power to change the bylaws may be left corporation's bylaws may be amended by that
with the stockholders, vested in the directors corporation's stockholders, or, if so provided
or shared by both in the corporation's certificate of
</TABLE>
III-8
<PAGE> 112
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
BYLAW AMENDMENTS -- (CONTINUED)
groups. incorporation, the corporation's directors.
The HCPI bylaws have vested the power to adopt, AHP's bylaws provide that the AHP board has the
alter and repeal the HCPI bylaws in the HCPI power, at a regular meeting or a special meeting
board and the stockholders. Such power may only where due notice has been given of the proposed
be exercised by a majority of the entire HCPI amendment, to amend any bylaw of the corporation
board then in office or by a vote of the holders or create new bylaws, except for the bylaws
of two-thirds of the stock entitled to vote. The governing:
affirmative vote of holders of either 90% of the - the number of directors,
voting stock of HCPI or approval by the HCPI - the affiliations of board members,
board by unanimous vote, however, is required to - election and term of directors,
amend the HCPI bylaws to: - directors' vacancies,
- - increase the number of directors by more than - guidance for the board on investment policies
one in any twelve month period or increase the and restrictions,
total number of directors to more than nine, - management arrangements,
or - the provisions governing affiliated
- - amend the provisions governing amendments to transactions,
the HCPI bylaws. - the requirement that a majority of the members
of any of the audit or executive committees of
the corporation be independent directors, and
- amending the bylaws.
The provisions governing the number of
directors, election and term of directors,
directors' vacancies, and amending the bylaws
may only be amended or repealed by the
affirmative vote of the holders of not less than
66 2/3% of the outstanding shares of capital
stock of the corporation entitled to vote
generally on the election of directors thereof.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
Under the Maryland General Corporation Law, Delaware law provides that, unless otherwise
unless the corporate charter states otherwise, specified in a corporation's certificate of
the incorporation, a sale or other disposition of
- - sale, lease, exchange or transfer of all or all or substantially all of the corporation's
substantially all of the assets of a assets, a merger or consolidation of the
corporation not in the ordinary course of corporation with another corporation or a
business conducted by it, and dissolution of the corporation requires the
- - any merger, consolidation or share exchange affirmative vote of the board of directors
involving the corporation, requires approval (except in limited circumstances) plus, with
by holders of two-thirds of the shares of the exceptions, the affirmative vote of a majority
corporation entitled to vote on such matters. of the outstanding stock entitled to vote
The HCPI charter has not taken any exception thereon.
to this provision.
The MGCL also provides that the vote of the AHP's certificate of incorporation provides that
stockholders of a surviving corporation is not some business combinations require approval of
required to approve a merger if (1) the plan the holders of 80% of the outstanding shares of
of merger does not reclassify or change its voting stock of AHP and of the holders of shares
outstanding stock or otherwise amend the of voting stock who are Disinterested
corporation's charter and (2) the number of Stockholders (that is, unrelated to the person
shares of common stock to be issued or or entity with whom AHP is entering the business
transferred in the combination).
</TABLE>
III-9
<PAGE> 113
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS -- (CONTINUED)
merger does not exceed 20% of the number of
its shares of the same class outstanding
immediately before the merger becomes
effective.
LIMITS ON OWNERSHIP AND TRANSFER OF SHARES
The HCPI charter provides that no person may The AHP certificate of incorporation provides
beneficially own, directly or indirectly 9.9% that no person may beneficially own, directly or
or more of the outstanding voting shares of indirectly, 9.8% or more of the outstanding
stock of HCPI, HCPI series A preferred stock shares of capital stock of AHP. AHP is
or HCPI series B preferred stock, or with authorized:
regard to the HCPI series C preferred stock, - to refuse to transfer or to register the
9.8% or more of the outstanding shares of the transfer of shares to any person who as a
capital stock of HCPI, inclusive of HCPI result would own, directly or indirectly, more
series C preferred stock. See "Description of than 9.8% of the outstanding shares; and
HCPI Capital Stock -- Transfer Restrictions - to purchase, for cash or a note, any shares
and Redemptions Relating to HCPI Common Stock" representing more than 9.8% in value of the
and "Description of HCPI Capital outstanding shares of AHP held by any person.
Stock-Restrictions on Ownership and Transfer Additionally, AHP's certificate of incorporation
Relating to HCPI Preferred Stock." provides that as a condition to the transfer
and/or registration of transfer of any shares
which would result in any stockholder owning,
directly or indirectly, shares in excess of 9%
of AHP's issued and outstanding shares. The
proposed transferee must deliver an affidavit to
AHP setting forth the number of shares owned,
directly or indirectly, by the transferee. The
AHP board may waive the limits on ownership if
the shares are owned or transferred to a
subsidiary of AHP or to any other person in
connection with a merger, liquidation or similar
transaction approved by the AHP board, provided
such person has given the AHP board sufficient
evidence and assurances that the qualification
of AHP as a real estate investment trust would
not be jeopardized by the ownership or transfer.
STOCKHOLDER MEETINGS
The HCPI bylaws provide that an annual meeting The AHP bylaws provide that an annual meeting of
of stockholders is to be held each year stockholders of the corporation is to be held
between April 15 and May 15, inclusive, as each year on or between May 1 and June 1 as
designated by the HCPI board. designated annually by the AHP board.
Under the Maryland General Corporation Law, a Delaware law provides that special meetings of
special meeting of stockholders may be called the stockholders of a corporation may be called
by the president, the board of directors or by the corporation's board of directors or by
any other person specified in the such other persons as may be authorized in the
corporation's charter or bylaws. corporation's certificate of incorporation or
Under the HCPI bylaws, a special meeting of bylaws. Under the AHP bylaws, a special meeting
the stockholders of HCPI may be called at any may only be called by a majority of the AHP
time by: board, the chairman of the AHP board or the
- the Chief Executive Officer of HCPI, president.
- the President of HCPI or
</TABLE>
III-10
<PAGE> 114
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
STOCKHOLDER MEETINGS -- (CONTINUED)
- a majority of the HCPI board.
The Secretary of HCPI is required to call a
special meeting of stockholders upon the
written request of stockholders entitled to
cast at least 50% of all the votes entitled to
be cast at a special meeting. Such a request
must state the purpose of the meeting and
matters proposed to be acted on. The
stockholders calling such a special meeting
are required to reimburse HCPI for the costs
of preparing and mailing a notice of such a
meeting to the stockholders. Unless requested
by stockholders entitled to cast a majority of
all the votes entitled to be cast at a special
meeting of the stockholders, a special meeting
need not be called to consider any matter
which is substantially the same as a matter
voted on at any special meeting of the
stockholders held during the preceding twelve
months.
CORPORATE ACTION WITHOUT A MEETING
Under the Maryland General Corporation Law, Under AHP's certificate of incorporation, no
any action required or permitted to be taken action may be taken by the written consent of
at a meeting of stockholders may be taken the stockholders.
without a meeting if (1) a unanimous written
consent setting forth the action and signed by
each stockholder entitled to vote on such
matters and (2) a written waiver of any right
to dissent signed by each stockholder entitled
to notice of the meeting but not entitled to
vote at it, are filed with the records of the
stockholders meeting.
The HCPI bylaws permit corporate action
without a meeting of stockholders in
accordance with the parameters set forth in
the Maryland General Corporation Law.
Because the Maryland General Corporation Law
requires the unanimous written consent of all
stockholders entitled to vote for actions by
written consent, it is unlikely that
stockholders of HCPI will be able to take
action by written consent under the Maryland
General Corporation Law. This provision of the
Maryland General Corporation Law may deter
hostile takeovers, as a holder or group of
holders controlling a majority in interest of
HCPI common stock will not be able to amend
the HCPI bylaws or remove directors pursuant
to a stockholders' written consent unless they
obtain a unanimous written consent of all
stockholders or call a special meeting of the
stockholders. Any effect that this
</TABLE>
III-11
<PAGE> 115
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
CORPORATE ACTION WITHOUT A MEETING -- (CONTINUED)
provision may have on the operations of HCPI,
however, is virtually eliminated because the
rules of The New York Stock Exchange, Inc.
generally prohibit listed companies from using
written consents in lieu of meetings.
DIVIDENDS
Under the Maryland General Corporation Law, Subject to any restrictions contained in a
the board of directors has the power to corporation's certificate of incorporation,
authorize and cause the corporation to pay Delaware law generally provides that a
distributions in cash, property or securities corporation may declare and pay dividends out of
of the corporation unless the declaration of "surplus," which means the excess, if any, of
such distributions would be contrary to the net assets over capital or when no surplus
charter. The Maryland General Corporation Law exists, out of new profits for the fiscal year
further provides that no distribution may be in which the dividend is declared and/or the
made (1) if the corporation would become preceding fiscal year. Dividends may not be
unable to pay its debts as they become due in paid, however, out of net profits if the capital
the usual course of business or (2) the of the corporation is less than the amount of
corporation's total assets would be less than capital represented by the issued and
the sum of its liabilities plus, unless the outstanding stock of all classes having a
charter permits otherwise, the amount that preference upon the distribution of assets. In
would be needed, if the corporation were to be accordance with Delaware law, "capital" is
dissolved at the time of the distribution, to determined by the board of directors and shall
satisfy the preferential rights upon not be less than the aggregate par value of the
dissolution of stockholders whose preferential outstanding capital stock of the corporation
rights on dissolution are superior to those having par value.
receiving the distribution. AHP's bylaws provide that dividends may be
declared at any regular or special meeting,
pursuant to law. Dividends may be paid in cash,
in property or in the corporation's own shares,
subject to the provisions of any statute and of
the certificate of incorporation, which does not
speak to dividends.
APPRAISAL OR DISSENTERS' RIGHTS
Under the Maryland General Corporation Law, Under Delaware General Corporation Law, a
stockholders of a corporation are entitled to stockholder of a Delaware corporation may be
dissenters' rights of appraisal in connection entitled to demand appraisal and obtain payment
with a: of the judicially determined fair value of his
- merger or consolidation, or her shares in the event of any plan of merger
- share exchange, or consolidation in which the corporation, the
- transfer of assets requiring stockholder shares of which he or she holds, is a party,
approval, provided such stockholder continuously holds
- - amendment of charter which alters the contract such shares through the effective date of the
rights of any outstanding stock and merger, otherwise complies with the requirements
substantially adversely affects stockholder of Delaware law for the perfection of appraisal
rights if the right to do so is not reserved rights and does not vote in favor of the merger.
in the charter or However, this right to demand appraisal does not
- - business combination transaction. apply to stockholders if:
However, except with respect to transactions (i) they are stockholders of a surviving
involving an interested stockholder, corporation and if a vote of the stockholders of
stockholders generally have no dissenter's right such corporation is not necessary to authorize
of appraisal with respect to their shares if: the merger or consolidation; or
(ii) the shares held by the stockholders are
</TABLE>
III-12
<PAGE> 116
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
APPRAISAL OR DISSENTERS' RIGHTS -- (CONTINUED)
- - the shares are listed on a national securities of a class or series listed on a national
exchange or are designated as a national securities exchange, designated as a national
market system security on an interdealer market system security on an interdealer
quotation system by the National Association quotation system by the NASD or are held of
of Securities Dealers, Inc. or record by more than 2,000 stockholders on the
- - the shares are that of the successor in the date set to determine the stockholders entitled
merger, unless (1) the merger alters the to vote on the merger or consolidation.
contractual rights of the shares as expressly Notwithstanding the above, appraisal rights are
set forth in the charter and the charter does available for the shares of any class or series
not reserve the right to do so or (2) the of stock of a Delaware corporation if the
shares are to be changed or converted in whole holders thereof are required by the terms of the
or in part in the merger into something other agreement of merger or consolidation to accept
than either shares in the successor or cash, for their stock anything except:
scrip, or other rights or interests arising (i) shares of stock of the corporation surviving
out of provisions for the treatment of or resulting from the merger or consolidation;
fractional shares in the successor. (ii) shares of stock of any other corporation
Accordingly, HCPI stockholders are not generally which at the effective date of the merger or
entitled to appraisal rights. consolidation will be listed on The New York
Stock Exchange or the American Stock Exchange,
designated as a national market system security
on an interdealer quotation system by the NASD
or are held of record by more than 2,000
stockholders; or
(iii) cash in lieu of fractional shares of the
corporations described in (i) or (ii); or
(iv) any combination of shares of stock and cash
in lieu of fractional shares described in (i),
(ii) and (iii).
A Delaware corporation may provide in its
certificate of incorporation that appraisal
rights shall be available for the shares of any
class or series of its stock as the result of an
amendment to its certificate of incorporation,
any merger or consolidation to which the
corporation is a party or a sale of all or
substantially all of the assets of the
corporation. The AHP certificate of
incorporation does not contain any provision
regarding appraisal rights. Consequently,
because AHP's common and preferred stock is
listed on The New York Stock Exchange, appraisal
rights are not available to holders of AHP
stock.
DERIVATIVE SUITS
There is no statutory right to bring a Under Delaware law, AHP stockholders have the
derivative suit under the Maryland General right to bring a derivative suit.
Corporation Law; however, there is a clear
common law right in Maryland to bring a
derivative suit.
</TABLE>
III-13
<PAGE> 117
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
STATE LAW TAKEOVER LEGISLATION
Under the Maryland General Corporation Law, many In general, Section 203 of the Delaware General
business combinations, including a merger, Corporation Law prevents an "Interested
consolidation, share exchange or a significant Stockholder" (defined generally as a person with
asset transfer or issuance or reclassification 15% or more of a corporation's outstanding
of equity securities, between a Maryland voting stock), from engaging in a "Business
corporation and an interested stockholder who Combination" with a Delaware corporation for
beneficially owns 10% or more of the voting three years following the date such person
power of the corporation's shares or an became an Interested Stockholder. The term
affiliate or associate (as defined in the "Business Combination" includes among other
Maryland General Corporation Law) of the things, a merger, consolidation, sale of assets
corporation who, at any time within the two- or share exchange.
year period prior to the date in question, was The three-year moratorium may be avoided if:
the beneficial owner of 10% or more of the - before such person became an Interested
voting power of the then-outstanding voting Stockholder, the board of directors of the
stock of the corporation or an affiliate thereof corporation approved either the Business
are prohibited for five years after the most Combination or the transaction in which the
recent date on which the interested stockholder Interested Stockholder became an Interested
becomes an interested stockholder. Thereafter, Stockholder;
any such business combination must be - upon consummation of the transaction which
recommended by the board of directors of the resulted in the stockholder becoming an
corporation and approved by the affirmative vote Interested Stockholder, the stockholder owned
of at least (1) 80% of the votes entitled to be at least 85% of the voting stock of the
cast by holders of outstanding voting shares of corporation outstanding at the time the
the corporation and (2) two-thirds of the votes transaction commenced, excluding shares held
entitled to be cast by holders of outstanding by directors who are also officers of the
voting shares of the corporation other than corporation and by employee stock ownership
shares held by the interested stockholder with plans that do not provide employees with the
whom (or with whose affiliate) the business right to determine confidentially whether
combination is to be effected or by an affiliate shares held subject to the plan will be
or associate of the interested stockholder, tendered in a tender or exchange offer; or
unless, among other conditions, the - on or following the date on which such person
corporation's common stockholders receive a became an Interested Stockholder, the Business
minimum price (as defined in the Maryland Combination is approved by the board of
General Corporation Law) for their shares and directors of the corporation and authorized at
the consideration is received in cash or in the an annual or special meeting of stockholders
same form as previously paid by the interested (not by written consent) by the affirmative
stockholder for its shares. These provisions of vote of the stockholders of at least 66 2/3%
Maryland law do not apply, however, to business of the outstanding voting stock of the
combinations that are approved or exempted by corporation not owned by the Interested
the board of directors of the corporation prior Stockholder.
to the time that the interested stockholder The Business Combination restrictions described
becomes an interested stockholder. above do not apply if, among other things:
The Maryland General Corporation Law also - the corporation's original certificate of
provides that "control shares" of a Maryland incorporation contains a provision expressly
corporation acquired in a "control share electing not to be governed by the statute;
acquisition" have no voting rights except to the - the corporation by action by the holders of a
extent approved by a vote of two-thirds of the majority of the voting stock of the
votes entitled to be cast on the matter, corporation approves an amendment to its
excluding shares owned by the acquiror, by certificate of incorporation or bylaws
officers or by directors who are employees of expressly electing not to be governed by the
the corporation. "Control shares" are voting statute (effective twelve (12) months after
shares which, if aggregated with all other such the amendment's adoption), which
shares previously acquired by the acquiror, or
in respect of which the acquiror is able to
exercise or direct the exercise of voting power
(except solely by virtue of a revocable
</TABLE>
III-14
<PAGE> 118
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
STATE LAW TAKEOVER LEGISLATION -- (CONTINUED)
proxy), would entitle the acquiror to exercise amendment shall not be applicable to any
voting power in electing directors within one of business combination with a person who was an
the following ranges of voting power: Interested Stockholder at or prior to the time
- - one-fifth or more but less than one-third, of the amendment; or
- - one-third or more but less than a majority, or - the corporation does not have a class of
- - a majority or more of all voting power. voting stock that is (a) listed on a national
Control shares do not include shares the securities exchange, (b) authorized for
acquiring person is then entitled to vote as a quotation on Nasdaq or a similar quotation
result of having previously obtained stockholder system; or (c) held of record by more than 2,000
approval. A "control share acquisition" means stockholders. The statute also does not apply to
the acquisition of control shares, subject to Business Combinations with an Interested
exceptions. Stockholder when such combination is proposed
A person who has made or proposes to make a after the public announcement of, and before the
control share acquisition, upon satisfaction of consummation or abandonment of, a merger or
various conditions (including an undertaking to consolidation, a sale of 50% or more of the
pay expenses), may compel the board of directors aggregate market value of the assets of the
of the corporation to call a special meeting of corporation on a consolidated basis or the
stockholders to be held within 50 days of demand aggregate market value of all outstanding shares
to consider the voting rights of the shares. If of the corporation, or a tender offer for 50% or
no request for a meeting is made, the more of the outstanding voting shares of the
corporation may itself present the question at corporation, if the triggering transaction is
any stockholders meeting. with or by a person who either was not an
If voting rights are not approved at the meeting Interested Stockholder during the previous three
or if the acquiring person does not deliver an years or who became an Interested Stockholder
acquiring person statement as required by the with the approval of the board, and if the
statute, then the corporation may generally transaction is approved or not opposed by a
redeem any or all of the control shares (except majority of the current directors who were
those for which voting rights have previously also directors prior to any person becoming an
been approved) for fair value determined, Interested Stockholder during the previous
without regard to the absence of voting rights three years.
for the control shares, as of the date of the Although AHP could opt out of the provisions of
last control share acquisition by the acquiror Section 203, it has not done so. In addition,
or of any meeting of stockholders at which the AHP's certificate of incorporation provides that
voting rights of such shares are considered and the affirmative vote of:
not approved. If voting rights for control - the holders of not less than 80% of the
shares are approved at a stockholders meeting outstanding shares of capital stock entitled
and the acquiror becomes entitled to vote a to vote generally in the election of
majority of the shares entitled to vote, all directors; and
other stockholders may exercise appraisal - the holders of a majority of shares of capital
rights. The fair value of the shares as stock with such voting rights who are
determined for purposes of such appraisal rights disinterested stockholders, that is, a
may not be less than the highest price per share stockholder who is not a related person or an
paid by the acquiror in the control share affiliate of a related person, shall be
acquisition, and limitations and restrictions required for the approval or authorization of
otherwise applicable to the exercise of any business combination with a related
appraisal rights do not apply in the context of person. A related person is any individual,
a control share acquisition. corporation, partnership or other person or
The control share acquisition statute does not entity which beneficially owns 10% or more of
apply to shares acquired in a merger, the capital stock with voting rights of the
consolidation or share exchange, if the corporation.
corporation is a party to the transaction, or to Delaware does not have a control share
acquisitions approved or exempted by a provision acquisition statute.
in the charter or bylaws of the
</TABLE>
III-15
<PAGE> 119
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
STATE LAW TAKEOVER LEGISLATION -- (CONTINUED)
corporation adopted before the acquisition of
shares.
POTENTIAL ANTI-TAKEOVER EFFECT OF CHARTER DOCUMENTS
The HCPI charter contains provisions limiting AHP's certificate of incorporation contains
the ability of holders of its capital stock to provisions authorizing AHP:
own more than a specified percentage (by numbers - to refuse to transfer or to register the
or value, whichever is more restrictive) of its transfer of shares of capital stock of AHP to
stock. See "Description of HCPI Capital Stock -- any person who as a result would own, directly
Transfer Restrictions and Redemption Relating to or indirectly, more than 9.8% of the
HCPI Common Stock" and "Description of HCPI outstanding shares of capital stock of AHP;
Capital Stock -- Restrictions on Ownership and and
Transfer Relating to HCPI Preferred Stock." - to purchase, for cash or a note, any shares
The HCPI charter requires, with limited representing more than 9.8% in value of the
exceptions, that business combinations between outstanding shares of AHP ("excess shares")
HCPI and a beneficial holder of 10% or more of held by any person.
HCPI's outstanding voting stock be approved by These provisions may inhibit market activity in
the affirmative vote of at least 90% of the the shares of capital stock of AHP and the
outstanding voting shares of HCPI. See opportunity that might otherwise exist for
"Description of HCPI Capital Stock -- Business stockholders to receive a premium for their
Combination Provisions." shares of capital stock of AHP in the event any
The issuance of HCPI preferred stock, in some individual were attempting to assemble a block
circumstances, may deter or discourage takeover of such shares in excess of 9.8% in value of the
attempts and other changes in control of HCPI by shares of capital stock of AHP outstanding.
making it more difficult for a person who has In addition, provisions of AHP's certificate of
gained a substantial equity interest in HCPI to incorporation regarding some business
obtain control or to exercise control combinations require approval of the holders of
effectively. 80% of the outstanding shares of voting stock of
Except as to the Rights Agreement between HCPI AHP and of the holders of shares of voting stock
and the Bank of New York (successor to Chemical who are disinterested stockholders.
Trust Company of California), as Rights Agent, The issuance of AHP series B preferred stock, in
HCPI has no current plans or agreements with some circumstances, may deter or discourage
respect to the issuance of any HCPI preferred takeover attempts and other changes in control
stock. of AHP by making it more difficult for a person
who has gained a substantial equity interest in
AHP to obtain control or to exercise control
effectively.
STOCKHOLDER RIGHTS PLAN
The HCPI board adopted the Rights Agreement The AHP Board adopted the Rights Agreement
between HCPI and the Bank of New York (successor between AHP and ChaseMellon Stockholder Services
to Manufacturers Hanover Trust Company of L.L.C. (successor to Manufacturers Hanover Trust
California), as Rights Agent on July 5, 1990, as Company of California), as Rights Agent, on
amended, and declared a dividend distribution of April 10, 1990, which was amended on August 3,
one right for each outstanding share of HCPI 1999.
common stock to stockholders of record at the The AHP Rights Agreement provides for the
close of business on July 30, 1990. See issuance of a right to the holder of each share
"Description of HCPI Capital Stock -- of AHP common stock. If any person becomes the
Stockholder Rights Plan" for a description of beneficial owner of 10% or more of the
the terms of the HCPI rights. outstanding shares that a majority of the
"uninterested" members of the AHP board
determines to be fair to and in the best
interests of AHP and its stockholders, each
owner of such right will
</TABLE>
III-16
<PAGE> 120
<TABLE>
<CAPTION>
HCPI/MARYLAND LAW AHP/DELAWARE LAW
<S> <C>
STOCKHOLDER RIGHTS PLAN -- (CONTINUED)
have the right to purchase upon exercise of such
right, one-hundredth of a share of AHP series A
preferred stock. In connection with the merger
agreement, AHP amended the AHP Rights Agreement
to provide that it will not be triggered by the
merger agreement, the merger and the
transactions contemplated thereby.
</TABLE>
DESCRIPTION OF HCPI CAPITAL STOCK
GENERAL
HCPI's authorized capital stock 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 does not contain all the
information that might be important to you. Therefore you should read carefully
the more detailed provisions of the HCPI charter, the HCPI bylaws and the Rights
Agreement between HCPI and the Bank of New York (successor to Chemical Trust
Company of California), as Rights Agent. The following summary does not give
effect to provisions of statutory or common law, the provisions of applicable
law and the HCPI charter and the HCPI Rights Agreement, copies of which are
incorporated by reference as exhibits to the registration statement on Form S-4
of which this joint proxy statement/ prospectus is a part.
COMMON STOCK
As of September 23, 1999, there were 32,045,576 shares of HCPI common stock
outstanding. All shares of HCPI common stock participate equally in dividends
payable to holders of common stock, when and as authorized by the HCPI board and
declared by HCPI, and in net assets available for distribution to holders of
HCPI common stock on liquidation, dissolution, or winding up of HCPI. Each
outstanding share of HCPI common stock entitles
III-17
<PAGE> 121
the holder to one vote on all matters submitted to a vote of the HCPI
stockholders. Holders of HCPI common stock do not have cumulative voting rights
in the election of directors.
All issued and outstanding shares of HCPI common stock are, and the common
stock offered by this joint proxy statement/prospectus will be upon issuance,
validly issued, fully paid and nonassessable. Holders of HCPI common stock do
not have preference, conversion, exchange or preemptive rights. The HCPI common
stock is listed on The New York Stock Exchange (NYSE Symbol: HCP).
The Transfer Agent and Registrar for our common stock is Bank of New York.
PREFERRED STOCK
Under the HCPI charter, the HCPI board is authorized without further
stockholder action to establish and issue, from time to time, up to 50,000,000
shares of preferred stock of HCPI, 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 HCPI
board. As of September 23, 1999, HCPI had outstanding 2,400,000 shares of 7 7/8%
Series A Cumulative Redeemable Preferred Stock with a liquidation preference of
$69,000,000, 5,385,000 shares of 8.70% Series B Cumulative Redeemable Preferred
Stock with a liquidation preference of $134,625,000 and no shares of 8.60%
Series C Cumulative Redeemable Preferred Stock. The material terms of the HCPI
Series A Preferred Stock, HCPI Series B Preferred Stock and HCPI Series C
Preferred Stock are described below.
HCPI SERIES A PREFERRED STOCK
Voting Rights. Holders of the HCPI series A preferred stock generally do
not have any voting rights, except in limited circumstances.
If dividends on any shares of HCPI series A preferred stock are in arrears
for six or more quarterly periods, whether or not consecutive, the holders of
HCPI series A preferred stock (voting separately as a class with all other
classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable, including the HCPI series B preferred stock and,
when issued, the HCPI series C preferred stock) are entitled to vote for the
election of a total of two additional directors of HCPI at a special meeting
called by the holders of record of at least 25% of the HCPI series A preferred
stock or the holders of any other class or series of preferred stock so in
arrears or at the next annual meeting of stockholders. These voting rights
continue at each subsequent annual meeting until all dividends accumulated on
such shares of HCPI series A preferred stock for the past dividend periods and
the dividend for the then current dividend period shall have been fully paid or
declared and set aside for payment. In such case, the entire HCPI board is
increased by two directors.
So long as any shares of HCPI series A preferred stock remain outstanding,
HCPI shall not, without the consent or the affirmative vote of the holders of at
least two-thirds of the shares of HCPI series A preferred stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting, with
the HCPI series A preferred stock voting separately as a class:
- authorize, create or issue, or increase the authorized or issued amount
of, any class or series of stock ranking prior to the HCPI series A
preferred stock with respect to the
III-18
<PAGE> 122
payment of dividends, or the distribution of assets on liquidation,
dissolution or winding up;
- reclassify any authorized stock of HCPI into any such shares, or create,
authorize or issue any obligation or security convertible into or
evidencing the right to purchase any class or series of stock ranking
prior to the HCPI series A preferred stock with respect to the payment of
dividends, or the distribution of assets on liquidation, dissolution or
winding up;
- repeal, amend or otherwise change any of the provisions applicable to the
HCPI series A preferred stock in any manner which materially and
adversely affects the powers, preferences, voting power or other rights
or privileges of the HCPI series A preferred stock. The articles
supplementary relating to the HCPI series A preferred stock provide,
however, that an increase in the amount of authorized preferred stock,
the creation or issuance of other classes or series of preferred stock or
any increase in the amount of authorized shares of HCPI series A
preferred stock or of any other class or series of preferred stock, in
each case ranking on a parity with, or junior to the HCPI series A
preferred stock, will not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
The consent of the holders of HCPI series A preferred stock is not required
for the taking of any corporate action, including any merger or consolidation
involving HCPI or a sale of all or substantially all of the assets of HCPI,
regardless of the effect that such merger, consolidation or sale may have upon
the rights, preferences or voting power of the holders of the HCPI series A
preferred stock, except as expressly set forth in the articles supplementary
relating to the HCPI series A preferred stock.
Rank. With respect to dividend rights and rights upon liquidation,
dissolution or winding up of HCPI, the HCPI series A preferred stock ranks:
- senior to all classes or series of common stock of HCPI, and to all
equity securities issued by HCPI ranking junior to the HCPI series A
preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HCPI;
- on a parity with the HCPI series B preferred stock, HCPI series C
preferred stock and with all equity securities issued by HCPI the terms
of which specifically provide that such equity securities rank on a
parity with the HCPI series A preferred stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of HCPI; and
- junior to all equity securities issued by HCPI the terms of which
specifically provide that such equity securities rank senior to the HCPI
series A preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HCPI. See "-- Voting Rights"
below.
The term "equity securities" does not include convertible debt securities,
which rank senior to the HCPI series A preferred stock prior to conversion.
Dividends. Holders of shares of the HCPI series A preferred stock are
entitled to receive, when, as, and if declared by the HCPI board out of funds of
HCPI legally available for the payment of dividends, cumulative preferential
annual cash dividends at the rate of 7 7/8% of the liquidation preference
(equivalent to $1.96875 per annum per share).
Dividends on the HCPI series A preferred stock are cumulative from the date
of original issue and payable quarterly in arrears on or about the last day of
each March, June, September and December or, if not a business day, the next
succeeding business day.
III-19
<PAGE> 123
No dividends may be declared by the HCPI board or paid or set apart for
payment on the HCPI series A preferred stock if the terms of any agreement of
HCPI, including any agreement relating to its indebtedness, prohibits such a
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach of
or default under such an agreement. Likewise, no dividends may be declared by
the HCPI board or paid or set apart for payment if such declaration or payment
is restricted or prohibited by law.
Dividends on the HCPI series A preferred stock accrue, however, whether or
not HCPI has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared.
Accrued but unpaid dividends on the HCPI series A preferred stock do not bear
interest and holders of the HCPI series A preferred stock are not entitled to
any dividends in excess of full cumulative dividends described above. Any
dividend payment made on the HCPI series A preferred stock is first credited
against the earliest accrued but unpaid dividend due that remains payable.
No full dividends may be declared or paid or set apart for payment on any
class or series of preferred stock ranking, as to dividends, on a parity with or
junior to the HCPI series A preferred stock, other than a dividend in shares of
any class of stock ranking junior to the HCPI series A preferred stock as to
dividends and upon liquidation, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and set apart
for such payment on the HCPI series A preferred stock for all past dividend
periods and the then current dividend period. When dividends are not paid in
full, or full payment is not so set apart, upon the HCPI series A preferred
stock and the shares of any other class or series of preferred stock ranking on
a parity as to dividends with the HCPI series A preferred stock -- including the
HCPI series B preferred stock or, upon issuance, the HCPI series C preferred
stock, all dividends declared upon the HCPI series A preferred stock and any
other class or series of preferred stock ranking on a parity as to dividends
with the HCPI series A preferred stock are declared pro rata so that the amount
of dividends declared per share of HCPI series A preferred stock and such other
class or series of preferred stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the HCPI series A preferred stock
and such other class or series of preferred stock, which cannot include any
accrual in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend, bear to each other.
Except as provided in the preceding paragraph, unless full cumulative
dividends on the HCPI series A preferred stock have been or contemporaneously
are declared and paid or declared and set apart for payment for all past
dividend periods and the then current dividend period, then, other than the
payment of dividends in shares of HCPI common stock or other shares of capital
stock ranking junior to the HCPI series A preferred stock as to dividends and
upon liquidation:
- no dividends may be declared or paid or set aside for payment upon the
HCPI common stock, or any other capital stock of HCPI ranking junior to
or on a parity with the HCPI series A preferred stock as to dividends or
upon liquidation;
- no other distribution may be declared or made upon the HCPI common stock,
or any other capital stock of HCPI ranking junior to or on a parity with
the HCPI series A preferred stock as to dividends or upon liquidation;
- no shares of HCPI common stock, or any other shares of capital stock of
HCPI ranking junior to or on a parity with the HCPI series A preferred
stock as to dividends or upon liquidation may be redeemed, purchased or
otherwise acquired for any consideration by HCPI, except by conversion
into or exchange for other capital stock of HCPI ranking junior to the
HCPI series A preferred stock as to dividends and upon liquidation or for
III-20
<PAGE> 124
the purpose of preserving HCPI's qualification as a real estate
investment trust. See "-- Restrictions on Ownership and Transfer."
Liquidation Preferences. Upon any liquidation, dissolution or winding up
of the affairs of HCPI the holders of HCPI series A preferred stock are entitled
to be paid out of the assets of HCPI legally available for distribution to its
stockholders a liquidation preference of $25 per share, plus an amount equal to
any accrued and unpaid dividends to the date of payment, before any distribution
of assets is made to holders of HCPI common stock or any other class or series
of capital stock of HCPI that ranks junior to the HCPI series A preferred stock
as to liquidation rights.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend, redemption or other acquisition of shares
of stock of HCPI or otherwise is permitted under the Maryland General
Corporation Law, no effect is given to amounts that would be needed if HCPI
would be dissolved at the time of the distribution, to satisfy the preferential
rights upon distribution of holders of shares of stock of HCPI whose
preferential rights upon distribution are superior to those receiving the
distribution.
Maturity; Redemption. The HCPI series A preferred stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption and is not
convertible into any other securities of HCPI. The HCPI series A preferred stock
is not redeemable prior to September 30, 2002. HCPI is entitled, however,
pursuant to the articles supplementary relating to the HCPI series A preferred
stock, to purchase shares of the HCPI series A preferred stock in order to
preserve its status as a real estate investment trust for federal or state
income tax purposes at any time. Following September 30, 2002, HCPI may, at its
option, redeem the HCPI series A preferred stock at $25 per share ($69,000,000
in the aggregate), plus accrued and unpaid dividends.
Restrictions on Ownership and Transfer. See "-- Restrictions on Ownership
and Transfer Relating to HCPI Preferred Stock."
HCPI SERIES B PREFERRED STOCK
Voting Rights. Holders of the HCPI series B preferred stock generally do
not have any voting rights, except in limited circumstances.
If dividends on any shares of HCPI series B preferred stock are in arrears
for six or more quarterly periods, whether or not consecutive, the holders of
HCPI series B preferred stock (voting separately as a class with all other
classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable, including the HCPI series A preferred stock and,
when issued, the HCPI series C preferred stock) are entitled to vote for the
election of a total of two additional directors of HCPI at a special meeting
called by the holders of record of at least 25% of the HCPI series B preferred
stock or the holders of any other class or series of preferred stock so in
arrears or at the next annual meeting of stockholders. These voting rights
continue at each subsequent annual meeting until all dividends accumulated on
such shares of HCPI series B preferred stock for the past dividend periods and
the dividend for the then current dividend period shall have been fully paid or
declared and set aside for payment. In such case, the entire HCPI board is
increased by two directors.
So long as any shares of HCPI series B preferred stock remain outstanding,
HCPI shall not, without the consent or the affirmative vote of the holders of at
least two-thirds of the shares of HCPI series B preferred stock outstanding at
the time, given in person or by proxy,
III-21
<PAGE> 125
either in writing or at a meeting, with the HCPI series B preferred stock voting
separately as a class:
- authorize, create or issue, or increase the authorized or issued amount
of, any class or series of stock ranking prior to the HCPI series B
preferred stock with respect to the payment of dividends, or the
distribution of assets on liquidation, dissolution or winding up;
- reclassify any authorized stock of HCPI into any such shares, or create,
authorize or issue any obligation or security convertible into or
evidencing the right to purchase any class or series of stock ranking
prior to the HCPI series B preferred stock with respect to the payment of
dividends, or the distribution of assets on liquidation, dissolution or
winding up;
- repeal, amend or otherwise change any of the provisions applicable to the
HCPI series B preferred stock in any manner which materially and
adversely affects the powers, preferences, voting power or other rights
or privileges of the HCPI series B preferred stock. The articles
supplementary relating to the HCPI series B preferred stock provide,
however, that an increase in the amount of authorized preferred stock,
the creation or issuance of other classes or series of preferred stock or
any increase in the amount of authorized shares of HCPI series B
preferred stock or of any other class or series of preferred stock, in
each case ranking on a parity with, or junior to the HCPI series B
preferred stock, will not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
The consent of the holders of HCPI series B preferred stock is not required
for the taking of any corporate action, including any merger or consolidation
involving HCPI or a sale of all or substantially all of the assets of HCPI,
regardless of the effect that such merger, consolidation or sale may have upon
the rights, preferences or voting power of the holders of the HCPI series B
preferred stock, except as expressly set forth in the articles supplementary
relating to the HCPI series B preferred stock.
Rank. With respect to dividend rights and rights upon liquidation,
dissolution or winding up of HCPI, the HCPI series B preferred stock ranks:
- senior to all classes or series of common stock of HCPI, and to all
equity securities issued by HCPI ranking junior to the HCPI series B
preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HCPI;
- on a parity with the HCPI series A preferred stock, HCPI series C
preferred stock and with all equity securities issued by HCPI the terms
of which specifically provide that such equity securities rank on a
parity with the HCPI series B preferred stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of HCPI; and
- junior to all equity securities issued by HCPI the terms of which
specifically provide that such equity securities rank senior to the HCPI
series B preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HCPI. See "-- Voting Rights"
below.
The term "equity securities" does not include convertible debt securities,
which rank senior to the HCPI series B preferred stock prior to conversion.
Dividends. Holders of the HCPI series B preferred stock are entitled to
receive, when, as, and if declared by the HCPI board, out of funds legally
available for the payment of dividends,
III-22
<PAGE> 126
cumulative preferential annual cash dividends at the rate of 8.70% of the
liquidation preference (equivalent to $2.175 per annum per share).
Dividends on the HCPI series B preferred stock are cumulative from the date
of original issue and payable quarterly in arrears on or about the last day of
each March, June, September and December or, if not a business day, the next
succeeding business day. Any dividend payable on the HCPI series B preferred
stock, including dividends payable for any partial dividend period, are computed
on the basis of a 360-day year consisting of twelve 30-day months.
No dividends may be declared by the HCPI board or paid or set apart for
payment on the HCPI series B preferred stock if the terms of any agreement of
HCPI, including any agreement relating to its indebtedness, prohibits such a
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach of
or default under such an agreement. Likewise, no dividends may be declared by
the HCPI board or paid or set apart for payment if such declaration or payment
is restricted or prohibited by law.
Dividends on the HCPI series B preferred stock accrue, however, whether or
not HCPI has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared.
Accrued but unpaid dividends on the HCPI series B preferred stock do not bear
interest and holders of the HCPI series B preferred stock are not entitled to
any dividends in excess of full cumulative dividends described above. Any
dividend payment made on the HCPI series B preferred stock is first credited
against the earliest accrued but unpaid dividend due that remains payable.
No full dividends may be declared or paid or set apart for payment on any
class or series of preferred stock ranking, as to dividends, on a parity with or
junior to the HCPI series B preferred stock, other than a dividend in shares of
any class of stock ranking junior to the HCPI series B preferred stock as to
dividends and upon liquidation, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and set apart
for such payment on the HCPI series B preferred stock for all past dividend
periods and the then current dividend period. When dividends are not paid in
full (or full payment is not so set apart) upon the HCPI series B preferred
stock and the shares of any other class or series of preferred stock ranking on
a parity as to dividends with the HCPI series B preferred stock -- including the
HCPI series A preferred stock or, upon issuance, the HCPI series C preferred
stock, all dividends declared upon the HCPI series B preferred stock and any
other class or series of preferred stock ranking on a parity as to dividends
with the HCPI series B preferred stock are declared pro rata so that the amount
of dividends declared per share of HCPI series B preferred stock and such other
class or series of preferred stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the HCPI series B preferred stock
and such other class or series of preferred stock, which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend, bear to each other.
Except as provided in the preceding paragraph, unless full cumulative
dividends on the HCPI series B preferred stock have been or contemporaneously
are declared and paid or declared and set apart for payment for all past
dividend periods and the then current dividend period, then, other than the
payment of dividends in shares of HCPI common stock or other shares of capital
stock ranking junior to the HCPI series B preferred stock as to dividends and
upon liquidation:
- no dividends may be declared or paid or set aside for payment upon the
HCPI common stock, or any other capital stock of HCPI ranking junior to
or on a parity with the HCPI series B preferred stock as to dividends or
upon liquidation;
III-23
<PAGE> 127
- no other distribution may be declared or made upon the HCPI common stock,
or any other capital stock of HCPI ranking junior to or on a parity with
the HCPI series B preferred stock as to dividends or upon liquidation;
- no shares of HCPI common stock, or any other shares of capital stock of
HCPI ranking junior to or on a parity with the HCPI series B preferred
stock as to dividends or upon liquidation may be redeemed, purchased or
otherwise acquired for any consideration by HCPI, except by conversion
into or exchange for other capital stock of HCPI ranking junior to the
HCPI series B preferred stock as to dividends and upon liquidation or for
the purpose of preserving HCPI's qualification as a real estate
investment trust. See "-- Restrictions on Ownership and Transfer."
Liquidation Preferences. Upon any liquidation, dissolution or winding up
of the affairs of HCPI the holders of HCPI series B preferred stock are entitled
to be paid out of the assets of HCPI legally available for distribution to its
stockholders a liquidation preference of $25 per share, plus an amount equal to
any accrued and unpaid dividends to the date of payment, before any distribution
of assets is made to holders of HCPI common stock or any other class or series
of capital stock of HCPI that ranks junior to the HCPI series B preferred stock
as to liquidation rights.
In determining whether a distribution, other than upon voluntary or
involuntary liquidation, by dividend, redemption or other acquisition of shares
of stock of HCPI or otherwise is permitted under the Maryland General
Corporation Law, no effect is given to amounts that would be needed if HCPI
would be dissolved at the time of the distribution, to satisfy the preferential
rights upon distribution of holders of shares of stock of HCPI whose
preferential rights upon distribution are superior to those receiving the
distribution.
Maturity; Redemption. The HCPI series B preferred stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption and is not
convertible into any other securities of HCPI. The HCPI series B preferred stock
is not redeemable prior to September 30, 2003. HCPI is entitled, however,
pursuant to the articles supplementary relating to the HCPI series B preferred
stock, to purchase shares of the HCPI series B preferred stock in order to
preserve its status as a real estate investment trust for federal or state
income tax purposes at any time. Following September 30, 2003, HCPI may, at its
option, redeem the HCPI series B preferred stock at $25 per share ($134,625,000
in the aggregate), plus accrued and unpaid dividends.
Restrictions on Ownership and Transfer. See "-- Restrictions on Ownership
and Transfer Relating to HCPI Preferred Stock."
HCPI DEPOSITARY SHARES
GENERAL
At the effective time of the merger, HCPI will assume the obligations of
AHP under the Deposit Agreement dated October 27, 1997 (the "Deposit Agreement")
among AHP, ChaseMellon Shareholder Services, L.L.C., as depositary (the
"Depositary"), located at 300 South Hope Street, Los Angeles, California, 90071
and the holders from time to time of the depositary receipts issued by the
Depositary under the Deposit Agreement. Following the merger, HCPI will deposit
the HCPI series C preferred stock with the Depositary and will instruct the
Depositary to treat the shares of HCPI series C preferred stock as new deposited
securities under the Deposit Agreement. In accordance with the terms of the
Deposit Agreement, the existing depositary receipts, formerly evidencing AHP
depositary shares will automatically evidence HCPI depositary shares which will
evidence an ownership interest in HCPI series C preferred stock.
III-24
<PAGE> 128
The following is a summary of material provisions of the Deposit Agreement.
This description does not purport to be complete and is qualified by reference
to the Deposit Agreement, the form of which has been filed as an exhibit to the
registration statement on Form S-4 of which this joint proxy
statement/prospectus forms a part. See "Where You Can Find More Information" on
page III-39. The terms of the Deposit Agreement will remain substantially
similar, except that the Deposit Agreement will govern matters relating solely
to the HCPI series C preferred stock and the HCPI depositary shares.
Each HCPI depositary share will represent a one-one-hundredth interest in
one share of HCPI series C preferred stock. HCPI intends to apply to list the
HCPI series C preferred stock on The New York Stock Exchange. The HCPI series C
preferred stock will be freely transferable under the Securities Act of 1933.
Subject to the terms of the Deposit Agreement, each owner of a share of
HCPI depositary share will be entitled through the Depositary, in proportion to
the one-one-hundredth interest in a share of HCPI series C preferred stock
underlying such HCPI depositary share, to all rights and preferences, and
subject to all restrictions, of a share of HCPI series C preferred stock
(including dividend, voting, redemption and liquidation rights).
Since each share of HCPI series C preferred stock entitles the holder
thereof to one vote on matters on which the HCPI series C preferred stock is
entitled to vote, each HCPI depositary share, in effect, entitles the holder to
one-one-hundredth of a vote, rather than one full vote.
Upon surrender of HCPI depositary receipts at the office of the Depositary
and upon payment of the charges provided in the Deposit Agreement and subject to
the terms of the Deposit Agreement, a holder of HCPI depositary shares is
entitled to have the Depositary deliver the whole shares of HCPI series C
preferred stock underlying the HCPI depositary shares evidenced by the
surrendered HCPI depositary receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all the dividends or other cash
distributions received in respect of the HCPI series C preferred stock to the
record holders of the HCPI depositary shares in proportion to the numbers of
such HCPI depositary shares owned by such holders on the relevant record date.
Fractions will be rounded down to the nearest whole cent.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of the HCPI depositary
shares, unless the Depositary determines that it is not feasible to make the
distribution, in which case the Depositary may, with the approval of HCPI, sell
such property and distribute the net proceeds from such sale to such holders.
The Deposit Agreement also contains provisions relating to the manner in
which any subscription or similar rights offered by HCPI to holders of the HCPI
series C preferred stock will be made available to holders of the HCPI
depositary shares.
REDEMPTION OF HCPI DEPOSITARY SHARES
If HCPI elects to redeem the HCPI series C preferred stock, the HCPI
depositary shares will be redeemed from the proceeds received by the Depositary
resulting from the redemption, in whole or in part, of the HCPI series C
preferred stock held by the Depositary. The Depositary will mail notice of
redemption not less than 30 and not more than 90 days prior to the date fixed
for redemption to the record holders of the HCPI depositary shares to be
redeemed at their respective addresses appearing in the Depositary's books. The
redemption
III-25
<PAGE> 129
price per HCPI depositary share is $25.00 plus accumulated, accrued and unpaid
dividends thereon to the date fixed for redemption without interest. Whenever
HCPI redeems shares of HCPI series C preferred stock held by the Depositary, the
Depositary will redeem as of the same redemption date the number of HCPI
depositary shares relating to shares of HCPI series C preferred stock so
redeemed. If less than all of the HCPI depositary shares are to be redeemed, the
HCPI depositary shares to be redeemed will be selected by lot or pro rata as
determined by the Depositary.
After the date fixed for redemption, the HCPI depositary shares called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the HCPI depositary shares will cease, except the right to receive
the moneys payable upon such redemption and any money or other property to which
the holders of such HCPI depositary shares were entitled upon such redemption
upon surrender to the Depositary of the HCPI depositary receipts evidencing such
HCPI depositary shares.
VOTING THE HCPI SERIES C PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the HCPI
series C preferred stock are entitled to vote, the Depositary will mail the
information contained in the notice of meeting to the record holders of the HCPI
depositary shares. Each record holder of the HCPI depositary shares on the
record date (which will be the same date as the record date for the HCPI series
C preferred stock) will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the number of shares of HCPI series
C preferred stock underlying such holder's HCPI depositary shares. The
Depositary will endeavor, insofar as practicable, to vote the number of shares
of HCPI series C preferred stock underlying the HCPI depositary shares in
accordance with such instructions, and HCPI has agreed to take all action that
is deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will refrain from voting shares of HCPI series C preferred
stock to the extent it does not receive specific instructions from the holders
of HCPI depositary shares relating to such HCPI series C preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of HCPI depositary receipt evidencing the HCPI depositary shares
and any provision of the Deposit Agreement may at any time be amended by
agreement between HCPI and the Depositary. However, any amendment that
materially and adversely alters the rights of the existing holders of HCPI
depositary shares will not be effective unless such amendment has been approved
by the record holders of at least a majority of the HCPI depositary shares then
outstanding. The Deposit Agreement may be terminated by HCPI or the Depositary
only if:
- all outstanding HCPI depositary shares have been redeemed: or
- there has been a final distribution in respect of the HCPI series C
preferred stock in connection with any liquidation, dissolution or
winding up of HCPI and such distribution has been distributed to the
holders of the HCPI depositary shares.
CHARGES OF DEPOSITARY
HCPI will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. HCPI will pay charges
of the Depositary in connection with the initial deposit of the HCPI series C
preferred stock and any redemption of the HCPI series C preferred stock. Holders
of HCPI depositary shares will pay other transfer and other taxes and government
charges and such other charges as are expressly provided in the Deposit
Agreement for the accounts.
III-26
<PAGE> 130
MISCELLANEOUS
The Depositary will forward to the holders of HCPI depositary shares all
reports and communications from HCPI that are delivered to the Depositary and
that HCPI is required to furnish to the holders of the HCPI series C preferred
stock.
Neither the Depositary nor HCPI is liable if it is prevented or delayed by
law or any circumstance beyond its control in performing its obligations under
the Deposit Agreement. Neither HCPI nor the Depositary is subject to any
liability under the Deposit Agreement to any holder of a HCPI depositary share,
other than for their gross negligence or willful misconduct, and they are not
obligated to prosecute or defend any legal proceeding in respect of any HCPI
depositary shares or HCPI series C preferred stock unless satisfactory indemnity
is furnished. They may rely upon written advice of counsel or accountants, or
information provided by persons presenting HCPI series C preferred stock for
deposit, holders of HCPI depositary shares or other persons believed to be
competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to HCPI notice of its
election to do so, and HCPI may at any time remove the Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
OTHER PROVISIONS; RESTRICTIONS ON TRANSFER
For information regarding provisions of HCPI's charter and bylaws,
including restrictions on ownership which are applicable to the HCPI series C
preferred stock and the HCPI depositary shares, see "-- Restrictions on
Ownership and Transfer Relating to HCPI Preferred Stock."
HCPI SERIES C PREFERRED STOCK
The following summary sets forth the material terms and provisions of the
HCPI series C preferred stock represented by the HCPI depositary shares, and is
qualified in its entirety by reference to the provisions of the articles
supplementary for the HCPI series C preferred stock, which is attached as
Exhibit B to the merger agreement, and the HCPI charter. Unless the context
otherwise requires, all references to a holder of HCPI series C preferred stock
also refers to a holder of the HCPI depositary shares.
GENERAL
Subject to limitations prescribed by Maryland law and the HCPI charter, the
HCPI board is authorized to issue, from the authorized but unissued capital
stock of HCPI, preferred stock in such classes or series as the HCPI board may
determine and to establish from time to time the number of shares of preferred
stock to be included in any such series and to fix the designation and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of each such series. The HCPI board has authorized HCPI
to designate and issue the HCPI series C preferred stock.
III-27
<PAGE> 131
When issued, the HCPI series C preferred stock will be validly issued,
fully paid and nonassessable. The holders of the HCPI series C preferred stock
have no preemptive rights with respect to any shares of the capital stock of
HCPI or any other securities of HCPI convertible into or carrying rights or
options to purchase any such shares. The HCPI series C preferred stock is not
subject to any sinking fund or other obligation of HCPI to redeem or retire the
HCPI series C preferred stock.
The transfer agent, registrar and dividend disbursing agent for the HCPI
series C preferred stock is Bank of New York.
Rank. With respect to dividend rights and rights upon liquidation,
dissolution or winding up of HCPI, the HCPI series C preferred stock ranks:
- senior to all classes or series of common stock of HCPI, and to all other
classes and series of equity securities issued by HCPI;
- on a parity with the HCPI series A preferred stock, HCPI series B
preferred stock and all equity securities issued by HCPI the terms of
which specifically provide that such equity securities rank on a parity
with the HCPI series C preferred stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of HCPI; and
- junior to all equity securities issued by HCPI ranking senior to the HCPI
series C preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HCPI.
The term "equity securities" does not include convertible debt securities,
which rank senior to the HCPI series C preferred stock prior to conversion. The
HCPI series C preferred stock is subject to the creation of equity securities
that are both junior and on parity to the HCPI series C preferred stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of HCPI.
DIVIDENDS
Holders of the HCPI series C preferred stock are entitled to receive, when,
as, and if declared by the HCPI board, out of funds legally available for the
payment of dividends, cumulative preferential annual cash dividends of 8.60% of
the liquidation preference (equivalent to $2,500.00 per annum per share, or
$25.00 per depositary share per annum).
Dividends on the HCPI series C preferred stock are cumulative from the last
payment date through which dividends have been paid on the shares of AHP series
B preferred stock in respect of which shares of HCPI series C preferred stock
are issued and are payable quarterly in arrears on or about the last calendar
day of March, June, September and December of each year and on November 30,
1999, if the HCPI series C preferred stock is issued on or before November 30,
1999, or, if not a business day, the next business day. Accordingly, we
anticipate that the first dividend will be paid on November 30, 1999. Dividends
are payable to holders of record as they appear in the records of HCPI at the
close of business on the applicable record date, which is the 15th day of the
calendar month in which the dividend payment date falls or such other date
designated as such by the HCPI board that is not more than 50 nor less than 10
days prior to such dividend payment date.
The amount of dividends payable per share for a full dividend period is
computed by dividing $2500.00 by four. Any dividend payable on the HCPI series C
preferred stock for other than a full dividend period is computed on the basis
of a 360-day year consisting of twelve 30-day months. All dividends on the HCPI
series C preferred stock accrue day by day and are cumulative.
III-28
<PAGE> 132
No full dividends may be declared or paid or set apart for payment on any
class or series of preferred stock ranking, as to dividends, on a parity with or
junior to the HCPI series C preferred stock for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and set apart for such payment on the HCPI series C preferred stock for
all past dividend periods and the then current dividend period. When dividends
are not paid in full (or full payment is not so set apart) upon the HCPI series
C preferred stock and the shares of any other class or series of preferred stock
ranking on a parity as to dividends with the HCPI series C preferred stock
(including the HCPI series A preferred stock or the HCPI series B preferred
stock), all dividends declared upon the HCPI series C preferred stock and any
other class or series of preferred stock ranking on a parity as to dividends
with the HCPI series C preferred stock are declared pro rata so that the amount
of dividends declared per share of HCPI series C preferred stock and such other
class or series of preferred stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the HCPI series C preferred stock
and such other class or series of preferred stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend) bear to each other.
Unless full cumulative dividends on the HCPI series C preferred stock have
been or contemporaneously are declared and paid or declared and set apart for
payment for all past dividend periods and the then current dividend period,
then, other than the payment of dividends in shares of HCPI common stock or
other shares of capital stock ranking junior to the HCPI series C preferred
stock as to dividends and upon liquidation or options or rights to acquire the
same:
- no cash dividend or other distribution may be declared or paid or set
aside for payment upon the HCPI common stock, or any other capital stock
of HCPI ranking junior to the HCPI series C preferred stock as to
dividends or upon liquidation;
- HCPI may not repurchase, redeem or otherwise acquire shares of HCPI
common stock, or any other shares of capital stock of HCPI ranking junior
to or on a parity with the HCPI series C preferred stock as to dividends
or upon liquidation, or pay or make any amount available for a sinking
fund or redemption of such shares, except by conversion into or exchange
for other capital stock of HCPI ranking junior to the HCPI series C
preferred stock as to dividends and upon liquidation or for the purpose
of preserving HCPI's qualification as a real estate investment trust. See
"-- Restrictions on Ownership and Transfer." Notwithstanding the
foregoing, HCPI will be permitted to make a pro rata offer to purchase or
concurrently redeem all, or a pro rata portion, of the outstanding HCPI
series C preferred stock and any other equity securities that rank on
parity with the HCPI series C preferred stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of HCPI.
Accrued and unpaid dividends for any past dividend periods may be declared
and paid at any time and for such interim periods to holders of record on the
applicable record date. Any dividend payment made on the HCPI series C preferred
stock is first credited against the earliest accrued but unpaid dividend due
with respect to the HCPI series C preferred stock that remains payable.
No dividends will be authorized by the HCPI board or paid or set aside for
payment if any agreement of HCPI prohibits such authorization, payment or
setting apart for payment or provides that such authorization, payment or
setting aside of payment would constitute a breach thereof or a default
thereunder, or if such authorization or payment is restricted or prohibited by
law. Dividends on HCPI series C preferred stock accrue whether or not HCPI has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared. No interest, or
sum of money in lieu of interest, is payable
III-29
<PAGE> 133
in respect of any dividend payment or payments on the HCPI series C preferred
stock that may be in arrears. Holders of HCPI series C preferred stock are not
entitled to any dividends, whether payable in cash, property or shares of stock,
in excess of the full cumulative dividends, as described herein, on the HCPI
series C preferred stock. If, for any taxable year, HCPI elects to designate as
"capital gain dividends" (as defined in Section 857 of the Internal Revenue Code
any portion (the "Capital Gains Amount") of the dividends (within the meaning of
the Internal Revenue Code) paid or made available for the year to holders of all
classes of capital stock (the "Total Dividends"), then the portion of the
Capital Gains Amount that will be allocable to holders of HCPI series C
preferred stock will be in the same portion that the Total Dividends paid or
made available to the holders of HCPI series C preferred stock for the year
bears to the Total Dividends.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs HCPI, the holders of HCPI series C preferred stock are entitled to
receive out of assets of HCPI legally available for distribution to stockholders
a liquidation preference of $2,500.00 per share of HCPI series C preferred stock
($25.00 per HCPI depositary share), plus an amount equal to any accrued and
unpaid dividends for prior dividend periods, before any distribution of assets
is made to holders of HCPI common stock or any other class or series of capital
stock of HCPI that ranks junior to the HCPI series C preferred stock as to
liquidation rights.
Until the holders of HCPI series C preferred stock have been paid their
liquidation preference in full, no payment will be made to any holder of HCPI
common stock or any other class or series of capital stock of HCPI that ranks
junior to the HCPI series C preferred stock as to liquidation rights upon the
liquidation, dissolution or winding up of HCPI. If upon any liquidation,
dissolution or winding up of HCPI, the assets of HCPI, or proceeds thereof,
distributable among the holders of the HCPI series C preferred stock are
insufficient to pay in full the amount payable upon liquidation with respect to
the HCPI series C preferred stock and any other class or series of capital stock
of HCPI that ranks on parity with the HCPI series C preferred stock as to
liquidation rights, then such assets, or the proceeds thereof, will be
distributed among the holders of HCPI series C preferred stock and any such
parity shares ratably in accordance with the respective amounts which would be
payable on such HCPI series C preferred stock and any such parity shares if all
amounts payable thereon were paid in full.
Neither a consolidation nor a merger of HCPI with another entity, a
statutory share exchange by HCPI or a sale, lease or transfer of all or
substantially all of HCPI's assets will be considered a liquidation, dissolution
or winding up, voluntary or involuntary, of HCPI.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend, redemption or other acquisition of shares
of stock of HCPI or otherwise is permitted under the Maryland General
Corporation Law, no effect is given to amounts that would be needed if HCPI
would be dissolved at the time of the distribution, to satisfy the preferential
rights upon distribution of holders of shares of stock of HCPI whose
preferential rights upon distribution are superior to those receiving the
distribution.
REDEMPTION
The HCPI series C preferred stock is not redeemable by HCPI prior to
October 27, 2002, other than a redemption by HCPI to preserve its status as a
real estate investment trust. On and after October 27, 2002, HCPI, at its
option, upon publication in a newspaper of general circulation in New York, New
York at least once a week for two successive weeks and written notice to the
holders of HCPI series C preferred stock, may redeem the HCPI series C
III-30
<PAGE> 134
preferred stock, in whole or in part, at any time, for cash at a redemption
price of $2,500.00 per share of HCPI series C preferred stock ($25.00 per HCPI
depositary share), plus accumulated, accrued and unpaid dividends thereon to the
date fixed for redemption, without interest.
The redemption price of the HCPI series C preferred stock is payable solely
out of proceeds from the sale of other capital stock of HCPI, which may include
the HCPI common stock, HCPI series A preferred stock, HCPI series B preferred
stock, depositary shares, interests, participations or other ownership interests
in HCPI however designated, other than debt securities convertible into or
exchangeable for equity securities, and any rights, warrants or options to
purchase any thereof. If fewer than all of the outstanding HCPI series C
preferred stock are to be redeemed, the number of shares to be redeemed will be
determined by HCPI and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders, with adjustments to avoid redemption of fractional shares, by lot or by
any other method determined by HCPI in its sole discretion to be equitable.
Unless full cumulative dividends on all HCPI series C preferred stock and
any other capital stock of HCPI ranking on parity with the HCPI series C
preferred stock as to redemption rights have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period, no HCPI series C preferred stock or such parity shares may be redeemed
or purchased by HCPI except pursuant to a pro rata purchase or exchange offer
made on the same terms to holders of all outstanding HCPI series C preferred
stock or such parity shares, as the case may be. Notice of redemption will be
mailed at least 30 days but not more than 90 days before the redemption date by
the registrar to each holder of record of HCPI series C preferred stock to be
redeemed at the address shown on the stock transfer books of HCPI. Each notice
will state:
- the redemption date;
- the number of HCPI series C preferred stock to be redeemed;
- the redemption price per share;
- the place or places where certificates for HCPI series C preferred stock
are to be surrendered for payment of the redemption price; and
- that dividends on the HCPI series C preferred stock will cease to accrue
on such redemption date.
If fewer than all HCPI series C preferred stock are to be redeemed, the
notice mailed to each such holder of HCPI series C preferred stock will also
specify the number of HCPI series C preferred stock to be redeemed from such
holder. If notice of redemption of any HCPI series C preferred stock has been
given and if the funds necessary for such redemption have been set aside by HCPI
in trust for the benefit of the holders of HCPI series C preferred stock so
called for redemption, then from and after the redemption date, dividends will
cease to accrue on the HCPI series C preferred stock, such HCPI series C
preferred stock will no longer be deemed outstanding and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price.
The holders of HCPI depositary shares at the close of business on a record
date are entitled to receive the dividends payable with respect to the HCPI
series C preferred stock represented by such HCPI depositary shares on the
corresponding dividend payment date notwithstanding the redemption thereof
between such record date and the corresponding dividend payment date or HCPI's
default in the payment of the dividend due. Except as
III-31
<PAGE> 135
provided above, HCPI will make no payment or allowance for unpaid dividends,
whether or not in arrears, on HCPI series C preferred stock that have been
called for redemption.
VOTING RIGHTS
Except as indicated below, the holders of HCPI series C preferred stock
have no voting rights.
Whenever dividends on any shares of HCPI series C preferred stock shall be
in arrears for six or more quarterly periods, whether or not consecutive, the
holders of such shares of HCPI series C preferred stock, voting separately as a
class with all other classes or series of preferred stock upon which like voting
rights have been conferred, including the HCPI series A preferred stock and HCPI
series B preferred stock, and are exercisable, will be entitled to vote for the
election of a total of two additional directors of HCPI at a special meeting
called by the holders of record of at least 25% of the HCPI series C preferred
stock or the holders of any other class or series of preferred stock so in
arrears, unless this request is received less than 90 days before the date fixed
for the next annual or special meeting of stockholders, or at the next annual
meeting of stockholders, and at each subsequent annual meeting until all
dividends accumulated on such shares of HCPI series C preferred stock shall have
been paid in full for four consecutive dividend periods, including the last
preceding dividend period. In such case, the entire board of directors of HCPI
will be increased by two directors. The term of office of all directors so
elected will terminate on the earlier of the next annual meeting of HCPI
stockholders or the termination of such voting rights.
The approval of two-thirds of the outstanding HCPI series C preferred
stock, voting as a single class, is required in order to, either directly or
indirectly or through merger or consolidation with another company:
- authorize, create or issue, or increase the authorized or issued amount
of, any class or series of stock ranking prior to the HCPI series C
preferred stock in rights and preferences;
- approve an amendment to, or alter or repeal, the HCPI charter which would
materially and adversely change the specific terms of the HCPI series C
preferred stock; or
- enter into a share exchange that affects the HCPI series C preferred
stock, or consolidate HCPI with or merge HCPI with another entity, unless
in each such case each share of HCPI series C preferred stock remains
outstanding without a material adverse change to its terms and rights or
is converted into or exchanged for preferred stock of the surviving
entity having preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption thereof identical to that of the HCPI series C
preferred stock (except for changes that do not materially and adversely
affect the holders of HCPI series C preferred stock).
However, an amendment which increases the number of authorized shares of
any class or series of HCPI preferred stock or authorizes the creation or
issuance of other classes or series of HCPI preferred stock, in each case
ranking junior to or on a parity with the HCPI series C preferred stock with
respect to the payment of dividends and distribution of assets upon liquidation,
dissolution or winding up, or substitutes the surviving entity in a merger or
consolidation, reorganization or other business combination for HCPI, will not
be considered to be an adverse change requiring the vote of the holders of HCPI
series C preferred stock.
III-32
<PAGE> 136
Except as provided above the holders of HCPI series C preferred stock are
not entitled to vote on any merger or consolidation involving HCPI, on any share
exchange or on a sale of all or substantially all of the assets of HCPI.
RETIREMENT
Except as otherwise provided in the HCPI charter, all HCPI series C
preferred stock issued and reacquired by HCPI will be restored to the status of
authorized but unissued shares of preferred stock, without designation as to
class or series.
CONVERSION
The HCPI series C preferred stock is not convertible into or exchangeable
for any other property or securities of HCPI at the option of the holder.
RECORD HOLDERS
HCPI and its transfer agent may deem and treat the record holder of any
HCPI depositary share as the true and lawful owner thereof for all purposes, and
neither HCPI nor its transfer agent shall be affected by any notice to the
contrary.
RESTRICTIONS ON TRANSFER
Subject to exceptions more fully described in the articles supplementary
relating to the HCPI series C preferred stock, no person or entity may own, or
be deemed to own by virtue of the applicable constructive ownership provisions
of the Internal Revenue Code, more than 9.8% (by number or value, whichever is
more restrictive) of the outstanding shares of capital stock of HCPI, inclusive
of HCPI series C preferred stock. These ownership restrictions are also
applicable to the HCPI depositary shares that will represent an ownership
interest in HCPI series C preferred stock following the merger. See
"-- Restrictions on Ownership and Transfer Relating to HCPI Preferred Stock."
TRANSFER RESTRICTIONS AND REDEMPTIONS RELATING TO HCPI COMMON STOCK
The HCPI charter contains restrictions on the ownership and transfer of
voting stock of HCPI which are intended to assist HCPI in complying with the
requirements to continue to qualify as a real estate investment trust. The
ownership limit relating to HCPI common stock set forth in the HCPI charter
provides that, if the HCPI board shall, at any time and in good faith, be of the
opinion that direct or indirect beneficial 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 HCPI board shall have the power (1) by lot or
other means deemed equitable by it to call for the purchase from any stockholder
of HCPI a number of voting shares sufficient, in the opinion of the HCPI board
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 HCPI's capital stock, and (2) 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 HCPI board, result in the direct or
indirect ownership by that person of more than 9.9% of the outstanding voting
shares of capital stock of HCPI. 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 of HCPI will
be deemed void ab initio and the intended transferee will be deemed never to
have had an interest in those shares.
III-33
<PAGE> 137
The purchase price for any voting shares of capital stock so redeemed will
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 HCPI, or, if no such closing
sales prices or quotations are available, then the purchase price shall be equal
to the net asset value of such stock as determined by the HCPI board in
accordance with the provisions of applicable law. From and after the date fixed
for purchase by the HCPI board, 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.
RESTRICTIONS ON OWNERSHIP AND TRANSFER RELATING TO HCPI PREFERRED STOCK
Each of the articles supplementary relating to the HCPI series A preferred
stock, the HCPI series B preferred stock and the HCPI series C preferred stock
contain restrictions on the ownership and transfer of HCPI preferred stock which
are intended to assist HCPI in complying with the requirements to maintain its
status as a real estate investment trust. Subject to limited exceptions, no
person or entity may own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Internal Revenue Code, more than 9.9%
(by number or value, whichever is more restrictive) of the outstanding shares of
HCPI series A preferred stock or HCPI series B preferred stock or, with regard
to the HCPI series C preferred stock, 9.8% (by value or number of shares,
whichever is more restrictive) of the outstanding shares of capital stock of
HCPI, inclusive of the HCPI series C preferred stock. The HCPI board may, but in
no event are required to, waive the applicable ownership limit with respect to a
particular stockholder if it determines that such ownership will not jeopardize
HCPI's status as a real estate investment trust and the HCPI board otherwise
decides such action would be in the best interest of HCPI.
The articles supplementary relating to each class of the HCPI preferred
stock further prohibit:
- any person from actually or constructively owning shares of stock of HCPI
that would result in HCPI being "closely held" under Section 856(h) of
the Internal Revenue Code or otherwise cause HCPI to fail to qualify as a
real estate investment trust; and
- any person from transferring shares of the applicable class of HCPI
preferred stock of HCPI if such transfer would result in shares of stock
of HCPI being beneficially owned by fewer than 100 persons (determined
without reference to any rules of attribution).
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of HCPI preferred stock that will or may
violate any of these restrictions on ownership and transfer is required to give
notice immediately to HCPI and provide HCPI with such other information as HCPI
may request in order to determine the effect of the transfer on HCPI's status as
a real estate investment trust. Under each of the articles supplementary
relating to the classes of HCPI preferred stock, if any purported transfer of
HCPI preferred stock or any other event would otherwise result in any person
violating the applicable ownership limit or such other limit as permitted by the
HCPI board, then any such purported transfer is void and of no force or effect
with respect to the purported transferee as to that number of shares of HCPI
preferred stock in excess of the ownership limit or such other limit, and the
transferee will acquire no right or interest in such excess shares. Any excess
shares described above are transferred automatically, by operation of law, to a
trust, the beneficiary of which is a qualified charitable organization selected
by HCPI. Such automatic
III-34
<PAGE> 138
transfer will be deemed to be effective as of the close of business on the
business day prior to the date of such violative transfer. Within 20 days of
receiving notice from HCPI of the transfer of shares to the trust, the trustee
of the trust is required to sell the excess shares to a person or entity who
could own the shares without violating the applicable ownership limit, or such
other limit as permitted by the HCPI board, and distribute to the prohibited
transferee an amount equal to the lesser of the price paid by the prohibited
transferee for the excess shares or the sales proceeds received by the trust for
the excess shares. In the case of any excess shares resulting from any event
other than a transfer, or from a transfer for no consideration (such as a gift),
the trustee are required to sell the excess shares to a qualified person or
entity and distribute to the prohibited owner an amount equal to the lesser of
the market price of the excess shares as of the date of such event or the sales
proceeds received by the trust for such excess shares. In either case, any
proceeds in excess of the amount distributable to the prohibited transferee are
distributed to the beneficiary of the trust. Prior to a sale of any such excess
shares by the trust, the trustee are entitled to receive, in trust for the
beneficiary, all dividends and other distributions paid by HCPI with respect to
such excess shares, and also are entitled to exercise all voting rights with
respect to such excess shares.
Subject to Maryland law, effective as of the date that such shares have
been transferred to the trust, the trustee will have the authority, at the
trustee's sole discretion:
- to rescind as void any vote cast by a prohibited transferee prior to the
discovery by HCPI that the shares have been transferred to the trust;
- to recast such vote in accordance with the desires of the trustee acting
for the benefit of the beneficiary of the trust.
However, if HCPI has already taken irreversible corporate action, then the
trustee will not have the authority to rescind and recast such vote. Any
dividend or other distribution paid to the prohibited transferee, prior to the
discovery by HCPI that such shares had been automatically transferred to a trust
as described above, are required to be repaid to the trustee upon demand for
distribution to the beneficiary of the trust. In the event that the transfer to
the trust as described above is not automatically effective, for any reason, to
prevent violation of the ownership limit or such other limit as permitted by the
HCPI board, then the articles supplementary each provide that the transfer of
the excess shares are void ab initio.
In addition, shares of HCPI preferred stock of HCPI held in the trust shall
be deemed to have been offered for sale to HCPI, or its designee, at a price per
share equal to the lesser of:
- the price per share in the transaction that resulted in such transfer to
the trust or, in the case of a devise or gift, the market price at the
time of such devise or gift, and
- the market price on the date HCPI, or its designee, accepted the offer.
HCPI will have the right to accept the offer until the trustee has sold
the shares of stock held in the trust. Upon a sale to HCPI, the interest
of the beneficiary in the shares sold will terminate and the trustee will
distribute the net proceeds of the sale to the prohibited transferee.
If any purported transfer of shares of HCPI preferred stock would cause
HCPI to be beneficially owned by fewer than 100 persons, such transfer will be
null and void ab initio in its entirety and the intended transferee will acquire
no rights to the stock.
All certificates representing shares of HCPI preferred stock bear a legend
referring to the restrictions described above. The foregoing ownership
limitations could delay, defer or prevent a transaction or a change in control
of HCPI that might involve a premium price for the HCPI preferred stock or
otherwise be in the best interest of HCPI stockholders.
III-35
<PAGE> 139
Each holder of HCPI preferred stock shall upon demand be required to
disclose to HCPI in writing such information as HCPI may request in order to
determine the effect, if any, of such stockholder's actual and constructive
ownership of HCPI preferred stock on HCPI's status as a real estate investment
trust and to ensure compliance with the applicable ownership limit or such other
limit as permitted by the HCPI board.
STOCKHOLDER RIGHTS PLAN
On July 5, 1990, the HCPI board declared a dividend distribution of one
common stock purchase right (each, a "Right") for each outstanding share of HCPI
common stock to stockholders of record at the close of business on July 30,
1990. When exercisable, each Right entitles the registered holder to purchase
from HCPI one share of the common stock at a price of $47.50 per share, subject
to adjustment. The Rights are attached to all outstanding shares of common
stock, and no separate Rights certificates have been distributed. The Board also
authorized the issuance of one Right with respect to each share of HCPI common
stock that becomes 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 HCPI Rights Agreement with Bank of New York). Each share of
common stock offered by this joint proxy statement/prospectus will have upon
issuance one Right attached. The Rights will become exercisable and will detach
from the HCPI common stock upon a "Distribution Date" which will occur upon the
earlier of:
- the tenth day after the public announcement that any person or group has
acquired beneficial ownership of 15% or more the outstanding HCPI common
stock, or
- 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 outstanding HCPI common stock.
Following a Distribution Date and prior to the Expiration Date, HCPI will
generally issue a Rights certificate with each share of HCPI common stock issued
with respect to the exercise of stock options or under an employee plan or
arrangement or upon the exchange or conversion of securities issued by HCPI or
by a limited liability company of which HCPI is the managing member.
If a person or group acquires beneficial ownership of 15% or more of the
HCPI common stock (except pursuant to cash tender offers for all outstanding
common stock approved by the HCPI board) or if HCPI is the surviving corporation
in a merger and the HCPI common stock is not changed or exchanged, each Right
other than Rights owned by an Acquiring Person (as defined in the HCPI Rights
Agreement) and its affiliates and associates will entitle the holder to
purchase, at the Right's then current exercise price, that number of shares of
the HCPI common stock having a market value equal to twice the exercise price.
Similarly, if HCPI 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.
If HCPI is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold after a
person or group has become an Acquiring Person, proper provision will be made so
that each holder of a Right, other than an Acquiring Person and the affiliates
and associates of such Acquiring Person, whose Rights will have become void,
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, the number of shares of common stock of the
III-36
<PAGE> 140
acquiring company which at the time of such transaction will have a market value
equal to twice the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision will be made so that each holder of a Right, other than the Rights
beneficially owned by the Acquiring Person or the affiliates and associates of
such Acquiring Persons, which will thereafter be void, will thereafter have the
right to receive upon exercise that number of shares of HCPI common stock having
a market value of two times the purchase price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of HCPI common stock, the HCPI board may exchange the Rights, other than
any Rights owned by such person or group and their respective affiliates and
associates which have become void, in whole or in part, for a number of shares
of HCPI common stock having a value equal to the value of the HCPI common stock
issuable upon the exercise of the Rights over the purchase price.
The Rights may be redeemed in whole, but not in part, at a price of $.005
per Right, subject to adjustment for stock splits and similar transactions by
the HCPI board at any time until ten days following the public announcement that
a person or group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of the outstanding shares of HCPI common stock. The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the HCPI board, in its sole discretion, may establish,
including an extension of the period during which the Rights are redeemable or a
postponement of the Distribution Date. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the redemption price. The Rights will
expire on July 30, 2000, unless such date is extended or the Rights are
exchanged or earlier redeemed.
BUSINESS COMBINATION PROVISIONS
The HCPI charter requires that, except in some circumstances, "business
combinations" between HCPI and a beneficial holder of 10% or more of HCPI's
outstanding voting stock (a "Related Person") be approved by the affirmative
vote of at least 90% of the outstanding voting shares of HCPI. A "business
combination" is defined in the HCPI charter as:
- any merger or consolidation of HCPI with or into a Related Person;
- 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 HCPI, including
any voting securities of a subsidiary, to a Related Person;
- any merger or consolidation of a Related Person with or into HCPI,
- any sale, lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of a Related Person to HCPI;
- the issuance of any securities, other than by way of pro rata
distribution to all stockholders, of HCPI to a Related Person; and
- any agreement, contract or other arrangement providing for any of the
transactions described in the definition of business combination.
The term "Substantial Part" means more than 10% of the book value of the
total assets of HCPI as of the end of its most recent fiscal year ending prior
to the time the determination is being made.
III-37
<PAGE> 141
The Rights and the foregoing provisions may have the effect of discouraging
unilateral tender offers or other takeover proposals which stockholders might
deem to be in their interests or in which they might receive a substantial
premium. The HCPI board's 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 "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 HCPI common stock, deprive stockholders of opportunities to sell at
a temporarily higher market price. The HCPI board believes, however, that
inclusion of the business combination provisions in the HCPI charter and the
Rights may help assure fair treatment of HCPI stockholders and preserve HCPI's
assets.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in proxy material for HCPI's 2000
annual meeting of stockholders must be submitted to the Corporate Secretary of
HCPI in writing and received at the executive offices of HCPI between November
30, 1999 and December 30, 1999. Such proposals must also have met the other
requirements of the rules of the SEC relating to stockholder proposals and must
have satisfied the notice procedures for stockholder proposals set forth in the
HCPI bylaws. See "Comparison of Rights of Stockholders of HCPI and
AHP -- Advance Notice Provision."
Due to the contemplated consummation of the merger, AHP does not currently
expect to hold a 2000 annual meeting of stockholders. If the merger is not
consummated and such a meeting is held, stockholder proposals for inclusion in
proxy materials for the AHP annual meeting of stockholders must be submitted to
the Secretary of AHP in writing and received at the executive offices of AHP by
February 25, 2000. Such proposals must also meet the other requirements of the
rules of the SEC relating to stockholders' proposals. See "Comparison of Rights
of Stockholders of HCPI and AHP -- Advance Notice Provision."
LEGAL MATTERS
The validity of the shares of HCPI common stock and HCPI series C preferred
stock to be issued in connection with the merger will be passed upon for HCPI by
Ballard Spahr Andrews & Ingersoll, LLP.
Latham & Watkins, as counsel for HCPI, and Sullivan & Cromwell, as counsel
for AHP, have each provided an opinion to their respective clients as to the
qualification of the merger as a reorganization within the meaning of the
federal income tax laws. Also, Latham & Watkins has provided an opinion to AHP
regarding HCPI's conformity with the requirements for qualification and taxation
as a real estate investment trust under the federal tax laws and Davis, Graham &
Stubbs LLP has provided an opinion to HCPI regarding AHP's conformity with the
requirements for qualification and taxation as a real estate investment trust
under the federal tax laws. The Davis, Graham & Stubbs LLP opinion assumes,
among other things, the accuracy of an opinion rendered by Sullivan & Cromwell
with respect to the characterization of AHP's psychiatric group preferred stock
and dividends thereon. All of the opinions referred to above are based on the
facts, representations and assumptions stated therein.
III-38
<PAGE> 142
EXPERTS
The consolidated financial statements and schedules of HCPI as of December
31, 1998 and 1997, and for each of the years in the three-year period ending
December 31, 1998 incorporated by reference herein 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.
The consolidated financial statements and schedules of AHP as of December
31, 1998 and 1997, and for the years in the three-year period ending December
31, 1998 incorporated by reference herein 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.
Representatives of Arthur Andersen LLP are expected to be present at the
HCPI special meeting and the AHP special meeting with an opportunity to make
statements if they desire to do so, and such representatives are expected to be
available to respond to appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
HCPI and AHP file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that we have filed at the SEC's public reference
rooms. Please call the SEC at 1-800-SEC-0330 for information on the public
reference rooms or visit the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, DC 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Our SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
You may inspect information that HCPI and AHP file with The New York Stock
Exchange at the offices of The New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
HCPI filed a registration statement on Form S-4 to register with the SEC
the HCPI common stock that will be issued to AHP stockholders in the merger.
This joint proxy statement/prospectus is a part of that registration statement
and constitutes a prospectus of HCPI in addition to being a proxy statement of
HCPI and AHP for the special meetings. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. This joint proxy statement/prospectus incorporates by reference the
documents set forth below that we have
III-39
<PAGE> 143
previously filed with the SEC. These documents contain important information
about our companies and their finances.
<TABLE>
<CAPTION>
HCPI'S SEC FILINGS DESCRIPTION OR
(FILE NO. 1-8895) PERIOD/AS OF DATE
- ---------------------------------------- ----------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Current Report on Form 8-K, dated Discloses the entering into of the
August 4, 1999 merger agreement and related matters
Current Report on Form 8-K, dated Announces filing of registration
May 3, 1999 statement on Form S-3 with the SEC for
the offering of HCPI common stock
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999 and June
30, 1999
Current Report on Form 8-K/A dated Disclosed information relating to HCPI's
January 7, 1999 property acquisitions from November 6,
1998 through December 23, 1998
Registration Statement on Form 10, dated Description of HCPI common stock
May 7, 1985, including amendments dated
May 20, 1985, May 23, 1985 and July 17,
1990
Registration Statement on Form S-3, Description of HCPI 7 7/8% Series A
Registration No. 333-29485, dated June Cumulative Redeemable Preferred Stock
18, 1997 amended by Amendment No. 1
thereto, dated June 26, 1997 and
supplemented by the Prospectus
Supplement dated September 23, 1997
Registration Statement on Form S-3, Description of HCPI 8.70% Series B
Registration No. 333-57163, dated June Cumulative Redeemable Preferred Stock
18, 1998 as supplemented by the
Prospectus Supplement dated September 1,
1998
Definitive Proxy Statement on Schedule Definitive proxy statement relating to
14A the 1999 annual meeting of HCPI
stockholders on April 28, 1999
</TABLE>
<TABLE>
<CAPTION>
AHP'S SEC FILINGS DESCRIPTION OR
(FILE NO. 1-09381) PERIOD/AS OF DATE
- ---------------------------------------- ----------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended December 31, 1998
Current Report on Form 8-K, dated Discloses the entering into of the
August 4, 1999 merger agreement and related matters
Current Report on Form 8-A/A, dated Discloses an amendment to the AHP rights
August 4, 1999 agreement
Quarterly Reports on Forms 10-Q Quarters ended March 31, 1999 and June
30, 1999
Definitive Proxy Statement on Schedule Definitive proxy statement relating to
14A the 1999 annual meeting of AHP
stockholders on June 11, 1999
</TABLE>
We are also incorporating by reference additional documents that we may
file with the SEC under to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934
III-40
<PAGE> 144
between the date of this joint proxy statement/prospectus and the date of the
HCPI special meeting and the AHP special meeting. These documents include
periodic reports, such as annual reports on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K, as well as proxy statements.
The information incorporated by reference is automatically considered to be
a part of this joint proxy statement/prospectus. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this joint
proxy statement/prospectus will be deemed modified, superseded or replaced for
purposes of this joint proxy statement/prospectus to the extent that a statement
contained in this joint proxy statement/prospectus or in any subsequently filed
document that also is or is deemed to be incorporated by reference in this joint
proxy statement/prospectus modifies, supersedes or replaces that statement. Any
statement so modified, superseded or replaced will not be considered, except as
so modified, superseded or replaced, to be a part of this joint proxy
statement/prospectus.
HCPI has supplied all information contained or incorporated by reference in
this joint proxy statement/ prospectus relating to HCPI, and AHP has supplied
all information contained or incorporated by reference in this joint proxy
statement/prospectus relating to AHP.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus. Stockholders may obtain
documents incorporated by reference in this joint proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate party at the
following addresses:
<TABLE>
<S> <C>
Health Care Property Investors, Inc. American Health Properties, Inc.
4675 MacArthur Court, 9th Floor 6400 S. Fiddler's Green Circle, Suite 1800
Newport Beach, California 92660 Englewood, Colorado 80111
Telephone: (949) 221-0600 Telephone: (303) 796-9793
</TABLE>
If you would like to request documents from us, please do so by October 29,
1999 to receive them before the HCPI special meeting or the AHP special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE HCPI MERGER
PROPOSAL AND THE AHP MERGER PROPOSAL. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED
SEPTEMBER 24, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SEPTEMBER
24, 1999, AND NEITHER THE MAILING OF THE JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF HCPI COMMON STOCK IN THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
III-41
<PAGE> 145
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
HEALTH CARE PROPERTY INVESTORS, INC.
AND
AMERICAN HEALTH PROPERTIES, INC.
DATED AS OF AUGUST 4, 1999
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS..................................................... 1
ARTICLE II. THE MERGER..................................................... 10
Section 2.1 The Merger................................................. 10
Section 2.2 Closing and Closing Date................................... 10
Section 2.3 Effective Time............................................. 10
Section 2.4 Effects of the Merger...................................... 10
Section 2.5 Charter; Bylaws............................................ 11
Section 2.6 Directors and Officers..................................... 11
Section 2.7 Conversion of Securities................................... 11
Section 2.8 Treatment of Company Options, Company Dividend Equivalent
Rights and Company Deferred Directors Fees................. 12
Section 2.9 Fractional Interests....................................... 14
Section 2.10 Surrender of Shares of Company Stock; Stock Transfer
Books...................................................... 15
Section 2.11 Lost, Stolen or Destroyed Certificates..................... 17
Section 2.12 Tax Consequences........................................... 17
Section 2.13 Withholding Rights......................................... 17
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 17
Section 3.1 Organization and Qualification............................. 18
Section 3.2 Authorization; Validity and Effect of Agreement............ 18
Section 3.3 Capitalization............................................. 18
Section 3.4 Subsidiaries............................................... 19
Section 3.5 Other Interests............................................ 20
Section 3.6 No Conflict; Required Filings and Consents................. 20
Section 3.7 Compliance................................................. 21
Section 3.8 SEC Reports................................................ 21
Section 3.9 Absence of Certain Changes................................. 21
Section 3.10 Litigation................................................. 22
Section 3.11 Taxes...................................................... 22
Section 3.12 Employee Benefit Plans..................................... 23
Section 3.13 Properties................................................. 25
Section 3.14 Contracts.................................................. 26
Section 3.15 Labor Relations............................................ 27
Section 3.16 Intellectual Property...................................... 27
Section 3.17 Environmental Matters...................................... 27
Section 3.18 Opinion of Financial Advisor............................... 28
Section 3.19 Brokers.................................................... 28
Section 3.20 Vote Required.............................................. 28
Section 3.21 Accounting and Tax Matters................................. 28
Section 3.22 Insurance.................................................. 28
Section 3.23 Takeover Provisions Inapplicable........................... 28
Section 3.24 No Material Adverse Effect................................. 29
Section 3.25 Rights Plan................................................ 29
Section 3.26 Kendall Replacement Properties............................. 29
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HCPI......................... 29
Section 4.1 Organization and Qualification............................. 29
Section 4.2 Authorization; Validity and Effect of Agreement............ 29
Section 4.3 Capitalization............................................. 30
</TABLE>
i
<PAGE> 147
<TABLE>
<S> <C> <C>
Section 4.4 Subsidiaries............................................... 31
Section 4.5 Other Interests............................................ 31
Section 4.6 No Conflict; Required Filings and Consents................. 31
Section 4.7 Compliance................................................. 32
Section 4.8 SEC Reports................................................ 32
Section 4.9 Absence of Certain Changes................................. 33
Section 4.10 Litigation................................................. 33
Section 4.11 Taxes...................................................... 33
Section 4.12 Employee Benefit Plans..................................... 35
Section 4.13 Properties................................................. 36
Section 4.14 Contracts.................................................. 38
Section 4.15 Labor Relations............................................ 38
Section 4.16 Intellectual Property...................................... 38
Section 4.17 Environmental Matters...................................... 38
Section 4.18 Opinion of Financial Advisor............................... 39
Section 4.19 Brokers.................................................... 39
Section 4.20 Vote Required.............................................. 39
Section 4.21 Accounting and Tax Matters................................. 39
Section 4.22 Insurance.................................................. 39
Section 4.23 Takeover Provisions Inapplicable........................... 39
Section 4.24 No Material Adverse Effect................................. 40
Section 4.25 Rights Plan................................................ 40
Section 4.26 Ownership of Company Common Stock.......................... 40
ARTICLE V. CONDUCT OF BUSINESS PENDING THE MERGER.......................... 40
Section 5.1 Conduct of Business of the Company Pending the Merger...... 40
Section 5.2 Permitted Conduct of Business by the Company Pending the
Merger..................................................... 43
Section 5.3 Conduct of Business of HCPI Pending the Merger............. 44
Section 5.4 Continued Qualification as a Real Estate Investment Trust;
Final Company Dividend..................................... 45
Section 5.5 Dividend Payment Coordination.............................. 46
ARTICLE VI. ADDITIONAL AGREEMENTS.......................................... 46
Section 6.1 Preparation of Form S-4 and the Proxy Statement;
Stockholder Meeting........................................ 46
Section 6.2 Cooperation; Notice; Cure.................................. 47
Section 6.3 No Solicitation............................................ 48
Section 6.4 Access to Information...................................... 49
Section 6.5 Governmental Approvals..................................... 49
Section 6.6 Publicity.................................................. 50
Section 6.7 Benefit Plans.............................................. 50
Section 6.8 Indemnification............................................ 51
Section 6.9 Affiliate Agreements....................................... 51
Section 6.10 Tax Treatment of Reorganization............................ 51
Section 6.11 Further Assurances and Actions............................. 52
Section 6.12 Stock Exchange Listing..................................... 52
Section 6.13 Letter of the Company's Accountants........................ 52
Section 6.14 Letter of HCPI's Accountants............................... 52
Section 6.15 Rights Plan................................................ 52
Section 6.16 Company REIT Status........................................ 52
</TABLE>
ii
<PAGE> 148
<TABLE>
<S> <C> <C>
Section 6.17 HCPI REIT Status........................................... 53
Section 6.18 Obtaining Consents......................................... 53
Section 6.19 Exemption from Section 16(b) of the Exchange Act........... 53
Section 6.20 Termination of Other Stock Rights.......................... 53
ARTICLE VII. CONDITIONS OF MERGER.......................................... 53
Section 7.1 Conditions to Obligation of each Party to Effect the
Merger..................................................... 53
Section 7.2 Conditions to Obligations of the Company to Effect the
Merger..................................................... 54
Section 7.3 Conditions to Obligations of HCPI to Effect the Merger..... 55
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER............................ 56
Section 8.1 Termination................................................ 56
Section 8.2 Effect of Termination...................................... 57
Section 8.3 Expenses................................................... 59
Section 8.4 Amendment.................................................. 59
Section 8.5 Waiver..................................................... 59
ARTICLE IX. GENERAL PROVISIONS............................................. 59
Section 9.1 Non-Survival of Representations, Warranties and
Agreements................................................. 59
Section 9.2 Notices.................................................... 59
Section 9.3 Severability............................................... 60
Section 9.4 Entire Agreement; Assignment............................... 60
Section 9.5 Parties in Interest........................................ 61
Section 9.6 Governing Law.............................................. 61
Section 9.7 No Trial by Jury........................................... 61
Section 9.8 Action by Subsidiaries and Boards.......................... 61
Section 9.9 Headings................................................... 61
Section 9.10 Specific Performance....................................... 61
Section 9.11 Counterparts............................................... 61
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Form of Affiliate Letter
Exhibit B Articles Supplementary Classifying 40,000 Shares of 8.60%
Series C Cumulative Redeemable Preferred Stock
Exhibit C Form of REIT Opinion to be delivered by Latham & Watkins
Exhibit D Form of REIT Opinion to be delivered by Davis, Graham &
Stubbs LLP
Exhibit E Form of REIT Opinion to be delivered by Sullivan & Cromwell
</TABLE>
iii
<PAGE> 149
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August 4,
1999, by and between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland
corporation ("HCPI") and AMERICAN HEALTH PROPERTIES, INC., a Delaware
corporation (the "Company"). HCPI and the Company are sometimes referred to
herein, individually, as a "Party," and, collectively, as the "Parties."
RECITALS
WHEREAS, the Board of Directors of the Company has declared that this
Agreement is advisable and determined that the merger of the Company with and
into HCPI (the "Merger") is advisable and in the best interests of the Company,
has approved this Agreement and authorized the Company to enter into this
Agreement and accordingly has directed that this Agreement be submitted for
consideration by the stockholders of the Company;
WHEREAS, the Board of Directors of HCPI has adopted resolutions which
declare the Merger to be advisable substantially on the terms and conditions set
forth in this Agreement, has approved this Agreement and authorized HCPI to
enter into this Agreement and accordingly has directed that the Merger be
submitted for consideration by the stockholders of HCPI;
WHEREAS, the Board of Directors of the Company and the Board of Directors
of HCPI have each agreed to effect the Merger upon the terms and subject to the
conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code"); and
WHEREAS, HCPI and the Company desire to make certain representations,
warranties and agreements in connection with the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, HCPI
and the Company hereby agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the term:
"Acquisition Proposal" shall mean, with respect to the Company, any
inquiry, proposal or offer from any Person (other than HCPI or any of its
Subsidiaries) relating to any (i) direct or indirect acquisition or purchase of
a business of the Company or any of its Subsidiaries that constitutes 15% or
more of the consolidated net revenues, net income or Assets of the Company and
its Subsidiaries, (ii) direct or indirect acquisition or purchase of 15% or more
of any class of equity securities of (A) the Company or (B) any of its
Subsidiaries whose business constitutes 15% or more of the consolidated net
revenues, net income or Assets of the Company and its Subsidiaries, (iii) tender
offer or exchange offer that if consummated would
<PAGE> 150
result in any Person being the Beneficial Owner of 15% or more of any class of
equity securities of the capital stock of the Company, or (iv) merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving (A) the Company or (B) any of its Subsidiaries
whose business constitutes 15% or more of the consolidated net revenues, net
income or Assets of the Company and its Subsidiaries.
"Acquisition Transaction" shall mean each of the transactions referred to
in clauses (i) - (iv) of the definition of Acquisition Proposal, other than any
such transaction to which HCPI or any of its Subsidiaries is a party.
"Action" shall mean any action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, arbitration, audit or
investigation by or before any Governmental Entity or any other Person.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
"Affiliate Agreement" shall mean an agreement to be executed by each
Affiliate of the Company in the form attached hereto as Exhibit A.
"Assets" shall mean, with respect to any Person, all land, buildings,
improvements, leasehold interests, Fixtures and Equipment and other assets, real
or personal, tangible or intangible, owned or leased by such Person or any of
its Subsidiaries.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act.
"Benefit Arrangement" shall mean, with respect to any Person, any
employment, consulting, severance, change in control or other similar contract,
arrangement or policy and each plan, arrangement (written or oral), program,
agreement or commitment providing for insurance coverage (including without
limitation any self-insured arrangements), workers' compensation, disability
benefits, life, health, disability or accident benefits (including without
limitation any "voluntary employees' beneficiary association" as defined in
Section 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive compensation
(other than a Welfare Plan, Pension Plan or Multiemployer Plan), in each case
with respect to which such Person or any ERISA Affiliate thereof has or may have
any obligation or liability (accrued, contingent or otherwise).
"Business Day" shall mean each day other than Saturdays, Sundays, days when
commercial banks are authorized to be closed for business in New York, New York,
and days when the SDAT or the office of the Secretary of State of the State of
Delaware are authorized to be closed.
"Certificates" shall mean outstanding certificates which immediately prior
to the Effective Time represented shares of Company Common Stock or Company
Series B Preferred Stock, as the case may be.
"Company Affiliate" shall mean an "affiliate" of the Company within the
meaning of Rule 145 promulgated under the Securities Act.
"Company Common Holder" shall mean a holder of record of Company Common
Stock immediately prior to the Effective Time.
"Company Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
2
<PAGE> 151
"Company Contract" shall mean any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness, lease, license, contract, agreement
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their Assets may be
bound, and which either (i) has a term of more than one year or is not otherwise
terminable within one year, (ii) involves the payment or receipt of money in
excess of $2,500,000, (iii) contains covenants limiting the freedom of the
Company or any of its Subsidiaries to engage in any line of business or compete
with any Person or operate at any location or (iv) any other contract, whether
similar or dissimilar to the foregoing, which is material to the Company and its
Subsidiaries taken as a whole, but, in each case, excluding any Company Leases.
"Company Deferred Directors Fees" shall mean all rights to receive shares
of Company Common Stock (or cash or other distributions in lieu thereof) in
satisfaction of deferred directors fees pursuant to the Company's Nonqualified
Stock Option Plan for Nonemployee Directors, including, without limitation,
Company Dividend Equivalent Rights appurtenant thereto.
"Company Dividend Equivalent Rights" shall mean all rights to receive
shares of Company Common Stock (or cash or other distributions in lieu thereof)
determined by amounts equivalent to dividends distributed or to be distributed
to holders of Company Common Stock that are appurtenant to Company Options or
Company Deferred Directors Fees.
"Company Employment Contracts" shall mean each of the Amended and Restated
Executive Employment Agreements between the Company and Joseph P. Sullivan, C.
Gregory Schonert, Michael J. McGee and Steven A. Roseman, each dated as of July
16, 1999, each as amended.
"Company Lease" shall mean any agreement relating to the use or occupancy
of any Company Real Property or any portion thereof.
"Company Material Adverse Effect" shall mean any change in or effect (i)
that is or would be likely to be materially adverse to the business, Assets,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, (ii) that will
or would be likely to materially impair or materially delay the ability of the
Parties to consummate the Merger or (iii) that would prevent or materially
impair the ability of HCPI to operate its and its Subsidiaries' business, taken
as a whole (including the business of the Surviving Corporation and its
Subsidiaries, taken as a whole), or to own the Assets material to HCPI and its
Subsidiaries, taken as a whole (including the Assets material to the Surviving
Corporation and its Subsidiaries, taken as whole), or qualify for taxation as a
REIT following the Effective Time.
"Company Options" shall mean all stock options and stock purchase rights to
acquire shares of Company Common Stock granted, awarded, earned or purchased
under any Company Stock Plan.
"Company Preferred Holder" shall mean a record holder of Company Series B
Preferred Stock immediately prior to the Effective Time.
"Company Rights" shall mean the Company Series A Preferred Stock purchase
rights issued under the Company Rights Plan.
"Company Rights Plan" shall mean the Rights Agreement, dated as of April
10, 1990, between the Company and Manufacturers Hanover Trust Company of
California, as Rights Agent.
3
<PAGE> 152
"Company Series A Preferred Stock" shall mean the Preferred Stock, Series
A, par value $0.01 per share, of the Company.
"Company Series B Preferred Stock" shall mean the 8.60% Cumulative
Redeemable Preferred Stock, Series B, par value $0.01 per share, of the Company.
"Company Stock" shall mean the Company Common Stock, the Company Series A
Preferred Stock and the Company Series B Preferred Stock.
"Company Stock Plans" shall mean the Company's Nonqualified Stock Option
Plan for Nonemployee Directors, the Company's 1988 Stock Option Plan, the
Company's 1990 Stock Incentive Plan, the Company's 1994 Stock Incentive Plan and
the Company's 1999 Equity Incentive Plan.
"Company Stock Rights" shall mean all outstanding stock options, restricted
stock awards, performance awards, dividend equivalent rights, deferred stock,
stock payments, stock appreciation rights or other rights to or with respect to
shares of capital stock granted, awarded, earned or purchased pursuant to any
Company Stock Plan.
"Company Stockholder Meeting" shall mean a meeting of the holders of
Company Common Stock duly noticed and held to consider a proposal to approve the
Agreement.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Employee Plans" shall mean, with respect to any Person, all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans of such
Person.
"Encumbrances" shall mean (i) any claim, lien, pledge, option, right of
first refusal, charge, easement, security interest, deed of trust, mortgage,
covenant, condition, restriction, right of way, reservation of an interest in
title, encumbrance or other similar rights of third parties and (ii) all laws,
ordinances and regulations affecting the use or occupancy of real property.
"Environmental Laws" shall mean any federal, state or local law, statute,
ordinance, order, decree, rule or regulation relating (i) to releases,
discharges, emissions or disposals of Hazardous Materials to air, water, land or
groundwater; (ii) to the use, handling or disposal of polychlorinated biphenyls,
asbestos or urea formaldehyde or any other Hazardous Material; (iii) to the
treatment, storage, disposal or management of Hazardous Materials; (iv) to
exposure to toxic, hazardous or other controlled, prohibited or regulated
substances; or (v) to the transportation, release or any other use of Hazardous
Materials, including the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601, et seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. 6901, et seq. ("RCRA"), the Toxic Substances Control
Act, 15 U.S.C. 2601, et seq. ("TSCA"), those portions of the Occupational,
Safety and Health Act, 29 U.S.C. 651, et seq. relating to Hazardous Materials
exposure and compliance, the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal
Water Pollution Control Act, 33 U.S.C. 1251, et seq., the Safe Drinking Water
Act, 42 U.S.C. 300f, et seq., the Hazardous Materials Transportation Act, 49
U.S.C. 1802 et seq. ("HMTA") and the Emergency Planning and Community Right to
Know Act, 42 U.S.C. 11001, et seq. ("EPCRA"), and other comparable state and
local laws and all rules and regulations promulgated pursuant thereto or
published thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean, with respect to any Person, any entity which
is (or, at any relevant time, was) considered one employer with such Person
under Section 4001 of ERISA or Section 414 of the Code.
4
<PAGE> 153
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Executive Company Dividend Equivalent Rights" shall mean the Company
Dividend Equivalent Rights held by Joseph P. Sullivan, C. Gregory Schonert,
Michael J. McGee or Steven A. Roseman.
"Fixtures and Equipment" shall mean, with respect to any Person, all of the
furniture, fixtures, furnishings, machinery and equipment owned or leased by
such Person and located in, at or upon the facilities of such Person.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, as in effect from time to time, consistently applied.
"Governmental Entities" shall mean all domestic courts, regulatory or
administrative agencies, commissions or other governmental authorities, bodies
or instrumentalities.
"Hazardous Materials" shall mean each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance which is
defined, determined or identified as hazardous or toxic under applicable
Environmental Laws or the release of which is regulated under Environmental
Laws. Without limiting the generality of the foregoing, the term includes:
"hazardous substances" as defined in CERCLA; "extremely hazardous substances" as
defined in EPCRA; "hazardous waste" as defined in RCRA; "hazardous materials" as
defined in HMTA; a "chemical substance or mixture" as defined in TSCA; medical,
biohazardous or infectious waste; crude oil, petroleum products or any fraction
thereof; radioactive materials, including source, by product or special nuclear
materials; asbestos or asbestos-containing materials; chlorinated fluorocarbons;
and radon.
"HCPI Common Stock" shall mean the Common Stock, par value $1.00 per share,
of HCPI.
"HCPI Contract" shall mean any note, bond, mortgage, indenture, guarantee,
other evidence of indebtedness, lease, license, contract, agreement or other
instrument or obligation to which HCPI or any of its Subsidiaries is a party or
by which any of them or any of their Assets may be bound, and which either (i)
has a term of more than one year or is not otherwise terminable within one year,
(ii) involves the payment or receipt of money in excess of $2,500,000, (iii)
contains covenants limiting the freedom of HCPI or any of its Subsidiaries to
engage in any line of business or compete with any Person or operate at any
location, or (iv) any other contract, whether similar or dissimilar to the
foregoing which is material to the Company and its Subsidiaries taken as a
whole, but, in each case, excluding any HCPI Leases.
"HCPI Lease" shall mean any agreement relating to the use or occupancy of
any HCPI Real Property or any portion thereof.
"HCPI Material Adverse Effect" shall mean any change in or effect (i) that
is or would be likely to be materially adverse to the business, Assets,
liabilities, results of operations, condition (financial or otherwise) or
prospects of HCPI and its Subsidiaries taken as a whole, (ii) that will or would
be likely to prevent or materially impair or materially delay the ability of the
Parties to consummate the Merger or (iii) that would materially impair the
ability of HCPI to operate its and its Subsidiaries' business, taken as a whole
(including the business of the Surviving Corporation and its Subsidiaries, taken
as a whole), or to own the Assets material to HCPI and its Subsidiaries, taken
as a whole (including the Assets material to the Surviving Corporation and its
Subsidiaries, taken as a whole), or qualify for taxation as a REIT following the
Effective Time.
5
<PAGE> 154
"HCPI Rights" shall mean the HCPI Common Stock purchase rights issued under
the HCPI Rights Plan.
"HCPI Rights Plan" shall mean the Rights Agreement dated as of July 5,
1990, as amended, between HCPI and Manufacturers Hanover Trust Company of
California, as Rights Agent.
"HCPI Series A Preferred Stock" shall mean the 7 7/8% Series A Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of HCPI.
"HCPI Series B Preferred Stock" shall mean the 8.70% Series B Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of HCPI.
"HCPI Series C Preferred Stock" shall mean the 8.60% Series C Cumulative
Redeemable Preferred Stock, par value $1.00 per share, of HCPI to be issued in
the Merger.
"HCPI Stock" shall mean the HCPI Common Stock, the HCPI Series A Preferred
Stock, the HCPI Series B Preferred Stock and the HCPI Series C Preferred Stock,
collectively.
"HCPI Stockholders Meeting" shall mean a meeting of the holders of HCPI
Common Stock duly noticed and held to consider a proposal to approve the Merger.
"HCPI Stock Plans" shall mean HCPI's Second Amended and Restated Directors
Stock Incentive Plan, HCPI's Second Amended and Restated Stock Incentive Plan
and HCPI's Second Amended and Restated Directors Deferred Compensation Plan.
"HCPI Stock Rights" shall mean all outstanding stock options, restricted
stock awards, performance awards, dividend equivalent rights, deferred stock,
stock payments, stock appreciation rights or other rights to or with respect to
shares of capital stock granted, awarded, earned or purchased pursuant to any
HCPI Stock Plan or under which HCPI or any Affiliate thereof has any obligation
or liability (accrued, contingent or otherwise).
"Intellectual Property" shall mean any patent, trademarks, trade names,
service marks, copyrights, any applications for and registrations for patents,
trademarks, trade names, service marks or copyrights, or any processes,
formulae, methods, schematics, technology, computer software programs or
applications, tangible or intangible proprietary information or material,
waivers or licenses of publicity or privacy rights or any other third party
licenses.
"Joint Proxy Statement/Prospectus" shall mean the joint proxy
statement/prospectus to be prepared by the Company and HCPI pursuant to Section
6.1 and sent to stockholders of the Company and HCPI in connection with the
Company Stockholders Meeting and HCPI Stockholders Meeting.
"Knowledge" shall mean with respect to (i) the Company, the actual
knowledge after reasonable inquiry of those individuals listed in Section 1.1(a)
of the Company Disclosure Schedule, and (ii) HCPI, the actual knowledge after
reasonable inquiry of those individuals listed in Section 1.1(b) of the HCPI
Disclosure Schedule.
"Lien" shall mean any lien, pledge, option, security interest, claim,
encumbrance, restriction, preemptive right or any similar other claims of third
parties.
"Merger Consideration" shall mean the Common Merger Consideration and the
Series B Preferred Merger Consideration.
"MGCL" shall mean the Maryland General Corporation Law, as amended.
"Multiemployer Plan" shall mean, with respect to any Person, any
"multiemployer plan" thereof, within the meaning of Section 3(37) or 4001(a)(3)
of ERISA, which such Person or
6
<PAGE> 155
any ERISA Affiliate thereof contributed to or is or was required to contribute
to, or under which such Person or any ERISA Affiliate thereof has or may have
any obligation or liability (accrued, contingent or otherwise).
"NYSE" shall mean The New York Stock Exchange, Inc.
"Pension Plan" shall mean, with respect to any Person, any "employee
pension benefit plan," as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan), which such Person or any ERISA Affiliate thereof
contributed to or is or was required to contribute to, or under which such
Person or any ERISA Affiliate thereof has or may have any obligation or
liability (accrued, contingent or otherwise).
"Permitted Encumbrances" shall mean (i) those Encumbrances that result from
all statutory or other Liens for Taxes or assessments (including any such Liens
for which a tenant is responsible under a Lease for real property) (A) which are
not yet due or delinquent or (B) the validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves are being
maintained in accordance with GAAP; (ii) those Encumbrances that result from any
cashiers', landlords', workers', mechanics', carriers', materialmen's,
suppliers' and repairers' Lien and other similar Encumbrances imposed by law or
incurred in the ordinary course of business; (iii) those Encumbrances imposed by
any law, rule, regulation, ordinance or restriction promulgated by any
Governmental Entity; (iv) those Encumbrances that result from all leases,
subleases or licenses to which any Person or any of its Subsidiaries is a party;
(v) Encumbrances which are identified on title policies or preliminary title
reports or other documents or writings which are in the possession or control of
the Person holding title to the property that is subject to such Encumbrances;
and (vi) all other Encumbrances which, individually, or in the aggregate, would
not otherwise cause a Company Material Adverse Effect with respect to
Encumbrances affecting the Company or a HCPI Material Adverse Effect with
respect to Encumbrances affecting HCPI.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, other organization (whether incorporated or
unincorporated) governmental agency or instrumentality, or any other legal
entity.
"REIT" shall mean a real estate investment trust within the meaning of the
Code.
"Registration Statement" shall mean the registration statement on Form S-4
pursuant to which the shares of HCPI Common Stock issued in the Merger will be
registered under the Securities Act.
"Representative" shall mean, with respect to any Person, that Person's
officers, directors, employees, financial advisors, agents or other
representatives.
"SDAT" shall mean the State Department of Assessments and Taxation of
Maryland.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, limited liability company, joint venture, or other organization,
whether incorporated or unincorporated, or other legal entity of which (i) such
Person directly or indirectly owns or controls at least a majority of the
capital stock or other equity interests having by their terms ordinary voting
power to elect a majority of the board of directors or others performing similar
functions; (ii) such Person has control whether contractually or otherwise;
(iii) such Person is a general
7
<PAGE> 156
partner, manager or managing member; or (iv) such Person holds a majority of the
equity economic interest.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and other
taxes, levies, imposts, assessments, impositions or other similar government
charges, including, without limitation, income, estimated income, business,
occupation, franchise, real property, payroll, personal property, sales,
transfer, stamp, use, employment, commercial rent or withholding, occupancy,
premium, gross receipts, profits, windfall profits, deemed profits, license,
lease, severance, capital, production, corporation, ad valorem, excise, duty or
other taxes, including interest, penalties and additions (to the extent
applicable) thereto, whether disputed or not.
"Tax Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
"Welfare Plan" shall mean, with respect to any Person, any "employee
welfare benefit plan," as defined in Section 3(1) of ERISA, which such Person or
any ERISA Affiliate thereof contributed to or is or was required to contribute
to, or under which such Person or any ERISA Affiliate thereof has or may have
any obligation or liability (accrued, contingent or otherwise).
8
<PAGE> 157
TABLE OF OTHER DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- ---------------
<S> <C>
Agreement................................................... Preamble
Articles of Merger.......................................... Section 2.3
Base Amount................................................. Section 8.2(d)
Blue Sky Laws............................................... Section 3.6(b)
Bylaws...................................................... Section 2.5(b)
Charter..................................................... Section 2.5(a)
Certificate of Merger....................................... Section 2.3
Closing..................................................... Section 2.2
Closing Date................................................ Section 2.2
Code........................................................ Recitals
Common Merger Consideration................................. Section 2.7(a)
Company..................................................... Preamble
Company Board............................................... Section 2.8(a)
Company Disclosure Schedule................................. Article III
Company Financial Advisor................................... Section 3.18
Company Leased Property..................................... Section 3.13(a)
Company Owned Property...................................... Section 3.13(a)
Company Real Property....................................... Section 3.13(a)
Company SEC Reports......................................... Section 3.8(a)
Confidentiality Agreement................................... Section 6.4
Effective Time.............................................. Section 2.3
Excess Shares............................................... Section 2.9
Exchange Agent.............................................. Section 2.10(a)
Exchange Ratio.............................................. Section 2.7(a)
Executive DER Consideration................................. Section 2.8(e)
Final Company Dividend...................................... Section 5.3
Fractional Securities Fund.................................. Section 2.9
Governmental Approvals...................................... Section 6.5
HCPI........................................................ Preamble
HCPI Board.................................................. Section 2.8(c)
HCPI Disclosure Schedule.................................... Article IV
HCPI Financial Advisor...................................... Section 4.18
HCPI Leased Property........................................ Section 4.13(a)
HCPI Owned Property......................................... Section 4.13(a)
HCPI Real Property.......................................... Section 4.13(a)
HCPI SEC Reports............................................ Section 4.8(a)
Indemnified Parties......................................... Section 6.8(a)
Intermediary................................................ Section 5.2(a)
Merger...................................................... Recitals
Minimum Distribution Dividend............................... Section 5.3
Notifying Party............................................. Section 6.5(a)
Option Consideration........................................ Section 2.8(b)
Other Stock Rights.......................................... Section 6.20
Party or Parties............................................ Preamble
Qualifying Income........................................... Section 8.2(d)
Registration Statement...................................... Section 3.18
REIT Requirements........................................... Section 8.2(d)
Remaining Options........................................... Section 2.8(c)
Series B Preferred Merger Consideration..................... Section 2.7(b)
</TABLE>
9
<PAGE> 158
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- ---------------
<S> <C>
Superior Proposal........................................... Section 6.3(b)
Surviving Corporation....................................... Section 2.1
Tax Guidance................................................ Section 8.2(d)
Termination Fee............................................. Section 8.2(d)
Voting Debt................................................. Section 3.3(b)
</TABLE>
ARTICLE II.
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with Subtitle 1 of Title 3 of the MGCL and in
accordance with Sections 251 and 252 of the DGCL, at the Effective Time, the
Company shall be merged with and into HCPI. As a result of the Merger, the
separate corporate existence of the Company shall cease, and HCPI shall continue
as the surviving corporation of the Merger (the "Surviving Corporation").
SECTION 2.2 Closing and Closing Date. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to the provisions of Section 8.1, the closing (the "Closing")
of the Merger shall take place (a) at 10:00 a.m., Los Angeles time, on the
second Business Day after the last of all of the conditions to the respective
obligations of the Parties set forth in Article VII hereof shall have been
satisfied or waived (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions) or (b) at such other time and date as HCPI and the Company shall
agree (such date and time on and at which the Closing occurs being referred to
herein as the "Closing Date"). The Closing shall take place at the offices of
Latham & Watkins, Costa Mesa, California or such other place as is agreed to by
the Parties. At the Closing the documents, certificates, opinions and
instruments referred to in Article VII shall be executed and delivered.
SECTION 2.3 Effective Time. Subject to the provisions of this Agreement,
the Parties shall (i) cause articles of merger (the "Articles of Merger") to be
executed, acknowledged and filed with and accepted for record by the SDAT in
accordance with Sections 3-109, 3-110 and 1-301 of the MGCL and (ii) cause a
certificate of merger (the "Certificate of Merger") to be executed, acknowledged
and filed with the Secretary of State of the State of Delaware in accordance
with Sections 103 and 251 of the DGCL and (iii) make all other filings or
records required to effectuate the Merger under the MGCL and the DGCL as soon as
practical on or after the Closing Date. The Certificate of Merger shall provide
that the Merger shall become effective in the State of Delaware as of the later
of (i) the time at which the Articles of Merger have been accepted for record by
the SDAT or (ii) such later time agreed to by the Parties and specified in the
Articles of Merger and the Certificate of Merger, but not exceeding 30 days
after the date the Articles of Merger are accepted for record by the SDAT. The
Merger shall become effective as of the date on which the latest of the
following actions shall have been completed: (i) the time at which the SDAT
accepts the Articles of Merger for record, (ii) the Certificate of Merger has
been duly filed with the Secretary of State of the State of Delaware or (iii)
the time agreed to by the Parties and specified in the Articles of Merger and
the Certificate of Merger, but not exceeding 30 days after the date the Articles
of Merger are accepted for record by the SDAT (the "Effective Time").
SECTION 2.4 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the MGCL and the DGCL. Without limiting
the generality of the
10
<PAGE> 159
foregoing, and subject thereto, at the Effective Time of the Merger, (a) the
Surviving Corporation shall possess all assets and property of every
description, and every interest therein, wherever located, and the rights,
privileges, immunities, powers, franchises and authority, of a public as well as
of a private nature, of each of HCPI and the Company, (b) all debts, liabilities
and obligations belonging to or due each of HCPI and the Company shall be vested
in, and become the obligations of, the Surviving Corporation without further act
or deed, (c) title to any real estate or any interest therein vested in either
of HCPI or the Company shall not revert, or in any way be impaired by, reason of
the Merger, (d) all Encumbrances upon any property of either of HCPI or the
Company shall be preserved unimpaired, and (e) the Surviving Corporation shall
be liable for all of the debts and obligations of each of HCPI or the Company,
and any Action pending, by or against either HCPI or the Company may be
prosecuted to judgment against the Surviving Corporation with right of appeal as
if the Merger had not taken place.
SECTION 2.5 Charter; Bylaws.
(a) At the Effective Time and without any further action on the part of the
Company or HCPI, the charter, as amended, of HCPI as in effect at the Effective
Time shall be the charter (the "Charter") of the Surviving Corporation until
duly amended as provided for therein or under the MGCL.
(b) At the Effective Time and without any further action on the part of the
Company or HCPI, the bylaws, as amended, of HCPI as in effect at the Effective
Time shall be the bylaws (the "Bylaws") of the Surviving Corporation until duly
amended as provided for therein and under the MGCL.
SECTION 2.6 Directors and Officers. The directors of HCPI at the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Charter and Bylaws of the Surviving
Corporation, and the officers of HCPI at the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed (as the case may be) and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and Bylaws.
SECTION 2.7 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of HCPI, the Company or the holder
of any of the following securities:
(a) Subject to Section 2.9, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares
of Company Common Stock to be canceled in accordance with Section 2.7(c)
hereof) together with the Company Rights attached thereto or associated
therewith, shall be converted into 0.78 fully paid and nonassessable shares
(rounded to the nearest ten-thousandth of a share) (as adjusted as set
forth in subsection (e) of this Section 2.7, the "Exchange Ratio") of HCPI
Common Stock (the "Common Merger Consideration"). Pursuant to the HCPI
Rights Plan, one HCPI Right will be attached to each share of HCPI Common
Stock issued upon conversion of Company Common Stock in accordance with
this Section 2.7(a), and, prior to the Distribution Date (as defined in the
HCPI Rights Plan) all references in this Agreement to HCPI Common Stock
shall be deemed to include the HCPI Rights. As of the Effective Time, all
such shares of Company Common Stock and all Company Rights shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a Certificate representing any such
shares of Company Common Stock shall cease to have any rights with respect
thereto, except, subject to Section 2.10, rights as a holder of HCPI Common
Stock and the right to receive (i) certificates representing the Common
Merger Consideration, and (ii) any
11
<PAGE> 160
cash in lieu of fractional shares of HCPI Common Stock to be paid in
consideration therefor upon surrender of such Certificate in accordance
with Section 2.9.
(b) Subject to Section 2.9, each share of Company Series B Preferred
Stock issued and outstanding immediately prior to the Effective Time (other
than shares of Company Series B Preferred Stock to be canceled in
accordance with Section 2.7(c) hereof) shall be converted into one share of
HCPI Series C Preferred Stock, having substantially the same rights and
preferences as the Company Series B Preferred Stock, as set forth on
Exhibit B attached hereto (the "Series B Preferred Merger Consideration").
As of the Effective Time, all such shares of Company Series B Preferred
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a Certificate
representing any such shares of Company Series B Preferred Stock shall
cease to have any rights with respect thereto, except, subject to Section
2.10, rights as a holder of HCPI Series C Preferred Stock and the right to
receive certificates representing the Series B Preferred Merger
Consideration.
(c) Each share of Company Common Stock and Company Series B Preferred
Stock that is (i) held in the treasury of the Company or owned by any
Subsidiary of the Company (other than shares of Company Common Stock and
Company Series B Preferred Stock held or owned on behalf of third parties)
or (ii) owned by HCPI or any Subsidiary of HCPI, in each case immediately
prior to the Effective Time, shall, by virtue of the Merger and without any
action on the part of the holder thereof, be canceled and retired without
any conversion thereof and no payment or distribution of any consideration
shall be made with respect thereto.
(d) Each share of HCPI Stock or other capital stock of HCPI issued and
outstanding immediately prior to the Effective Time shall remain
outstanding and shall be unchanged after the Merger.
(e) The Exchange Ratio shall be adjusted to reflect fully the effect
of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into HCPI Common Stock, but
expressly excluding any dividends or distributions payable on HCPI Common
Stock in cash), reorganization, recapitalization or other like change with
respect to HCPI Common Stock occurring after the date hereof and prior to
the Effective Time.
SECTION 2.8 Treatment of Company Options, Company Dividend Equivalent
Rights and Company Deferred Directors Fees.
(a) The Board of Directors of the Company (the "Company Board"), or, if
appropriate, any committee thereof, shall adopt appropriate resolutions and take
all other necessary actions (including plan amendments) to cause prior to the
Effective Time each outstanding Company Option which has not vested immediately
prior to the Effective Time to become vested and fully exercisable.
(b) Prior to the Effective Time, the Company and the Company Board (or, if
appropriate, any committee thereof) shall use its reasonable efforts to cause
each then outstanding Company Option, whether vested or unvested, to be canceled
immediately prior to the Effective Time, with the holder thereof becoming
entitled to receive an amount of cash from the Company equal to the product of
(x) the amount, if any, by which (1) the product of (a) the closing price per
share of HCPI Common Stock on the NYSE on the most recent trading day
immediately preceding the Effective Time, and (b) the Exchange Ratio, exceeds
(2) the exercise price per share of Company Common Stock subject to such Company
Option (whether vested or unvested), and (y) the number of shares of Company
Common Stock issuable pursuant to the unexercised portion of such Company
Option, less any required
12
<PAGE> 161
withholding of taxes (such amount being hereinafter referred to as the "Option
Consideration"). The Option Consideration shall be paid by the Company
immediately prior to the Effective Time. The cancellation of a Company Option in
exchange for the Option Consideration shall be deemed a release of any and all
rights the holder had or may have had in respect of such Company Option, and any
required consents received from Company Option holders shall so provide.
(c) In the event that any Company Options are not canceled in accordance
with the provisions of Section 2.8(b), such Company Options (the "Remaining
Options") shall be subject to the following provisions of this Section 2.8(c).
Prior to the Effective Time, the Company Board (or, if appropriate, any
committee thereof) and the Board of Directors of HCPI (the "HCPI Board") (or, if
appropriate, any committee thereof) shall adopt appropriate resolutions and take
all other actions necessary to provide that effective at the Effective Time,
each outstanding Remaining Option shall be assumed by HCPI and shall continue in
effect on the same terms and conditions as in effect immediately prior to the
Effective Time (subject to the provisions of Section 2.8(a) and the adjustments
in this Section 2.8(c)) and each such Remaining Option shall be converted
automatically into an option (a "New Option") to purchase the number of shares
of HCPI Common Stock, determined as provided below, at the exercise price,
determined as provided below:
(i) The number of shares of HCPI Common Stock to be subject to the New
Option shall be equal to the product of (x) the number of shares of Company
Common Stock remaining subject (as of immediately prior to the Effective
Time) to the Remaining Option multiplied by (y) the Exchange Ratio,
provided that the number of shares of HCPI Common Stock resulting therefrom
shall be rounded to the nearest whole share of HCPI Common Stock.
(ii) The exercise price per share of HCPI Common Stock under the New
Option shall be equal to (x) the exercise price per share of the Company
Common Stock under the Remaining Option, divided by (y) the Exchange Ratio,
provided that such exercise price shall be rounded to the nearest whole
cent.
The adjustment provided herein with respect to any Remaining Option which is an
"incentive stock option" (as defined in Section 422 of the Code) shall be, and
is intended to be, effected in a manner which is consistent with Section 424(a)
of the Code. Except as provided in this Section 2.8, after the Effective Time,
each New Option shall be exercisable upon the same terms and conditions as were
applicable to the related Remaining Option immediately prior to the Effective
Time (except that with regard to such New Option, any references to the Company
shall be deemed, as appropriate, to mean HCPI). HCPI shall take all action
necessary, on or prior to the Effective Time, to authorize and reserve a number
of shares of HCPI Common Stock sufficient for issuance upon the exercise of New
Options as contemplated by this Section 2.8.
(d) HCPI shall file on or prior to the Effective Time, a registration
statement on Form S-8 (or any successor or other appropriate form) registering a
number of shares of HCPI Common Stock to be issued in connection with the
exercise of the New Options as determined in this Section 2.8.
(e) Prior to the Effective Time, the Company and the Company Board (or, if
appropriate, any committee thereof) shall cause each then outstanding Executive
Company Dividend Equivalent Right to be canceled prior to the Effective Time,
with the holder thereof receiving in consideration of such cancellation an
amount of cash as determined pursuant to the terms of his Company Employment
Contract, less any required withholding of taxes (such amount being hereinafter
referred to as the "Executive DER Consideration"). The Executive DER
Consideration shall be paid by the Company prior to the Effective Time. The
cancellation of an
13
<PAGE> 162
Executive Company Dividend Equivalent Right in exchange for the Executive DER
Consideration shall be deemed a release of any and all rights the holder had or
may have had in respect of such Executive Company Dividend Equivalent Right.
(f) Prior to the Effective Time, the Company and the Company Board (or, if
appropriate, any committee thereof) and the HCPI Board (or, if appropriate, any
committee thereof) shall adopt appropriate resolutions and take all other
actions necessary to provide that effective at the Effective Time, all
outstanding Company Deferred Directors Fees shall be assumed by HCPI on the same
terms and conditions as in effect immediately prior to the Effective Time
(subject to adjustments in this Section 2.8(f)) (except that any references to
the Company shall be deemed, as appropriate, to mean HCPI) and the right to
receive Company Common Stock in respect of each such Company Deferred Directors
Fees shall be converted automatically into a right to acquire or receive HCPI
Common Stock; provided that the number of shares of HCPI Common Stock to be
subject to such Company Deferred Directors Fees (including any Company Dividend
Equivalent Rights appurtenant thereto) accumulated immediately prior to the
Effective Time shall be equal to the product of (x) the number of shares of
Company Common Stock subject (as of immediately prior to the Effective Time) to
the Company Deferred Directors Fees (and accumulated Company Dividend Equivalent
Rights appurtenant thereto) multiplied by (y) the Exchange Ratio; provided that
any fractional shares of HCPI Common Stock resulting therefrom shall be rounded
to the nearest whole share of HCPI Common Stock; provided, further, that, solely
with respect to each holder of Company Deferred Directors Fees who is not a
director of the Surviving Corporation immediately following the Effective Time,
HCPI shall distribute promptly following the Effective Time shares of HCPI
Common Stock subject to said Company Deferred Directors Fees (and accumulated
Company Dividend Equivalent Rights appurtenant thereto) in accordance with the
terms and conditions thereof as in effect immediately prior to the Effective
Time, and such Company Deferred Directors Fees (and accumulated Company Dividend
Equivalent Rights appurtenant thereto) shall thereupon terminate.
SECTION 2.9 Fractional Interests. Notwithstanding any other provision of
this Agreement, no certificates or scrip representing fractional shares of HCPI
Common Stock shall be issued in connection with the Merger, and such fractional
interests will not entitle the owner thereof to any rights of a stockholder of
HCPI. In lieu of any such fractional interests, each Company Common Holder
exchanging Certificates pursuant to Section 2.7(a) who would otherwise have been
entitled to receive a fraction of a share of HCPI Common Stock (after taking
into account all shares of Company Common Stock then held of record by such
Company Common Holder) shall receive cash (without interest) in an amount equal
to such Company Common Holder's proportionate interest in the net proceeds from
the sale or sales in the open market by the Exchange Agent, on behalf of all
such Company Common Holders, of the aggregate fractional HCPI Common Stock that
would have been otherwise issuable pursuant to Section 2.7. As soon as
practicable following the Effective Time, the Exchange Agent shall determine the
excess of (i) the number of full shares of HCPI Common Stock delivered to the
Exchange Agent by HCPI over (ii) the aggregate number of full shares of HCPI
Common Stock to be distributed to Company Common Holders (such excess being
herein called the "Excess Shares"), and the Exchange Agent, as agent for the
former Company Common Holders, shall sell the Excess Shares at the prevailing
prices on the NYSE. The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall be
executed in round lots to the extent practicable. HCPI shall pay all
commissions, transfer Taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
such sale of Excess Shares. Until the net proceeds of such sale have been
distributed to the former Company Common Holders, the Exchange Agent will hold
such proceeds in trust for such former stockholders (the "Fractional Securities
Fund"). As soon as practicable after the
14
<PAGE> 163
determination of the amount of cash to be paid to former Company Common Holders
in lieu of any fractional interests, the Exchange Agent shall make available in
accordance with this Agreement such amounts to such former Company Common
Holders. The Exchange Agent shall invest the Fractional Securities Fund as
directed by HCPI, on a daily basis. Any interest and other income resulting
therefrom shall be paid to HCPI.
SECTION 2.10 Surrender of Shares of Company Stock; Stock Transfer Books.
(a) Prior to the Closing Date, HCPI shall designate a bank or trust company
reasonably acceptable to the Company to act as agent for the Company Common
Holders and Company Preferred Holders in connection with the Merger (the
"Exchange Agent"). The Exchange Agent shall (i) receive certificates
representing the Merger Consideration to which Company Common Holders and
Company Preferred Holders shall become entitled pursuant to Sections 2.7(a) and
(b) and (ii) receive and thereafter sell the Excess Shares pursuant to Section
2.9. Prior to the Effective Time, HCPI will make available to the Exchange Agent
sufficient certificates representing shares of HCPI Common Stock and HCPI Series
C Preferred Stock to make all exchanges pursuant to Section 2.10(b). The
Exchange Agent shall cause the certificates representing shares of HCPI Common
Stock and HCPI Series C Preferred Stock deposited by HCPI to be (i) held for the
benefit of the Company Common Holders and Company Preferred Holders and (ii)
promptly applied to making the exchanges and payments provided for in Section
2.10(b). Such shares of HCPI Common Stock, HCPI Series C Preferred Stock and
cash resulting from the Fractional Securities Fund shall not be used for any
purpose that is not provided for herein.
(b) Promptly after the Effective Time, HCPI shall mail, or shall cause the
Surviving Corporation to mail, to each Company Common Holder and each Company
Preferred Holder (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration and any cash in lieu of fractional shares
pursuant to Section 2.9. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor, (i) with respect
to Certificates formerly representing Company Common Stock, a certificate
representing that number of whole shares of HCPI Common Stock which such holder
has the right to receive pursuant to the provisions of Section 2.7(a), (ii) with
respect to Certificates formerly representing Company Series B Preferred Stock,
a certificate representing that number of whole shares of HCPI Series C
Preferred Stock which such holder has the right to receive pursuant to Section
2.7(b), (iii) cash in lieu of any fractional shares of HCPI Common Stock to
which such holder is entitled pursuant to Section 2.9, after giving effect to
any required Tax withholdings, and (iv) any dividends or distributions to which
such holder is entitled pursuant to Section 2.10(e), and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered and exchanged,
each Certificate shall represent the Merger Consideration into which the Company
Stock it theretofore represented shall have been converted pursuant to Sections
2.7(a) or (b), the right to receive certificates representing such Merger
Consideration and cash in lieu of any fractional shares pursuant to Section 2.9.
If the exchange of certificates representing shares of HCPI Common Stock or HCPI
Series C Preferred Stock is to be made to a Person other than the Person in
whose name the surrendered Certificate is registered, it shall be a condition of
exchange that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the Person requesting such
exchange shall have paid any transfer and other Taxes required by reason of the
exchange of Certificates representing shares of HCPI Common Stock or HCPI Series
C Preferred Stock, as the case may be, to a Person other than the registered
holder of the Certificate surrendered or shall
15
<PAGE> 164
have established to the satisfaction of the Surviving Corporation that such Tax
either has been paid or is not applicable.
(c) At any time after the one-year anniversary of the Effective Time, HCPI
shall be entitled to require the Exchange Agent to deliver to HCPI all cash then
in the Fractional Securities Fund together with any other cash and any other
instruments (including shares of HCPI Common Stock and HCPI Preferred Series C
Preferred Stock) in its possession relating to the transactions contemplated by
this Agreement which had been made available to the Exchange Agent and which
have not been distributed to holders of Certificates. Thereafter, each holder of
a Certificate, subject to Section 2.7(c), may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat or
other similar laws) receive in exchange therefor the consideration payable in
respect thereto pursuant to Sections 2.7(a) or (b) and Section 2.9, without
interest, but shall have no greater rights against the Surviving Corporation
than may be accorded to general creditors of the Surviving Corporation under the
MGCL. Notwithstanding the foregoing, none of HCPI, the Surviving Corporation or
the Exchange Agent shall be liable to any Company Common Holder for shares of
HCPI Common Stock (and any cash payable in lieu of any fractional shares of HCPI
Common Stock) or Company Preferred Holder for shares of HCPI Series C Preferred
Stock whose Certificates have been delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of shares of
Company Common Stock or shares of Company Series B Preferred Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Stock or Company Series B Preferred Stock, as
the case may be, except as otherwise provided for herein or by applicable law.
(e) No dividends or other distributions declared or made after the
Effective Time with respect to shares of HCPI Common Stock or HCPI Series C
Preferred Stock shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of HCPI Common Stock or HCPI Series C Preferred Stock
the holder is entitled to receive and no cash in lieu of fractional shares
pursuant to Section 2.9, shall be paid to such holder until the holder of such
Certificate shall surrender such Certificate in accordance with the provisions
of this Agreement. Upon such surrender, HCPI shall cause to be paid to the
Person in whose name the Certificates shall be issued, any dividends or
distributions with respect to such shares of HCPI Common Stock or HCPI Series C
Preferred Stock which have a record date after the Effective Time and shall have
become payable between the Effective Time and the time of such surrender. In no
event shall the Person entitled to receive such dividends or distributions be
entitled to receive interest thereon.
(f) HCPI shall take all commercially reasonable action so that each holder
of Company Common Stock at the Effective Time which is converted into HCPI
Common Stock as set forth in Section 2.7(a) shall be entitled to vote on all
matters subject to the vote of holders of HCPI Common Stock with a record date
on or after the date of the Effective Time, whether or not such holder shall
have surrendered Certificates in accordance with the provisions of this
Agreement. For purposes of the immediate foregoing sentence, HCPI may rely
conclusively on the stockholder records of the Company in determining the
identity of and the number of shares of Company Common Stock held by each holder
of Company Common Stock at the Effective Time.
(g) If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things
16
<PAGE> 165
are necessary or desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any of
the rights or Assets of the Company as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf the Company or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in such names and on such behalves or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights or Assets in the Surviving Corporation or otherwise to carry out the
purposes of this Agreement.
SECTION 2.11 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of HCPI
Common Stock or HCPI Series C Preferred Stock, as applicable (and cash in lieu
of any fractional shares of HCPI Common Stock), and dividends or distributions
in respect thereof, if any, as may be required pursuant to Section 2.7(a),
Section 2.7(b), Section 2.9 and Section 2.10(e); provided, however, that HCPI
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against HCPI or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
SECTION 2.12 Tax Consequences. It is intended by the Parties that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code. The Parties hereby adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations.
SECTION 2.13 Withholding Rights. HCPI or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration, or cash in lieu
of fractional shares, if any, otherwise payable pursuant to this Agreement to
any Company Common Holder or Company Preferred Holder such amounts as HCPI or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code or any provision of state, local, or foreign Tax
law. To the extent that amounts are so withheld by HCPI or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the Company Common Holder or Company Preferred Holder, as
the case may be, in respect of which such deduction and withholding was made by
HCPI or the Exchange Agent. HCPI hereby agrees to comply with all requirements
of law, including any notice to the holders of Company Common Stock or Company
Series B Preferred Stock, as the case may be, in connection with such
withholding.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to HCPI that the statements contained
in this Article III are true and correct except as set forth herein or in the
disclosure schedule delivered by the Company to HCPI on or before the date of
this Agreement (the "Company Disclosure Schedule"). The Company Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Agreement and the disclosure in any
paragraph shall qualify other paragraphs in this Agreement only to the extent
that such disclosure specifically references the fact that it also qualifies or
applies to such other specified paragraphs.
17
<PAGE> 166
SECTION 3.1 Organization and Qualification. The Company and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, with the corporate power and
authority to own and operate its business as presently conducted. The Company
and each of its Subsidiaries is duly qualified as a foreign corporation or other
entity to do business and is in good standing in each jurisdiction where the
ownership or operation of its properties or the nature of its activities makes
such qualification necessary, except for such failures of the Company and any of
its Subsidiaries to be so qualified as would not, when taken together with all
such other failures, cause a Company Material Adverse Effect. The Company has
previously made available to HCPI true and correct copies of its certificate of
incorporation and bylaws as currently in effect.
SECTION 3.2 Authorization; Validity and Effect of Agreement. The Company
has the requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby subject to the adoption and approval of this Agreement by
the requisite vote of the holders of Company Common Stock. The execution and
delivery of this Agreement by the Company and the performance by the Company of
its obligations hereunder and the consummation of the transactions contemplated
hereby have been duly authorized by the Company Board and all other necessary
corporate action on the part of the Company, other than the adoption and
approval of this Agreement by the requisite vote of the holders of the Company
Common Stock, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
SECTION 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 100,000,000
shares of Company Common Stock, and (ii) 1,000,000 shares of preferred stock,
par value $.01 per share, of which 350,000 shares have been designated as
Company Series A Preferred Stock, 46,000 shares have been designated as Company
Series B Preferred Stock and 220,000 shares have been designated as Psychiatric
Group Preferred Stock. As of July 16, 1999, there were issued and outstanding
(i) 24,984,422 shares of Company Common Stock (none of which is held in the
Company treasury), (ii) no shares of Company Series A Preferred Stock, (iii)
40,000 shares of Company Series B Preferred Stock (none of which is held in the
Company treasury), and (iv) no shares of Psychiatric Group Preferred Stock.
Section 3.3(a) of the Company Disclosure Schedule sets forth the number of
shares of Company Stock and each other class of capital stock of the Company
reserved for future issuance as of July 16, 1999 under each of the Company Stock
Plans or otherwise and the Company Stock Plan or other agreement pursuant to
which they have been reserved. Since July 16, 1999, no shares of Company Stock
or any other capital stock of the Company have been issued or reserved for
issuance, except for shares of Company Stock issued in respect of the exercise,
conversion or exchange of Company Options, Company Dividend Equivalent Rights or
Company Deferred Directors Fees outstanding as of July 16, 1999. Section 3.3(a)
of the Company Disclosure Schedule also sets forth as of the date hereof the
date on which each Company Stock Right currently outstanding was issued, the
dates on which each such outstanding and unvested Company Stock Right vests, the
class and number of shares of Company Stock or other capital stock of the
Company for or into which each such Company Stock Right is exercisable,
convertible or exchangeable and the exercise price thereof. Except as set forth
in this Section 3.3(a) or Section 3.3(a) to the Company Disclosure Schedule,
there are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any
18
<PAGE> 167
kind to which the Company or any of its Subsidiaries is a party or by which any
of them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
Company Stock or any other capital stock of the Company or its Subsidiaries or
other voting securities of the Company or its Subsidiaries, or obligating the
Company or its Subsidiaries to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking, and neither the Company nor its Subsidiaries have granted any stock
appreciation rights or any other contractual rights the value of which is
derived from the financial performance of the Company or the value of shares of
Company Stock or any other capital stock of the Company. There are no
obligations, contingent or otherwise, of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of Company Stock or any
other capital stock of the Company or the capital stock or ownership interests
of any Subsidiary of the Company or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
other entity, other than guarantees of bank obligations or indebtedness for
borrowed money of Subsidiaries entered into in the ordinary course of business.
Neither the Company nor any of its Subsidiaries is holding or owns any shares of
Company Stock on behalf of third parties.
(b) There are no issued and outstanding bonds, debentures, notes or other
indebtedness having voting rights (or convertible into securities having such
rights) ("Voting Debt") of the Company or any of its Subsidiaries. Except as
reserved for future grants of options under the Company Stock Plans as of the
date hereof or for issuance pursuant to the Company Rights Plan, (i) there are
no shares of capital stock of any class of, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding; (ii) there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which the Company or any
of its Subsidiaries is a party or by which it is bound, in each case, obligating
the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other ownership
interests (including Voting Debt) of the Company or any of its Subsidiaries or
obligating the Company or any of its Subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement; and (iii) there are no voting trusts, proxies or
other voting agreements or understandings currently in effect with respect to
the shares of capital stock of the Company to which the Company or any of its
Subsidiaries is currently a party or of which the Company has Knowledge. All
shares of Company Common Stock subject to issuance as specified in this Section
3.3(b) or in Section 3.3(b) of the Company Disclosure Schedule are duly
authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be validly issued, fully
paid and nonassessable.
SECTION 3.4 Subsidiaries. Other than Subsidiaries of Company formed or
acquired after the date hereof in accordance with the terms of Section 5.2 (of
which the Company has provided notice to HCPI prior to any such formation or
acquisition), Section 3.4 of the Company Disclosure Schedule sets forth all
Subsidiaries of the Company. All of the outstanding shares of capital stock
(including shares which may be issued upon exercise of outstanding options) or
other ownership interests of each of the Company's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares and
ownership interests are owned by the Company or a Subsidiary of the Company free
and clear of all Liens. The Company owns, directly or indirectly, all of the
issued and outstanding capital stock and other ownership interests of each of
its Subsidiaries, free and clear of all Liens, and there are no existing
options, warrants, calls, subscriptions, convertible securities or other
securities, agreements, commitments or obligations of any character relating to
the outstanding capital stock or other securities of any Subsidiary of the
Company or which would require any
19
<PAGE> 168
Subsidiary of the Company to issue or sell any shares of its capital stock,
ownership interests or securities convertible into or exchangeable for shares of
its capital stock or ownership interests.
SECTION 3.5 Other Interests. Neither the Company nor any of the Company's
Subsidiaries owns or has the right or option to acquire, directly or indirectly,
any interest or investment in (whether equity or debt) any business or Person
(other than the Company's Subsidiaries and other than the rights held by the
Company or its Subsidiaries identified in Section 3.4 of the Company Disclosure
Schedule or as permitted, after the date hereof, under Section 5.2(of which the
Company will have provided notice to HCPI prior to any such acquisition)).
Without limiting the generality of the foregoing sentence, neither the Company
nor any "Affiliate" or "Associate" (as such terms are defined in Section 3-601
of the MGCL) of the Company, is, or was at any time, the "Beneficial Owner" (as
defined in Section 3-601) of the MGCL), directly or indirectly, of 5% or more of
the voting power of the outstanding voting stock of HCPI. To the Knowledge of
the Company, no Person owns or has owned, actually or constructively (as such
term is used for purposes of the not closely held requirement set forth in
Section 856(a)(6) of the Code or as set forth in Section 856(d)(5) of the Code)
in excess of 9.8% in value of the outstanding stock of the Company.
SECTION 3.6 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement nor the
performance by the Company of its obligations hereunder, nor the consummation of
the transactions contemplated hereby, will: (i) conflict with the Company's
certificate of incorporation or bylaws or the comparable charter or
organizational documents of any of its Subsidiaries; (ii) assuming satisfaction
of the requirements set forth in Section 3.6(b) below, violate any statute, law,
ordinance, rule or regulation, applicable to the Company or any of its
Subsidiaries or any of their Assets; or (iii) violate, breach, be in conflict
with or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, permit the termination of any provision
of, result in the termination of, the acceleration of the maturity of, or the
acceleration of the performance of any obligation of the Company or any of its
Subsidiaries under, result in the creation or imposition of any Lien upon any
Assets of the Company or any of its Subsidiaries under, or give rise to any
third party's right of first refusal, or other similar right, under any note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment or
any order, judgment or decree to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of their
respective Assets are bound or encumbered, or give any Person the right to
require the Company or any of its Subsidiaries to purchase or repurchase any
notes, bonds or instruments of any kind except, in the case of clauses (ii) and
(iii), for such violations, breaches, conflicts, defaults or other occurrences
which, individually or in the aggregate, would not cause a Company Material
Adverse Effect.
(b) Except (i) for applicable requirements, if any, of the Exchange Act,
the Securities Act, and state securities or "blue sky" laws ("Blue Sky
Laws"),(ii) for the filing of the Certificate of Merger pursuant to the DGCL and
the filing of the Articles of Merger pursuant to the MGCL, (iii) for other
governmental approvals required under the applicable laws of any foreign
jurisdiction, (iv) for the approval of this Agreement by the requisite vote of
the holders of Company Common Stock, and (v) with respect to matters set forth
in Sections 3.6(a) or 3.6(b) of the Company Disclosure Schedule, no consent,
approval or authorization of, permit from, or declaration, filing or
registration with, any Governmental Entity, or any other Person is required to
be made or obtained by the Company or any of its Subsidiaries in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration or to make such filing
or registration would not, individually or in the aggregate, cause a Company
Material Adverse Effect.
20
<PAGE> 169
SECTION 3.7 Compliance. The Company and each of its Subsidiaries is in
compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof, except to the extent that failure to comply
would not, individually or in the aggregate, cause a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries has received any written
notice asserting a failure, or possible failure, to comply with any such law or
regulation, the subject of which written notice has not been resolved as
required thereby or otherwise to the satisfaction of the party sending the
notice, except for such failures as would not, individually or in the aggregate,
cause a Company Material Adverse Effect.
SECTION 3.8 SEC Reports.
(a) The Company has filed with the SEC and made available to HCPI true and
complete copies of each registration statement, proxy or information statement,
form, report and other document required to be filed by the Company or any of
its Subsidiaries with the SEC since January 1, 1996 (collectively, the "Company
SEC Reports"). As of their respective dates, with respect to Company SEC Reports
filed pursuant to the Exchange Act, and as of their respective effective dates,
as to Company SEC Reports filed pursuant to the Securities Act, the Company SEC
Reports and any registration statements, reports, forms, proxy or information
statements and other documents filed by the Company with the SEC after the date
of this Agreement (i) complied, or, with respect to those not yet filed, will
comply, in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, and (ii) did not, or, with respect to those
not yet filed, will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated balance sheets included in or incorporated by
reference into the Company SEC Reports (including the related notes and
schedules) presents fairly, in all material respects, the consolidated financial
position of the Company and its consolidated Subsidiaries as of its date, and
each of the consolidated statements of income, retained earnings and cash flows
of the Company included in or incorporated by reference into the Company SEC
Reports (including any related notes and schedules) presents fairly, in all
material respects, the results of operations, retained earnings or cash flows,
as the case may be, of the Company and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein.
(c) Except as set forth in the Company SEC Reports, neither the Company nor
any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a balance sheet of the Company or in
the notes thereto, prepared in accordance with GAAP consistently applied, except
for (i) liabilities or obligations that were so reserved on, or reflected in
(including the notes to), the consolidated balance sheet of the Company as of
March 31, 1999, (ii) liabilities or obligations arising in the ordinary course
of business (including trade indebtedness and liabilities, obligations and
secured debt assumed in connection with the acquisition of properties by the
Company or its Subsidiaries) since March 31, 1999, and (iii) liabilities or
obligations which would not, individually or in the aggregate, cause a Company
Material Adverse Effect.
SECTION 3.9 Absence of Certain Changes. Except as set forth in the
Company SEC Reports and except for the transactions expressly contemplated
hereby, since March 31, 1999, the Company and its Subsidiaries have conducted
their respective businesses only in the ordinary and usual course consistent
with past practices (including the incurrence of trade
21
<PAGE> 170
indebtedness and liabilities, obligations and secured debt assumed in connection
with the acquisition of properties by the Company or its Subsidiaries) and there
has not been any change in the Company's business, operations, condition
(financial or otherwise), results of operations, Assets or liabilities, except
for changes expressly contemplated hereby or changes which, individually or in
the aggregate, have not caused or will not cause a Company Material Adverse
Effect.
SECTION 3.10 Litigation. Except as set forth in the Company SEC Reports,
there is no Action instituted, pending or, to the Knowledge of the Company,
threatened, in each case against the Company, any of its Subsidiaries or any of
their respective Assets which, individually or in the aggregate, directly or
indirectly, would have a Company Material Adverse Effect, nor is there any
outstanding judgment, decree or injunction, in each case against the Company,
any of its Subsidiaries or any of their respective Assets or any statute, rule
or order of any Governmental Entity applicable to the Company or any of its
Subsidiaries which, individually or in the aggregate, has caused, or would
cause, a Company Material Adverse Effect.
SECTION 3.11 Taxes.
(a) The Company and its Subsidiaries have (i) duly filed (or there have
been filed on their behalf) or have duly filed for an appropriate extension with
the appropriate Governmental Entities all Tax Returns required to be filed by
them and such Tax Returns are true, correct and complete in all material
respects, and (ii) duly paid in full all Taxes required to have been paid by
them, whether or not shown to be due on such Tax Returns, provided, however, to
the extent the foregoing clauses (i) or (ii) relate to Taxes for which a tenant
is responsible pursuant to a Company Lease, to the Knowledge of the Company,
such clauses (i) and (ii) are true with respect to such tenant;
(b) No written claim is pending by an authority in a jurisdiction where any
of the Company and its Subsidiaries does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction;
(c) No federal income Tax Returns of the Company or its Subsidiaries have
been audited for the Company's taxable years beginning on or after January 1,
1990, and no federal or state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes
or Tax Returns of the Company or its Subsidiaries, and neither the Company nor
any of its Subsidiaries has received a written notice of any threatened audits
with respect to Taxes or Tax Returns of the Company or any of its Subsidiaries,
and neither the Company nor any of its Subsidiaries has waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency;
(d) Section 3.11(d) of the Company Disclosure Schedule sets forth, with
respect to those taxable years for which Tax Returns have not yet been filed,
the taxable years of the Company and its Subsidiaries as to which extensions to
file Tax Returns have been requested or any waiver of the applicable statute of
limitations has been executed;
(e) The Internal Revenue Service has not asserted against the Company or
any of its Subsidiaries any deficiency or claim for Taxes with respect to the
Company's taxable years beginning on or after January 1, 1990, and no other
taxing authority (whether domestic or foreign) has asserted against the Company
or any of its Subsidiaries any deficiency or claim for Taxes in excess of
$100,000 for any of the Company's taxable years beginning on or after January 1
1990;
22
<PAGE> 171
(f) There are no Liens for Taxes upon any Assets of the Company or any
Subsidiary thereof, except for Liens for Taxes not yet due or delinquent or for
which a tenant is responsible under a lease for real property. With respect any
such Taxes for which a tenant is responsible, to the Knowledge of the Company,
no such Taxes are delinquent. No written power of attorney that has been granted
by the Company or any of its Subsidiaries (other than to the Company or a
Subsidiary) currently is in force with respect to any matter relating to Taxes;
(g) Neither the Company nor any of its Subsidiaries has, with regard to any
Assets held by any of them, agreed to have Section 341(f)(2) of the Code apply
to any disposition of a "subsection (f) asset" (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company or any of its Subsidiaries;
(h) None of the Company and its Subsidiaries is a party to any Tax
allocation or sharing agreement;
(i) None of the Company and its Subsidiaries (i) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (ii) has any liability for
the Taxes of any Person (other than any of the Company and its Subsidiaries)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise;
(j) Since the Company's taxable year ending December 31, 1987, the Company
has not incurred and does not expect to incur through the Closing Date any
liability for Taxes under Section 857(b), 860(c) or 4981 of the Code, and
neither the Company nor any of its Subsidiaries has incurred any material
liability for Taxes other than in the ordinary course of business. To the
Knowledge of the Company, no event has occurred and no condition or circumstance
exists which presents a material risk that any material Tax described in the
preceding sentence will be imposed upon the Company.
(k) The Company (i) for all taxable years commencing with 1987 through the
most recent December 31, has been subject to taxation as a REIT and has
satisfied all requirements to qualify as a REIT for such years, (ii) has
operated in such a manner as to qualify as a REIT, and will continue to operate
through the Closing Date in such a manner as to qualify as a REIT, (iii) has not
taken or omitted to take any action which would reasonably be expected to result
in a challenge to its status as a REIT, and, to the Knowledge of the Company, no
such challenge is pending or threatened, and (iv) has not granted any exception
to its stock ownership limits set forth in its certificate of incorporation or
other governing document(s) relating to its tax status as a REIT. Each
Subsidiary of the Company that is a state law partnership or limited liability
company has been since its formation and continues to be treated for federal
income tax purposes as a partnership (or a disregarded entity) and not as a
corporation or an association or publicly traded partnership taxable as a
corporation. Each other Subsidiary of the Company has been since its formation,
and continues to be treated for federal income purposes as a "qualified REIT
subsidiary" as defined in Section 856(i) of the Code. Neither the Company nor
any Subsidiary of the Company holds any Asset the disposition of which would be
subject to rules similar to Section 1374 of the Code as a result of an election
under IRS Notice 88-19.
SECTION 3.12 Employee Benefit Plans.
(a) Section 3.12 of the Company Disclosure Schedule contains a complete
list of all Employee Plans of the Company and its Subsidiaries as of the date
hereof. True and complete copies or descriptions of the Employee Plans of the
Company and its Subsidiaries, including,
23
<PAGE> 172
without limitation, trust instruments, if any, that form a part thereof, and all
amendments thereto, have been furnished or made available to HCPI and its
counsel.
(b) Each of the Employee Plans of the Company and its Subsidiaries (other
than any Multiemployer Plan) has been administered and is in substantial
compliance with the terms of such Employee Plan and all applicable laws, rules
and regulations. Each Pension Plan of the Company or its Subsidiaries which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service with respect to
"TRA" (as defined in Section 1 of Rev. Proc. 93-39) (except with respect to the
amendment to the Company's Money Purchase Pension Plan referred to in Section
5.1(e)), and the Company is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. All contributions
required to be made under the terms of any Employee Plan of the Company or its
Subsidiaries have been timely made or have been reflected in the consolidated
balance sheets included in or incorporated by reference in the Company SEC
Reports. Neither the Company nor any of its Subsidiaries has provided, or is
required to provide, security to any Pension Plan of the Company or its
Subsidiaries pursuant to Section 401(a)(29) of the Code.
(c) No "reportable event" (as such term is used in Section 4043 of ERISA)
for which the notice requirements to the Pension Benefit Guaranty Corporation
have not been waived, or "accumulated funding deficiency" (as such term is used
in Section 412 of the Code or Section 302 of ERISA), whether or not waived, has
heretofore occurred with respect to any Pension Plan (other than any
Multiemployer Plan) of the Company or its Subsidiaries. Neither the Company nor
any of its Subsidiaries has engaged in a transaction in violation of Section 406
or 407 of ERISA or any transaction with respect to any Employee Plan that, in
either case, assuming the taxable period of such transaction expired as of the
date hereof, could subject the Company or any Subsidiary to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an
amount which would be material.
(d) There is no material Action relating to or seeking benefits under any
Employee Plan of the Company or any of its Subsidiaries that is pending or, to
the Company's Knowledge, threatened against the Company, any of its
Subsidiaries, any of their ERISA Affiliates, or any of the Employee Plans of the
Company or any of its Subsidiaries, other than routine claims for benefits.
(e) The Company has not incurred any withdrawal or other liability with
respect to any Multiemployer Plan of the Company or any of its Subsidiaries
under Title IV of ERISA which remains unsatisfied.
(f) No liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by the Company, any of its Subsidiaries or their ERISA
Affiliates with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them.
(g) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any current or former employee of the
Company or any of its Subsidiaries to benefits under any Employee Plan
(including, without limitation, the acceleration of the vesting or
exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(h) Under each Pension Plan of the Company or its Subsidiaries which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities," within the meaning of
24
<PAGE> 173
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Plan's most recent actuarial valuation), did not
exceed the then current value of the assets of such Pension Plan, and there has
been no material change in the financial condition of such Pension Plan since
the last day of the most recent plan year.
(i) Neither the Company nor any of its Subsidiaries has any obligations for
retiree health and life insurance benefits under any Employee Plan of the
Company or its Subsidiaries, except as required under Section 4980B of the Code
or Title I, Subtitle B, Part 6 of ERISA.
SECTION 3.13 Properties.
(a) Section 3.13(a) of the Company Disclosure Schedule lists all real
properties owned in fee simple by the Company and its Subsidiaries (the "Company
Owned Property") and all real properties leased by the Company and its
Subsidiaries as lessee (the "Company Leased Property"), which are all of the
real properties owned or leased by them. The Company Owned Property and the
Company Leased Property is referred to herein collectively as the "Company Real
Property."
(b) The Company and its Subsidiaries have fee simple title to the Company
Owned Property, and a valid leasehold interest in the Company Leased Property,
sufficient to allow the Company and its Subsidiaries, taken as a whole, to
conduct its business of leasing property to third parties as currently
conducted. The Company Real Property is not subject to any Encumbrances, except
for any Permitted Encumbrances.
(c) Except as set forth on Section 3.14(a) of the Company Disclosure
Schedule or as disclosed in the Company SEC Reports, the Company Real Property
is not encumbered by any material debt.
(d) Valid policies of title insurance have been issued insuring the
Company's or its applicable Subsidiary's fee simple title to the Company Owned
Property or the Company's or its applicable Subsidiary's leasehold interest in
the Company Leased Property, as appropriate, in an amount at least equal to the
original purchase price thereof, subject only to the matters disclosed in
Sections 3.13(a), (b) and (c) above together with the corresponding provisions
of the Company Disclosure Schedule, and, to the Knowledge of the Company, such
policies are, at the date hereof, in full force and effect and no material claim
has been made against any such policy.
(e) To the Knowledge of the Company all (i) certificates, permits or
licenses from any Governmental Entity having jurisdiction over any Company Real
Property and (ii) agreements, easements or other rights, necessary to permit the
lawful use and operation of the buildings and improvements on any of the Company
Real Property have been obtained and are in full force and effect, except where
the failure to maintain the same would not cause a Company Material Adverse
Effect, and the Company does not have any Knowledge of any pending threat or
modification or cancellation of the same. No Company Real Property is located
outside of the United States and neither the Company nor any of its Subsidiaries
conducts its business of owning, leasing or operating properties outside of the
United States. All work to be performed, payments to be made and actions to be
taken by the Company or its Subsidiaries prior to the date hereof pursuant to
any agreement entered into with a Governmental Entity in connection with a site
approval, zoning reclassification or other similar action relating to a Company
Real Property has been performed, paid or taken, as the case may be, and the
Company has no Knowledge of any planned or proposed work, payments or actions
that may be required after the date hereof pursuant to such agreements in each
such case, which is, individually or in the aggregate, material to the Company
and its Subsidiaries taken as a whole.
25
<PAGE> 174
(f) The Company has not received any written notice or written notices of
any violation of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any portion of any Company Real Property
issued by any Governmental Entity except for such notice or notices which would
not have, individually or in the aggregate, a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries has received any written notice
to the effect that any condemnation or rezoning proceedings are pending or
threatened with respect to any Company Real Property, except where any such
written notice of such a proceeding would not, individually or in the aggregate,
cause a Company Material Adverse Effect.
(g) Except as would not, individually or in the aggregate, cause a Company
Material Adverse Effect, there is no (i) material structural defect relating to
the Company Real Property, (ii) Company Real Property whose building systems are
not in working order in any material respect or (iii) physical damage to any
Company Real Property in excess of $100,000 or current renovation or restoration
of Company Real Property the remaining cost of which exceeds $100,000 for which
there is no insurance in effect covering the cost of such damage, renovation or
restoration, except for the payment by the Company of a deductible under the
applicable insurance policy.
(h) Each copy of any Company Lease which has been delivered to, or made
available for review by, HCPI as of the date hereof has been a true and correct
copy of such Company Lease as amended to date. True and correct copies of all
other Company Leases, as amended, will be delivered to, or made available for
review by, HCPI reasonably promptly after the date hereof. Section 3.13(h) of
the Company Disclosure Schedule lists the following information with respect to
each Company Lease that covers more than 7,500 square feet of space:
(i) the name of the lessee;
(ii) the expiration date;
(iii) the term of any options by the lessee to renew (exclusive of any
Company Leases relating to multi-tenant medical office space); and
(iv) the amount of periodic fixed rentals due under the Company Lease.
(i) All regularly scheduled rent payments due under each Company Lease have
been paid during the period March 31, 1999 through the date hereof, and to the
Company's Knowledge, no lessee is in material default, and no condition or event
exists which with the giving of notice or the passage of time, or both, would
constitute a material default by any lessee or contracting party, under any
Company Lease.
(j) The Company Leases are in full force and effect except where the
failure of the foregoing to be true would not have a material affect on the
ability of the Company and its Subsidiaries, taken as a whole, to operate their
businesses. None of the Company nor any of its Subsidiaries is in material
default under any Company Lease, and, to the Knowledge of the Company, no
material defaults (unless subsequently cured) by the Company or its Subsidiaries
have been alleged thereunder.
SECTION 3.14 Contracts.
(a) Section 3.14(a) of the Company Disclosure Schedule contains a complete
and accurate list of all Company Contracts, other than the Company Contracts
which have been filed as an exhibit to the Company SEC Reports. Each copy of a
Company Contract which has been delivered to, or made available for review by,
HCPI is a true and correct copy of such Company Contract as amended to date.
26
<PAGE> 175
(b) As of the date of this Agreement, (i) each of the Company Contracts is
valid and binding upon the Company or the applicable Subsidiary of the Company
in accordance with its terms and is in full force and effect, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally or general equitable principles (whether
considered in a proceeding in equity or at law), (ii) there is no material
breach or violation of or default by the Company or any of its Subsidiaries
under any of the Company Contracts, except if such breach, violation or default
has been waived, and (iii) no event has occurred with respect to the Company or
any of its Subsidiaries which, with notice or lapse of time or both, would
constitute a material breach, violation or default, or give rise to a right of
termination, modification, cancellation, foreclosure, imposition of a Lien,
prepayment or acceleration under any of the Company Contracts, which breach,
violation, default or other occurrence referred to in clauses (ii) or (iii),
individually or in the aggregate with other such breaches, violations, defaults
or other occurrences referred to in clauses (ii) or (iii), would cause a Company
Material Adverse Effect.
SECTION 3.15 Labor Relations. Except as would not cause a Company
Material Adverse Effect, (i) there are no controversies pending or, to the
Knowledge of the Company, threatened between the Company or any of its
Subsidiaries and any of their respective employees; (ii) neither the Company nor
any of its Subsidiaries is a party, or otherwise subject, to any collective
bargaining agreement or similar contract; (iii) there are no proceedings
asserting unfair labor practice charges pending against the Company or any of
its Subsidiaries before the National Labor Relations Board, or any similar
foreign labor relations governmental bodies; and (iv) there is no strike,
slowdown, work stoppage or lockout, or, to the Knowledge of the Company, threat
thereof, by or with respect to any employees of the Company or any of its
Subsidiaries.
SECTION 3.16 Intellectual Property. The Company and each of its
Subsidiaries has good title to, or is validly licensed to use, all of the
Intellectual Property material to the business of the Company and its
Subsidiaries, taken as a whole, free of all material Liens. The consummation of
the Merger will not result in the loss of any rights by the Company or any of
its Subsidiaries in any Intellectual Property material to the business of the
Company and its Subsidiaries, taken as a whole.
SECTION 3.17 Environmental Matters. Except as set forth in the Company
SEC Reports, and except as, individually or in the aggregate, has not had, and
would not cause, a Company Material Adverse Effect, the Company, each of its
Subsidiaries and, to the Knowledge of the Company, each tenant or operator of
Company Real Property (a) have obtained all applicable permits, licenses and
other authorizations which are required to be obtained under all applicable
Environmental Laws by the Company or its Subsidiaries; (b) are in material
compliance with all terms and conditions of such required permits, licenses and
authorizations, and also are in material compliance with all other applicable
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (c) have not received a written notice of any uncured past or present
violations of Environmental Laws, or of any event, incident or Action preventing
continued compliance with such Environmental Laws, or giving rise to any common
law environmental liability, or forming the basis of any Action against the
Company or any of its Subsidiaries based on or resulting from the manufacture,
processing, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any Hazardous Material;
and (d) have taken all actions required under applicable Environmental Laws to
register any products or materials required to be registered by the Company or
its Subsidiaries thereunder. This Section 3.17 constitutes the sole
representation of the Company concerning any Environmental Law or Hazardous
Substance.
27
<PAGE> 176
SECTION 3.18 Opinion of Financial Advisor. The Company Board has received
an opinion of Goldman, Sachs & Co. (the "Company Financial Advisor") to the
effect that, as of the date hereof, Exchange Ratio is fair to the holders of
shares of Company Common Stock from a financial point of view. As of the date of
the filing of the Joint Proxy Statement/ Prospectus with the SEC, and as of the
effective date of the Registration Statement, the Company will have been
authorized by the Company Financial Advisor to permit, subject to prior review
and consent by such Company Financial Advisor, the inclusion of such fairness
opinion (or a reference thereto) in the Joint Proxy Statement/Prospectus and in
the Registration Statement, respectively.
SECTION 3.19 Brokers. No broker, finder or investment banker (other than
the Company Financial Advisor, the fees and expenses of which will be paid by
the Company) is entitled to any brokerage, finder's or other fee or commission
in connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or any of its
Subsidiaries. The Company has heretofore furnished to HCPI a complete and
correct copy of all agreements between the Company and the Company Financial
Advisor pursuant to which such firm would be entitled to any such payment.
SECTION 3.20 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve the Merger. The Company Board, at a meeting
duly called and held, by vote, subject to its right to withdraw its support of
the Merger and the transactions contemplated by this Agreement and recommend an
Acquisition Proposal or Acquisition Transaction pursuant to Section 6.3 hereof,
(a) determined that this Agreement and the transactions contemplated hereby,
including the Merger, are advisable and in the best interests of the Company,
(b) approved this Agreement and the transactions contemplated hereby, including
the Merger, (c) declared that this Agreement is advisable, and (d) resolved to
recommend that the holders of the shares of the Company Common Stock approve
this Agreement and the transactions contemplated hereby, including the Merger.
SECTION 3.21 Accounting and Tax Matters. None of the Company, its
Subsidiaries, directors, officers or agents has taken or agreed to take any
action, nor does any executive officer know of any circumstances, that (without
regard to any action taken or agreed to be taken by HCPI or any of its
Affiliates) would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
SECTION 3.22 Insurance. All fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by the Company or any of its Subsidiaries with
coverage of loss payouts in excess of $15,000,000 are with reputable insurance
carriers, provide full and adequate coverage for all normal risks incident to
the business of the Company and its Subsidiaries and their respective Assets,
and are in character and amount at least equivalent to that carried by Persons
engaged in similar businesses and substantially equivalent to that carried by
Persons engaged in similar businesses and subject to the same or similar perils
or hazards except for any such failures to carry or maintain insurance policies
that, individually or in the aggregate, would not cause a Company Material
Adverse Effect.
SECTION 3.23 Takeover Provisions Inapplicable. The Company has taken all
action necessary, if any, to exempt the transactions contemplated by this
Agreement from the operation of any "fair price," "moratorium," "control share
acquisition" or any other anti-takeover statute enacted under the laws of the
State of Delaware.
28
<PAGE> 177
SECTION 3.24 No Material Adverse Effect. Except as disclosed in the
Company SEC Reports, to the Knowledge of the Company, no current fact alone or
together with another current fact would cause a Company Material Adverse
Effect.
SECTION 3.25 Rights Plan. The entering into of this Agreement and the
consummation of the transactions contemplated hereby (whether or not in
combination with the existing ownership of shares of Company Common Stock by
HCPI or its Subsidiaries as described in Section 4.26) do not and will not
result in the grant of any rights to any Person under the Company Rights Plan or
enable or require the Company Rights to be exercised, distributed or triggered
and there has been no event which has enabled or required the Company Rights to
be exercised, distributed or triggered.
SECTION 3.26 Kendall Replacement Properties. Section 3.26 of the Company
Disclosure Schedule lists certain properties that have been identified as
potential replacement properties in accordance with Treasury Regulation Section
1.1031(k)-1(c) and sets forth, for each such property, (a) the purchase price
reflected in a letter of intent or purchase agreement relating thereto (or, if
there is no letter of intent or purchase agreement reflecting a purchase price,
a good faith reasonable estimate of the price at which the Company believes such
property could be purchased) and (b) a good faith reasonable estimate of the
first 12 months' cash return on investment based on such purchase price or
estimated purchase price (calculated in a manner consistent with the manner in
which the Company customarily calculates returns on investment for similar
acquisitions).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HCPI
HCPI represents and warrants to the Company that the statements contained
in this Article IV are true and correct except as set forth herein and in the
disclosure schedule delivered by HCPI to the Company on or before the date of
this Agreement (the "HCPI Disclosure Schedule"). The HCPI Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Agreement and the disclosure in any paragraph shall
qualify other paragraphs in this Agreement only to the extent that such
disclosure specifically references the fact that it also qualifies or applies to
such other specified paragraphs.
SECTION 4.1 Organization and Qualification. HCPI and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, with the corporate power and
authority to own and operate its businesses as presently conducted. HCPI and
each of its Subsidiaries is duly qualified as a foreign corporation or other
entity to do business and is in good standing in each jurisdiction where the
ownership or operation of its properties or the nature of its activities makes
such qualification necessary, except for such failures of HCPI and any of its
Subsidiaries to be so qualified as would not, when taken with all other such
failures, cause a HCPI Material Adverse Effect. HCPI has previously made
available to the Company true and correct copies of its articles of restatement
and bylaws as currently in effect.
SECTION 4.2 Authorization; Validity and Effect of Agreement. HCPI has the
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby subject to the adoption and approval of this Agreement by the requisite
vote of the holders of HCPI Common Stock. The execution and delivery of this
Agreement by HCPI and the performance by HCPI of its obligations hereunder and
the consummation of the transactions contemplated hereby have been duly
authorized by the HCPI Board and all other necessary corporate action on the
part
29
<PAGE> 178
of HCPI, other than the adoption and approval of this Agreement by the requisite
vote of the holders of HCPI Common Stock, and no other corporate proceedings on
the part of HCPI are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by HCPI and constitutes a legal, valid and binding obligation of HCPI,
enforceable against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law).
SECTION 4.3 Capitalization.
(a) The authorized capital stock of HCPI consists of (i) 100,000,000 shares
of HCPI Common Stock and (ii) 50,000,000 shares of preferred stock, par value
$1.00 per share, of which 2,760,000 shares have been designated as HCPI Series A
Preferred Stock, 5,750,000 shares have been designated HCPI Series B Preferred
Stock, and 40,000 shares have been designated HCPI Series C Preferred Stock. As
of July 16, 1999, there were issued and outstanding (i) 32,044,176 shares of
HCPI Common Stock, (ii) 2,760,000 shares of HCPI Series A Preferred Stock and
(iii) 5,385,000 shares of HCPI Series B Preferred Stock. HCPI have reserved for
issuance a sufficient number of shares of HCPI Stock to consummate the Merger.
Section 4.3(a) of the HCPI Disclosure Schedule sets forth the number of shares
of HCPI Stock and each other class of capital stock of HCPI reserved for future
issuance as of July 16, 1999 under each of the HCPI Stock Plans or otherwise and
the HCPI Stock Plan or other agreement pursuant to which they have been
reserved. Since July 16, 1999, no shares of HCPI Stock or any other capital
stock of HCPI have been issued or reserved for issuance, except for shares of
HCPI Stock issued in respect of the exercise, conversion or exchange of HCPI
Stock Rights outstanding as of July 16, 1999. Section 4.3(a) of the HCPI
Disclosure Schedule also sets forth as of the date hereof, the date on which
each HCPI Stock Right currently outstanding was issued, the dates on which each
such outstanding and unvested HCPI Stock Right vests, the class and number of
shares of HCPI Stock or other capital stock of HCPI for or into which each such
HCPI Stock Right is exercisable, convertible or exchangeable and the exercise
price thereof. Except as set forth in this Section 4.3(a) or Section 4.3(a) of
the HCPI Disclosure Schedule, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which HCPI or any of its Subsidiaries is a party or by which any of them is
bound obligating HCPI or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of HCPI Stock or any
other capital stock of HCPI or its Subsidiaries or other voting securities of
HCPI or its Subsidiaries, or obligating HCPI or its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking, and neither HCPI and its
Subsidiaries have granted any stock appreciation rights or any other contractual
rights the value of which is derived from the financial performance of HCPI or
the value of shares of HCPI Stock or any other capital stock of HCPI. There are
no obligations, contingent or otherwise, of HCPI or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of HCPI Stock or any other
capital stock of HCPI or the capital stock or ownership interests of any
Subsidiary of HCPI or to provide funds to or make any material investment (in
the form of a loan, capital contribution or otherwise) in any other entity,
other than guarantees of bank obligations or indebtedness for borrowed money of
Subsidiaries entered into in the ordinary course of business. Neither HCPI nor
any of its Subsidiaries is holding or owns any shares of HCPI Stock on behalf of
third parties.
(b) There is no issued and outstanding Voting Debt of HCPI or any of its
Subsidiaries. Except as reserved for future grants of options under the HCPI
Stock Plans as of the date hereof, (i) there are no shares of capital stock of
any class of, or any security exchangeable
30
<PAGE> 179
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding; (ii) there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which HCPI or any of its
Subsidiaries is a party or by which it is bound obligating HCPI or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other ownership interests (including
Voting Debt) of HCPI or any of its Subsidiaries or obligating HCPI or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement; and
(iii) there are no voting trusts, proxies or other voting agreements or
understandings currently in effect with respect to the shares of capital stock
of HCPI to which HCPI or any of its Subsidiaries is currently a party or of
which HCPI currently has Knowledge. All shares of HCPI Common Stock subject to
issuance as specified in this Section 4.3(b) or in Section 4.3(b) of the HCPI
Disclosure Schedule are duly authorized and, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable.
SECTION 4.4 Subsidiaries. Other than Subsidiaries of HCPI formed or
acquired after the date hereof in connection with the acquisition of real
property in the ordinary course of business (of which HCPI has provided notice
to the Company prior to any such formation or acquisition), Section 4.4 of the
HCPI Disclosure Schedule sets forth all Subsidiaries of HCPI. All of the
outstanding shares of capital stock (including shares which may be issued upon
exercise of outstanding options) or other ownership interests of each of HCPI's
Subsidiaries are duly authorized, validly issued, fully paid and non-assessable
and all such shares and ownership interests are owned by HCPI or a Subsidiary of
HCPI free and clear of all Liens. HCPI owns, directly or indirectly, all of the
issued and outstanding capital stock and other ownership interests of each of
its Subsidiaries, free and clear of all Liens, and there are no existing
options, warrants, calls, subscriptions, convertible securities or other
securities, agreements, commitments or obligations of any character relating to
the outstanding capital stock or other securities of any Subsidiary of HCPI or
which would require any Subsidiary of HCPI to issue or sell any shares of its
capital stock, ownership interests or securities convertible into or
exchangeable for shares of its capital stock or ownership interests.
SECTION 4.5 Other Interests. Neither HCPI nor any of HCPI's Subsidiaries
owns or has the right or option to acquire, directly or indirectly, any interest
or investment in (whether equity or debt) any business or Person (other than
HCPI's Subsidiaries and other than rights held by HCPI or its Subsidiaries
identified in Section 4.4 of the HCPI Disclosure Schedule or, after the date
hereof, acquisitions of real property in the ordinary course of business, and
Persons owning real property, in the ordinary course of business (of which HCPI
will have provided notice to the Company prior to any such acquisition)). To the
Knowledge of HCPI, no Person owns or has owned, actually or constructively (as
such term is used for purposes of the not closely held requirement set forth in
Section 856(a)(6) of the Code or Section 856(d)(5) of the Code) in excess of
9.9% in value of the outstanding stock of HCPI.
SECTION 4.6 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement nor the
performance by HCPI of its obligations hereunder, nor the consummation of the
transactions contemplated hereby, will: (i) conflict with HCPI's charter or
bylaws or the comparable charter or organizational documents of any of its
Subsidiaries; (ii) assuming satisfaction of the requirements set forth in
Section 4.6(b) below, violate any statute, law, ordinance, rule or regulation,
applicable to HCPI or any of its Subsidiaries or any of their Assets; or (iii)
violate, breach, be in conflict with or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, permit
the termination of any provision of, result in the termination of, the
acceleration of the maturity of, or the acceleration of the performance of any
obligation of HCPI or any of its Subsidiaries under, result in the creation or
imposition of any Lien upon
31
<PAGE> 180
any Assets of HCPI or any of its Subsidiaries under, or give rise to any third
party's right of first refusal, or other similar right, under any note, bond,
indenture, mortgage, deed of trust, lease, franchise, permit, authorization,
license, contract, instrument or other agreement or commitment or any order,
judgment or decree to which HCPI or any of its Subsidiaries is a party or by
which HCPI or any of its Subsidiaries or any of their respective Assets are
bound or encumbered, or give any Person the right to require HCPI or any of its
Subsidiaries to purchase or repurchase any notes, bonds or instruments of any
kind except, in the case of clauses (ii) and (iii), for such violations,
breaches, conflicts, defaults or other occurrences which, individually or in the
aggregate, would not cause a HCPI Material Adverse Effect.
(b) Except (i) for applicable requirements, if any, of the Exchange Act,
the Securities Act, and Blue Sky Laws, (ii) for the filing of the Certificate of
Merger pursuant to the DGCL and the filing of the Articles of Merger pursuant to
the MGCL, (iii) for other governmental approvals required under the applicable
laws of any foreign jurisdiction, (iv) for the approval of this Agreement by the
requisite vote of the holders of HCPI Common Stock, and (v) with respect to
matters set forth in Sections 4.6(a) or 4.6(b) of the HCPI Disclosure Schedule,
no consent, approval or authorization of, permit from, or declaration, filing or
registration with, any Governmental Entity, or any other Person is required to
be made or obtained by HCPI or any of its Subsidiaries in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, except where the failure to obtain such
consent, approval, authorization, permit or declaration or to make such filing
or registration would not, individually or in the aggregate, cause a HCPI
Material Adverse Effect.
SECTION 4.7 Compliance. HCPI and each of its Subsidiaries is in
compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof, except to the extent that failure to comply
would not, individually or in the aggregate, cause a HCPI Material Adverse
Effect. Neither HCPI nor any of its Subsidiaries has received any written notice
asserting a failure, or possible failure, to comply with any such law or
regulation, the subject of which written notice has not been resolved as
required thereby or otherwise to the satisfaction of the party sending the
notice, except for such failure as would not, individually or in the aggregate,
cause a HCPI Material Adverse Effect.
SECTION 4.8 SEC Reports.
(a) HCPI has filed with the SEC and made available to the Company true and
complete copies of each registration statement, proxy or information statement,
form, report and other document required to be filed by HCPI or any of its
Subsidiaries with the SEC since January 1, 1996 (collectively, the "HCPI SEC
Reports"). As of their respective dates, with respect to HCPI SEC Reports filed
pursuant to the Exchange Act, and as of their respective effective dates, as to
HCPI SEC Reports filed pursuant to the Securities Act, the HCPI SEC Reports and
any registration statements, reports, forms, proxy or information statements and
other documents filed by HCPI with the SEC after the date of this Agreement (i)
complied, or, with respect to those not yet filed, will comply, in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, and (ii) did not, or, with respect to those not yet filed, will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated balance sheets included in or incorporated by
reference into HCPI SEC Reports (including the related notes and schedules)
presents fairly, in all material respects, the consolidated financial position
of HCPI and its consolidated Subsidiaries as of its date, and each of the
consolidated statements of income, retained earnings and cash flows of
32
<PAGE> 181
HCPI included in or incorporated by reference into HCPI SEC Reports (including
any related notes and schedules) presents fairly, in all material respects, the
results of operations, retained earnings or cash flows, as the case may be, of
HCPI and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments), in each
case in accordance with GAAP consistently applied during the periods involved,
except as may be noted therein.
(c) Except as set forth in the HCPI SEC Reports, neither HCPI nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a balance sheet of HCPI or in the notes
thereto, prepared in accordance with GAAP consistently applied, except for (i)
liabilities or obligations that were so reserved on, or reflected in (including
the notes to), the consolidated balance sheet of HCPI as of March 31, 1999, (ii)
liabilities or obligations arising in the ordinary course of business (including
trade indebtedness and liabilities, obligations and secured debt assumed in
connection with the acquisition of properties by HCPI or its Subsidiaries) since
March 31, 1999, and (iii) liabilities or obligations which would not,
individually or in the aggregate, cause a HCPI Material Adverse Effect.
SECTION 4.9 Absence of Certain Changes. Except as set forth in the HCPI
SEC Reports and except for the transactions expressly contemplated hereby, since
March 31, 1999, HCPI and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course consistent with past practices
(including the incurrence of trade indebtedness and liabilities, obligations and
secured debt assumed in connection with the acquisition of properties by HCPI or
its Subsidiaries) and there has not been any change in HCPI's business,
operations, condition (financial or otherwise), results of operations, Assets or
liabilities, except for changes expressly contemplated hereby or changes which,
individually or in the aggregate, have not caused or will not cause a HCPI
Material Adverse Effect.
SECTION 4.10 Litigation. Except as set forth in the HCPI SEC Reports,
there is no Action instituted, pending or, to the Knowledge of HCPI, threatened,
in each case against HCPI, any of its Subsidiaries or any of their respective
Assets which, individually or in the aggregate, directly or indirectly, would
have a HCPI Material Adverse Effect, nor is there any outstanding judgment,
decree or injunction, in each case against HCPI, any of its Subsidiaries or any
of their respective Assets, or any statute, rule or order of any Governmental
Entity applicable to HCPI or any of its Subsidiaries which, individually or in
the aggregate, has caused, or would cause, a HCPI Material Adverse Effect.
SECTION 4.11 Taxes.
(a) HCPI and its Subsidiaries have (i) duly filed (or there have been filed
on their behalf) or have duly filed for an appropriate extension, with the
appropriate Governmental Entities all Tax Returns required to be filed by them
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full all Taxes required to have been paid by them, whether
or not shown to be due on such Tax Returns, provided, however, to the extent the
foregoing clauses (i) or (ii) relate to Taxes for which a tenant is responsible
pursuant to a HCPI Lease, to the Knowledge of HCPI, such clauses (i) and (ii)
are true with respect to such tenant;
(b) No written claim is pending by an authority in a jurisdiction where any
of HCPI and its Subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction;
(c) No federal income Tax Returns of HCPI or its Subsidiaries have been
audited for HCPI's taxable years beginning on or after January 1, 1990, and no
federal or state, local or
33
<PAGE> 182
foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of HCPI or its
Subsidiaries, and neither HCPI nor any of its Subsidiaries has received a
written notice of any threatened audits with respect to Taxes or Tax Returns of
HCPI or any of its Subsidiaries, and neither HCPI nor any of its Subsidiaries
has waived any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency;
(d) Section 4.11(d) of the HCPI Disclosure Schedule sets forth, with
respect to those taxable years for which Tax Returns have not yet been filed,
the taxable years of HCPI and its Subsidiaries as to which extensions to file
Tax Returns have been requested or any waiver of the applicable statute of
limitations has been executed;
(e) The Internal Revenue Service has not asserted against HCPI or any of
its Subsidiaries any deficiency or claim for Taxes with respect to HCPI's
taxable years beginning on or after January 1, 1990, and no other taxing
authority (whether domestic or foreign) has asserted against HCPI or any of its
Subsidiaries any deficiency or claim for Taxes in excess of $100,000 for any of
HCPI's taxable years beginning on or after January 1, 1990;
(f) There are no Liens for Taxes upon any Assets of HCPI or any Subsidiary
thereof, except for Liens for Taxes not yet due or delinquent or for which a
tenant is responsible under a lease for real property. With respect to any such
Taxes for which a tenant is responsible, to the Knowledge of HCPI no such Taxes
are delinquent. No written power of attorney that has been granted by HCPI or
any of its Subsidiaries (other than to HCPI or a Subsidiary) currently is in
force with respect to any matter relating to Taxes;
(g) Neither HCPI nor any of its Subsidiaries has, with regard to any Assets
held by any of them, agreed to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as such term is defined in Section
341(f)(4) of the Code) owned by HCPI or any of its Subsidiaries;
(h) None of HCPI and its Subsidiaries is a party to any Tax allocation or
sharing agreement;
(i) None of HCPI and its Subsidiaries (i) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was HCPI) or (ii) has any liability for the
Taxes of any Person (other than any of HCPI and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise;
(j) Since HCPI's taxable year ending December 31, 1985, HCPI has not
incurred and does not expect to incur through the Closing Date any liability for
Taxes under Section 857(b), 860(c) or 4981 of the Code, and neither HCPI nor any
of its Subsidiaries has incurred any material liability for Taxes other than in
the ordinary course of business. To the Knowledge of HCPI, no event has occurred
and no condition or circumstance exists which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon HCPI.
(k) HCPI (i) for all taxable years commencing with 1985 through the most
recent December 31, has been subject to taxation as a REIT and has satisfied all
requirements to qualify as a REIT for such years, (ii) has operated in such a
manner as to qualify as a REIT, and will continue to operate through the Closing
Date in such a manner as to qualify as a REIT, (iii) has not taken or omitted to
take any action which would reasonably be expected to result in a challenge to
its status as a REIT, and, to the Knowledge of HCPI, no such challenge is
pending or threatened, and (iv) has not granted any exception to its stock
ownership limits set forth in its charter or other governing document(s)
relating to its tax status as a REIT. Each Subsidiary of HCPI that is a state
law partnership or limited liability
34
<PAGE> 183
company has been since its formation and continues to be treated for federal
income tax purposes as a partnership (or a disregarded entity) and not as a
corporation or an association or publicly traded partnership taxable as a
corporation. Each other Subsidiary of HCPI has been since its formation, and
continues to be treated for federal income Tax purposes as a "qualified REIT
subsidiary" as defined in Section 856(i) of the Code. Neither HCPI nor any
Subsidiary of HCPI holds any Asset the disposition of which would be subject to
rules similar to Section 1374 of the Code as a result of an election under IRS
Notice 88-19.
SECTION 4.12 Employee Benefit Plans.
(a) Section 4.12 of the HCPI Disclosure Schedule contains a complete list
of all Employee Plans of HCPI and its Subsidiaries as of the date hereof. True
and complete copies or descriptions of the Employee Plans of HCPI and its
Subsidiaries, including, without limitation, trust instruments, if any, that
form a part thereof, and all amendments thereto, have been furnished or made
available to the Company and its counsel.
(b) Each of the Employee Plans of HCPI and its Subsidiaries (other than any
Multiemployer Plan) has been administered and is in substantial compliance with
the terms of such Employee Plan and all applicable laws, rules and regulations.
Each Pension Plan of HCPI or its Subsidiaries which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service with respect to "TRA" (as defined in Section 1
of Rev. Proc. 93-39), and HCPI is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. All
contributions required to be made under the terms of any Employee Plan of HCPI
or its Subsidiaries have been timely made or have been reflected in the
consolidated balance sheets included in or incorporated by reference in the HCPI
SEC Reports. Neither HCPI nor any of its Subsidiaries has provided, or is
required to provide, security to any Pension Plan of HCPI or its Subsidiaries
pursuant to Section 401(a)(29) of the Code.
(c) No "reportable event" (as such term is used in Section 4043 of ERISA)
for which the notice requirements to the Pension Benefit Guaranty Corporation
have not been waived, or "accumulated funding deficiency" (as such term is used
in section 412 of the Code or Section 302 of ERISA), whether or not waived, has
heretofore occurred with respect to any Pension Plan (other than any
Multiemployer Plan) of HCPI or its Subsidiaries. Neither HCPI nor any of its
Subsidiaries has engaged in a transaction in violation of Section 406 or 407 of
ERISA or any transaction with respect to any Employee Plan that, in either case,
assuming the taxable period of such transaction expired as of the date hereof,
could subject HCPI or any Subsidiary to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(d) There is no material Action relating to or seeking benefits under any
Employee Plan of HCPI or any of its Subsidiaries that is pending or, to HCPI's
Knowledge, threatened against HCPI, any of its Subsidiaries, any of their ERISA
Affiliates, or any of the Employee Plans of HCPI or any of its Subsidiaries,
other than routine claims for benefits.
(e) HCPI has not incurred any withdrawal or other liability with respect to
any Multiemployer Plan of HCPI or any of its Subsidiaries under Title IV of
ERISA which remains unsatisfied.
(f) No liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by HCPI, any of its Subsidiaries or their ERISA
Affiliates with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them.
35
<PAGE> 184
(g) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any current or former employee of HCPI
or any of its Subsidiaries to benefits under any Employee Plan (including,
without limitation, the acceleration of the vesting or exercisability of any
stock options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any Pension Plan or
the acceleration or creation of any rights under any severance, parachute or
change in control agreement).
(h) Under each Pension Plan of HCPI or its Subsidiaries which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities," within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation), did not exceed the then current value of the
assets of such Pension Plan, and there has been no material change in the
financial condition of such Pension Plan since the last day of the most recent
plan year.
(i) Neither HCPI nor any of its Subsidiaries has an obligations for retiree
health and life insurance benefits under any Employee Plan of HCPI or its
Subsidiaries, except as required under Section 4980B of the Code of Title I,
Subtitle B, Part 6 of ERISA.
SECTION 4.13 Properties.
(a) Section 4.13(a) of the HCPI Disclosure Schedule lists all real
properties owned in fee simple by HCPI and its Subsidiaries (the "HCPI Owned
Property") and all real properties leased by HCPI and its Subsidiaries as lessee
(the "HCPI Leased Property"), which are all of the real properties owned or
leased by them. The HCPI Owned Property and the HCPI Leased Property is referred
to herein collectively as the "HCPI Real Property."
(b) HCPI and its Subsidiaries have fee simple title to the HCPI Owned
Property, and a valid leasehold interest in the HCPI Leased Property, sufficient
to allow HCPI and its Subsidiaries, taken as a whole, to conduct its business of
leasing properties to third parties as currently conducted. The HCPI Real
Property is not subject to any Encumbrances, except for any Permitted
Encumbrances.
(c) Except as set forth on Section 4.14(a) of the HCPI Disclosure Schedule
or as disclosed in the HCPI SEC Reports, the HCPI Real Property is not
encumbered by any material debt.
(d) Valid policies of title insurance have been issued insuring HCPI's or
its applicable Subsidiary's fee simple title to the HCPI Owned Property or
HCPI's or its applicable Subsidiary's leasehold interest in the HCPI Leased
Property, as appropriate, in an amount at least equal to the original purchase
price thereof, subject only to the matters disclosed in Sections 4.13(a), (b)
and (c) above together with the corresponding provisions of the HCPI Disclosure
Schedule, and, to the Knowledge of HCPI, such policies are, at the date hereof,
in full force and effect and no material claim has been made against any such
policy.
(e) To the Knowledge of HCPI all (i) certificates, permits or licenses from
any Governmental Entity having jurisdiction over any HCPI Real Property and (ii)
agreements, easements or other rights, necessary to permit the lawful use and
operation of the buildings and improvements on any of the HCPI Real Property
have been obtained and are in full force and effect, except where the failure to
maintain the same would not cause a HCPI Material Adverse Effect and HCPI does
not have any Knowledge of any pending threat or modification or cancellation of
the same. No HCPI Real Property is located outside of the United States and
neither HCPI nor any of its Subsidiaries conducts its business of owning,
leasing or operating properties outside of the United States. All work to be
performed, payments to be
36
<PAGE> 185
made and actions to be taken by HCPI or its Subsidiaries prior to the date
hereof pursuant to any agreement entered into with a Governmental Entity in
connection with a site approval, zoning reclassification or other similar action
relating to a HCPI Real Property has been performed, paid or taken, as the case
may be, and HCPI has no Knowledge of any planned or proposed work, payments or
actions that may be required after the date hereof pursuant to such agreements
in each such case, which is, individually or in the aggregate, material to HCPI
and its Subsidiaries taken as a whole.
(f) HCPI has not received any written notice or written notices of any
violation of any federal, state or municipal law, ordinance, order, regulation
or requirement affecting any portion of any HCPI Real Property issued by any
Governmental Entity except for such notice or notices which would not have,
individually or in the aggregate, a HCPI Material Adverse Effect. Neither HCPI
nor any of its Subsidiaries has received any written notice to the effect that
any condemnation or rezoning proceedings are pending or threatened with respect
to any HCPI Real Property, except where any such written notice of such a
proceeding would not, individually or in the aggregate, cause a HCPI Material
Adverse Effect.
(g) Except as would not, individually or in the aggregate, cause a HCPI
Material Adverse Effect, there is no (i) material structural defect relating to
the HCPI Real Property, (ii) HCPI Real Property whose building systems are not
in working order in any material respect or (iii) physical damage to any HCPI
Real Property in excess of $100,000 or current renovation or restoration to any
HCPI Real Property the remaining cost of which exceeds $100,000 for which there
is no insurance in effect covering the cost of such damage, renovation or
restoration except for the payment by HCPI of a deductible under the applicable
insurance policy.
(h) Each copy of any HCPI Lease which has been delivered to, or made
available for review by, the Company as of the date hereof has been a true and
correct copy of such HCPI Lease as amended to date. True and correct copies of
all other HCPI Leases, as amended, will be delivered to, or made available for
review by, the Company reasonably promptly after the date hereof. Section
4.13(h) of the HCPI Disclosure Schedule lists the following information with
respect to each HCPI Lease that covers more than 7,500 square feet of space:
(i) the name of the lessee;
(ii) the expiration date;
(iii) the term of any options by the lessee to renew (exclusive of any
HCPI's Leases relating to multi-tenant medical office space); and
(iv) the amount of periodic fixed rentals due under the HCPI Lease.
(i) All regularly scheduled rent payments due under each HCPI Lease have
been paid during the period March 31, 1999 through the date hereof, and to
HCPI's Knowledge, no lessee is in material default, and no condition or event
exists which with the giving of notice or the passage of time, or both, would
constitute a material default by any lessee or contracting party, under any HCPI
Lease.
(j) The HCPI Leases are in full force and effect, except where the failure
of the foregoing to be true would not have a material effect on the ability of
HCPI and its Subsidiaries, taken as a whole, to operate their businesses. None
of HCPI nor any of its Subsidiaries is in material default under any HCPI Lease,
and, to the Knowledge of HCPI, no material defaults (unless subsequently cured)
by HCPI or its Subsidiaries have been alleged thereunder.
37
<PAGE> 186
SECTION 4.14 Contracts.
(a) Section 4.14(a) of HCPI Disclosure Schedule contains a complete and
accurate list of all HCPI Contracts, other than the HCPI Contracts which have
been filed as an exhibit to the HCPI SEC Reports. Each copy of a HCPI Contract
which has been delivered to, or made available for review by, the Company is a
true and correct copy of such HCPI Contract as amended to date.
(b) As of the date of this Agreement, (i) each of the HCPI Contracts is
valid and binding upon HCPI or the applicable Subsidiary of HCPI in accordance
with its terms and is in full force and effect, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights generally or general equitable principles (whether considered in a
proceeding in equity or at law), (ii) there is no material breach or violation
of or default by HCPI or any of its Subsidiaries under any of the HCPI
Contracts, except if such breach, violation or default has been waived, and
(iii) no event has occurred with respect to HCPI or any of its Subsidiaries
which, with notice or lapse of time or both, would constitute a material breach,
violation or default, or give rise to a right of termination, modification,
cancellation, foreclosure, imposition of a Lien, prepayment or acceleration
under any of the HCPI Contracts, which breach, violation, default or other
occurrence referred to in clauses (ii) or (iii), individually or in the
aggregate with other such breaches, violations, defaults or other occurrences
referred to in clauses (ii) or (iii), would cause a HCPI Material Adverse
Effect.
SECTION 4.15 Labor Relations. Except as would not cause a HCPI Material
Adverse Effect, (i) there are no controversies pending or, to the Knowledge of
HCPI, threatened between HCPI or any of its Subsidiaries and any of their
respective employees; (ii) neither HCPI nor any of its Subsidiaries is a party,
or otherwise subject, to any collective bargaining agreement or similar
contract; (iii) there are no proceedings asserting unfair labor practice charges
pending against HCPI or any of its Subsidiaries before the National Labor
Relations Board, or any similar foreign labor relations governmental bodies; and
(iv) there is no strike, slowdown, work stoppage or lockout, or, to the
Knowledge of HCPI, threat thereof, by or with respect to any employees of HCPI
or any of its Subsidiaries.
SECTION 4.16 Intellectual Property. HCPI and each of its Subsidiaries has
good title to, or is validly licensed to use, all of the Intellectual Property
material to the business of HCPI and its Subsidiaries, taken as a whole, free of
all material Liens. The consummation of the Merger will not result in the loss
of any rights by HCPI or any of its Subsidiaries in any Intellectual Property
that is material to the businesses of HCPI and its Subsidiaries, taken as a
whole.
SECTION 4.17 Environmental Matters. Except as set forth in the HCPI SEC
Reports, and except, individually or in the aggregate, as has not had, and would
not cause, a HCPI Material Adverse Effect, HCPI, each of its Subsidiaries and,
to the Knowledge of HCPI, each tenant or operator of HCPI Real Property (a) have
obtained all applicable permits, licenses and other authorizations which are
required to be obtained under all applicable Environmental Laws by HCPI or its
Subsidiaries; (b) are in material compliance with all terms and conditions of
such required permits, licenses and authorizations, and also are in material
compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in applicable Environmental Laws; (c) have not received a written
notice of any uncured past or present violations of Environmental Laws, or of
any event, incident or Action preventing continued compliance with such
Environmental Laws, or giving rise to any common law environmental liability, or
forming the basis of any Action against HCPI or any of its Subsidiaries based on
or resulting from the manufacture, processing, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge or release
38
<PAGE> 187
into the environment, of any Hazardous Material; and (d) have taken all actions
required under applicable Environmental Laws to register any products or
materials required to be registered by HCPI or its Subsidiaries thereunder. This
Section 4.17 constitutes the sole representation of HCPI concerning any
Environmental Law or Hazardous Substance.
SECTION 4.18 Opinion of Financial Advisor. HCPI has received the opinion
of Merrill Lynch & Co., Inc., (the "HCPI Financial Advisor"), as of the date of
this Agreement, to the effect that the consideration to be paid by HCPI in
connection with the Merger is fair to HCPI from a financial point of view. As of
the date of the filing of the Joint Proxy Statement/ Prospectus with the SEC,
and as of the date of the effectiveness of the Registration Statement, HCPI will
have been authorized by the HCPI Financial Advisor to permit, subject to prior
review and consent by such HCPI Financial Advisor, the inclusion of such
fairness opinion (or a reference thereto) in the Joint Proxy
Statement/Prospectus and in the Registration Statement, respectively.
SECTION 4.19 Brokers. No broker, finder or investment banker (other than
the HCPI Financial Advisor the fees and expenses of which shall be paid by HCPI)
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of HCPI or any of its subsidiaries. HCPI has
heretofore furnished to the Company a complete and correct copy of all
agreements between HCPI and the HCPI Financial Advisor pursuant to which such
firm would be entitled to any such payment.
SECTION 4.20 Vote Required. The affirmative vote of the holders of
two-thirds of the outstanding shares of HCPI Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of HCPI's capital
stock necessary to approve the Merger. The HCPI Board, at a meeting duly called
and held, by vote (a) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are in the best interests of HCPI,
(b) approved this Agreement and the transactions contemplated hereby, including
the Merger, (c) declared that the Merger is advisable on the terms and
conditions set forth in this Agreement, and (d) resolved to submit for
consideration, and recommend that the holders of the shares of the HCPI Common
Stock approve, the Merger, substantially in the form set forth by this
Agreement, and the transactions contemplated hereby.
SECTION 4.21 Accounting and Tax Matters. None of HCPI, its Subsidiaries,
directors, officers or agents, has taken or agreed to take any action, nor does
any executive officer know of any circumstances, that (without regard to any
action taken or agreed to be taken by the Company or any of its Affiliates)
would prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
SECTION 4.22 Insurance. All fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by HCPI or any of its Subsidiaries with coverage
of loss payouts in excess of $15,000,000 are with reputable insurance carriers,
provide full and adequate coverage for all normal risks incident to the business
of HCPI and its Subsidiaries and their respective Assets, and are in character
and amount at least equivalent to that carried by Persons engaged in similar
businesses and substantially equivalent to that carried by Persons engaged in
similar businesses and subject to the same or similar perils or hazards except
for any such failures to carry or maintain insurance policies that, individually
or in the aggregate, would not cause a HCPI Material Adverse Effect.
SECTION 4.23 Takeover Provisions Inapplicable. HCPI has taken all action
necessary, if any, to exempt the transactions contemplated by this Agreement
from the operation of any "fair price," "moratorium," "control share
acquisition" or any other anti-takeover statute enacted under the laws of the
State of Maryland.
39
<PAGE> 188
SECTION 4.24 No Material Adverse Effect. Except as disclosed in the HCPI
SEC Reports, to the Knowledge of HCPI, no current fact alone or together with
another current fact would cause a HCPI Material Adverse Effect.
SECTION 4.25 Rights Plan. Other than as Merger Consideration pursuant to
this Agreement, the entering into of this Agreement and the consummation of the
transactions contemplated hereby do not and will not result in the grant of any
rights to any Person under the HCPI Rights Plan or enable or require the HCPI
Rights to be exercised, distributed or triggered and there has been no event
which has enabled or required the HCPI Rights to be exercised, distributed or
triggered.
SECTION 4.26 Ownership of Company Common Stock. To the Knowledge of HCPI,
none of HCPI or any of its Affiliates, is the Beneficial Owner or record owner
of any shares of Company Stock, other than HCPI's ownership of approximately
52,900 shares of Company Common Stock and such securities, if any, held by, or
for the account of employees or former employees of, HCPI or any of its
Affiliates.
ARTICLE V.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the Merger. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company agrees as
to itself and each of its Subsidiaries (except to the extent that HCPI shall
otherwise consent in writing or as expressly contemplated by this Agreement) to
carry on its business in the ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes when due, subject to good faith
disputes over such debts or Taxes, in the ordinary course in substantially the
same manner as previously paid, to pay or perform its other material obligations
when due in the ordinary course in substantially the same manner as previously
paid or performed, to maintain insurance coverages and its books, accounts and
records in the usual manner consistent with past practices, to comply in all
material respects with all applicable laws, ordinances and regulations of
Governmental Entities, to maintain and keep its properties and equipment in good
repair, working order and condition (except ordinary wear and tear), and, to the
extent consistent with such business, use all reasonable efforts, consistent
with past practices and policies, to preserve intact its present business
organization, and preserve its relationships with officers, employees and others
having business dealings with it. Without limiting the generality of the
foregoing and except as expressly contemplated by this Agreement, or in the
Company Disclosure Schedule, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, without the written consent of HCPI, the Company shall not and
shall not permit any of its Subsidiaries to:
(a) adopt or propose any amendment to (i) its certificate of
incorporation, its bylaws, the Certificate of Designation dated October 24,
1997 which relates to the Company Series B Preferred Stock or comparable
charter or organizational documents or (ii) the Company Rights Plan (except
as contemplated by Section 6.15 hereof) and the Company Board shall not
take any action with respect to the Company Rights Plan to facilitate an
Acquisition Proposal;
(b) (i) except for the payment of Company Deferred Directors Fees (and
Company Dividend Equivalent Rights appurtenant thereto), issue, pledge or
sell, or propose or authorize the issuance, pledge or sale of additional
shares of capital stock of any class (other than upon exercise of Company
Stock Rights outstanding on the date of this Agreement upon payment of the
exercise price thereof), or securities convertible into
40
<PAGE> 189
capital stock of any class, or any subscriptions, rights, warrants or
options to acquire any convertible securities or capital stock, or any
other securities in respect of, in lieu of, or in substitution for, shares
of Company Stock outstanding on the date hereof, (ii) except as permitted
by Section 5.1(e), amend, waive or otherwise modify any of the terms of any
option, warrant or stock option plan of the Company or any of its
Subsidiaries, including without limitation, the Company Stock Rights and
the Company Stock Plans, or authorize cash payments in exchange for any
options granted under any of such plans, or (iii) adopt or implement any
stockholder rights plan;
(c) except as set forth in and subject to Sections 5.4 and 5.5,
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock (including any
dividend distribution payable in, or otherwise make a distribution of,
shares of capital stock of any existing or subsequently formed Subsidiary
of the Company), except, (i) the regular quarterly dividend paid by the
Company in an amount not to exceed $.565 per share of Company Common Stock;
(ii) the regular quarterly dividend paid by the Company per share of Series
B Preferred Stock or (iii) dividends or distributions to the Company or one
of its Subsidiaries;
(d) split (including reverse split), combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities except as permitted by Section 5.1(e);
(e) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees (whether from the Company
or any of its Subsidiaries), or pay any benefit not required by any
existing plan or arrangement (including, without limitation, the granting
of stock options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
employee of the Company or any of its Subsidiaries or establish, adopt,
enter into, or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination, severance
or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or
current or former employees, including any Benefit Arrangement, Pension
Plan or Welfare Plan, except, in any case referred to in this Section
5.1(e) (i) to the extent required by applicable law or regulation, (ii)
pursuant to any collective bargaining agreements or Employee Plan as in
effect on the date of this Agreement consistent with past practices, (iii)
for salary and benefit increases in the ordinary course of business
consistent with past practice to employees other than executive officers of
the Company, (iv) pursuant to Section 2.8, (v) pursuant to existing
agreements or policies previously disclosed in writing to HCPI, which shall
be interpreted and implemented in a manner consistent with past practice,
(vi) that the Company shall be permitted to amend the Company's Money
Purchase Pension Plan effective as of January 1, 1994, to provide that
severance pay shall be excluded from the definition of "compensation" under
the Company's Money Purchase Pension Plan; and (vii) that the Company shall
be permitted to amend the Company's Retirement Plan for Outside Directors
effective as of July 1, 1991, to provide for an actuarially equivalent lump
sum payment election upon termination of service as a director provided,
however, such amendment shall provide that actuarial equivalence is to be
determined using a discount rate equal to the annual rate of interest on
United States Treasury Securities with a 10-year maturity, as specified by
the Secretary of the Treasury (or his or her delegate) for the last month
of the calendar quarter immediately preceding the payment date, and the
1983 Group Annuity Mortality Tables (blended 50% males and 50% females);
41
<PAGE> 190
(f) (i) sell, pledge, lease, dispose of, grant, encumber, transfer or
otherwise authorize the sale, pledge, disposition, grant, encumbrance or
transfer of any of the material Assets of the Company or any of its
Subsidiaries (including stock, partnership or equity interests of
Subsidiaries), including by operation of law, or (ii) acquire any real
property, any other material Assets or any material interest (including,
without limitation, by merger, consolidation or acquisition of stock or
Assets) in a corporation, partnership, other business organization or any
division thereof (or a substantial portion of the Assets thereof); provided
that the Company shall notify HCPI of any immaterial interest in a
corporation, partnership, other business organization or any division
thereof (or a substantial portion of the Assets thereof) prior to any such
acquisition;
(g) (i) incur, assume or pre-pay any debt for borrowed money, other
than pursuant to credit agreements in effect as of the date hereof
consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person, (iii) make any loans, advances
(including advances to employees) or capital contributions to, or
investments in, any other Person or with respect to any other material
Assets, except for loans, advances, capital contributions or investments
between any wholly-owned Subsidiary of the Company and the Company or
another wholly-owned Subsidiary of the Company and those made pursuant to
existing commitments, which if material have been listed in Section 5.1(g)
of the Company Disclosure Schedule; provided that the Company shall notify
HCPI of any loans, advances, capital contributions or investments prior to
the funding of the same and those made pursuant to existing commitments, or
(iv) enter into any "keep well" or other agreement to maintain the
financial condition of another entity (other than the Company or any of its
wholly-owned Subsidiaries);
(h) make or rescind any material express or deemed election relating
to Taxes, settle or compromise any material Action relating to Taxes, amend
any material Tax Return except in each case in the ordinary course of
business consistent with past practice or as required by law, or except as
may be required by applicable law, make any change to any of its material
methods of reporting income or deductions (including, without limitation,
any change to its methods or basis or write-offs of accounts receivable)
for federal income Tax purposes from those employed in the preparation of
its federal income Tax return for the taxable year ending December 31,
1997;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the consolidated financial
statements of the Company;
(j) other than in the ordinary course of business and consistent with
past practice, waive any rights of substantial value or make any payment,
direct or indirect, of any material liability of the Company or of any of
its Subsidiaries before the same comes due in accordance with its terms;
(k) fail to maintain any material existing insurance coverage of all
types in effect or, in the event any such coverage shall be terminated or
lapse, to the extent available at reasonable cost, procure substantially
similar substitute insurance policies which in all material respects are in
at least such amounts and against such risks as are currently covered by
such policies;
(l) change its methods of accounting as in effect on March 31, 1999
except as required by GAAP, or take any action, other than reasonable and
usual actions in the
42
<PAGE> 191
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures, unless required by GAAP or the SEC;
(m) modify, amend or terminate any of the Company Contracts or waive,
release or assign any rights or claims in connection therewith, except for
such modifications, amendments, terminations, waivers, releases or
assignments that are not, individually or in the aggregate, material to the
Company and its Subsidiaries, taken as a whole;
(n) take, or agree to commit to take, any action that would cause the
representations and warranties of the Company contained herein,
individually or in the aggregate, not to be true and correct in all
material respects;
(o) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any Company
Affiliates, other than a Company Subsidiary, which involves the transfer of
consideration or has a financial impact on the Company, other than pursuant
to such agreements, arrangements, or understandings existing on the date of
this Agreement or disclosed on the Company Disclosure Schedule;
(p) consent to the closure, shut down or other elimination of any
facility or office except where such closures, shut downs or eliminations
are not, individually or in the aggregate, material to the Company and its
Subsidiaries, taken as a whole;
(q) take or agree to take or cause to be taken any action that would
prevent the Merger from qualifying as a reorganization as described in
Section 368(a) of the Code;
(r) make or commit to make any capital expenditures other than as
required pursuant to commitments existing on the date hereof or made
without violation of this Section 5.1, or other than capital expenditures
or tenant improvements in the ordinary course of business;
(s) initiate, compromise, or settle any material litigation or
arbitration proceeding; and
(t) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
SECTION 5.2 Permitted Conduct of Business by the Company Pending the
Merger. Notwithstanding anything to the contrary set forth in Section 5.1, the
Company shall be permitted, without the prior consent of HCPI:
(a) to use the equity balance (including interest or other amounts
paid thereon) held by BancOne Colorado, N.A. ("Intermediary"), in its
capacity as qualified intermediary for the Company and its qualified REIT
Subsidiaries pursuant to the Exchange Agreement between Intermediary and
the Company and AMIREIT (Kendall), Inc., dated April 7, 1999, and Treasury
Regulation Section 1.1031(k)-1(g)(4), or cash of the Company, and to assume
debt and take other reasonable actions, in order to acquire any or all of
the properties identified in Section 3.26 of the Company Disclosure
Schedule; provided, however, that the Company may not enter into or amend a
purchase agreement for the purchase of any such property if (i) the
purchase price for such property would be materially greater than the
purchase price (or estimated purchase price) set forth for such property in
Section 3.26 of the Company Disclosure Schedule or (ii) the expected first
12 months' cash return on investment for such property (as reasonably
estimated in good faith in a manner consistent with the manner in which the
Company customarily calculates returns on investment for similar
acquisitions) would be materially less than the estimated 12 months' cash
return on investment set forth for such property in Section 3.26
43
<PAGE> 192
of the Company Disclosure Schedule, unless in any case referred to in this
proviso the Company is acting in a reasonable manner consistent with its
past practice for similar acquisitions (ignoring for this purpose the fact
that such acquisition is in the context of a like-kind exchange);
(b) to complete the acquisition, development and/or funding and
assumption of debt of any property for which the Company has entered into a
binding agreement relating to the same and which are described in Section
5.2(b) of the Company Disclosure Schedule;
(c) in addition to any properties acquired in accordance with the
restrictions of Sections 5.2(a) and (b) above, to acquire up to $25,000,000
of additional properties, provided that each such acquired property has an
initial cash on cash annual return of at least 9.99% based on leases in
place, and the Company and its Subsidiaries use credit underwriting
parameters to assess the credit profile of tenants at such properties
consistent with the credit underwriting parameters used by the Company and
its Subsidiaries during the past three years;
(d) to assume any existing secured debt in connection with the
acquisition of any properties acquired in accordance with the restrictions
of section (c) above if such debt cannot otherwise be prepaid without a
substantial premium or penalty, and provided that the consummation of the
Merger will not (i) require any further consent of the lender thereunder,
(ii) cause an acceleration of the outstanding principal amount of such loan
or (iii) give rise to the payment of any assumption fee, prepayment or
other charge under such debt.
(e) to dispose of any Company Real Property which is subject to a
tenant purchase option pursuant to a Company Lease, which is identified in
Section 5.2(e) of the Company Disclosure Schedule upon the exercise by such
tenant of such purchase option in accordance with the terms of such Company
Lease;
(f) to sell the Sunrise Regional Medical Center in Sunrise, Florida
for not less than $2 million or the Anclote Manor Facility (Northpointe
Behavioral Health) in Tarpon Springs, Florida for a price of not less than
$1 million (but not both) and, in any case, only if necessary to meet the
conditions set forth in Section 7.3(i); provided, however, that if HCPI
consents in writing to the terms of the sale of the Anclote Manor Facility,
the Company shall also be permitted, without the additional consent of
HCPI, to sell the Sunrise Regional Medical Center for a price of not less
than $2 million if necessary to meet the condition set forth in Section
7.3(i).
(g) to modify, amend, renew, extend any of the Company Leases, and to
waive, release or assign rights or claims, provided that such
modifications, amendments, renewals, extensions, waivers, releases or
assignments are consistent with past practices and in the ordinary course
of business and not, individually or in the aggregate, material to the
Company and its Subsidiaries, taken as a whole.
SECTION 5.3 Conduct of Business of HCPI Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, HCPI agrees as to itself
and each of its Subsidiaries (except to the extent that the Company shall
otherwise consent in writing or as expressly contemplated in this Agreement) to
carry on its business in the ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes when due, subject to good faith
disputes over such debts or Taxes, in the ordinary course in substantially the
same manner as previously paid, to pay or perform its other material obligations
when due in the ordinary course in substantially the same manner as previously
paid or performed, to maintain insurance coverages and its books, accounts and
records in the usual manner consistent with past
44
<PAGE> 193
practices, to comply in all material respects with all applicable laws,
ordinances and regulations of Governmental Entities, to maintain and keep its
properties and equipment in good repair, working order and condition (except
ordinary wear and tear), and, to the extent consistent with such business, use
all reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, and preserve its relationships with
officers, employees and customers, suppliers, distributors, and others having
business dealings with it. Without limiting the generality of the foregoing and
except as expressly contemplated by this Agreement or in the HCPI Disclosure
Schedule, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, without
the written consent of the Company, HCPI shall not and shall not permit any of
its Subsidiaries to:
(a) except for the adoption of articles supplementary relating to the
HCPI Series C Preferred Stock in the form attached hereto as Exhibit B,
adopt or propose any amendment to (i) its charter or comparable charter or
organizational documents or (ii) the HCPI Rights Plan;
(b) except as set forth in and subject to Sections 5.4 and 5.5,
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock (including any
dividend distribution payable in, or otherwise make a distribution of,
shares of capital stock of any existing or subsequently formed Subsidiary
of HCPI), except (i) any regular quarterly dividend or distribution paid by
HCPI or any of its Subsidiaries on capital stock or other equity interests
in the ordinary course of business, consistent with past practices
(including any increases in such dividends as are consistent with HCPI's
past practice of increasing dividends) or (ii) dividends or distributions
to HCPI or one of its Subsidiaries;
(c) split (including reverse split), combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities; and
(d) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
SECTION 5.4 Continued Qualification as a Real Estate Investment Trust;
Final Company Dividend. From and after the date hereof through the Effective
Time, each of Company and HCPI will maintain its respective qualification as a
"real estate investment trust" under the Code and the rules and regulations
thereunder. Without limiting the generality of the foregoing, if necessary to
enable the Company to make aggregate dividend distributions during its final
taxable period equal to the Minimum Distribution Dividend, Company shall declare
and pay a dividend (the "Final Company Dividend") to holders of Company Common
Stock in an amount equal to the minimum dividend sufficient to permit Company to
make aggregate dividend distributions during its final taxable period equal to
the Minimum Distribution Dividend. If Company determines it is necessary to
declare the Final Company Dividend, it shall notify HCPI at least ten days prior
to the date for the Company Stockholder Meeting so that HCPI may, at its option,
declare and pay a dividend per share to holders of HCPI Common Stock in an
amount per share equal to the quotient obtained by dividing (x) the Final
Company Dividend per share of Company Common Stock by (y) the Exchange Ratio.
For purposes of this paragraph, the term "Minimum Distribution Dividend" shall
mean a distribution with respect to Company's taxable year ending at the
Effective Time which is sufficient to allow Company to (i) satisfy the
distribution requirements set forth in Section 857(a) of the Code, and (ii)
avoid, to the extent possible, the imposition of income tax
45
<PAGE> 194
under Section 857(b) of the Code and the imposition of excise tax under Section
4981 of the Code.
SECTION 5.5 Dividend Payment Coordination. Each of HCPI and Company shall
coordinate with the other the declaration of any dividends in respect of HCPI
Common Stock and Company Common Stock and the record and payment dates therefor,
it being the intention of the Parties that holders of Company Common Stock shall
not receive (i) dividends for any period with respect to both shares of Company
Common Stock and shares of HCPI Common Stock received in exchange therefor in
connection with the Merger or (ii) fail to receive dividends for any period on
shares of Company Common Stock or shares of HCPI Common Stock received in
exchange therefor in connection with the Merger.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of Form S-4 and the Proxy Statement; Stockholder
Meeting.
(a) As promptly as practicable after the execution of this Agreement, the
Company and HCPI shall cooperate with each other regarding, and, prepare and
file with the SEC, the Joint Proxy Statement/Prospectus and HCPI shall prepare
and file the Registration Statement, provided that HCPI may delay the filing of
the Registration Statement until approval of the Joint Proxy
Statement/Prospectus by the SEC. The Company and HCPI will cause the Joint Proxy
Statement/Prospectus and the Registration Statement to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Each of HCPI and the
Company shall use all reasonable efforts to have or cause the Joint Proxy
Statement/Prospectus to be cleared by the SEC and to cause the Registration
Statement to become effective as promptly as practicable. Without limiting the
generality of the foregoing, each of the Company and HCPI shall cause its
respective Representatives to fully cooperate with the other Party and its
respective Representatives in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement, and shall, upon request,
furnish the other Party with all information concerning it and its Affiliates,
as the other as may be reasonably necessary or advisable in connection with the
preparation of the Joint Proxy Statement/Prospectus and the Registration
Statement. The Company hereby agrees that the recommendations of the Company
Board described in Section 3.20 with respect to the transactions contemplated
hereby (subject to the right of the Company Board to withdraw, amend or modify
such recommendation in accordance with Section 6.3) may be included in the
Registration Statement and the Joint Proxy Statement/Prospectus. HCPI hereby
agrees that the recommendation of HCPI Board described in Section 4.20 may be
included in the Registration Statement and the Joint Proxy Statement/Prospectus.
HCPI shall use its commercially reasonable best efforts to take all actions
required under any applicable federal or state securities or Blue Sky Laws in
connection with the issuance of shares of HCPI Common Stock pursuant to the
Merger and will pay all filing fees incident thereto. As promptly as practicable
after the Registration Statement becomes effective, the Company and HCPI shall
cause the Joint Proxy Statement/Prospectus to be mailed to their respective
stockholders.
(b) The Company and HCPI each agrees that none of the information supplied
by it or its Subsidiaries to be included or incorporated by reference in the
Joint Proxy Statement/ Prospectus or any amendment thereof or supplement
thereto, will, on the date of the mailing of the Joint Proxy
Statement/Prospectus or any amendment or supplement thereto, and at the time of
the Company Stockholder Meeting and the HCPI Stockholder Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated
46
<PAGE> 195
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Company and HCPI
each agrees that none of the information supplied by it or its Subsidiaries to
be included or incorporated by reference in the Registration Statement will, at
the time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(c) Without limiting the generality of the foregoing, prior to the
Effective Time (i) the Company and HCPI shall notify each other as promptly as
practicable upon becoming aware of any event or circumstance which should be
described in an amendment of, or supplement to, the Joint Proxy
Statement/Prospectus or the Registration Statement, and (ii) the Company and
HCPI shall each notify the other as promptly as practicable after the receipt by
it of any written or oral comments of the SEC on, or of any written or oral
request by the SEC for amendments or supplements to, the Joint Proxy
Statement/Prospectus or the Registration Statement, and shall promptly supply
the other with copies of all correspondence between it or any of its
Representatives and the SEC with respect to any of the foregoing filings.
(d) The Company and HCPI shall each take all action necessary to duly call
the Company Stockholders Meeting and the HCPI Stockholders Meeting,
respectively, each to be held as promptly as practicable for the purpose of
voting upon the approval of this Agreement and the Merger. Subject to the right
of the Company Board to withdraw, amend or modify such recommendation in
accordance with Section 6.3, each of the Company and HCPI shall, through its
respective board of directors, (i) recommend to their respective stockholders
adoption of this Agreement and approval of the Merger and related matters, (ii)
coordinate and cooperate with respect to the timing of the Company Stockholders
Meeting and HCPI Stockholders Meeting, and (iii) use their reasonable best
efforts to hold the Company Stockholders Meeting and HCPI Stockholders Meeting
on the same day. Without limiting the generality of the foregoing, the Company
agrees that its obligations pursuant to this Section 6.1(d) to call for and
conduct the Company Stockholders Meeting shall not be affected by the
commencement, public proposal or communication to the Company of any Acquisition
Proposal.
SECTION 6.2 Cooperation; Notice; Cure. Subject to compliance with
applicable law, including any law regarding the exchange of information, from
the date hereof and until the Effective Time, each of HCPI and the Company shall
confer on a regular basis with one or more Representatives of the other Party to
report on the general status of ongoing operations. Each of HCPI and the Company
shall promptly notify the other in writing of, and will use all commercially
reasonable efforts to cure before the Closing Date, any event, transaction or
circumstance, as soon as practical after it becomes known to such Party, that
causes or will, with the passage of time, cause any covenant or agreement of
HCPI or the Company, as the case may be, under this Agreement to be breached in
any material respect or that renders or will, with the passage of time, render
untrue in any material respect any representation or warranty of HCPI or the
Company contained in this Agreement. No notice given pursuant to this paragraph
shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein. The Company will reasonably cooperate with
HCPI and, immediately prior to the Merger, take any commercially reasonable
actions (including restructuring their ownership of Texas properties) reasonably
requested by HCPI, to minimize HCPI's Texas tax liabilities arising subsequent
to the Merger.
47
<PAGE> 196
SECTION 6.3 No Solicitation.
(a) The Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any Persons conducted heretofore by the Company, its Subsidiaries or any of
their respective Representatives with respect to any proposed, potential or
contemplated Acquisition Proposal.
(b) From and after the date hereof, without the prior written consent of
HCPI, the Company will not, will not authorize or permit any of its Subsidiaries
to, and shall use its reasonable best efforts to cause any of its or their
respective Representatives not to, directly or indirectly, (i) solicit, initiate
or encourage (including by way of furnishing information) or take any other
action to facilitate any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal
from any Person, or (ii) engage in any discussion or negotiations with, or
provide any non-public information to, any Person (or group of Persons) other
than HCPI or its Representatives concerning an Acquisition Proposal, or (iii)
enter into any agreement with respect to any Acquisition Proposal; provided,
however, that nothing contained in this Section 6.3(b) shall prevent the Company
or the Company Board from furnishing non-public information to, or entering into
discussions or negotiations with, any Person in connection with an unsolicited,
bona fide written proposal for an Acquisition Proposal by such Person or
recommending such Acquisition Proposal to its stockholders, if and only to the
extent that (1) such Person has made a written proposal to the Company Board to
consummate an Acquisition Proposal, (2) the Company Board determines in good
faith, after consultation with a financial advisor of nationally recognized
reputation, that such Acquisition Proposal if accepted is reasonably capable of
being consummated on substantially the terms proposed, and after taking into
account the strategic benefits anticipated to be derived from the Merger and the
long term prospects of HCPI and the Company as a combined company, would, if
consummated, result in a transaction that would be more favorable to the holders
of Company Common Stock than the transaction contemplated by this Agreement (a
"Superior Proposal"), (3) the failure to take such action would, in the
reasonable good faith judgment of the Company Board, after consultation with
outside legal counsel, be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law, and (4) prior to furnishing such
non-public information to, or entering into discussions or negotiations with,
such Person, the Company Board receives from such Person an executed
confidentiality and standstill agreement with material terms no less favorable
to the Company than those contained in the Confidentiality Agreement. The
Company agrees not to release any Person from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another Person who has made, or who may reasonably be considered
likely to make, an Acquisition Proposal, unless the failure to take such action
would, in the reasonable good faith judgment of the Company Board, after
consultation with outside legal counsel, be inconsistent with its fiduciary
duties to the Company's stockholders under applicable law.
(c) The Company shall notify HCPI in writing of any such inquiries, offers
or proposals (including, without limitation, the terms and conditions of any
such offers or proposals, any amendments or revisions, and the identity of the
Person making it), as promptly as practicable following the receipt thereof, and
shall keep HCPI informed of the status and material terms of any such inquiry,
offer or proposal.
(d) The Company shall notify HCPI promptly after receipt by the Company or,
to the Company's Knowledge, any of its Representatives of any Acquisition
Proposal or any request for non-public information in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company by a Person that informs such party that is considering making or has
made an Acquisition Proposal. Such notice shall be in writing and shall indicate
the identity of the offeror and the terms and conditions of such proposal,
inquiry
48
<PAGE> 197
or contact. The Company shall keep HCPI informed of the status (including any
change to the material terms) of any such Acquisition Proposal or request for
non-public information.
(e) Neither the Company Board nor any committee thereof shall withdraw or
modify, or propose to withdraw or modify, in a manner adverse to HCPI the
approval or recommendation by the Company Board of this Agreement or the Merger
unless, following the receipt of a Superior Proposal, failing to withdraw or
modify such approval or recommendation in the reasonable good faith judgment of
the Company Board, after the receipt of advice from outside legal counsel, would
be inconsistent with its fiduciary duties to the Company's stockholders under
applicable law; provided, however, that, the Company Board shall submit this
Agreement to the Company's stockholders for approval, whether or not the Company
Board at any time subsequent to the date hereof determines that this Agreement
is no longer advisable or recommends that the stockholders of the Company reject
it or otherwise modifies or withdraws its recommendation. Unless the Company
Board has withdrawn its recommendation of this Agreement in compliance herewith,
the Company shall use all lawful efforts to solicit from stockholders of the
Company proxies in favor of the approval and adoption of this Agreement and the
Merger and to secure the vote or consent of stockholders required by the DGCL
and its certificate of incorporation and bylaws to approve and adopt this
Agreement and the Merger.
(f) Nothing contained in this Agreement shall prohibit the Company from
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer or from making any other disclosures to its
stockholders to the extent required by law.
SECTION 6.4 Access to Information. Upon reasonable notice, each of HCPI
and the Company (and each of their respective Subsidiaries) shall afford to the
other Party and its Representatives reasonable access, during normal business
hours during the period prior to the Effective Time, to all its personnel,
properties, books, contracts, commitments and records and, during such period,
each of HCPI and the Company shall, and shall cause each of its respective
Subsidiaries to, furnish promptly to the other (a) copies of monthly financial
reports and development reports relating to the business of the Company or the
business of HCPI, as the case may be, that are normally prepared by the Company
or HCPI, as the case may be, in its ordinary course of business, (b) a copy of
each report, schedule, registration statement and other documents filed or
received by it during such period pursuant to the requirements of federal or
state securities laws and (c) all other information concerning its business,
Assets, personnel and tax status as the other Party may reasonably request;
provided, however the foregoing shall not require the Company or HCPI to permit
any inspection or disclose any information that would result in the disclosure
of confidential information of third parties or violate a confidentiality
obligation of such party. Each Party making such requests will hold any such
information furnished to it by the other Party or Parties which is nonpublic in
confidence in accordance with the Confidentiality Agreement dated as of June 30,
1999, between HCPI and the Company (the "Confidentiality Agreement"). All
requests for information made pursuant to this Section shall be directed to an
executive officer of the Company or HCPI, as the case may be, or such Person
designated by such officers. No information or knowledge obtained in any
investigation pursuant to this Section 6.4 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the Parties to consummate the Merger.
SECTION 6.5 Governmental Approvals.
(a) The Parties shall cooperate with each other and use their reasonable
best efforts to promptly prepare and file all necessary documentation, to effect
all applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, registrations, licenses, consents, variances,
exemptions, orders, approvals and authorizations of all third parties and
Governmental Entities which are necessary to consummate the transactions
contemplated by
49
<PAGE> 198
this Agreement ("Governmental Approvals"), and to comply with the terms and
conditions of all such Governmental Approvals. Each of the Parties shall use
their reasonable best efforts to, and shall use their reasonable best efforts to
cause their respective Representatives and other Affiliates to, file within 30
days after the date hereof, and in all events shall file within 60 days after
the date hereof, all required initial applications and documents in connection
with obtaining the Governmental Approvals and shall act reasonably and promptly
thereafter in responding to additional requests in connection therewith. HCPI
and the Company shall have the right to review in advance, and to the extent
practicable, each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
HCPI and the Company, as the case may be, and any of their respective
Subsidiaries, directors, officers and stockholders which appear in any filing
made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. Without limiting the foregoing, each of HCPI and the Company (the
"Notifying Party") will notify the other promptly of the receipt of comments or
requests from Governmental Entities relating to Governmental Approvals, and will
supply the other Party with copies of all correspondence between the Notifying
Party or any of its Representatives and Governmental Entities with respect to
Governmental Approvals.
(b) HCPI and the Company shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such Party to believe that there is a reasonable likelihood that
any approval needed from a Governmental Entity will not be obtained or that the
receipt of any such approval will be materially delayed. HCPI and the Company
shall take any and all actions reasonably necessary to vigorously defend, lift,
mitigate and rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions contemplated hereby or
thereby, including, without limitation, promptly appealing any adverse court or
administrative order or injunction to the extent reasonably necessary for the
foregoing purposes.
SECTION 6.6 Publicity. HCPI and the Company shall agree on the form and
content of the initial press release regarding the transactions contemplated
hereby and thereafter shall consult with each other before issuing any press
release or other public statement with respect to any of the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law or
obligations pursuant to any listing agreement with, or rules of any national
securities exchange.
SECTION 6.7 Benefit Plans. Except as provided in SECTION 2.8 and Section
6.20 hereof, HCPI shall, and shall cause the Surviving Corporation to, from and
after the Effective Time, (i) comply with the Employee Plans of the Company in
accordance with their terms, (ii) provide former employees of the Company who
remain as employees of the Surviving Corporation with employee benefit plans no
less favorable in the aggregate than those provided to similarly situated
employees of HCPI, (iii) provide employees of the Company who remain as
employees of the Surviving Corporation credit for years of service with the
Company or any of its Subsidiaries prior to the Effective Time for (A) the
purpose of eligibility and vesting but not benefit accrual under the Employee
Plans of HCPI, and (B) any and all pre-existing condition limitations and
eligibility waiting periods under group health plans of HCPI, and (iv) cause to
be credited to any deductible out-of-pocket expense under any Employee Plans of
HCPI any deductibles or out-of-pocket expenses incurred by employees of the
Company and their beneficiaries and dependents during the portion of the
calendar year prior to their participation in Employee Plans of HCPI. HCPI
shall, and shall cause the Surviving Corporation to, honor in accordance with
their terms, all Employee Plans of the Company and its Subsidiaries, vested or
accrued benefit obligations to, and contractual rights of, current and former
employees of the Company and its Subsidiaries.
50
<PAGE> 199
SECTION 6.8 Indemnification.
(a) From and after the Effective Time, HCPI agrees that it will, and will
cause the Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of the Company (the "Indemnified Parties"), against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities or amounts paid in settlement incurred in
connection with any Action whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that HCPI is permitted under
applicable law.
(b) For a period of six years after the Effective Time, HCPI shall maintain
or shall cause the Surviving Corporation to maintain in effect a directors' and
officers' liability insurance policy covering those persons who are currently
covered by the Company's directors' and officers' liability insurance policy
(copies of which have been heretofore delivered by the Company to HCPI) with
coverage in amount and scope at least as favorable as the Company's existing
coverage; provided that in no event shall HCPI or the Surviving Corporation be
required to expend, in the aggregate, in excess of $360,000 per year in payment
of the annual premium for such coverage; and if such premium would at any time
exceed $360,000 per year, then HCPI or the Surviving Corporation shall maintain
insurance policies which provide the maximum and best coverage available at an
annual premium equal to $360,000 per year.
(c) If the Surviving Corporation or any of its successors or assigns (i)
shall consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) shall transfer all or substantially all of its Assets to any
Person, then, and in each such case, proper provisions shall be made so that the
successors and assigns of the Surviving Corporation shall assume all of the
obligations of the Surviving Corporation set forth in this Section 6.8.
(d) The provisions of this Section 6.8 are intended to be an addition to
the rights otherwise available to the current officers and directors of the
Company by law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their Representatives.
SECTION 6.9 Affiliate Agreements. No later than 45 days prior to the
Closing the Company shall deliver to HCPI a list identifying, in the view of the
Company, each person who may be, at the time of the Company Stockholder Meeting,
a Company Affiliate. The Company shall provide to HCPI such information and
documents as HCPI shall reasonably request for purposes of reviewing such list
and shall notify HCPI in writing regarding any change in the identity of the
Company Affiliates prior to the Closing Date; provided, however, that no such
Person identified to HCPI shall be added to the list of Company Affiliates if
HCPI shall receive from the Company, on or before the date of the Company
Stockholder Meeting, an opinion of counsel reasonably satisfactory to HCPI to
the effect that such Person is not a Company Affiliate. The Company shall use
its reasonable best efforts to deliver or cause to be delivered to HCPI as
promptly as practicable but in no event later than 35 days prior to the Closing
(and in any case prior to the Effective Time) an Affiliate Agreement from each
of its Affiliates.
SECTION 6.10 Tax Treatment of Reorganization.
(a) The Parties intend the Merger to qualify as a reorganization under
Section 368(a) of the Code and shall use their best efforts (and shall cause
their respective Subsidiaries to use their best efforts) to cause the Merger to
so qualify. Neither the Company, HCPI, nor any of their respective Subsidiaries
or other Affiliates shall take any action, or fail to take any action,
51
<PAGE> 200
that is not specifically provided for by this Agreement that would or would be
reasonably likely to adversely affect the treatment of the Merger as a
reorganization under Section 368(a) of the Code. HCPI and the Company shall, and
shall cause their respective Subsidiaries to, take the position for all purposes
that the Merger qualifies as a reorganization under that Section of the Code.
(b) HCPI and the Company shall cooperate and use their best efforts in
obtaining the opinions of Sullivan & Cromwell, counsel to the Company, and
Latham & Watkins, counsel to HCPI, dated as of the Closing Date, to the effect
that the Merger will qualify for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 6.11 Further Assurances and Actions.
(a) Subject to the terms and conditions herein, each of the Parties agrees
to use its reasonable efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable on its part under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, (i) using their respective reasonable efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts with each Party as are
necessary for consummation of the transactions contemplated by this Agreement,
and (ii) to fulfill all conditions precedent applicable to such Party pursuant
to this Agreement. HCPI further agrees to make all necessary filings in
connection with the issuance of the HCPI Series C Preferred Stock.
Notwithstanding anything to the contrary set forth in this Agreement, neither
the Company nor HCPI shall be precluded from complying with federal securities
laws.
SECTION 6.12 Stock Exchange Listing. HCPI shall use its best efforts to
list on the NYSE prior to the Effective Time, subject to official notice
issuance, the shares of HCPI Common Stock to be issued in the Merger.
SECTION 6.13 Letter of the Company's Accountants. The Company shall use
all reasonable efforts to cause to be delivered to HCPI a letter of Arthur
Andersen, LLP, the Company's independent auditors, dated (a) a date within two
Business Days before the date on which the Registration Statement shall become
effective and (b) the Closing Date, in each case addressed to HCPI and its
directors, in form reasonably satisfactory to HCPI and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
SECTION 6.14 Letter of HCPI's Accountants. HCPI shall use all reasonable
efforts to cause to be delivered to the Company a letter of Arthur Andersen,
LLP, HCPI's independent auditors, dated (a) a date within two Business Days
before the date on which the Registration Statement shall become effective and
(b) the Closing Date, in each case addressed to the Company and its directors,
in form reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
SECTION 6.15 Rights Plan. Prior to the Effective Time, the Company Board
shall take all action reasonably necessary in order to render the Company Rights
Plan inapplicable to the Merger and the other transactions contemplated by this
Agreement.
SECTION 6.16 Company REIT Status. Notwithstanding anything to the
contrary set forth in this Agreement, nothing in this Agreement shall prohibit
the Company from taking, and the Company hereby agrees to take any action at any
time or from time to time that in the reasonable judgment of the Company Board,
upon advice of counsel, is legally necessary for the Company to maintain its
qualification as a REIT within the meaning of Sections 856-860 of
52
<PAGE> 201
the Code for any period or portion thereof ending on or prior to the Effective
Time, including without limitation, making dividend or distribution payments to
stockholders of the Company in accordance with Section 5.4 or otherwise.
SECTION 6.17 HCPI REIT Status. Notwithstanding anything to the contrary
set forth in this Agreement, nothing in this Agreement shall prohibit HCPI from
taking, and HCPI hereby agrees to take any action at any time or from time to
time that in the reasonable judgment of HCPI Board, upon advice of counsel, is
legally necessary for HCPI to maintain its qualification as a REIT within the
meaning of Sections 856-860 of the Code for any period or portion thereof ending
on or prior to the Effective Time, including without limitation, making dividend
or distribution payments to stockholders of HCPI.
SECTION 6.18 Obtaining Consents. Each of HCPI and the Company shall give
(or shall cause their respective Subsidiaries to give) any notices to third
parties, and use, and cause their respective Subsidiaries to use, their
commercially reasonable efforts to obtain any third party consents related to or
required in connection with the Merger that are (a) necessary to consummate the
transactions contemplated hereby, (b) disclosed or required to be disclosed in
the Company Disclosure Schedule or the HCPI Disclosure Schedule, as the case may
be, or (c) required to prevent a Company Material Adverse Effect or a HCPI
Material Adverse Effect from occurring prior to or after the Effective Time.
SECTION 6.19 Exemption from Section 16(b) of the Exchange Act. Prior to
the Effective Time, the HCPI Board will pass an appropriate resolution exempting
the securities and derivative securities owned by any officer or director of the
Company (as defined for purposes of Section 16 of the Exchange Act), from the
application of Section 16(b) of the Exchange Act, according to Rule 16b-3, as
interpreted by the staff of the SEC.
SECTION 6.20 Termination of Other Stock Rights. Except with respect to
Company Stock Rights disclosed in Section 3.3(a) of the Company Disclosure
Schedule and subject to Section 2.8, the Company and the Company Board (or, if
appropriate, any committee thereof) shall take all actions necessary such that
there shall be no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound, obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of Company Common Stock or HCPI
Common Stock or any other capital stock of the Company or HCPI or other voting
securities of the Company or HCPI, or obligating the Company or HCPI to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking ("Other Stock Rights")
outstanding at or after the Effective Time, and no holder thereof will have any
right to acquire any interest in the Company or HCPI as a result of the exercise
of any such rights or awards at or after the Effective Time.
ARTICLE VII.
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of each Party to Effect the
Merger. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) this Agreement and the Merger shall have been approved by the
stockholders of the Company in the manner required under the DGCL and the
certificate of incorporation of the Company;
53
<PAGE> 202
(b) this Agreement and the Merger shall have been approved by the
stockholders of HCPI in the manner required under the MGCL and the charter
of HCPI.
(c) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any
Governmental Entity of competent jurisdiction and no other legal restraint
or prohibition shall be in effect which prohibits, restrains, enjoins or
restricts the consummation of the Merger; provided, however, that the
Parties shall use their reasonable best efforts to cause any such decree,
ruling, injunction or other order to be vacated or lifted;
(d) the Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order suspending
the effectiveness of the Registration Statement nor shall proceedings for
that purpose have been threatened, and any material Blue Sky Law permits
and approvals applicable to the registration of the HCPI Common Stock to be
exchanged for Company Stock shall have been obtained;
(e) all filings required to be made prior to the Closing by any Party
or any of its respective Subsidiaries with, and all consents, approvals and
authorizations required to be obtained prior to the Closing by any Party or
any of its respective Subsidiaries from, any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been made
or obtained, except where the failure to obtain such consents would not
cause a Company Material Adverse Effect or a HCPI Material Adverse Effect
and could not reasonably be expected to subject the Parties or their
Affiliates or any directors, trustees, officers, agents or advisors of any
of the foregoing to the risk of criminal liability;
(f) all consents or approvals of all Persons (other than Governmental
Entities) required for, in connection with, or as a result of the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby shall have been obtained and shall
be in full force and effect, except for those the failure of which to
obtain would not cause a Company Material Adverse Effect or a HCPI Material
Adverse Effect; and
(g) the shares of HCPI Common Stock issuable to the holders of Company
Stock pursuant to this Agreement shall have been approved for listing on
the NYSE upon official notice of issuance.
SECTION 7.2 Conditions to Obligations of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) Each representation and warranty of HCPI contained in this
Agreement that is qualified by materiality shall be true and correct at and
as of the Effective Time as if made at and as of the Effective Time and
each representation and warranty of HCPI that is not so qualified shall be
true and correct in all material respects at and as of the Effective Time
as if made as of the Effective Time, in each case, except (i) as
contemplated or permitted by this Agreement and (ii) to the extent that any
such representation or warranty shall have been expressly made as of an
earlier date, in which case such representation and warranty shall have
been true and correct, or true and correct in all material respects, as the
case may be, as of such earlier date;
(b) HCPI shall have performed or complied in all material respects
with all obligations required by this Agreement to be performed or complied
with by it at or prior to the Closing Date;
54
<PAGE> 203
(c) The Company shall have received a certificate executed on behalf
of HCPI by the Chief Executive Officer or Chief Financial Officer of HCPI
to the effect set forth in clauses (a) and (b) of this Section 7.2;
(d) The Company shall have received an opinion of Sullivan & Cromwell,
dated as of the Closing Date, in form and substance reasonably satisfactory
to the Company, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion that are
consistent with the state of facts existing as of such time, for federal
income tax purposes, (i) the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and (ii) Company and HCPI
will each be a party to that reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, Sullivan & Cromwell may
receive and rely upon representations including those contained in this
Agreement or in certificates of officers of the Parties and others;
(e) The Company shall have received the opinion of Latham & Watkins in
the form attached as Exhibit C hereto (based upon customary representations
including those contained in this Agreement or in certificates of officers
of the Parties and others), dated the Closing Date, to the effect that, (i)
commencing with its taxable year ended December 31, 1985, HCPI was
organized in conformity with the requirements for qualification and
taxation as a REIT under the Code, and (ii) its method of operation has
enabled it and its proposed method of operation will enable it to continue
to meet the requirements for qualification and taxation as a REIT under the
Code; and
(f) Arthur Andersen, LLP shall have delivered to the Company the
letter described in clause (a) of Section 6.14 at the time provided in
clause (a) of Section 6.14.
SECTION 7.3 Conditions to Obligations of HCPI to Effect the Merger. The
obligations of HCPI to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following additional conditions:
(a) Each representation and warranty of the Company contained in this
Agreement that is qualified by materiality shall be true and correct at and
as of the Effective Time as if made at and as of the Effective Time and
each representation and warranty of the Company that is not so qualified
shall be true and correct in all material respects at and as of the
Effective Time as if made as of the Effective Time, in each case, except
(i) as contemplated or permitted by this Agreement and (ii) to the extent
that any such representation or warranty shall have been expressly made as
of an earlier date, in which case such representation and warranty shall
have been true and correct, or true and correct in all material respects,
as the case may be, as of such earlier date;
(b) The Company shall have performed or complied in all material
respects with all obligations required by this Agreement to be performed or
complied with by it at or prior to the Closing Date;
(c) HCPI shall have received a certificate executed on behalf of the
Company by the Chief Executive Officer or Chief Financial Officer of the
Company to the effect set forth in clauses (a) and (b) of this Section 7.3;
(d) HCPI shall have received an opinion of Latham & Watkins, dated as
of the Closing Date, in form and substance reasonably satisfactory to HCPI,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion that are consistent with the
state of facts existing as of such time, for federal income tax purposes,
(i) the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and (ii) Company and HCPI will each be a party
to that reorganization within the meaning of Section 368(b) of the Code. In
rendering such
55
<PAGE> 204
opinion, Latham & Watkins may receive and rely upon representations
including those contained in this Agreement or in certificates of officers
of the Parties or others;
(e) HCPI shall have received the opinion of Davis, Graham & Stubbs LLP
and the opinion of Sullivan & Cromwell in the forms attached hereto as
Exhibit D and Exhibit E, respectively (based upon customary representations
including those contained in this Agreement or in certificates of officers
of the Parties and others), dated the Closing Date, that, taken together,
are to the effect that, commencing with its taxable year ended December 31,
1987, the Company was organized in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its method of
operation has enabled it to meet, through the Effective Time, the
requirements for qualification and taxation as a REIT under the Code;
(f) Arthur Andersen, LLP shall have delivered to HCPI the letters
described in clause (a) of Section 6.13, at the time provided in clause (a)
of Section 6.13;
(g) The amount of the equity balance held by the Intermediary used to
acquire properties during the period from June 30, 1999 to the Effective
Date plus the amount of cash the Company uses to acquire other properties,
in accordance with the provisions of this Agreement, during that period
shall have totaled at least $40 million;
(h) The Company shall not have declared, set aside or paid any
dividends or other distributions or payments with respect to any shares of
its capital stock with respect to its 1999 taxable year except as
specifically permitted in clauses (i) and (ii) of Section 5.1(c); and
(i) Based on the Company's taxable income for its 1999 short taxable
year ending on the Effective Date (as reasonably estimated in good faith by
the Company and set forth in a certificate executed on behalf of the
Company by a senior officer of the Company), the Company will not owe any
federal income or Code Section 4981 excise taxes in respect of such short
taxable year.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time
before the Effective Time (except as otherwise provided), whether before or
after the approval of the stockholders of the Company and HCPI referred to in
Sections 7.1(a) and (b), as the case may be, as follows:
(a) by mutual written consent of each of HCPI and the Company;
(b) by either the Company or HCPI, if the Effective Time shall not
have occurred on or before January 31, 2000 (the "Termination Date");
provided however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any Party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination
Date;
(c) by either the Company or HCPI, if a Governmental Entity shall have
issued an order, decree or injunction having the effect of making the
Merger illegal or permanently prohibiting the consummation of the Merger,
and such order, decree or injunction shall have become final and
nonappealable;
56
<PAGE> 205
(d) by either the Company or HCPI, if there shall have been a breach
by the other of any of its (i) representations or warranties contained in
this Agreement, which breach would result in the failure to satisfy one or
more of the conditions set forth in Section 7.2(a) (in the case of a breach
by HCPI) or Section 7.3(a) (in the case of a breach by the Company), or
(ii) covenants or agreements contained in this Agreement, which breach
would result in the failure to satisfy one or more of the conditions set
forth in Section 7.2(b) (in the case of a breach by HCPI) or Section 7.3(b)
(in the case of a breach by the Company), and in any such case such breach
shall be incapable of being cured or, if capable of being cured, shall not
have been cured within 30 days after written notice thereof shall have been
received by the Party alleged to be in breach;
(e) by HCPI, if the Company Board or any committee of the Company
Board (i) shall withdraw or modify in any manner adverse to HCPI, its
approval or recommendation of this Agreement or the Merger, (ii) shall fail
to reaffirm such approval or recommendation within five Business Days of
HCPI's request, (iii) shall approve or recommend any Acquisition Proposal
or Acquisition Transaction or (iv) shall resolve to take any of the actions
specified in clauses (i), (ii) or (iii) above; or
(f) by either the Company or HCPI, if the stockholders' meetings to
consider the Merger shall have been held by the Company and HCPI, as the
case may be, and the required approval of the stockholders of the Company
or HCPI shall not have been obtained at any such stockholders' meetings,
including any adjournments or postponements.
SECTION 8.2 Effect of Termination.
(a) In the event that:
(i) any Person shall have made an Acquisition Proposal to the Company
or to its stockholders and thereafter this Agreement is terminated (A) by
HCPI pursuant to Sections 8.1(b) or 8.1(d) or (B) by either Party pursuant
to Section 8.1(f) as a result of the required approval of the Company
stockholders having not been obtained; or
(ii) this Agreement is terminated by HCPI pursuant to Section 8.1(e),
then, in any such case, if the Company is not also entitled to terminate
this Agreement by reason of Section 8.1(b), Section 8.1(d) or Section
8.1(f) as a result of the required approval of HCPI's stockholders having
not been obtained, the Company shall in no event later than two days after
such termination pay HCPI the Termination Fee by wire transfer of same day
funds to a bank account designated by HCPI.
(b) Unless the Company would be entitled to terminate this Agreement
pursuant to Sections 8.1(b) or 8.1(d) or pursuant to Section 8.1(f) as a result
of the required vote of HCPI's stockholders having not been obtained, in the
event that this Agreement is terminated (i) by HCPI pursuant to Sections 8.1(b),
8.1(d), or 8.1(e) or (ii) by either Party pursuant to Section 8.1(f) as a result
of the required approval of the Company's stockholders having not been obtained,
then, after any such termination, the Company shall reimburse HCPI, promptly
after being requested to do so by HCPI, for up to $2,000,000 toward the payment
of the out-of-pocket costs and expenses incurred by HCPI in connection with this
Agreement and the transactions contemplated hereby, including, without
limitation, fees and expenses of accountants, attorneys, financial advisors
(except for any contingent fee of a financial advisor for which a contingency
has not been satisfied), commercial banks, experts and consultants and fees and
expenses otherwise allocated to HCPI pursuant to this Agreement. If a payment is
due under Section 8.2(a), the payment to HCPI of the amount set forth in this
Section 8.2(b) shall be made in addition to the payment required to be made
pursuant to Section 8.2(a).
57
<PAGE> 206
(c) Unless HCPI would be entitled to terminate this Agreement pursuant to
Sections 8.1(b) or 8.1(d) or pursuant to Section 8.1(f) as a result of the
required vote of the Company's stockholders having not been obtained, in the
event that this Agreement is terminated (i) by the Company pursuant to Sections
8.1(b) or 8.1(d), or (ii) by either Party pursuant to Section 8.1(f) as a result
of the required approval of the HCPI's stockholders having not been obtained,
then, after any such termination, HCPI shall reimburse the Company, promptly
after being requested to do so by the Company, for up to $2,000,000 toward the
payment of the out-of-pocket costs and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, fees and expenses of accountants, attorneys,
financial advisors (except for any contingent fee of a financial advisor for
which a contingency has not been satisfied), commercial banks, experts and
consultants and fees and expenses otherwise allocated to the Company pursuant to
this Agreement.
(d) As used in this Agreement, "Termination Fee" shall be an amount equal
to the lesser of (i) $18,700,000 (the "Base Amount") and (ii) the maximum
amount, if any, that can be paid to HCPI without causing it to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code for such year determined
as if (a) the payment of such amount did not constitute income described in
Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), and (b) HCPI has $1,000,000 of income from unknown sources during such
year which was not Qualifying Income (in addition to any known or anticipated
income of HCPI which was not Qualifying Income), in each case as determined by
independent accountants to HCPI. Notwithstanding the foregoing, in the event
HCPI receives a reasoned opinion from outside counsel or a ruling from the IRS
(the "Tax Guidance") providing that HCPI's receipt of the Base Amount would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and (3) of the Code (the "REIT
Requirements"), the Termination Fee shall be an amount equal to the Base Amount
and the Company shall, upon receiving notice that HCPI has received the Tax
Guidance, pay to HCPI the unpaid Base Amount within five business days. In the
event that HCPI is not able to receive the full Base Amount due to the above
limitations, the Company shall place the unpaid amount in escrow by wire
transfer within three days of termination and shall not release any portion
thereof to HCPI unless and until HCPI receives either one or a combination of
the following once or more often: (i) a letter from HCPI's independent
accountants indicating the maximum amount that can be paid at that time to HCPI
without causing HCPI to fail to meet the REIT Requirements (calculated as
described above) or (ii) the Tax Guidance, in either of which events the Company
shall pay to HCPI the lesser of the unpaid Base Amount or the maximum amount
stated in the letter referred to in (i) above within five business days after
the Company has been notified thereof. The payment of the amount required to be
paid pursuant to Section 8.2(a) in connection with the circumstances described
therein, together with the amount required to be paid pursuant to Section 8.2(b)
(but only to the extent such amount is paid together with the amount set forth
in Section 8.2(a)), shall be compensation and liquidated damages for the loss
suffered by HCPI as a result of the failure of the Merger to be consummated and
to avoid the difficulty of determining damages under such circumstances. Neither
Party shall have any other liability to the other for damages after the payment
of such amounts. The obligation of Company to pay any unpaid portion of the
Termination Fee shall terminate on the December 31 following the date which is
three years from the date of this Agreement. Amounts remaining in escrow after
the obligation of the Company to pay the Termination Fee terminates shall be
released to the Company.
(e) The Parties acknowledge that the agreements contained in this Section
8.2 are an integral part of the transactions contemplated in this Agreement, and
that, without these agreements, the Parties would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the Termination Fee or the
fees and expenses of HCPI or if HCPI fails to pay
58
<PAGE> 207
the fees and expenses of the Company, each as required by this Section 8.2, and
in order to obtain such payment the non-defaulting Party commences a suit which
results in a judgment against the defaulting Party for any amount of the fees
and expenses set forth in this Section 8.2, the defaulting Party shall pay to
the non-defaulting Party its costs and expenses (including attorneys' fees) in
connection with such suit together with interest on such amount in respect of
the period from the date such amount became due until the date such amount is
paid at the prime rate of The Chase Manhattan Bank in effect from time to time
during such period.
(f) In the event of termination of this Agreement pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become void
and of no effect with no liability under the terms of the Agreement (other than
as set forth in this Section 8.2) on the part of any Party; provided, however,
no such termination shall relieve any Party from any liability for breach of
this Agreement.
SECTION 8.3 Expenses. The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
transactions contemplated in Article II. Except as otherwise specifically
provided herein, each Party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
SECTION 8.4 Amendment. This Agreement may be amended by the Parties by
action taken by or on behalf of their respective Boards of Directors at any time
before or after any required approval of matters presented in connection with
the Merger by the stockholders of the Company and HCPI; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed by the Parties.
SECTION 8.5 Waiver. At any time prior to the Closing Date, any Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Parties hereto, (b) waive any inaccuracies in the representations
and warranties of the other Parties contained herein or in any document
delivered pursuant hereto and (c) waive compliance by any other Party with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the Party or
Parties to be bound thereby. The failure of any Party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE IX.
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that (a) the agreements set
forth in Sections 2.8, 2.9, 2.10(b), 2.10(c), 2.10(e), 2.10(f), 2.11, 2.13,
2.14, 6.7, 6.8, 6.10, 6.11, 6.12, 6.19, 9.5, 9.6 and 9.7 shall survive the
Effective Time and (b) the agreements set forth in the Confidentiality Agreement
and in Sections 8.1, 8.2 and 8.3, this Section 9.1, Section 9.6 and Section 9.7
shall survive termination indefinitely.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex, by registered or certified mail (postage prepaid,
return receipt requested), or by overnight courier, to the
59
<PAGE> 208
respective Parties at the following addresses (or at such other address for a
Party as shall be specified by like notice):
If to HCPI:
Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Attention: Legal Department
Fax No.: (949) 221-0607
with an additional copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Paul D. Tosetti, Esq.
Fax No.: (213) 891-8763
and
Latham & Watkins
650 Town Center Drive
Costa Mesa, California 92626
Attention: William J. Cernius, Esq.
Fax No.: (714) 755-8290
If to the Company:
American Health Properties, Inc.
6400 South Fiddler's Green Circle, Suite 1800
Englewood, Colorado 80111
Attention: Steven A. Roseman, Esq.
Fax No.: (303) 796-9708
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Alan J. Sinsheimer
Fax No.: (212) 558-3588
SECTION 9.3 Severability. If any term or other provision of this
agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any Party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 9.4 Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule and the HCPI Disclosure Schedule), together with the
Confidentiality Agreement, constitute the entire agreement among the Parties
with respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral,
60
<PAGE> 209
among the Parties, or any of them, with respect to the subject matter hereof.
This Agreement shall not be assigned by any Party by operation of law or
otherwise without the express written consent of each of the other Parties.
SECTION 9.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each Party hereto, and, except for Sections 2.8,
6.7, 6.8 and 6.19, nothing in this Agreement, express or implied, is intended to
or shall confer upon any other Person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
SECTION 9.6 Governing Law. EXCEPT TO THE EXTENT TO WHICH THE MERGER IS
SUBJECT TO THE MGCL AND THE DGCL, THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD,
TO THE FULLEST EXTENT PERMITTED BY LAW, TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF WHICH MIGHT RESULT IN THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION. EACH OF THE PARTIES SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS OF THE UNITED STATES LOCATED IN THE COUNTY OF
ORANGE, CALIFORNIA WITH RESPECT TO ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.7 No Trial by Jury. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
CONNECTION WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
CONFIDENTIALITY AGREEMENT, THE MERGER OR ANY OF THE OTHER TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 9.8 Action by Subsidiaries and Boards. Whenever this Agreement
requires or purports to require any Subsidiary of the Company or the Company
Board or any Subsidiary of HCPI or the HCPI Board to take any action, such
purported requirement shall be deemed to include an undertaking on the part of
the Company or HCPI to cause such Subsidiary or the Company Board or the HCPI
Board, as applicable, to take such action.
Section 9.9 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10 Specific Performance. Each of the Parties hereto
acknowledges and agrees that the other Parties would be irreparably damaged in
the event any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
each of the Parties agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and conditions hereof in any
Action instituted in any court of the United States or any state having
competent jurisdiction, in addition to any other remedy to which such Party may
be entitled, at law or in equity.
SECTION 9.11 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[Signature page follows.]
61
<PAGE> 210
IN WITNESS WHEREOF, HCPI and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
HEALTH CARE PROPERTY
INVESTORS, INC.,
a Maryland corporation
By: /s/ KENNETH B. ROATH
-----------------------------------
Name: Kenneth B. Roath
Title: Chairman, President and
Chief Executive Officer
AMERICAN HEALTH PROPERTIES, INC.,
a Delaware corporation
By: /s/ JOSEPH P. SULLIVAN
-----------------------------------
Name: Joseph P. Sullivan
Title: Chairman, President and
Chief Executive Officer
[Signature Page to Merger Agreement]
62
<PAGE> 211
EXHIBIT A
FORM OF AFFILIATE LETTER
Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter it may
be deemed to be an "affiliate" of American Health Properties, Inc., a Delaware
corporation (the "Company"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of August 4, 1999 (the "Agreement"),
between Health Care Property Investors, Inc., a Maryland corporation ("HCPI")
and the Company, the Company will be merged with and into HCPI (the "Merger").
As a result of the Merger, the undersigned may receive shares (the
"Shares") of common stock, par value $1.00 per share, of HCPI (the "HCPI Common
Stock") in exchange for shares of common stock, par value $.01 per share, of the
Company (the "Company Common Stock").
1. The undersigned represents, warrants and covenants to HCPI that in the
event it receives Shares as a result of the Merger:
A. It shall not make any sale, transfer or other disposition of the
Shares in violation of the Act or the Rules and Regulations.
B. It has carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon
its ability to sell, transfer or otherwise dispose of the Shares to the
extent it determines necessary, with its counsel or counsel of the Company.
C. It has been advised that the issuance of the Shares pursuant to the
Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. The undersigned has also been advised
that, since at the time the Merger was submitted for a vote of the
stockholders of the Company, it may be deemed to have been an affiliate of
the Company and any subsequent distribution by it of the Shares has not
been registered under the Act, it may not sell, transfer or otherwise
dispose of the Shares unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with Rule 145 promulgated by the
Commission under the Act or (iii) in the opinion of counsel reasonably
acceptable to HCPI or a "no action" letter obtained by the undersigned from
the staff of the Commission, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
D. The undersigned does not own in excess of 9.8% of the outstanding
Company Common Stock and, upon consummation of the Merger, will not own in
excess of 9.8% of the outstanding HCPI Common Stock.
E. The undersigned understands that HCPI is under no obligation to
register the sale, transfer or other disposition of the Shares by it or on
its behalf under the Act, or
A-1
<PAGE> 212
except as expressly set forth in the Agreement, to take any other action
necessary in order to make compliance with an exemption from such
registration available.
F. The undersigned also understands that HCPI may give stop transfer
instructions to its transfer agent with respect to the Shares to enforce
the restrictions on the undersigned set forth herein and that it reserves
the right to place on the certificates for HCPI Common Stock issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been issued in
a transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies and may be sold or otherwise transferred only
in compliance with the requirements of Rule 145 or pursuant to a
registration statement under said Act or an exemption from such
registration."
G. The undersigned also understands that unless the transfer by it of
the Shares has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, HCPI reserves the right to put
the following legend on the certificates issued to transferees of the
undersigned:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired from
a person who received such shares in a transaction to which Rule
145, promulgated under the Securities Act of 1933, applies. The
securities have been acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within the
meaning of the Securities Act of 1933 and may not be sold, pledged
or otherwise transferred except in accordance with an exemption
from the registration requirements of the Securities Act of 1933."
Execution of this letter should not be considered an admission on the part
of the undersigned that it is an "affiliate" of the Company as described in the
first paragraph of this letter or as a waiver of any rights it may have to
object to any claim that it is such an affiliate on or after the date of this
letter.
2. By HCPI's acceptance of this letter, HCPI hereby agrees with the
undersigned to the extent applicable as follows:
A. For so long as and to the extent necessary to permit the
undersigned to sell HCPI Common Stock pursuant to Rule 145 and, to the
extent applicable, Rule 144 under the Act, HCPI shall (a) use its
reasonable efforts to (i) file, on a timely basis, all reports and data
required to be filed with the Commission by it pursuant to Section 13 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
(ii) furnish to the undersigned upon request a written statement as to
whether HCPI complied with such reporting requirements during the 12 months
preceding any proposed sale of HCPI Common Stock by the undersigned under
Rule 145, and (b) otherwise use its reasonable efforts to permit such sales
pursuant to Rule 145 and Rule 144. HCPI has filed all reports required to
be filed with the Commission under Section 13 of the Exchange Act during
the preceding 12 months.
B. It is understood and agreed that certificates with the legend set
forth in subparagraphs F and G of Paragraph 1 above will be substituted by
delivery of certificates without such legend if (i) transfer by the
undersigned of HCPI Common Stock of the undersigned has been registered
under the Act or is a sale made in conformity with the provisions of Rule
145, (ii) one year shall have elapsed from the date the undersigned
acquired the Shares and the provisions of Rule 145(d)(2) are then available
to the
A-2
<PAGE> 213
undersigned, (iii) two years shall have elapsed from the date the
undersigned acquired HCPI Common Stock received in the Merger and the
provisions of Rule 145(d)(3) are then available to the undersigned, or (iv)
HCPI has received either an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to it, or a "no-action" or interpretive
letter obtained by the undersigned from the staff of the Commission, to the
effect that the restrictions imposed by Rule 144 and Rule 145 under the Act
no longer apply to the undersigned.
Very truly yours,
--------------------------------------
Name:
Accepted this day of
, 1999 by
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By:
- ----------------------------------------------
Name:
- -------------------------------------------
Title:
- --------------------------------------------
A-3
<PAGE> 214
EXHIBIT B
HEALTH CARE PROPERTY INVESTORS, INC.
ARTICLES SUPPLEMENTARY CLASSIFYING
40,000 SHARES OF 8.60% SERIES C
CUMULATIVE REDEEMABLE PREFERRED STOCK
Health Care Property Investors, Inc., a Maryland corporation (the
"Company"), certifies to the Maryland State Department of Assessments and
Taxation (the "Department") that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors
of the Company by Article IV of the charter of the Company (inclusive of these
Articles Supplementary, the "Charter") and Section 2-105 of the Maryland General
Corporation Law ("MGCL"), the Board of Directors has adopted resolutions
classifying and designating a separate class of authorized but unissued
preferred stock of the Company, par value $1.00 per share ("Preferred Stock"),
to consist of not more than 40,000 shares of Preferred Stock, to be known as
"8.60% Series C Cumulative Redeemable Preferred Stock," setting the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption and other terms and conditions of such 8.60% Series C Cumulative
Redeemable Preferred Stock and authorizing the issuance of up to 40,000 shares
of 8.60% Series C Cumulative Redeemable Preferred Stock.
SECOND: The separate class of Preferred Stock of the Company created by the
resolutions duly adopted by the Board of Directors of the Company and referred
to in Article FIRST of these Articles Supplementary shall have the following
designation, number of shares, preferences, conversion and other rights, voting
powers, restrictions and limitations as to dividends, qualifications, terms and
conditions of redemption and other terms and conditions.
1. Designation and Rank. The designation of such class of Preferred Stock
authorized by this resolution shall be 8.60% Series C Cumulative Redeemable
Preferred Stock (the "Series C Preferred Stock"). The maximum number of shares
of Series C Preferred Stock shall be forty thousand (40,000). Shares of the
Series C Preferred Stock shall have a liquidation preference of $2,500.00 per
share (the "Liquidation Preference"). The Series C Preferred Stock shall rank
senior to the Company's common stock, par value $1.00 per share (the "Common
Stock"), and to all other classes and series of equity securities of the Company
now or hereafter authorized, issued or outstanding (the Common Stock and such
other classes and series of equity securities collectively may be referred to
herein as the "Junior Stock"), other than Parity Stock (as defined below) or any
classes or series of equity securities of the Company ranking senior to (the
"Senior Stock") the Series C Preferred Stock as to dividend rights and rights
upon liquidation, winding up or dissolution of the Company; provided, however,
that with respect to any Senior Stock, the Company has satisfied the provisions
of Section 4(c) hereof. The Series C Preferred Stock shall rank on a parity with
the Company's 7 7/8% Series A Cumulative Redeemable Preferred Stock, par value
$1.00 per share (the "Series A Preferred Stock"), and the Company's 8.70% Series
B Cumulative Redeemable Preferred Stock, par value $1.00 per share (the "Series
B Preferred Stock"), and to all other classes and series of equity securities of
the Company now or hereafter authorized, issued or outstanding, the terms of
which specifically provide that such equity securities rank on a parity with the
Series C Preferred Stock with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company (the Series A Preferred
Stock, the Series B Preferred Stock and such other classes and series of equity
securities ranking on a parity with the Series C Preferred Stock collectively
may be referred to herein as "Parity Stock"). The Series C Preferred Stock shall
be junior to all outstanding debt of the Company. The Series C Preferred Stock
shall be subject to creation of Parity Stock and Junior Stock to the extent not
expressly prohibited by the Charter. The Series C Preferred Stock shall be
considered a class of
B-1
<PAGE> 215
stock of the Company which is separate from each of the Company's Common Stock,
Series A Preferred Stock and Series B Preferred Stock.
2. Cumulative Dividends Priority.
a. Payment of Dividends. The holders of record of shares of Series C
Preferred Stock shall be entitled to receive, when, as, and if declared by the
Board, out of funds legally available therefor, cumulative cash dividends at the
rate of 8.60% of the Liquidation Preference per annum per share, which shall
accrue from the last payment date through which dividends shall have been paid
on the shares of 8.60% Cumulative Redeemable Preferred Stock, Series B, of
American Health Properties, Inc. in respect of which shares of Series C
Preferred Stock are issued (the "Accrual Commencement Date") and be payable
quarterly in arrears on the last day of March, June, September and December of
each year (and, if the Series C Preferred Stock is issued on or before November
30, 1999, November 30, 1999) or, if such day is a non-business day, on the next
business day (each of such dates, a "Dividend Payment Date"). Each declared
dividend shall be payable to holders of record as they appear on the stock books
of the Company at the close of business on the record dates therefor, which will
be the 15th day of the calendar month in which the Dividend Payment Date falls
or such other date designated as such, that is not more than 50 nor less than 10
days preceding the payment dates therefor, as is determined by the Board or a
duly authorized committee thereof (each of such dates, a "Record Date").
Quarterly dividend periods (each a "Dividend Period") shall commence on and
include either (i) the Accrual Commencement Date or (ii) first day after the
immediately preceding Dividend Period and shall end on and include the next
scheduled Dividend Payment Date, without regard to whether it falls on a
business day.
The amount of dividends payable per share for each full Dividend Period
shall be computed by dividing by four the amount determined by applying the
8.60% annual dividend rate to the $2,500.00 liquidation preference of such
share. Dividends on the Series C Preferred Stock shall accrue day by day and
shall be cumulative. The amount of any dividend payable for any other period
shorter than a full Dividend Period shall be computed on the basis of a 360-day
year composed of twelve 30-day months and the actual number of days elapsed in
such period. Notwithstanding any provision to the contrary contained herein,
each outstanding share of Series C Preferred Stock shall be entitled to receive,
and shall receive, a dividend with respect to any Record Date equal to the
dividend paid with respect to each other share of Series C Preferred Stock which
is outstanding on such date.
b. Priority as to Dividends. No full dividends shall be declared or paid
or set apart for payment on Preferred Stock of any series ranking, as to
dividends, on a parity with or junior to the Series C Preferred Stock for any
period unless full dividends for the current Dividend Period on the Series C
Preferred Stock (including any accumulation in respect of unpaid dividends from
prior Dividend Periods) have been or contemporaneously are declared and paid (or
declared and a sum sufficient for the payment thereof set apart for such
payment). When dividends are not paid in full (or declared and a sum sufficient
for such full payment is not so set apart) upon the Series C Preferred Stock and
any other Preferred Stock ranking on a parity as to dividends with the Series C
Preferred Stock, dividends declared upon shares of Series C Preferred Stock and
such other Preferred Stock ranking on a parity as to dividends shall be declared
pro rata, so that the amount of dividends declared per share on the Series C
Preferred Stock and such other Preferred Stock shall bear in all cases to each
other the same ratio that accrued dividends for the then current Dividend Period
per share on the shares of Series C Preferred Stock (including any accumulation
in respect of unpaid dividends for prior Dividend Periods) and accrued
dividends, including required or permitted accumulations, if any, of such other
Preferred Stock, bear to each other.
B-2
<PAGE> 216
Unless full dividends on the Series C Preferred Stock have been declared
and paid or set apart for payment for the current Dividend Period (including any
accumulation in respect of unpaid dividends for prior Dividend Periods) (i) no
cash dividend or other distribution (other than in shares of Junior Stock or
options, warrants or right to subscribe for or purchase same) shall be declared
or paid or set aside for payment on the Junior Stock, (ii) the Company may not,
directly or indirectly, repurchase, redeem or otherwise acquire any shares of
its Junior Stock (or any moneys paid to or made available for a sinking fund for
the redemption of any shares except by conversion into or exchange for Junior
Stock) and (iii) the Company may not, directly or indirectly, repurchase, redeem
or otherwise acquire any shares of Series C Preferred Stock or Parity Stock (or
any moneys paid to or made available for a sinking fund for the redemption of
any shares of any such stock) otherwise than pursuant to a pro rata offer to
purchase or a concurrent redemption of all, or a pro rata portion, of the
outstanding shares of Series C Preferred Stock and Parity Stock (except by
conversion into or exchange for Junior Stock).
The Company shall not permit any subsidiary of the Company to purchase or
otherwise acquire for consideration any shares of stock of the Company if, under
the preceding paragraph, the Company would be prohibited from purchasing or
otherwise acquiring such shares at such time and in such manner.
The Series C Preferred Stock will not be entitled to any dividends in
excess of full cumulative dividends as described above and shall not be entitled
to participate in the earnings or assets of the Company, and no interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series C Preferred Stock which may be in arrears.
Any dividend payment made on the Series C Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code), any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax purposes)
paid or made available for the year to holders of all classes of shares (the
"Total Dividends"), then the portion of the Capital Gains Amount that shall be
allocated to the holders of the Series C Preferred Stock shall equal (i) the
Capital Gains Amount multiplied by (ii) a fraction that is equal to (a) the
total dividends (as determined for federal income tax purposes) paid or made
available to the holders of the Series C Preferred Stock for the year over (b)
the Total Dividends.
No dividends on the Series C Preferred Stock shall be authorized by the
Board of Directors or be paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibit such authorization, payment or
setting apart for payment or provide that such authorization, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such authorization or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series C Preferred Stock will
accrue whether or not the Company has earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are authorized.
3. Redemption.
a. General. Subject to the last sentence of this paragraph, the shares of
the Series C Preferred Stock will not be redeemable prior to October 27, 2002.
At any time on or after October 27, 2002, subject to the applicable restrictions
set forth in this Section 3 and applicable law, the shares of Series C Preferred
Stock may be redeemed, in whole or in part, at
B-3
<PAGE> 217
the election of the Company, upon notice as provided in Section 3(b) hereof, by
resolution of its Board of Directors, at any time or from time to time, at the
redemption price of $2500.00 per share, plus, in each case, an amount equal to
all accrued and unpaid dividends to the date fixed for redemption.
Notwithstanding the foregoing, the Company may redeem all or any portion of the
Series C Preferred Stock or Parity Stock to preserve the Company's status of a
real estate investment trust.
If less than all the outstanding shares of Series C Preferred Stock are to
be redeemed, the Company will select those to be redeemed pro rata, by lot or by
a substantially equivalent method. On and after the redemption date, dividends
shall cease to accrue on the shares of Series C Preferred Stock called for
redemption, and they shall be deemed to cease to be outstanding, provided that
the redemption price (including any accrued and unpaid dividends to the date
fixed for redemption) has been duly paid or provided for.
No Series C Preferred Stock may be redeemed except from proceeds from the
sale of other capital stock of the Company, including but not limited to common
stock, preferred stock, depositary shares, interests, participations or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing.
b. Notice of Redemption. Notice of any redemption, setting forth (i) the
date and place fixed for said redemption and the number of shares of Series C
Preferred Stock to be redeemed, (ii) the redemption price and (iii) a statement
that dividends on the shares of Series C Preferred Stock to be redeemed will
cease to accrue on such redemption date, shall be given by publication in a
newspaper of general circulation in New York, New York at least once a week for
two successive weeks and shall be mailed, postage prepaid, at least 30 days but
not more than 90 days prior to said redemption date to each holder of record of
the Series C Preferred Stock to be redeemed at his address as the same shall
appear on the books of the Company. If less than all the shares of the Series C
Preferred Stock owned by such holder are then to be redeemed, the notice shall
specify the number of shares thereof which are to be redeemed and the numbers of
the certificates representing such shares.
If such notice of redemption shall have been so given and mailed, and if on
or before the redemption date specified in such notice all funds necessary for
such redemption shall have been set aside by the Company separate and apart from
its other funds in trust for the account of the holders of the shares of the
Series C Preferred Stock so to be redeemed (so as to be and continue to be
available therefor), then, on and after said redemption date, notwithstanding
that any certificate for shares of the Series C Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares of the
Series C Preferred Stock so called for redemption shall be deemed to be no
longer outstanding, the dividends thereon shall cease to accrue, and all rights
with respect to such shares of the Series C Preferred Stock so called for
redemption shall forthwith cease and terminate, except only the right of the
holders thereof to receive out of the funds so set aside in trust the amount
payable on redemption thereof, but without interest, upon surrender (and
endorsement or assignment for transfer, if required by the Company) of their
certificates.
However, if such notice of redemption shall have been so given and mailed,
and if prior to the date of redemption specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited in trust for
the account of the holders of the shares of the Series C Preferred Stock to be
redeemed (so as to be and continue to be available therefor) with a bank or
trust company named in such notice doing business in the City of New York or the
State of California and having capital surplus and undivided profits of at least
$50,000,000, thereupon and without awaiting the redemption date, all shares of
the Series C Preferred Stock with respect to which such notice shall have been
so mailed and such deposit shall have been
B-4
<PAGE> 218
so made shall be deemed to be no longer outstanding, and all rights with respect
to such shares of the Series C Preferred Stock shall forthwith upon such deposit
in trust cease and terminate, except only the right of the holders thereof on or
after the redemption date to receive from such deposit the amount payable upon
the redemption, but without interest, upon surrender (and endorsement or
assignment to transfer, if required by the Company) of their certificates.
In case the holders of shares of the Series C Preferred Stock which shall
have been redeemed shall not within two years (or any longer period if required
by law) after the redemption date claim any amount so depicted in trust for the
redemption of such shares, such bank or trust company shall, upon demand and if
permitted by applicable law, pay over to the Company any such unclaimed amount
so deposited with it, and shall thereupon be relieved of all responsibility in
respect thereof, and thereafter the holders of such shares shall, subject to
applicable escheat laws, look only to the Company for payment of the redemption
price thereof, but without interest from the date of redemption.
c. Status of Shares Redeemed. Shares of Series C Preferred Stock redeemed,
purchased or otherwise acquired for value by the Company, shall, after such
acquisition, have the status of authorized and unissued shares of Preferred
Stock and may be reissued by the Company at any time as shares of any series of
Preferred Stock other than as shares of Series C Preferred Stock.
4. Voting Rights.
The voting rights of the Series C Preferred Stock shall be as follows:
a. General Voting Rights. Except as expressly provided hereinafter in
this Section, this Series of Preferred Stock shall have no voting rights.
b. Voting Rights Upon Dividend Arrears.
i. Right to Elect Directors. In the event that an amount equal to
six quarterly dividend payments on this Series of Preferred Stock shall
have accrued and be unpaid, the holders of this Series of Preferred
Stock shall have the right, voting separately as a class together with
holders of shares of any Parity Stock upon which like voting rights have
been conferred and are exercisable ("Voting Parity Stock"), to elect two
members of the Board of Directors, each member to be in addition to the
then authorized number of directors, at a special meeting called by the
holders of record of at least 25% of the Series C Preferred Stock or the
holders of any other series of Preferred Stock so in arrears (unless
such request is received less than 90 days before the date fixed for the
next annual or special meeting of stockholders) or at the next annual
meeting of stockholders and at each subsequent annual meeting until all
dividends accumulated on this Series of Preferred Stock have been paid
in full for four consecutive Dividend Periods, including the last
preceding Dividend Period.
ii. Term of Office of Directors. Any director who shall have been
elected by holders of this Series of Preferred Stock and Voting Parity
Stock entitled to vote in accordance with this subparagraph (b) shall
hold office for a term expiring (subject to the earlier payment, or
declaration and setting aside for payment, of dividends on this Series
of Preferred Stock for four consecutive Dividend Periods as described
below) at the next annual meeting of stockholders and during such term
may be removed at any time, either for or without cause, by, and only
by, the affirmative vote of the holders of record of a majority of the
shares of this Series of Preferred Stock and Voting Parity Stock present
and voting, in person or by proxy, at a special meeting of such
stockholders called for such purpose, and any vacancy created by such
removal
B-5
<PAGE> 219
may also be filled at such meeting. A meeting for the removal of a
director elected by the holders of this Series of Preferred Stock and
Voting Parity Stock and the filling of the vacancy created thereby shall
be called by the Secretary of the company as promptly as possible and in
any event within 10 days after receipt of a request therefor signed by
the holders of not less than 25% of the outstanding shares of this
Series of Preferred Stock, subject to any applicable notice requirements
imposed by law or regulation. Such meeting shall be held at the earliest
practicable date thereafter, provided that no such meeting shall be
required to be held during the 90-day period preceding the date fixed
for the annual meeting of stockholders.
Upon payment, or declaration and setting aside for payment, of
dividends on this Series of Preferred Stock for four consecutive
Dividend Periods, the terms of office of all directors elected by the
holders of the shares of this Series of Preferred Stock and the Voting
Parity Stock pursuant thereto then in office, shall, without further
action, thereupon terminate unless otherwise required by law. Upon such
termination the number of directors constituting the Board of Directors
of the company shall, without further action, be reduced by two, subject
always to the increase of the number of directors pursuant to the
foregoing provisions in the case of the future right of holders of the
shares of this Series of Preferred Stock and Voting Parity Stock to
elect directors as provided above.
iii. Vacancies. Any vacancy caused by the death or resignation of
a director who shall have been elected in accordance with this
subparagraph (b) may be filled by the remaining director so elected or,
if not so filled, by a vote of holders of a plurality of the shares of
this Series of Preferred Stock and Voting Parity Stock present and
voting, in person or by proxy, at a meeting called for such purpose.
Unless such vacancy shall have been filled by the remaining director as
aforesaid, such meeting shall be called by the Secretary of the Company
at the earliest practicable date after such death or resignation, and in
any event within 10 days after receipt of a written request signed by
the holders of record of at least 25% of the outstanding shares of this
Series of Preferred Stock, subject to any applicable notice requirements
imposed by law or regulation. Notwithstanding the provisions of this
paragraph, no such special meeting shall be required to be held during
the 90-day period preceding the date fixed for the annual meeting of
stockholders.
iv. Stockholders' Right to Call Meeting. If any meeting of the
holders of this Series of Preferred Stock and Voting Parity Stock
required by this subparagraph (b) to be called shall not have been
called within 30 days after personal service of a written request
therefor upon the Secretary of the Company or within 30 days after
mailing the same within the United States of America by registered mail
addressed to the Secretary of the Company at its principal executive
offices, subject to any applicable notice requirements imposed by law or
regulation, then the holders of record of at least 25% of the
outstanding shares of this Series of Preferred Stock may designate in
writing one of their number to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders or such
shorter notice (but in no event shorter than permitted by law or
regulation) as may be acceptable to the holders of a majority of the
total number of shares of this Series of Preferred Stock. Any holder of
this Series of Preferred Stock so designated shall have access to the
Preferred Stock books of the Company for this Series of Preferred Stock
for the purpose of causing such meeting to be called pursuant to these
provisions.
v. Quorum. At any meeting of the holders of this Series of
Preferred Stock called in accordance with the provisions of this
subparagraph (b) for the election or
B-6
<PAGE> 220
removal of directors, the presence in person or by proxy of the holders
of a majority of the total number of shares of this Series of Preferred
Stock and Voting Parity Stock shall be required to constitute a quorum;
in the absence of a quorum, a majority of the holders present in person
or by proxy shall have power to adjourn the meeting from time to time
without notice other than an announcement at the meeting, until a quorum
shall be present.
c. Voting Rights on Extraordinary Matters. So long as any shares of
this Series of Preferred Stock shall be outstanding and unless the consent
or approval of a greater number of shares shall then be required by law,
without first obtaining the approval of the holders of at least two-thirds
of the number of shares of this Series of Preferred Stock at the time
outstanding (voting separately as a class) given in person or by proxy at a
meeting at which the holders of such shares shall be entitled to vote
separately as a class, the Company shall not either directly or indirectly
or through merger or consolidation with any other company, (i) authorize,
create or issue, or increase the authorized or issued amount, of any class
or series of stock ranking prior to the shares of this Series of Preferred
Stock in rights and preferences or (ii) approve any amendment to (or
otherwise alter or repeal) its Charter which would materially and adversely
change the specific terms of this Series of Preferred Stock.
An amendment which increases the number of authorized shares of any
class or series of Preferred Stock or authorizes the creation or issuance
of other classes or series of Preferred Stock, in each case ranking junior
to or on a parity with this Series of Preferred Stock with respect to the
payment of dividends and distribution of assets upon liquidation,
dissolution or winding up, or substitutes the surviving entity in a merger
or consolidation, reorganization or other business combination for the
Company, shall not be considered to be such an adverse change.
A share exchange that affects this Series of Preferred Stock shall be
treated similarly to any merger or consolidation, if such share exchange
would have one of the effects referenced in clauses (i) or (ii) of the
second preceding paragraph. Any merger, consolidation or share exchange, in
which each share of this Series of Preferred Stock remains outstanding
without a material adverse change to its terms and rights, or is converted
into or exchanged for preferred stock of the surviving entity having
preferences, rights, voting powers, restrictions, limitations,
qualifications and terms and conditions that are otherwise identical to
those of this Series of Preferred Stock (except for changes that do not
materially and adversely affect the holders of this Series of Preferred
Stock), shall not be considered to implicate the foregoing Voting Rights on
Extraordinary Matters. Except as provided above, the holders of this Series
of Preferred Stock are not entitled to vote on any merger or consolidation
involving the Company, on any share exchange or on a sale of all or
substantially all of the assets of the Company.
d. One Vote Per Share. In connection with any matter on which
holders of this Series of Preferred Stock are entitled to vote as provided
in paragraphs (b) and (c) of this Section, or any matter on which the
holders of this Series of Preferred Stock are entitled to vote as one class
or otherwise pursuant to the provisions of the Charter, each holder of this
Series of Preferred Stock shall be entitled to one vote for each share of
this Series of Preferred Stock held by such holder.
5. No Sinking Fund; No Conversion, Etc. No sinking fund and no mandatory
redemption provision or maturity date will be established for the retirement or
redemption of shares of Series C Preferred Stock. The shares of Series C
Preferred Stock are not convertible into or exchangeable for any other property
or securities of the Company.
B-7
<PAGE> 221
6. Liquidation Rights; Priority.
a. In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of shares of the Series C Preferred Stock shall be entitled to receive,
out of the assets of the Company, whether such assets are capital or surplus and
whether or not any dividends as such are declared, $2,500.00 per share plus an
amount equal to all accrued and unpaid dividend for prior Dividend Periods, and
no more, before any distribution shall be made to the holders of any Junior
Stock or any other class of stock or series thereof ranking junior to the Series
C Preferred Stock with respect to the distribution of assets. After payment of
the full amount of the liquidation preference, the holders of shares of the
Series C Preferred Stock shall not be entitled to any further participation.
b. Nothing contained in this Section 6 shall be deemed to prevent
redemption of shares of the Series C Preferred Stock by the Company in the
manner provided in Section 3. Neither the merger nor consolidation of the
Company into or with any other company, nor the merger or consolidation of any
other company into or with the Company, nor a statutory share exchange by the
Company, nor a sale, transfer or lease of all or any part of the assets of the
Company, shall be deemed to be a liquidation, dissolution or winding up of the
Company within the meaning of this Section 6.
c. Written notice of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, stating a payment date and the
place where the distributable amounts shall be payable, shall be given by mail,
postage prepaid, no less than 30 days prior to the payment date stated therein,
to the holders of record of the Series C Preferred Stock at their respective
addresses as the same shall appear on the books of the Company.
d. If the amounts available for distribution with respect to the Series C
Preferred Stock and all other outstanding stock of the Company ranking on a
parity with the Series C Preferred Stock upon liquidation are not sufficient to
satisfy the full liquidation rights of all the outstanding Series C Preferred
Stock and stock ranking on a parity therewith, then the holders of each series
of such stock will share ratably in any such distribution of assets in
proportion to the full respective preferential amount (which in the case of the
Series C Preferred Stock and any other preferred stock may include accumulated
dividends) to which they are entitled.
e. In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend, redemption or other acquisition of shares
of stock of the Company or otherwise is permitted under the Maryland General
Corporation Law, no effect shall be given to amounts that would be needed, if
the Company were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of shares of stock of the
Company whose preferential rights upon dissolution are superior to those
receiving the distribution.
7. Restrictions on Ownership and Transfer to Preserve Tax Benefit.
a. Definitions. For the purposes of Section 7 of these Articles
Supplementary, the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of any capital stock of
the Company, inclusive of the Series C Preferred Stock, by a Person who is
or would be treated as an owner of such capital stock either actually or
constructively through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.
B-8
<PAGE> 222
"Charitable Beneficiary" shall mean one or more beneficiaries of a
Trust, as determined pursuant to Section 7(c)(vi) of these Articles
Supplementary, each of which shall be an organization described in Sections
170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended. All
section references to the Code shall include any successor provisions
thereof as may be adopted from time to time.
"Constructive Ownership" shall mean ownership of any capital stock of
the Company, inclusive of the Series C Preferred Stock, by a Person who is
or would be treated as an owner of such capital stock either actually or
constructively through the application of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have the correlative
meanings.
"IRS" shall mean the United States Internal Revenue Service.
"Market Price" shall mean the last reported sales price reported on
the New York Stock Exchange of the Series C Preferred Stock on the trading
day immediately preceding the relevant date, or if the Series C Preferred
Stock is not then traded on the New York Stock Exchange, the last reported
sales price of the Series C Preferred Stock on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over which the Series C Preferred Stock may be traded, or if the Series C
Preferred Stock is not then traded over any exchange or quotation system,
then the market price of the Series C Preferred Stock on the relevant date
as determined in good faith by the Board of Directors of the Company.
"Ownership Limit" shall mean 9.8% (by value or by number of shares,
whichever is more restrictive) of the outstanding shares of capital stock
of the Company.
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section
642(c) of the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity; but does
not include an underwriter acting in a capacity as such in a public
offering of shares of Series C Preferred Stock, provided that the ownership
of such shares of Series C Preferred Stock by such underwriter would not
result in the Company being "closely held" within the meaning of Section
856(h) of the Code, or otherwise result in the Company failing to qualify
as a REIT.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer (or other event) which results in a transfer to a Trust,
as provided in Section 7(b)(ii) of these Articles Supplementary, the
Purported Record Transferee, unless the Purported Record Transferee would
have acquired or owned shares of Series C Preferred Stock for another
Person who is the beneficial transferee or beneficial owner of such shares,
in which case the Purported Beneficial Transferee shall be such Person.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer (or other event) which results in a transfer to a Trust,
as provided in Section 7(b)(ii) of these Articles Supplementary, the record
holder of the Series C Preferred Stock if such Transfer had been valid
under Section 7(b)(i) of these Articles Supplementary.
B-9
<PAGE> 223
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code and, for purposes of taxation of the Company under
applicable state law, comparable provisions of the law of such state.
"Restriction Termination Date" shall mean the first day after the date
hereof on which the Board of Directors of the Company determines that it is
no longer in the best interests of the Company to attempt to, or continue
to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Series C Preferred Stock, including (i) the granting
of any option or entering into any agreement for the sale, transfer or
other disposition of Series C Preferred Stock or (ii) the sale, transfer,
assignment or other disposition of any securities (or rights convertible
into or exchangeable for Series C Preferred Stock), whether voluntary or
involuntary, whether such transfer has occurred of record or of beneficial
ownership or Beneficial Ownership or Constructive Ownership (including but
not limited to transfers of interests in other entities which result in
changes in Beneficial or Constructive Ownership of Series C Preferred
Stock), and whether such transfer has occurred by operation of law or
otherwise.
"Trust" shall mean each of the trusts provided for in Section 7(c) of
these Articles Supplementary.
"Trustee" shall mean any Person unaffiliated with the Company, or a
Purported Beneficial Transferee, or a Purported Record Transferee, that is
appointed by the Company to serve as trustee of a Trust.
b. Restriction on Ownership and Transfers.
i. Prior to the Restriction Termination Date:
(A) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Beneficially Own Series C Preferred Stock
which, taking into account any other capital stock of the Company
Beneficially Owned by such Person, would cause such ownership to exceed
the Ownership Limit;
(B) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Constructively Own Series C Preferred
Stock which, taking into account any other capital stock of the Company
Constructively Owned by such Person, would cause such ownership to
exceed the Ownership Limit;
(C) no Person shall Beneficially or Constructively Own Series C
Preferred Stock which, taking into account any other capital stock of
the Company Beneficially or Constructively Owned by such Person, would
result in the Company being "closely held" within the meaning of Section
856(h) of the Code, or otherwise failing to qualify as a REIT (including
but not limited to Beneficial or Constructive Ownership that would
result in the Company owning (actually or Constructively) an interest in
a tenant that is described in Section 856(d)(2)(B) of the Code if the
income derived by the Company (either directly or indirectly through one
or more partnerships) from such tenant would cause the Company to fail
to satisfy any of the gross income requirements of Section 856(c) of the
Code or comparable provisions of any applicable state law).
ii. If prior to the Restriction Termination Date, any Transfer or
other event occurs that, if effective, would result in any Person
Beneficially or Constructively Owning Series C Preferred Stock in violation
of Section 7(b)(i) of these Articles Supplementary, (1) then that number of
shares of Series C Preferred Stock that otherwise would cause such Person
to violate Section 7(b)(i) of these Articles Supplementary (rounded up to
B-10
<PAGE> 224
the nearest whole share) shall be automatically transferred to a Trust for
the benefit of a Charitable Beneficiary, as described in Section 7(c),
effective as of the close of business on the business day prior to the date
of such Transfer or other event, and such Purported Beneficial Transferee
shall thereafter have no rights in such shares or (2) if, for any reason,
the transfer to the Trust described in clause (1) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Series C Preferred Stock in violation
of Section 7(b)(i) of these Articles Supplementary, then the Transfer of
that number of shares of Series C Preferred Stock that otherwise would
cause any Person to violate Section 7(b)(i) shall be void ab initio, and
the Purported Beneficial Transferee shall have no rights in such shares.
iii. Subject to Section 7(m) and notwithstanding any other provisions
contained herein, prior to the Restriction Termination Date, any Transfer
of Series C Preferred Stock that, if effective, would result in the capital
stock of the Company being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void ab
initio, and the intended transferee shall acquire no rights in such Series
C Preferred Stock.
c. Transfers of Series C Preferred Stock in Trust.
i. Upon any purported Transfer or other event described in Section
7(b)(ii) of these Articles Supplementary, such Series C Preferred Stock
shall be deemed to have been transferred to the Trustee in his capacity as
trustee of a Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Trustee shall be deemed to be effective
as of the close of business on the business day prior to the purported
Transfer or other event that results in a transfer to the Trust pursuant to
Section 7(b)(ii). The Trustee shall be appointed by the Company and shall
be a Person unaffiliated with the Company, any Purported Beneficial
Transferee or any Purported Record Transferee. Each Charitable Beneficiary
shall be designated by the Company as provided in Section 7(c)(vi) of these
Articles Supplementary.
ii. Series C Preferred Stock held by the Trustee shall be issued and
outstanding Series C Preferred Stock of the Company. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights
in the shares of Series C Preferred Stock held by the Trustee. The
Purported Beneficial Transferee or Purported Record Transferee shall not
benefit economically from ownership of any shares held in trust by the
Trustee, shall have no rights to dividends and shall not possess any rights
to vote or other rights attributable to the shares of Series C Preferred
Stock held in the Trust.
iii. The Trustee shall have all voting rights and rights to dividends
with respect to Series C Preferred Stock held in the Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary.
Any dividend or distribution paid to or on behalf of the Purported Record
Transferee or Purported Beneficial Transferee prior to the discovery by the
Company that shares of Series C Preferred Stock have been transferred to
the Trustee shall be paid to the Trustee upon demand, and any dividend or
distribution declared but unpaid shall be paid when due to the Trustee with
respect to such Series C Preferred Stock. Any dividends or distributions so
paid over to the Trustee shall be held in trust for the Charitable
Beneficiary.
The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Series C Preferred Stock
held in the Trust and, subject to Maryland law, effective as of the date
the Series C Preferred Stock has been transferred to the Trustee, the
Trustee shall have the authority (at the Trustee's sole discretion) (i) to
rescind as void any vote cast by a Purported Record Transferee with respect
to such Series C Preferred Stock prior to the discovery by the Company that
the Series C
B-11
<PAGE> 225
Preferred Stock has been transferred to the Trustee and (ii) to recast such
vote in accordance with the desires of the Trustee acting for the benefit
of the Charitable Beneficiary; provided, however, that if the Company has
already taken irreversible corporate action, then the Trustee shall not
have the authority to rescind and recast such vote. Notwithstanding any
other provision of these Articles Supplementary to the contrary, until the
Company has received notification that the Series C Preferred Stock has
been transferred into a Trust, the Company shall be entitled to rely on its
share transfer and other stockholder records for purposes of preparing
lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
iv. Within 20 days of receiving notice from the Company that shares of
Series C Preferred Stock have been transferred to the Trust, the Trustee of
the Trust shall sell the shares of Series C Preferred Stock held in the
Trust to a Person, designated by the Trustee, whose ownership of the shares
of Series C Preferred Stock will not violate the ownership limitations set
forth in Section 7(b)(i). Upon such sale, the interest of the Charitable
Beneficiary in the shares of Series C Preferred Stock sold shall terminate
and the Trustee shall distribute the net proceeds of the sale to the
Purported Record Transferee and to the Charitable Beneficiary as provided
in this Section 7(c)(iv). The Purported Record Transferee shall receive the
lesser of (1) the price paid by the Purported Record Transferee for the
shares of Series C Preferred Stock in the transaction that resulted in such
transfer to the Trust (or, if the event which resulted in the transfer to
the Trust did not involve a purchase of such shares of Series C Preferred
Stock at Market Price, the Market Price of such shares of Series C
Preferred Stock on the day of the event which resulted in the transfer of
such shares of Series C Preferred Stock to the Trust) and (2) the price per
share received by the Trustee (net of any commissions and other expenses of
sale) from the sale or other disposition of the shares of Series C
Preferred Stock held in the Trust. Any net sales proceeds in excess of the
amount payable to the Purported Record Transferee shall be immediately paid
to the Charitable Beneficiary together with any dividends or other
distributions thereon. If, prior to the discovery by the Company that
shares of such Series C Preferred Stock have been transferred to the
Trustee, such shares of Series C Preferred Stock are sold by a Purported
Record Transferee then (i) such shares of Series C Preferred Stock shall be
deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Purported Record Transferee received an amount for such shares of
Series C Preferred Stock that exceeds the amount that such Purported Record
Transferee was entitled to receive pursuant to this Section 7(c)(iv), such
excess shall be paid to the Trustee upon demand.
v. Series C Preferred Stock transferred to the Trustee shall be deemed
to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price paid by the Purported Record
Transferee for the shares of Series C Preferred Stock in the transaction
that resulted in such transfer to the Trust (or, if the event which
resulted in the transfer to the Trust did not involve a purchase of such
shares of Series C Preferred Stock at Market Price, the Market Price of
such shares of Series C Preferred Stock on the day of the event which
resulted in the transfer of such shares of Series C Preferred Stock to the
Trust) and (ii) the Market Price on the date the Company, or its designee,
accepts such offer. The Company shall have the right to accept such offer
until the Trustee has sold the shares of Series C Preferred Stock held in
the Trust pursuant to Section 7(c)(iv). Upon such a sale to the Company,
the interest of the Charitable Beneficiary in the shares of Series C
Preferred Stock sold shall terminate and the Trustee shall distribute the
net proceeds of the sale to the Purported Record Transferee and any
dividends or other distributions held by the Trustee with respect to such
Series C Preferred Stock shall thereupon be paid to the Charitable
Beneficiary.
B-12
<PAGE> 226
vi. By written notice to the Trustee, the Company shall designate one
or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that the Series C Preferred Stock held in the
Trust would not violate the restrictions set forth in Section 7(b)(i) in
the hands of such Charitable Beneficiary.
d. Remedies For Breach. If the Board of Directors or a committee thereof
or other designees if permitted by the MGCL shall at any time determine in good
faith that a Transfer or other event has taken place in violation of Section
7(b)(i) of these Articles Supplementary or that a Person intends to acquire, has
attempted to acquire or may acquire beneficial ownership (determined without
reference to any rules of attribution), Beneficial Ownership or Constructive
Ownership of any shares of Series C Preferred Stock of the Company in violation
of Section 7(b)(i) of these Articles Supplementary, the Board of Directors or a
committee thereof or other designees if permitted by the MGCL shall take such
action as it deems advisable to refuse to give effect or to prevent such
Transfer, including, but not limited to, causing the Company to redeem shares of
Series C Preferred Stock, refusing to give effect to such Transfer on the books
of the Company or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers (or, in the case of events other than a Transfer,
ownership or Constructive Ownership or Beneficial Ownership) in violation of
Section 7(b)(ii) of these Articles Supplementary, shall automatically result in
the transfer to a Trust as described in Section 7(b)(i) and any Transfer in
violation of Section 7(b)(ii) shall automatically be void ab initio irrespective
of any action (or non-action) by the Board of Directors.
e. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Series C Preferred Stock in violation of Section 7(b) of these
Articles Supplementary, or any Person who is a Purported Beneficial Transferee
such that an automatic transfer to a Trust results under Section 7(b)(ii) of
these Articles Supplementary, shall immediately give written notice to the
Company of such event and shall provide to the Company such other information as
the Company may request in order to determine the effect, if any, of such
Transfer or attempted Transfer on the Company's status as a REIT.
f. Owners Required To Provide Information. Prior to the Restriction
Termination Date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Series C Preferred Stock and each Person (including the
stockholder of record) who is holding Series C Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Company
such information that the Company may request, in good faith, in order to
determine the Company's status as a REIT.
g. Remedies Not Limited. Nothing contained in these Articles Supplementary
(but subject to Section 7(m) of Article Second of these Articles Supplementary)
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect the Company and the interests of its
shareholders by preservation of the Company's status as a REIT.
h. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Section 7 of Article Second of these Articles Supplementary,
including any definition contained in Section 7(a), the Board of Directors shall
have the power to determine the application of the provisions of this Section 7
with respect to any situation based on the facts known to it (subject, however,
to the provisions of Section 7(m) of Article Second of these Articles
Supplementary). In the event Section 7(a) requires an action by the Board of
Directors and these Articles Supplementary fail to provide specific guidance
with respect to such action, the Board of Directors shall have the power to
determine the action to be taken so long as such action is not contrary to the
provisions of Section 7. Absent a decision to the contrary by the Board of
Directors (which the Board may make in its sole and absolute
B-13
<PAGE> 227
discretion), if a Person would have (but for the remedies set forth in Section
7(b)) acquired Beneficial or Constructive Ownership of Series C Preferred Stock
in violation of Section 7(b)(i), such remedies (as applicable) shall apply first
to the shares of Series C Preferred Stock which, but for such remedies, would
have been actually owned by such Person, and second to shares of Series C
Preferred Stock which, but for such remedies, would have been Beneficially Owned
or Constructively Owned (but not actually owned) by such Person, pro rata among
the Persons who actually own such shares of Series C Preferred Stock based upon
the relative number of the shares of Series C Preferred Stock held by each such
Person.
i. Exceptions.
i. Subject to Section 7(b)(i)(C), the Board of Directors, in its sole
discretion, may exempt a Person from the limitation on a Person
Beneficially Owning shares of Series C Preferred Stock in violation of
Section 7(b)(i)(A) if the Board of Directors obtains any representations
and undertakings from such Person as are reasonably necessary to ascertain
that no individual's Beneficial Ownership of such shares of Series C
Preferred Stock will violate Section 7(b)(i)(A) or that any such violation
will not cause the Company to fail to qualify as a REIT under the Code, and
agrees that any violation of such representations or undertaking (or other
action which is contrary to the restrictions contained in Section 7(b) of
these Articles Supplementary) or attempted violation will result in such
Series C Preferred Stock being transferred to a Trust in accordance with
Section 7(b)(ii) of these Articles Supplementary.
ii. Subject to Section 7(b)(i)(C), the Board of Directors, in its sole
discretion, may exempt a Person from the limitation on a Person
Constructively Owning Series C Preferred Stock in violation of Section
7(b)(i)(B), if the Company obtains any representations and undertakings
from such Person as are reasonably necessary to ascertain that such Person
does not and will not own, actually or Constructively, an interest in a
tenant of the Company (or a tenant of any entity owned in whole or in part
by the Company) that would cause the Company to own, actually or
Constructively more than a 9.8% interest (as set forth in Section
856(d)(2)(B) of the Code) in such tenant and that any violation or
attempted violation will result in such Series C Preferred Stock being
transferred to a Trust in accordance with Section 7(b)(ii) of these
Articles Supplementary. Notwithstanding the foregoing, the inability of a
Person to make the certification described in this Section 7(i)(ii) shall
not prevent the Board of Directors, in its sole discretion, from exempting
such Person from the limitation on a Person Constructively Owning Series C
Preferred Stock in violation of Section 7(b)(i)(B) if the Board of
Directors determines that the resulting application of Section 856(d)(2)(B)
of the Code would affect the characterization of less than 0.5 % of the
gross income (as such term is used in Section 856(c)(2) of the Code) of the
Company in any taxable year, after taking into account the effect of this
sentence with respect to all other Series C Preferred Stock to which this
sentence applies.
iii. Prior to granting any exception pursuant to Section 7(i)(i) or
(ii) of these Articles Supplementary, the Board of Directors may require a
ruling from the Internal Revenue Service, or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Directors in
its sole discretion, as it may deem necessary or advisable in order to
determine or ensure the Company's status as a REIT.
j. Preemptive Rights. No holder of shares of Series C Preferred Stock
shall have any preemptive or preferential right to subscribe for or to purchase
any additional shares of any series, or any bonds or convertible securities of
any nature.
B-14
<PAGE> 228
k. Legends. Each certificate for Series C Preferred Stock shall bear the
following legends:
CLASSES OF STOCK
"THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF CAPITAL STOCK
CONSISTING OF COMMON STOCK AND ONE OR MORE SERIES OF PREFERRED STOCK.
THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF EACH SERIES OF PREFERRED STOCK BEFORE
THE ISSUANCE OF ANY SUCH SERIES OF PREFERRED STOCK. THE COMPANY WILL
FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER MAKING A REQUEST THEREFOR, A
COPY OF THE COMPANY'S CHARTER AND A FULL STATEMENT WITH RESPECT TO
DESIGNATIONS AND ANY PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF
THE STOCK OF EACH CLASS WHICH THE COMPANY HAS THE AUTHORITY TO ISSUE
AND, SINCE THE COMPANY IS AUTHORIZED TO ISSUE PREFERRED STOCK IN SERIES,
(i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE
SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE
BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT
SERIES. REQUEST FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE
SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE."
RESTRICTION ON OWNERSHIP AND TRANSFER
"THE SHARES OF SERIES C PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
TRANSFER FOR THE PURPOSE OF THE COMPANY'S MAINTENANCE OF ITS STATUS AS A
REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT
AS EXPRESSLY PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES C
PREFERRED STOCK, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE
COMPANY'S SERIES C PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER
CAPITAL STOCK OF THE COMPANY BENEFICIALLY OWNED BY SUCH PERSON, WOULD
CAUSE SUCH OWNERSHIP TO EXCEED 9.8% (BY VALUE OR BY NUMBER OF SHARES,
WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING CAPITAL STOCK OF THE
COMPANY; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE COMPANY'S
SERIES C PREFERRED STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL
STOCK OF THE COMPANY CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD CAUSE
SUCH OWNERSHIP TO EXCEED 9.8% (BY VALUE OR BY NUMBER OF SHARES,
WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING CAPITAL STOCK OF THE
COMPANY; (iii) NO PERSON
B-15
<PAGE> 229
MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES C PREFERRED STOCK THAT,
TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY BENEFICIALLY
OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN THE COMPANY
BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE
THE COMPANY TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY
TRANSFER SERIES C PREFERRED STOCK IF SUCH TRANSFER WOULD RESULT IN THE
CAPITAL STOCK OF THE COMPANY BEING OWNED BY FEWER THAN 100 PERSONS. ANY
PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES C PREFERRED STOCK WHICH CAUSES
OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES C
PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY
NOTIFY THE COMPANY. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP
ARE VIOLATED, THE SERIES C PREFERRED STOCK REPRESENTED HEREBY IN EXCESS
OF SUCH RESTRICTIONS WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF
A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE COMPANY MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD
OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE
OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE
RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS IN THIS
LEGEND WHICH ARE DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES C
PREFERRED STOCK SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN SUCH
ARTICLES SUPPLEMENTARY, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A
COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP,
WILL BE FURNISHED TO EACH HOLDER OF SERIES C PREFERRED STOCK ON REQUEST
AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE COMPANY AT ITS PRINCIPAL OFFICE."
l. Severability. If any provision of this Section 7 or any application of
any such provision is determined to be invalid by any federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.
m. NYSE. Nothing in this Section 7 shall preclude the settlement of a
transaction entered into through the facilities of the New York Stock Exchange.
The shares of Series C Preferred Stock that are the subject of such transaction
shall continue to be subject to the provisions of this Section 7 after such
settlement.
n. Applicability of Paragraph. The provisions set forth in this Section 7
shall apply to the Series C Preferred Stock notwithstanding any contrary
provisions of the Series C Preferred Stock provided for elsewhere in these
Articles Supplementary.
THIRD: The Series C Preferred Stock has been classified by the Board of
Directors under a power contained in the Charter of the Corporation.
B-16
<PAGE> 230
FOURTH: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FIFTH: The undersigned President of the Corporation acknowledges these
Articles Supplementary to be the corporate act of the Corporation and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
B-17
<PAGE> 231
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be executed under seal in its name and on its behalf by its President and
attested to by its Secretary on this day of , 1999.
ATTEST: HEALTH CARE PROPERTY
INVESTORS, INC.,
a Maryland Corporation
<TABLE>
<S> <C>
By: By:
- --------------------------------------- ---------------------------------------
Name: Name:
- --------------------------------------- ---------------------------------------
Title: Title:
- --------------------------------------- ---------------------------------------
</TABLE>
B-18
<PAGE> 232
EXHIBIT C
FORM OF REIT OPINION
TO BE DELIVERED BY
LATHAM & WATKINS
[Month] [day], 1999
American Health Properties, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Ladies and Gentlemen:
We have acted as counsel to Health Care Property Investors, Inc., a
Maryland corporation (the "Company"), in connection with the merger (the
"Merger") of American Health Properties, Inc., a Delaware corporation ("AHP")
with and into the Company, with the Company as the surviving corporation,
pursuant to that certain Agreement and Plan of Merger between the Company and
AHP dated as of August 4, 1999 (together with all exhibits and amendments
thereto, the "Merger Agreement"). This opinion is being rendered to you pursuant
to Section 7.2(e) of the Merger Agreement.
In formulating our opinion, we examined, and with your consent relied upon,
such documents as we deemed appropriate, including (i) the Merger Agreement,
(ii) the Joint Proxy Statement/Prospectus filed by the Company and AHP with the
Securities and Exchange Commission (the "Commission") on [Month] [day], 1999
(the "Joint Proxy Statement"), and (iii) the Registration Statement on Form S-4,
registration number [ ], as filed by the Company with the
Commission on [Month] [day], 1999, in which the Joint Proxy Statement is
included as a prospectus (with all amendments and exhibits thereto, the
"Registration Statement"). In addition, we have obtained such additional
information as we deemed relevant and necessary through consultation with
various officers and representatives of the Company and AHP.
This opinion is based on various facts and assumptions, including the facts
set forth in the Registration Statement concerning the business, properties, and
governing documents of the Company and its subsidiaries. We have also been
furnished with, and with your consent have relied upon, certain representations
made by the Company with respect to factual matters through a certificate of an
officer of the Company (the "Officer's Certificate").
In our capacity as such counsel, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments, as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion with
respect to the applicability thereto, or the effect thereon, of other federal
laws, the laws of any state or other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies with any state.
Based upon such facts, assumptions, and representations, including the
facts set forth in the Registration Statement and the Officer's Certificate, it
is our opinion that (i) commencing
C-1
<PAGE> 233
with the Company's taxable year ending December 31, 1985, the Company has been
organized in conformity with the requirements for qualification and taxation as
a "real estate investment trust" under the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) its method of operation has enabled it to meet,
and its proposed method of operation will enable it to continue to meet the
requirements for qualification and taxation as a "real estate investment trust"
under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is only being rendered to you as of the date of this letter,
and we undertake no obligation to update this opinion subsequent to the date
hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein.
This opinion is rendered to you solely in connection with the satisfaction
of Section 7.2(e) of the Merger Agreement. This opinion may not be relied upon
by you for any other purpose, or furnished to, quoted to or relied upon by any
other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
C-2
<PAGE> 234
EXHIBIT D
FORM OF REIT OPINION
TO BE DELIVERED BY
DAVIS, GRAHAM & STUBBS LLP
[Month] [day], 1999
Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as counsel to American Health Properties, Inc., a Delaware
corporation (the "Company"), in connection with the merger (the "Merger") of the
Company with and into Health Care Property Investors, Inc., a Maryland
corporation ("Parent"), with Parent as the surviving corporation, pursuant to
that certain Agreement and Plan of Merger between Parent and the Company dated
as of August 4, 1999, (together with all exhibits and amendments thereto, the
"Merger Agreement"). This opinion is being rendered to you pursuant to Section
7.3(e) of the Merger Agreement.
In formulating our opinion, we examined, and with your consent relied upon,
such documents as we deemed appropriate, including (i) the Merger Agreement,
(ii) the Joint Proxy Statement/Prospectus filed by Parent and the Company with
the Securities and Exchange Commission (the "Commission") on [Month] [day], 1999
(the "Joint Proxy Statement"), and (iii) the Registration Statement on Form S-4,
registration number [ ], as filed by Parent with the Commission on
[Month] [day], 1999, in which the Joint Proxy Statement/Prospectus is included
as a prospectus (with all amendments and exhibits thereto, the "Registration
Statement"). In addition, we have obtained such additional information as we
deemed relevant and necessary through consultation with various officers and
representatives of Parent and the Company.
This opinion is based on various facts and assumptions, including the facts
set forth in the Registration Statement concerning the business, properties, and
governing documents of the Company and its subsidiaries. We have also been
furnished with, and with your consent have relied upon, certain representations
made by the Company with respect to factual matters through a certificate of an
officer of the Company (the "Officer's Certificate"). In addition, we have
assumed, with your consent, the accuracy of the opinion of Sullivan & Cromwell,
dated the date hereof, addressed to Parent, with respect to the federal income
tax treatment of the Psychiatric Group Preferred Stock (as such term is defined
in the Merger Agreement) previously issued by the Company (the "Sullivan &
Cromwell Opinion"). In rendering this opinion, we express no opinion concerning
the matters addressed in the Sullivan & Cromwell Opinion.
In our capacity as such counsel, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments, as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion with
respect to the
D-1
<PAGE> 235
applicability thereto, or the effect thereon, of other federal laws, the laws of
any state or other jurisdiction or as to any matters of municipal law or the
laws of any other local agencies with any state.
Based upon such facts, assumptions, and representations, including the
facts set forth in the Registration Statement and the Officer's Certificate, and
our assumption concerning the accuracy of the Sullivan & Cromwell Opinion, it is
our opinion that (i) commencing with the Company's taxable year ending December
31, 1987, the Company has been organized in conformity with the requirements for
qualification and taxation as a "real estate investment trust" under the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) its method of
operation has enabled it to meet the requirements for qualification and taxation
as a "real estate investment trust" under the Code through the Effective Time
(as such term is defined in the Merger Agreement).
No opinion is expressed as to any matter not discussed herein.
This opinion is only being rendered to you as of the date of this letter,
and we undertake no obligation to update this opinion subsequent to the date
hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein.
This opinion is rendered to you solely in connection with the satisfaction
of Section 7.3(e) of the Merger Agreement. This opinion may not be relied upon
by you for any other purpose, or furnished to, quoted to or relied upon by any
other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
D-2
<PAGE> 236
EXHIBIT E
FORM OF REIT OPINION
TO BE DELIVERED BY
SULLIVAN & CROMWELL
[Sullivan & Cromwell Letterhead]
Health Care Property Investors, Inc.
4676 MacArthur Court, Suite 900
Newport Beach, CA 92660
Dear Sirs:
We acted as counsel to American Health Properties, Inc., a Delaware
corporation (the "Company"), in connection with its issuance of Psychiatric
Group Preferred Stock (the "Psychiatric Group Stock") to holders of record on
July 14, 1995 of its Common Stock, as more fully described in the Information
Statement dated June 29, 1995. In that transaction, each holder of Common Stock
of the Company received as a dividend one share of Psychiatric Group Stock for
every ten shares of Common Stock the holder owned. The Psychiatric Group Stock
was redeemed by the Company in May of 1999.
You have asked whether, in our opinion, the issuance of the Psychiatric
Group Stock and the payment of dividends thereon during the period it was
outstanding affected the qualification of the Company as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Internal
Revenue Code (the "Code"). In rendering this opinion, we have reviewed such
documents and other factual matters and such matters of law as we have
considered necessary or appropriate.* In our opinion, the Psychiatric Group
Stock was equity for federal income tax purposes, because the holders of the
Psychiatric Group Stock had no creditor or other non-equity type rights against
the Company and possessed all three rights that are the cornerstone of an equity
interest: (i) the right to vote in the election of directors and other matters
put to the shareholders of the Company, (ii) the right to participate in the
earnings of the Company through the payment of dividends and (iii) the right to
share in the net assets of the Company upon its liquidation.
Although there is no authority bearing directly on the treatment of
"targeted stock" such as the Psychiatric Group Stock, in our opinion the
Psychiatric Group Stock was a class of equity of the Company for federal income
tax purposes because (i) as a matter of Delaware law, the Psychiatric Group
Stock was stock of the Company, (ii) the holders of such stock had rights only
against the Company and had no direct rights with respect to the Psychiatric
Group assets or subsidiaries, (iii) the holders of such stock had no voting
rights with respect to the Psychiatric Group subsidiaries and voted only on
matters put to the shareholders of the Company, (iv) the economic expectations
of such holders represented only the intentions of the Board of Directors of the
Company, and not legally enforceable rights of the holders, (v) the Psychiatric
Group assets were available to satisfy creditors of the Company and (vi) the
Psychiatric Group assets were not isolated in a separate subsidiary but were
held in significant part directly by the Company.
Under Section 562(c) of the Code and Treasury Regulations Section
1.562-2(a), distributions by the Company with respect to its Psychiatric Group
Stock or Common Stock were not "preferential dividends" as long as the
distributions (i) were without preference among shares in any given class and
(ii) were without preference among shares of different classes except to the
extent a class is entitled to a preference.
E-1
<PAGE> 237
In our opinion, the Psychiatric Group Stock and Common Stock were separate
classes of stock of the Company for purposes of Section 562(c) because (i) the
Psychiatric Group Stock and the Common Stock were separate classes of stock for
corporate law purposes, (ii) the economic expectations of the holders of each
class were different and (iii) the voting and liquidation rights of the holders
of each class were different.
Although there is no authority bearing directly on the application of
preferential dividends under Section 562(c) of the Code to "targeted stock" such
as the Psychiatric Group Stock, in our opinion dividends paid on the Psychiatric
Group Stock and Common Stock were not "preferential" under Section 562(c) of the
Code because (i) the dividends paid by the Company did not deprive either class
of a dividend to which that class was entitled and neither class received a
dividend to which it was not entitled and (ii) concluding that the dividends
paid on the Psychiatric Group Stock and Common Stock of the Company were not
preferential is consistent with the purpose of Section 562(c) and not
inconsistent with any policy underlying the REIT distribution, income, asset or
shareholder tests.
Very truly yours,
*The version of this opinion that will be delivered at closing will contain
an additional phrase at the end of this sentence that will read as follows:
"and are relying upon a representation from the Company that, while
the Psychiatric Group Stock was outstanding, the Company intended to
pay, and did actually pay, dividends on the Psychiatric Group Stock
and Common Stock in accordance with the "Dividend Policy" as specified
in the Information Statement relating to the Psychiatric Group Stock
dated June 29, 1995."
E-2
<PAGE> 238
ANNEX B
PERSONAL AND CONFIDENTIAL
August 4, 1999
Board of Directors
American Health Properties, Inc.
6400 S. Fiddler's Green Circle
Suite 1800
Englewood, CO 80111
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $.01
per share (the "AHP Common Stock"), of American Health Properties, Inc. ("AHP")
of the exchange ratio of 0.78 shares of Common Stock, par value $1.00 per share,
of Health Care Property Investors, Inc. ("HCPI") to be received for each share
of AHP Common Stock (the "Exchange Ratio") pursuant to the Agreement and Plan of
Merger, dated as of August 4, 1999, between HCPI and AHP (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with AHP having provided certain investment banking services to AHP
from time to time, including having acted as lead-managing underwriter of a
public offering of $100 million aggregate principal amount of 7.05% Notes due
2002 and $120 million aggregate principal amount of 7.50% Notes due 2007 in
January 1997, and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement. We
also have provided investment banking services to HCPI from time to time,
including having acted as (i) lead-managing underwriter of a public offering of
$10 million aggregate principal amount of 7.620% Medium-Term Notes due 2007 in
April 1997, (ii) lead-managing underwriter of a public offering of $15 million
aggregate principal amount 6.660% Medium-Term Notes due 2003 in March 1998, and
(iii) lead-managing underwriter of a public offering of $20 million aggregate
principal amount of 7.875% Medium-Term Notes due 2006 in November 1998, and may
provide investment banking services to HCPI in the future. Goldman, Sachs & Co.
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of AHP or
HCPI for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of AHP
and HCPI for the five years ended December 31, 1998; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of AHP and HCPI; certain other
communications from AHP and HCPI to their respective stockholders; and certain
internal financial analyses and forecasts for AHP and HCPI prepared by their
respective managements, including certain cost savings and operating synergies
projected by the management of AHP to result from the transaction contemplated
by the Agreement (the "Synergies"). We also have held discussions with members
of the senior management of AHP and HCPI regarding the strategic rationale for,
and the potential benefits of, the transaction contemplated by the Agreement and
the past and
<PAGE> 239
American Health Properties, Inc.
August 4, 1999
Page Two
current business operations, financial condition and future prospects of the
respective companies. In addition, we have reviewed the reported price and
trading activity for the AHP Common Stock and HCPI Common Stock, compared
certain financial and stock market information for AHP and HCPI with similar
information for certain other companies, the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the real estate industry and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the Synergies have been reasonably prepared on a
basis reflecting the best available judgments and estimates of the management of
AHP. In addition, we have not made an independent evaluation or appraisal of the
assets and liabilities of AHP or HCPI or any of their subsidiaries and we have
not been furnished with any such evaluation or appraisal. Our advisory services
and the opinion expressed herein are provided for the information and assistance
of the Board of Directors of AHP in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of AHP Common Stock should vote with respect
to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders of AHP Common Stock.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE> 240
ANNEX C
[LETTERHEAD OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED]
AUGUST 3, 1999
Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Dear Members of the Board of Directors:
Health Care Property Investors, Inc. (the "Acquiror") and American Health
Properties, Inc. (the "Company") have entered into an Agreement and Plan of
Merger dated as of August 4, 1999 (the "Agreement") pursuant to which the
Company will be merged with and into the Acquiror in a transaction (the
"Merger") in which (i) each of the Company's outstanding common shares of
beneficial interest, par value $.01 per share (other than shares held in the
treasury of the Company or owned by the Acquiror, the Company or their
respective affiliates) (the "Company Common Stock"), together with any rights
attached thereto or associated therewith, will be converted into the right to
receive .780 shares (the "Exchange Ratio") of common stock of the Acquiror (the
"Acquiror Shares") and one Acquiror right under the Rights Agreement dated as of
July 5, 1990, as amended, between the Acquiror and Manufacturers Hanover Trust
Company of California and (ii) each of the Company's outstanding shares of
Series B Preferred Stock, par value $.01 per share (other than shares held in
the treasury of the Company or owned by Acquiror, the Company or their
respective affiliates) will be converted into the right to receive shares of
Acquiror Series C Preferred Stock.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Acquiror and the Company that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, funds from operations, cash flow, assets,
liabilities and prospects of the Acquiror and of the Company after
giving effect to the Merger, as well as the amount and timing of the
cost savings and related expenses and synergies expected to result
from the Merger furnished to us by the Acquiror and the Company
(together, the "Expected Synergies");
(3) Conducted discussions with members of senior management and
representatives of the Acquiror and the Company concerning the matters
described in clauses (1) and (2) above, as well as their respective
businesses and prospects before and after giving effect to the Merger
and the Expected Synergies to arise therefrom;
(4) Reviewed the market prices and valuation multiples for the Company
Common Stock and the Acquiror Shares and compared them with those of
certain publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Acquiror and the Company,
and compared them with those of certain publicly traded companies that
we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
<PAGE> 241
Board of Directors
Health Care Property Investors, Inc.
Page 2
(7) Participated in certain discussions and negotiations among
representatives of the Acquiror and the Company and their financial
and legal advisors with respect to the Merger;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed copies of the Agreement and the ancillary agreements and
documents related thereto; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, real estate, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Acquiror or the Company or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Acquiror
or the Company. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Acquiror or the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Acquiror's or the
Company's management as to (a) the expected future financial performance of the
Acquiror or the Company, as the case may be, and (b) the Expected Synergies. We
have further assumed that the Merger will qualify as a tax-free reorganization
for United States federal income tax purposes. We have also assumed that the
final form of the Agreement will be substantially similar to the last draft
reviewed by us.
Our opinion is necessarily based upon market, real estate, economic, and
other conditions as they exist and can be evaluated on, and on the information
made available to us as of, the date hereof. We have assumed that in the course
of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of any of the
transactions contemplated. We have also assumed that each of the Acquiror and
the Company has qualified as a REIT for federal income tax purposes at all times
since its respective initial public offering and will continue to be so
qualified and that the combined entity will continue to qualify after the Merger
as a REIT for federal income tax purposes.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have in the past provided financial advisory and financing
services to the Acquiror and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the securities of the Acquiror or
the Company, for our own account and for the accounts of customers, and,
accordingly, may at any time hold a long or short position in such securities.
<PAGE> 242
Board of Directors
Health Care Property Investors, Inc.
Page 3
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Merger and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the Merger, or any
matter related thereto. We are not expressing any opinion herein as to the
prices at which the Acquiror Shares will trade following the announcement or the
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE> 243
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
HCPI's charter (the "Charter") limits the liability of HCPI's directors and
officers to HCPI and its stockholders to the fullest extent permitted by the
laws of the State of Maryland. The Maryland General Corporation Law presently
permits the liability of directors and officers to a corporation or its
stockholders for money damages to be limited, except (i) to the extent that it
is proved that the director or officer actually received an improper benefit or
profit or (ii) if the judgment or other final adjudication is entered in a
proceeding based on a finding that the directors or officers action, or failure
to act, was a result of active or deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding. The provisions of the Charter do
not limit the ability of us or our stockholders to obtain other relief, such as
injunction or rescission.
Article X of our Second Amended and Restated Bylaws (the "Bylaws") provides
that HCPI shall indemnify and hold harmless, in the manner and to the fullest
extent permitted by law, any person who is or was a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of HCPI, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was a director or officer of HCPI, or, as a director or
officer of HCPI, is or was serving at the request of us as a director, officer,
trustee, partner, member, agent or employee of another corporation, partnership,
limited liability company, association, joint venture, trust, benefit plan or
other enterprise. To the fullest extent permitted by law, such indemnification
shall include expenses (including attorneys' fees), judgment, fines and amounts
paid in settlement and any such expenses may be paid by HCPI in advance of the
final disposition of such action, suit or proceeding. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the Maryland General Corporation Law
requires a corporation, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by such
corporation as authorized by the Bylaws and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by HCPI if it shall ultimately be
determined that the standard of conduct was not met.
Article X of the Bylaws further provides that we may, with the approval of
the HCPI board, provide such indemnification and advancement of expenses as set
forth in the above paragraph to agents and employees of HCPI.
Section 2-418 of the Maryland General Corporation Law requires a
corporation, unless its charter provides otherwise, which the Charter does not,
to indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. Section 2-418 of the Maryland General
Corporation Law generally permits indemnification of any director or officer
made a party to any proceedings by reason of service as a director or officer
unless it is established that (i) the act or omission of such person was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty; or (ii) such person
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, such person had reasonable
cause to believe that the act or omission was unlawful. The indemnity may
include judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by, or in the right of the
corporation, indemnification is not permitted with respect to any proceeding in
which the
II-1
<PAGE> 244
director or officer has been adjudged to be liable to the corporation. In
addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer
adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent or an entry of an order of probation prior to
judgment creates a rebuttable presumption that the director or officer did not
meet the requisite standard of conduct required for permitted indemnification.
The termination of any proceeding by judgment, order or settlement, however,
does not create a presumption that the director or officer failed to meet the
requisite standard of conduct for permitted indemnification.
HCPI has provided for the benefit of our directors and officers, a
directors' and officers' liability policy. Under the merger agreement, for a
period of six years after the effective time of the merger, HCPI will maintain
in effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by AHP's directors' and officers' liability
insurance policy with coverage in amount and scope at least as favorable as
AHP's existing coverage, provided that in no event shall HCPI be required to
expend, in the aggregate, in excess of $360,000 per year in payment of the
annual premium for such coverage.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Exhibit Index.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act of 1933"), each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof; and
II-2
<PAGE> 245
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(c) The undersigned registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (b) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 as is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this registration statement when it became effective.
II-3
<PAGE> 246
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on September 23, 1999.
HEALTH CARE PROPERTY
INVESTORS, INC.
By: /s/ KENNETH B. ROATH
-----------------------------------
Name: Kenneth B. Roath
Title: Chairman of the Board,
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth B. Roath and Edward J. Henning to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission, and every act and thing necessary or desirable to be done,
as fully to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact and agent, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on September 23, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH B. ROATH Chairman, President, Chief Executive
- --------------------------------------------------- Officer and Director (Principal
Kenneth B. Roath Executive Officer)
/s/ JAMES G. REYNOLDS Chief Financial Officer (Principal
- --------------------------------------------------- Financial Officer)
James G. Reynolds
/s/ DEVASIS GHOSE Senior Vice President and Treasurer
- --------------------------------------------------- (Principal Accounting Officer)
Devasis Ghose
/s/ PAUL V. COLONY Director
- ---------------------------------------------------
Paul V. Colony
</TABLE>
II-4
<PAGE> 247
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT R. FANNING, JR. Director
- ---------------------------------------------------
Robert R. Fanning, Jr.
/s/ MICHAEL D. MCKEE Director
- ---------------------------------------------------
Michael D. McKee
/s/ ORVILLE E. MELBY Director
- ---------------------------------------------------
Orville E. Melby
/s/ HAROLD M. MESSMER, JR. Director
- ---------------------------------------------------
Harold M. Messmer, Jr.
/s/ PETER L. RHEIN Director
- ---------------------------------------------------
Peter L. Rhein
</TABLE>
II-5
<PAGE> 248
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of August 4, 1999,
between Health Care Property Investors, Inc. and American
Health Properties, Inc. (incorporated herein by reference to
Exhibit 2.1 to Health Care Property Investors, Inc.'s
Current Report on Form 8-K, dated August 4, 1999).
3.1 Articles of Amendment and Restatement of Health Care
Property Investors, Inc. (incorporated herein by reference
to Exhibit 4.1 to Health Care Property Investors, Inc.'s
Amendment No. 2 to the Registration Statement on Form S-3
dated January 31, 1990).
3.2 Second Amended and Restated Bylaws of Health Care Property
Investors, Inc. (incorporated herein by reference to Exhibit
3.2 of Health Care Property Investors, Inc.'s Quarterly
Report on Form 10-Q for the period ended March 31, 1999).
4.1 Rights Agreement, dated as of July 5, 1990, between Health
Care Property Investors, Inc. and Manufacturers Hanover
Trust Company of California, as Rights Agent (incorporated
herein by reference to Exhibit 1 to Health Care Property
Investors, Inc.'s Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on July 17,
1990).
4.2 Articles Supplementary establishing and fixing the terms of
the 7 7/8% Series A Cumulative Redeemable Preferred Stock
(incorporated herein by reference to Exhibit 2.3 to Health
Care Property Investors, Inc.'s Registration Statement on
Form 8-A (File No. 001-08895) filed with the Securities and
Exchange Commission on September 25, 1997).
4.3 Articles Supplementary establishing and fixing the rights
and preferences of the 8.7% Series B Cumulative Redeemable
Preferred Stock (incorporated herein by reference to Exhibit
3.3 to Health Care Property Investors, Inc.'s Registration
Statement on Form 8-A (File No. 001-08895), filed with the
Securities and Exchange Commission on September 3, 1998).
4.4 Articles Supplementary establishing and fixing the rights
and preferences of the 8.60% Series C Cumulative Redeemable
Preferred Stock (incorporated herein by reference to Exhibit
2.1 to Health Care Property Investor, Inc.'s Current Report
on Form 8-K, dated August 4, 1999).
4.5 Deposit Agreement (including form of Depositary Receipt with
respect to the Depositary Shares, each representing one-one
hundredth of a share of American Health Properties Inc.
8.60% Cumulative Redeemable Preferred Stock, Series B) dated
October 27, 1997 between American Health Properties Inc. and
ChaseMellon Shareholder Services, L.L.C. (incorporated
herein by reference to Exhibit 4.8 to American Health
Properties Inc.'s Registration Statement on Form S-3, filed
with the Securities and Exchange Commission on August 17,
1995).
4.6 Indenture dated as of September 1, 1993 between Health Care
Property Investors, Inc. and The Bank of New York, as
Trustee, with respect to the Series B Medium Term Notes and
the Senior Notes due 2006 (incorporated herein by reference
to Exhibit 4.1 to Health Care Property Investors, Inc.'s
Registration Statement on Form S-3 dated September 9, 1993).
</TABLE>
<PAGE> 249
<TABLE>
<C> <S> <C>
4.7 Indenture dated as of April 1, 1989 between Health Care Property Investors, Inc.
and The Bank of New York for Debt Securities (incorporated herein by reference
to Exhibit 4.1 to Health Care Property Investors, Inc.'s Registration Statement
on Form S-3 dated March 20, 1989).
4.8 Form of Fixed Rate Note (incorporated herein by reference to Exhibit 4.2 to
Health Care Property Investors, Inc.'s Registration Statement on Form S-3 dated
March 20, 1989).
4.9 Form of Floating Rate Note (incorporated herein by reference to Exhibit 4.3 to
Health Care Property Investors, Inc.'s Registration Statement on Form S-3 dated
March 20, 1989).
4.10 First Amendment to Rights Agreement dated as of January 28, 1999 between Health
Care Property Investors, Inc. and The Bank of New York (incorporated herein by
reference to Exhibit 4.7 to Health Care Property Investors, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998).
4.11 Registration Rights Agreement dated November 20, 1998 between Health Care
Property Investors, Inc. and James D. Bremner (incorporated herein by reference
to Exhibit 4.8 to Health Care Property Investors, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998).
4.12 Registration Rights Agreement dated November 21, 1997 between Health Care
Property Investors, Inc. and Cambridge Medical Center of San Diego, LLC
(incorporated herein by reference to Exhibit 4.6 to Health Care Property
Investors, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997).
4.13 Registration Rights Agreement dated January 20, 1999 between Health Care
Property Investors, Inc. and Boyer Castle Dale Medical Clinic, LLC (incorporated
herein by reference to Exhibit 4.9 to Health Care Property Investors, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998).*
5.1 Opinion of Ballard Spahr as to the validity of Health Care Property Investors,
Inc. Common Stock, par value $1.00 per share, being registered and as to the
validity of Health Care Property Investors, Inc. Series C Cumulative Redeemable
Preferred Stock, par value $1.00 per share, being registered.
8.1 Opinion of Latham & Watkins regarding tax matters.
8.2 Opinion of Latham & Watkins regarding REIT qualifications of Health Care
Property Investors, Inc.
8.3 Opinion of Sullivan & Cromwell regarding tax matters.
8.4 Opinion of Sullivan & Cromwell regarding the federal income tax treatment of the
Psychiatric Group Preferred Stock of American Health Properties, Inc.
8.5 Opinion of Davis, Graham & Stubbs regarding REIT qualifications of American
Health Properties, Inc.
10.1 Amended and Restated Limited Liability Company Agreement of HCPI/Indiana, LLC, a
Delaware limited liability company dated November 20, 1998 (incorporated herein
by reference to Exhibit 10.15 to Health Care Property Investors, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998).
</TABLE>
<PAGE> 250
<TABLE>
<C> <S> <C>
10.2 Amended and Restated Limited Liability Company Agreement of HCPI/Utah, LLC, a
Delaware limited liability company dated January 20, 1999 (incorporated herein
by reference to Exhibit 10.16 to the Annual Report on Form 10-K of Health Care
Property Investors, Inc. for the year ended December 31, 1998).
10.3 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of
HCPI/Utah, LLC, a Delaware limited liability company dated June 30, 1999
(previously filed).
10.4 Amendment No. 1, dated as of May 30, 1985 to Partnership Agreement of Health
Care Property Partners, a California general partnership, the general partners
of which consist of HCPI and certain affiliates of Tenet Healthcare Corporation
(incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of
Health Care Property Investors, Inc. for the year ended December 31, 1985).
10.5 Amended and Restated Limited Liability Company Agreement dated November 21, 1997
of Cambridge Medical Properties, LLC (incorporated by reference to Exhibit 10.2
to the Annual Report on Form 10-K of Health Care Property Investors, Inc. for
the year ended December 31, 1997).
10.6 Health Care Property Investors, Inc. Second Amended and Restated Directors Stock
Incentive Plan (incorporated by reference to Exhibit 10.43 to the Quarterly
Report on Form 10-Q of Health Care Property Investors, Inc. for the period ended
March 31, 1997).
10.7 Health Care Property Investors, Inc. Second Amended and Restated Stock Incentive
Plan (incorporated by reference to Appendix "A" to the Definitive Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission on
March 21, 1997).
10.8 Health Care Property Investors, Inc. Second Amended and Restated Directors
Deferred Compensation Plan (incorporated by reference to Exhibit 10.45 to the
Quarterly Report on Form 10-Q of Health Care Property Investors, Inc. for the
period ended September 30, 1997).
10.9 Employment Agreement dated April 28, 1988 between Health Care Property
Investors, Inc. and Kenneth B. Roath (incorporated by reference to Exhibit 10.27
to the Annual Report on Form 10-K of Health Care Property Investors, Inc. for
the year ended December 31, 1985).
10.10 First Amendment to Employment Agreement dated April 28, 1988 between Health Care
Property Investors, Inc. and Kenneth B. Roath (incorporated by reference to
Exhibit 10.27 to the Annual Report on Form 10-K of Health Care Property
Investors, Inc. for the year ended December 31, 1988).
10.11 First Amendment to Employment Agreement dated February 1, 1990 between Health
Care Property Investors, Inc. and Kenneth B. Roath (incorporated by reference to
Appendix B to the Annual Report on Form 10-K of Health Care Property Investors,
Inc. for the year ended December 31, 1990).
10.12 Health Care Property Investors, Inc. Executive Retirement Plan (incorporated by
reference to Exhibit 10.28 to the Annual Report on Form 10-K of Health Care
Property Investors, Inc. for the year ended December 31, 1987).
</TABLE>
<PAGE> 251
<TABLE>
<C> <S> <C>
10.13 Amendment No. 1 to Health Care Property Investors, Inc.
Executive Retirement Plan (incorporated by reference to
Exhibit 10.39 to the Annual Report on Form 10-K of Health
Care Property Investors, Inc. for the year ended December
31, 1995).
10.14 Revolving Credit Agreement dated as of October 22, 1997
among Health Care Property Investors, Inc., the bank named
therein and The Bank of New York (incorporated by reference
to Exhibit 10.37 to the Quarterly Report on Form 10-Q of
Health Care Property Investors, Inc. for the period ended
September 30, 1997).
10.15 $50,000,000 Revolving Credit Agreement dated as of October
22, 1997 among Health Care Property Investors, Inc., the
banks named therein and The Bank of New York (incorporated
by reference to Exhibit 10.38 to the Quarterly Report on
Form 10-Q of Health Care Property Investors, Inc. for the
period ended September 30, 1997).
10.16 Stock Transfer Agency Agreement between Health Care Property
Investors, Inc. and The Bank of New York dated as of July 1,
1996 (incorporated by reference to Exhibit 10.40 to the
Quarterly Report on Form 10-Q of Health Care Property
Investors, Inc. for the period ended September 30, 1996).
10.17 Amended and Restated $45,000,000 Revolving Credit Agreement
dated as of October 22, 1997 and amended and restated as of
September 30, 1998 among Health Care Property Investors,
Inc., the banks named therein and The Bank of New York and
BNY Capital Markets, Inc. (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q of Health
Care Property Investors, Inc. for the period ended September
30, 1998).
10.18 Amended and Restated $135,000,000 Revolving Credit Agreement
dated as of October 22, 1997 and amended and restated as of
September 30, 1998 among Health Care Property Investors,
Inc., the banks named therein and The Bank of New York and
BNY Capital Markets, Inc. (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Health
Care Property Investors, Inc. for the period ended September
30, 1998).
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends of Health Care Property Investors, Inc.
21.1 List of subsidiaries of Health Care Property Investors, Inc.
(incorporated by reference to Exhibit 21.1 to the Annual
Report on Form 10-K of Health Care Property Investors, Inc.
for the period ended December 31, 1998).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ballard Spahr (included in Exhibit 5.1).
23.4 Consent of Latham & Watkins (included in Exhibit 8.1 and
Exhibit 8.2).
23.5 Consent of Sullivan & Cromwell (included in Exhibit 8.3 and
Exhibit 8.4).
23.6 Consent of Davis, Graham & Stubbs (included in Exhibit 8.5).
</TABLE>
<PAGE> 252
<TABLE>
<C> <S> <C>
23.7 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
23.8 Consent of Goldman, Sachs & Co.
24.1 Power of Attorney (contained on page II-4).
99.1 Form of Proxy Card for Special Meeting of Stockholders of Health Care Property
Investors, Inc.
99.2 Form of Proxy Card for Special Meeting of Stockholders of American Health
Properties, Inc.
</TABLE>
* This exhibit is identical in all material respects to 14 other documents
except for the parties thereto. The parties to these other documents, other
than Health Care Property Investors, Inc., were Boyer Centerville, LLC, Boyer
Elko, LLC, Boyer Desert Springs, LLC, Boyer Grantsville, LLC, Boyer Ogden
Medical, LP, Boyer Ogden II, LP, Salt Lake Industrial Clinic, LP, Boyer
Springville, LLC, St. Marks I, LP, Saint Marks II, LP, Saint Marks II-McKay,
LP, Iomega, LLC, and Primary Care Physicians, LLC.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
September 28, 1999
Health Care Property Investors, Inc.
4675 MacArthur Court
9th Floor
Newport Beach, California 92660
Re: Health Care Property Investors, Inc., a Maryland corporation (the
"Company") - Registration Statement on Form S-4, pertaining to up to
20,444,000 shares (the "Common Shares") of common stock, par value
one dollar ($1.00) per share ("Common Stock"), and up to 40,000
shares (the "Preferred Shares," together with the Common Shares,
sometimes collectively referred to herein as the "Shares") of 8.60%
Series C Cumulative Redeemable Preferred Stock, par value $1.00 per
share (the "Preferred Stock"), of the Company to be issued in
connection with the merger (the "Merger") of American Health
Properties, Inc., a Delaware corporation ("AHP"), with and into the
Company pursuant to that certain Agreement and Plan of Merger, dated
as of August 4, 1999, between the Company and AHP (the "Merger
Agreement")
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"), by the Company on Form S-4 to be filed with the
Securities and Exchange Commission (the "Commission") on or about September 28,
1999 (the "Registration Statement"), you have requested our opinion with respect
to the matters set forth below.
<PAGE> 2
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Health Care Property Investors, Inc.
September 28, 1999
Page 2
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the authorization, issuance and delivery of the Shares, and for purposes of
this opinion have assumed such proceedings will be timely completed in the
manner presently proposed. In addition, we have relied upon certificates and
advice from the officers of the Company upon which we believe we are justified
in relying and on various certificates from, and documents recorded with, the
State Department of Assessments and Taxation of Maryland (the "SDAT"), including
the charter of the Corporation (the "Charter"), consisting of Articles of
Restatement filed with the SDAT on April 27, 1992 and Articles Supplementary
filed with the SDAT on September 25, 1997 and September 3, 1998. We have also
examined the Second Amended and Restated Bylaws of the Company, the Merger
Agreement, in the form attached as Annex A to the Registration Statement,
including the form of articles supplementary (the "Articles Supplementary")
attached thereto as exhibit B, and resolutions of the Board of Directors of the
Company adopted on or before the date hereof and in full force and effect on the
date hereof (the "Resolutions"); and such laws, records, documents,
certificates, opinions and instruments as we deem necessary to render this
opinion.
We have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies. In
addition, we have assumed that each person executing any instrument, document or
certificate referred to herein on behalf of any party is duly authorized to do
so. We have further assumed that, prior to the issuance of the Shares, the
Merger will be effected in accordance with the Merger Agreement, the Merger will
be approved in accordance with applicable law by the stockholders of each of the
Company and AHP entitled to vote thereon and that the Articles Supplementary and
articles of merger in the form contemplated by the Merger Agreement will each be
filed with and accepted for record by the SDAT (together, the "Corporate
Proceedings"). In addition, we have assumed that none of the Shares will be
issued or transferred to an Interested Stockholder of the Company or an
<PAGE> 3
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Health Care Property Investors, Inc.
September 28, 1999
Page 3
Affiliate thereof, all as defined in Subtitle 6 of Title 3 of the Maryland
General Corporation Law, or in violation of the provisions of Section 4 of
Article V of the Charter entitled "Provisions for Defining, Limiting and
Regulating Certain Powers of the Corporation and the Board of Directors and
Stockholders" or of Section 7 of Article SECOND of the Articles Supplementary
entitled "Restrictions on Ownership and Transfer to Preserve Tax Benefit." We
have also assumed that all shares of common stock, par value $.01, and shares of
8.60% Cumulative Redeemable Preferred Stock, par value $.01, of AHP which are to
be converted in the Merger into a Share, or fraction thereof, are validly
issued, fully paid and non-assessable.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion as of the date hereof that, upon completion
of the Corporate Proceedings and when such Shares are issued and delivered by
the Company pursuant to and in accordance with the Merger Agreement, the
Charter, the Resolutions and, in connection with the Preferred Shares, the
Articles Supplementary, the Shares will be duly authorized by all necessary
corporate action on the part of the Company, validly issued, fully paid and
non-assessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section of
the Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE> 1
EXHIBIT 8.1
September 28, 1999
Health Care Property Investors, Inc.
4676 MacArthur Court, 9th Floor
Newport Beach, California 92660
Re: AGREEMENT AND PLAN OF MERGER BETWEEN HEALTH CARE PROPERTY
INVESTORS, INC. AND AMERICAN HEALTH PROPERTIES, INC. DATED
AUGUST 4, 1999
Ladies and Gentlemen:
We have acted as counsel to Health Care Property Investors, Inc., a
Maryland corporation (the "HCPI"), in connection with the merger (the "Merger")
of American Health Properties, Inc., a Delaware corporation ("AHP") with and
into HCPI, with HCPI as the surviving corporation, pursuant to that certain
Agreement and Plan of Merger between HCPI and AHP dated as of August 4, 1999
(together with all exhibits and amendments thereto, the "Merger Agreement").
This opinion is being rendered to you in connection with your filing of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
on September 28, 1999 of which the Joint Proxy Statement (as hereinafter
defined) is a part. Capitalized terms not defined herein have the meanings
specified in the Merger Agreement.
In formulating our opinion, we examined, and with your consent relied
upon, such documents as we deemed appropriate, including (i) the Merger
Agreement (including any Exhibits, Annexes and Schedules thereto), (ii) the
Joint Proxy Statement/Prospectus filed by HCPI and AHP with the Securities and
Exchange Commission (the "Commission") on August 26, 1999 (with all
amendments and exhibits thereto, the "Joint Proxy Statement"), (iii) the
Registration Statement on Form S-4, as filed by HCPI with the Commission on
September 28, 1999, in which the Joint Proxy Statement is included as a
prospectus (with all amendments and exhibits thereto, the "Registration
Statement"), and (iv) the representations made to us by HCPI and AHP in their
respective letters provided to us and to Sullivan & Cromwell, counsel to AHP,
each dated the date hereof (the "Representation Letters"). In addition, we have
obtained such additional information as we deemed relevant and necessary through
consultation with various officers and representatives of HCPI and AHP.
In addition, we have assumed, with your consent, that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Time of the Merger) due execution
and delivery of all documents where due execution and delivery are
prerequisites to effectiveness thereof;
2. The Merger will be consummated in the manner contemplated by, and in
accordance with the provisions of, the Merger Agreement, and will be
effective under applicable state law;
<PAGE> 2
Health Care Property Investors, Inc.
September 28, 1999
Page 2
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true,
complete and correct, and no actions have been taken or will be taken
which are inconsistent with such statements, descriptions or
representations or which make any such statements, descriptions or
representations untrue, incomplete or incorrect at the Effective Time;
4. Any statements made in any of the documents referred to herein "to
the knowledge of" or similarly qualified are true, complete and correct
and will continue to be true, complete and correct at all times up to
and including the Effective Time, in each case without such
qualification; and
5. The parties have complied with and, if applicable, will continue to
comply with, the covenants contained in the Merger Agreement and the
Representation Letters.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. The Merger will constitute a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");
2. HCPI and AHP will each be a party to that reorganization within the
meaning of Section 368(b) of the Code; and
3. No gain or loss will be recognized by HCPI, AHP or the stockholders
of HCPI as a result of the Merger.
In addition to the matters set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
No opinion is expressed as to any matter not discussed herein. This
opinion is rendered to you as of the date of this letter, and we undertake no
obligation to update this opinion subsequent to the date hereof. This opinion is
based on various statutory provisions, regulations promulgated thereunder and
interpretations thereof by the Internal Revenue Service and the courts having
jurisdiction over such matters, all of which are subject to change either
prospectively or retroactively. No opinion is expressed as to any transaction,
if all the transactions described in the Merger Agreement are not consummated in
accordance with the terms of the Merger Agreement and without waiver or breach
of any provisions thereof or if all of the representations, warranties,
statements and assumptions upon which we have relied are not true and accurate
at all relevant times. In the event that any one of the statements,
representations, warranties or assumptions upon which we have relied to issue
this opinion is incorrect, our opinion might be adversely affected and may not
be relied upon.
This opinion is rendered to you in connection with the filing of the
Registration Statement with the Commission and is not to be used, circulated,
quoted or otherwise referred to or relied upon for any other purpose without our
express written permission. In addition, this opinion letter may not be relied
upon by or furnished to any other person, firm, corporation or entity without
our prior written consent. We consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to our firm name
therein under the captions "Material United States Federal Income Tax
Consequences - Tax Consequences of the Merger," "Material United States Federal
Income Tax Consequences - HCPI's Qualification as a Real Estate Investment Trust
- - General" and "Legal Matters." In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules or regulations of the
Commission promulgated thereunder.
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.2
September 28, 1999
American Heath Properties, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Re: AGREEMENT AND PLAN OF MERGER BETWEEN HEALTH CARE PROPERTY INVESTORS,
INC. AND AMERICAN HEALTH PROPERTIES, INC. DATED AUGUST 4, 1999
Ladies and Gentlemen:
We have acted as counsel to Health Care Property Investors, Inc., a
Maryland corporation (the "Company"), in connection with the merger (the
"Merger") of American Health Properties, Inc., a Delaware corporation ("AHP")
with and into the Company, with the Company as the surviving corporation,
pursuant to that certain Agreement and Plan of Merger between the Company and
AHP dated as of August 4, 1999 (together with all exhibits and amendments
thereto, the "Merger Agreement"). This opinion is being rendered to you in
connection with HCPI's filing of a Registration Statement on Form S-4 with the
Securities and Exchange Commission on September 28, 1999 of which the Joint
Proxy Statement/Prospectus is a part.
In formulating our opinion, we examined, and with your consent relied
upon, such documents as we deemed appropriate, including (i) the Merger
Agreement, (ii) the Joint Proxy Statement/Prospectus filed by the Company and
AHP with the Securities and Exchange Commission (the "Commission") on August 26,
1999 (the "Joint Proxy Statement"), and (iii) the Registration Statement on Form
S-4, as filed by the Company with the Commission on September 28, 1999, in which
the Joint Proxy Statement is included as a prospectus (with all amendments and
exhibits thereto, the "Registration Statement"). In addition, we have obtained
such additional information as we deemed relevant and necessary through
consultation with various officers and representatives of the Company and AHP.
This opinion is based on various facts and assumptions, including the
facts set forth in the Registration Statement concerning the business,
properties, and governing documents of the Company and its subsidiaries. We have
also been furnished with, and with your consent have relied upon, certain
representations made by the Company with respect to factual matters through a
certificate of an officer of the Company (the "Officer's Certificate").
In our capacity as such counsel, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise
<PAGE> 2
American Health Properties, Inc.
September 28, 1999
Page 2
identified to our satisfaction of such documents, corporate records and other
instruments, as we have deemed necessary or appropriate for purposes of this
opinion. In our examination, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures thereon, the
legal capacity of natural persons executing such documents and the conformity to
authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any state or other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies with any state.
Based upon such facts, assumptions, and representations, including the
facts set forth in the Registration Statement and the Officer's Certificate, it
is our opinion that (i) commencing with the Company's taxable year ending
December 31, 1985, the Company has been organized in conformity with the
requirements for qualification and taxation as a "real estate investment trust"
under the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) its
method of operation and its proposed method of operation has enabled it to meet
and will enable it to continue to meet, respectively, the requirements for
qualification and taxation as a "real estate investment trust" under the Code.
No opinion is expressed as to any matter not discussed herein.
This opinion is only being rendered to you as of the date of this
letter, and we undertake no obligation to update this opinion subsequent to the
date hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, 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 for any one taxable year will satisfy such requirements.
This opinion is rendered to you in connection with the filing of the
Registration Statement with the Commission and is not to be used, circulated,
quoted or otherwise referred to or relied upon for any other purpose without our
express written permission. In addition, this opinion letter may not be relied
upon by or furnished to any other person, firm, corporation or entity without
our prior written consent. We consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to our firm name
therein under the captions "Material United States Federal Income Tax
Consequences - Tax Consequences of the Merger,"
<PAGE> 3
American Health Properties, Inc.
September 28, 1999
Page 3
"Material United States Federal Income Tax Consequences - HCPI's Qualification
as a Real Estate Investment Trust - General" and "Legal Matters." In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules or regulations of the Commission promulgated thereunder.
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.3
September 28, 1999
American Health Properties, Inc.
6400 S. Fiddler's Green Circle, Suite 1800
Englewood, Colorado 80111
Ladies and Gentlemen:
We have acted as counsel to American Health Properties, Inc., a
Delaware corporation ("AHP"), in connection with its planned merger with and
into Health Care Property Investors, Inc., a Maryland corporation ("HCPI"),
pursuant to the Agreement and Plan of Merger (the "Merger"), dated as of August
4, 1999, by and among AHP and HCPI (the "Agreement"). This opinion is being
rendered to you in connection with HCPI's filing of a registration statement
(the "Registration Statement") on Form S-4 with the Securities and Exchange
Commission on September 28, 1999 of which the Joint Proxy Statement/Prospectus
(the "Proxy/Prospectus") is a part. All capitalized terms used and not otherwise
defined herein shall have the meanings provided in the Agreement.
For purposes of this opinion, we have reviewed the Agreement and such
other documents and matters of law and fact as we have considered necessary or
appropriate, and we have assumed, with your consent, the following:
(i) The Merger will be completed in the manner set forth in
the Agreement and the Proxy/Prospectus; and
<PAGE> 2
American Health Properties, Inc. -2-
(ii) The representations contained in the letters of
representation from AHP and HCPI to us, both dated September 28, 1999,
will be true and complete at the Effective Time.
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have deemed necessary or appropriate, it is our
opinion, under presently applicable federal income tax law, that:
(1) The Merger will be treated for federal income tax purposes
as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
(2) Each of AHP and HCPI will be a party to the reorganization
within the meaning of Section 368(b) of the Code;
(3) No gain or loss will be recognized by shareholders of AHP
who receive shares of HCPI stock in exchange for shares of AHP stock
pursuant to the merger, except with respect to cash received in lieu of
fractional shares of HCPI common stock;
(4) The holding period of the HCPI stock received by AHP
shareholders in the Merger will include the holding period of the AHP
stock for which it is exchanged; and
(5) The basis of the HCPI stock received by AHP shareholders
in the Merger will be the same as the basis of the AHP stock for which
it is exchanged, less
<PAGE> 3
American Health Properties, Inc. -3-
any basis attributable to fractional shares of HCPI common stock for
which cash is received.
The tax consequences described in (3), (4) and (5) above may not be
applicable to financial institutions, insurance companies, tax-exempt
organizations, dealers in securities or currencies, traders in securities that
elect to use a mark to market method of accounting, persons who hold AHP stock
as part of a "straddle", "hedge" or "conversion" transaction, person's whose
functional currency is not the U.S. dollar, persons who are not citizens or
residents of the United States or that are foreign corporations, partnerships,
trusts or estates, persons who acquired or acquire shares of AHP stock pursuant
to the exercise of employee stock options or otherwise as compensation, or
persons who do not hold their shares of AHP stock as a capital asset.
This opinion is limited to the federal income tax laws of the United
States and does not purport to discuss the consequences or effectiveness of the
Merger under any other laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm name therein under the
captions "Material United States Federal Income Tax Consequences Tax
Consequences of the Merger", "Material United States Federal Income Tax
Consequences - Tax liabilities and attributes inherited from AHP" and "Legal
Matters". In
<PAGE> 4
American Health Properties, Inc. -4-
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 8.4
September 28, 1999
Health Care Property Investors, Inc.
4676 MacArthur Court
Newport Beach, CA 92660
Dear Sirs:
We acted as counsel to American Health Properties, Inc., a Delaware
corporation (the "Company"), in connection with its issuance of Psychiatric
Group Preferred Stock (the "Psychiatric Group Stock") to holders of record on
July 14, 1995 of its Common Stock, as more fully described in the Information
Statement dated June 29, 1995. In that transaction, each holder of Common Stock
of the Company received as a dividend one share of Psychiatric Group Stock for
every ten shares of Common Stock the holder owned. The Psychiatric Group Stock
was redeemed by the Company in May of 1999.
You have asked whether, in our opinion, the issuance of the Psychiatric
Group Stock and the payment of dividends thereon during the period it was
outstanding affected the qualification of the Company as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Internal
Revenue Code (the "Code"). In rendering this opinion, we have
<PAGE> 2
Health Care Property Investors -2-
reviewed such documents and other factual matters and such matters of law as we
have considered necessary or appropriate and are relying upon a representation
from the Company that, while the Psychiatric Group Stock was outstanding, the
Company intended to pay, and did actually pay, dividends on the Psychiatric
Group Stock and Common Stock in accordance with the "Dividend Policy" as
specified in the Information Statement relating to the Psychiatric Group
Preferred Stock dated June 29, 1995.
In our opinion, the Psychiatric Group Stock was equity for federal
income tax purposes, because the holders of the Psychiatric Group Stock had no
creditor or other non-equity type rights against the Company and possessed all
three rights that are the cornerstone of an equity interest: (i) the right to
vote in the election of directors and other matters put to the shareholders of
the Company, (ii) the right to participate in the earnings of the Company
through the payment of dividends and (iii) the right to share in the net assets
of the Company upon its liquidation.
Although there is no authority bearing directly on the treatment of
"targeted stock" such as the Psychiatric Group Stock, in our opinion the
Psychiatric Group Stock was a class of equity of the Company for federal income
tax purposes because (i) as a matter of Delaware law, the Psychiatric Group
Stock was stock of the Company, (ii) the holders of such stock had rights only
against the Company and had no direct rights with respect to the Psychiatric
Group assets or subsidiaries, (iii) the holders of such stock had no voting
rights with respect to the Psychiatric Group subsidiaries and
<PAGE> 3
Health Care Property Investors -3-
voted only on matters put to the shareholders of the Company, (iv) the economic
expectations of such holders represented only the intentions of the Board of
Directors of the Company, and not legally enforceable rights of the holders, (v)
the Psychiatric Group assets were available to satisfy creditors of the Company
and (vi) the Psychiatric Group assets were not isolated in a separate subsidiary
but were held in significant part directly by the Company.
Under Section 562(c) of the Code and Treasury Regulations Section
1.562-2(a), distributions by the Company with respect to its Psychiatric Group
Stock or Common Stock were not "preferential dividends" as long as the
distributions (i) were without preference among shares in any given class and
(ii) were without preference among shares of different classes except to the
extent a class is entitled to a preference.
In our opinion, the Psychiatric Group Stock and Common Stock were
separate classes of stock of the Company for purposes of Section 562(c) because
(i) the Psychiatric Group Stock and the Common Stock were separate classes of
stock for corporate law purposes, (ii) the economic expectations of the holders
of each class were different and (iii) the voting and liquidation rights of the
holders of each class were different.
Although there is no authority bearing directly on the application of
preferential dividends under Section 562(c) of the Code to "targeted stock" such
as the Psychiatric Group Stock, in our opinion dividends paid on the Psychiatric
Group Stock and Common Stock were not "preferential" under Section
<PAGE> 4
Health Care Property Investors -4-
562(c) of the Code because (i) the dividends paid by the Company did not deprive
either class of a dividend to which that class was entitled and neither class
received a dividend to which it was not entitled and (ii) concluding that the
dividends paid on the Psychiatric Group Stock and Common Stock of the Company
were not preferential is consistent with the purpose of Section 562(c) and not
inconsistent with any policy underlying the REIT distribution, income, asset or
shareholder tests.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 filed by Health Care Property Investors
("HCPI") with the Securities and Exchange Commission on September 28, 1999, in
which the joint proxy statement/prospectus of the Company and HCPI is included,
and to the reference to our firm name therein under the captions "Material
United States Federal Income Tax Consequences - Tax Consequences of the Merger",
"Material United States Federal Income Tax Consequences - Tax liabilities and
attributes inherited from AHP" and "Legal Matters". In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 8.5
September 28, 1999
Health Care Property Investors, Inc.
4676 MacArthur Court
9th Floor
Newport Beach, California 92660
Re: AGREEMENT AND PLAN OF MERGER BETWEEN AMERICAN HEALTH
PROPERTIES, INC. AND HEALTH CARE PROPERTY INVESTORS, INC.,
DATED AUGUST 4, 1999
Ladies and Gentlemen:
We have acted as counsel to American Health Properties, Inc., a
Delaware corporation (the "Company"), in connection with the merger (the
"Merger") of the Company with and into Health Care Property Investors, Inc., a
Maryland corporation ("Parent"), with Parent as the surviving corporation,
pursuant to that certain Agreement and Plan of Merger between Parent and the
Company dated as of August 4, 1999 (together with all exhibits and amendments
thereto, the "Merger Agreement"). This opinion is being rendered to you in
connection with the filing of a Registration Statement on Form S-4 with the
Securities and Exchange Commission on September 28, 1999 of which the Joint
Statement/Prospectus referred to below is a part.
In formulating our opinion, we examined, and with your consent
relied upon, such documents as we deemed appropriate, including (i) the Merger
Agreement, (ii) the Joint Proxy Statement/Prospectus filed by Parent and the
Company with the Securities and Exchange Commission (the "Commission") on August
26, 1999 (the "Joint Proxy Statement"), and (iii) the Registration Statement on
Form S-4 as filed by Parent with the Commission on September 28, 1999, in which
the Joint Proxy Statement/Prospectus is included as a prospectus (with all
amendments and exhibits thereto, the "Registration Statement"). In addition, we
have obtained such additional information as we deemed relevant and necessary
through consultation with various officers and representatives of Parent and the
Company.
This opinion is based on various facts and assumptions, including
the facts set forth in the Registration Statement concerning the business,
properties, and governing documents of the Company and its subsidiaries. We have
also been furnished with, and with your consent have relied upon, certain
representations made by the Company with respect to factual matters through a
certificate of an officer of the Company (the "Officer's Certificate"). In
addition, we have assumed, with your consent, the accuracy of the opinion of
Sullivan & Cromwell, dated the date hereof, addressed to Parent,
<PAGE> 2
American Health Properties, Inc.
September 28, 1999
Page 2
with respect to the federal income tax treatment of the Psychiatric Group
Preferred Stock (as such term is defined in the Merger Agreement) previously
issued by the Company (the "Sullivan & Cromwell Opinion"). In rendering this
opinion, we express no opinion concerning the matters addressed in the Sullivan
& Cromwell Opinion.
In our capacity as such counsel, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments, as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction
only of the federal income tax laws of the United States and we express no
opinion with respect to the applicability thereto, or the effect thereon, of
other federal laws, the laws of any state or other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies with any state.
Based upon such facts, assumptions, and representations, including
the facts set forth in the Registration Statement and the Officer's Certificate,
and our assumption concerning the accuracy of the Sullivan & Cromwell Opinion,
it is our opinion that (i) commencing with the Company's taxable year ending
December 31, 1987, the Company has been organized in conformity with the
requirements for qualification and taxation as a "real estate investment trust"
under the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) its
method of operation and its proposed method of operation has enabled it to meet
and will enable it to continue to meet, respectively, the requirements for
qualification and taxation as a "real estate investment trust" under the Code
through the Effective Time (as such term is defined in the Merger Agreement).
No opinion is expressed as to any matter not discussed herein.
This opinion is only being rendered to you as of the date of this
letter, and we undertake no obligation to update this opinion subsequent to the
date hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real
<PAGE> 3
American Health Properties, Inc.
September 28, 1999
Page 3
estate investment trust depends upon the Company's continued ability to meet,
through actual operating results, asset diversification, distribution levels and
diversity of stock ownership, various requirements under the Code. Accordingly,
no assurance can be given that the actual results of the Company's operation
through the Effective Time will satisfy such requirements.
This opinion is rendered to you in connection with the filing of the
Registration Statement with the Commission and is not to be used, circulated,
quoted or otherwise referred to or relied upon for any other purpose without our
express written permission. We consent to the filing of this opinion as an
exhibit to the Registration Statement and the reference to our firm name therein
under the caption "Material United States Federal Income Tax Consequences -
HCPI's Qualification as a Real Estate Investment Trust - Tax liabilities and
attributes inherited from AHP." In providing such consent, we do not admit that
we are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules or regulations of the
Commission promulgated thereunder.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
<PAGE> 1
EXHIBIT 12.1
HEALTH CARE PROPERTY INVESTORS, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(Amounts in thousands, except ratios)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended
------------------------------------------------------------- June
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $ 20,133 $ 19,339 $ 26,401 $ 28,592 $ 36,753 $ 25,743
Capitalized Interest 332 594 1,017 1,469 1,800 964
Pro-Rata Share of Unconsolidated Partnerships'
Fixed Charges 1,404 1,442 737 850 777 311
Preferred Stock Dividend* 1,247 8,532 8,219
Amortization of debt expense, debt discounts
and interest factor in rental expense 767 985 949 1,033 983 584
-------- -------- -------- -------- --------- --------
Total $ 22,636 $ 22,360 $ 29,104 $ 33,191 $ 48,845 $ 35,821
======== ======== ======== ======== ========= ========
Earnings:
Income from Operations 53,562 60,395 64,017 66,446 78,654 41,887
Add Back Fixed Charges, Excluding Preferred
Stock Dividend 22,636 22,360 29,104 31,944 40,313 27,602
Less Capitalized Interest (332) (594) (1,017) (1,469) (1,800) (964)
-------- -------- -------- -------- --------- --------
Total $ 75,866 $ 82,161 $ 92,104 $ 96,921 $ 117,167 $ 68,525
======== ======== ======== ======== ========= ========
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends 3.35 3.67 3.16 2.92 2.40 1.91
======== ======== ======== ======== ========= ========
</TABLE>
- ---------------
* 7.875% Preferred Stock Series A issued 9/26/97; 8.70% Preferred Stock
Series B issued 9/4/98.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated January 19, 1999
included in Health Care Property Investors, Inc.'s Form 10-K for the year ended
December 31, 1998 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ORANGE COUNTY, CALIFORNIA
SEPTEMBER 27, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated January 22, 1999
included in American Health Properties, Inc.'s Form 10-K for the year ended
December 31, 1998 and to all references to our Firm included in this
registration statement and related prospectus.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
September 27, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch, Pierce, Fenner & Smith Incorporated provided an opinion
letter dated August 4, 1999 (the "Opinion") to the Board of Directors of Health
Care Property Investors, Inc. ("HCPI"). We hereby consent to the use of the
Opinion included as Annex C to the Joint Proxy Statement/Prospectus incorporated
by reference in the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission by HCPI on the date hereof, and to the
captions "Opinion of Financial Adviser to HCPI," "The Merger -- Background of
the Merger" and "The Merger -- Recommendations of the Board of Directors of
HCPI; HCPI's Reasons for the Merger" contained in the Joint Proxy
Statement/Prospectus, and to the references to the Merrill Lynch, Pierce, Fenner
& Smith Incorporated name in the Joint Proxy Statement/Prospectus incorporated
by reference therein in connection with references to the Opinion. In giving
such consent, we do not hereby admit that we came within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations adopted by the Securities and Exchange Commission
thereunder nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
September 28, 1999 By: /s/ Merrill, Lynch, Pierce,
Fenner & Smith Incorporated
<PAGE> 1
EXHIBIT 23.8
PERSONAL AND CONFIDENTIAL
September 28, 1999
Board of Directors
American Health Properties, Inc.
6400 S. Fiddler's Green Circle
Suite 1800
Englewood, CO 80111
Re: Registration Statement of Health Care Property Investors, Inc.
relating to its Common Stock being registered in connection
with the merger described below
Gentlemen:
Reference is made to our opinion letter dated August 4, 1999 regarding our
opinion as to the fairness from a financial point of view to the holders of the
outstanding shares of Common Stock, par value $.01 per share (the "AHP Common
Stock"), of American Health Properties, Inc. ("AHP") of the exchange ratio of
0.78 shares of Common Stock, par value $1.00 per share, of Health Care Property
Investors, Inc. ("HCPI") to be received for each share of AHP Common Stock (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
August 4, 1999, between HCPI and AHP (the "Agreement").
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of American Health Properties, Inc. in connection with
its consideration of the transaction contemplated therein and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it to
be filed with, included in or referred to in whole or in part in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent. We understand that the Company has
determined to include our opinion in the above-referenced Registration
Statement.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "Risk Factors"; "The Merger - Background of the Merger"; "The
Merger - AHP's Reasons for the Merger"; "Opinion of Financial Advisor to AHP"
and to the inclusion of the foregoing opinion in the Joint Proxy
Statement/Prospectus included in the above-mentioned Registration Statement of
HCPI. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ GOLDMAN SACHS & CO.
<PAGE> 1
EXHIBIT 99.1
HEALTH CARE PROPERTY INVESTORS, INC.
PROXY
SPECIAL MEETING OF COMMON STOCKHOLDERS -- NOVEMBER 3, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, as a holder of Common Stock of Health Care Property
Investors, Inc. ("HCPI"), hereby appoints Kenneth B. Roath and Paul V. Colony,
or either of them, as proxies, each with full power of substitution, to
represent and to vote as designated on this card all of the shares of Common
Stock of HCPI which the undersigned is entitled to vote at the Special Meeting
of Common Stockholders to be held on November 3, 1999 at 10:00 A.M., or any
adjournment or postponement thereof, and to otherwise represent the undersigned
at the meeting with all powers possessed by the undersigned as if personally
present at such meeting. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Common Stockholders and of the accompanying Proxy
Statement and revokes any proxy heretofore given with respect to such meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned. If no direction is made, this Proxy will be voted FOR
the merger proposal. If any other business is presented at the Special Meeting
of Common Stockholders, the Proxy will be voted in accordance with the
discretion of the proxies named above.
1. To approve the Agreement and Plan of Merger, dated as of August 4, 1999,
between HCPI and American Health Properties, Inc., a Delaware corporation
("AHP") and to approve the merger of AHP with and into HCPI.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies named herein are authorized to vote upon any
other matter that may properly come before the Special Meeting of Common
Stockholders or any adjournment or postponement thereof.
The Board of Directors recommends a vote "FOR" the merger proposal.
IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON REVERSE SIDE
------------------------
COMMON
- ------------------------ ------------------------
ACCOUNT NUMBER D.R.S.
<PAGE> 2
Please mark, date and sign as
your name appears hereon. If
acting as executor,
administrator, trustee,
guardian, etc., you should so
indicate when signing. If the
signer is a corporation, please
sign the full corporate name,
by a duly authorized officer
and indicate the title of such
officer. If shares are held
jointly, each stockholder named
should sign. If you receive
more than one proxy card,
please date and sign each card
and return all proxy cards in
the enclosed envelope.
Dated: , 1999
-------------------------------
Signature
-------------------------------
Signature
PLEASE DATE, SIGN AND MAIL THIS
PROXY IN THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
PROXY PROXY
AMERICAN HEALTH PROPERTIES, INC.
6400 South Fiddler's Green Circle,
Suite 1800, Englewood, Colorado 80111
The undersigned hereby nominates and appoints Joseph P. Sullivan and Michael J.
McGee (the "Proxies"), and each of them, as attorneys, agents and proxies of
the undersigned, with full powers of substitution to each, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock of AMERICAN HEALTH PROPERTIES, INC. (the "Company") held of record
by the undersigned as of the close of business on September 23, 1999 at the
Special Meeting of Stockholders to be held on November 3, 1999 or any
adjournment thereof.
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF
THIS SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 2
Please mark
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF your vote as [X]
DIRECTORS OF AMERICAN HEALTH PROPERTIES INC. indicated in
the example
1. Proposal Number 1 -- Approval and adoption of
the Agreement and Plan of Merger between
American Health Properties, Inc. and Health FOR AGAINST ABSTAIN
Care Property Investors, Inc., dated as of [ ] [ ] [ ]
August 4, 1999, and the Merger contemplated
thereby, as described in the accompanying Joint
Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER (EACH AS DEFINED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS) AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER.
2. Proposal Number 2 -- In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof.
WHEN THIS PROXY IS PROPERLY EXECUTED, THE PROXIES WILL VOTE ALL SHARES OF
COMMON STOCK HELD OF RECORD BY THE UNDERSIGNED IN THE MANNER INSTRUCTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY USING THE ENCLOSED
ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
The undersigned hereby notifies and
confirms all that said attorneys and
proxies, or any of them, or their
substitutes, shall lawfully do or cause
to be done by virtue hereof., and hereby
revokes any and all proxies heretofore
given by the undersigned to vote at said
Special Meeting. The undersigned
acknowledges receipt of the notice of
said Special Meeting and Joint Proxy
Statement/Prospectus accompanying said
notice.
Signature(s)_________________________________________ Dated: ____________, 1999
Please sign exactly as names are shown. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporation name by president or other authorized officer. If a partnership,
please sign in full partnership name by authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
