SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
HEALTH CARE PROPERTY INVESTORS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
HEALTH CARE PROPERTY INVESTORS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 3, 2001
Our annual meeting of stockholders will be held in the Cabrillo Room of the
Four Seasons Hotel, 690 Newport Center Drive, Newport Beach, California 92660
on Thursday, May 3, 2001, at 9:30 a.m., California time, for the purposes of:
(1) electing two directors,
(2) approving an amendment to the Company's Articles of Restatement, as
amended and supplemented (the "Charter"), to increase the Company's
authorized common stock, par value $1.00 per share, from 100,000,000 shares
to 200,000,000 shares,
(3) approving an amendment to the Company's Charter to reduce the
affirmative stockholder vote required to approve most amendments to the
Company's Charter and extraordinary corporate actions such as mergers,
consolidations, sales of all or substantially all of the assets or
dissolution of the Company from two-thirds to a majority of all votes
entitled to be cast on the matter by our stockholders,
(4) approving an amendment to the Company's Charter to reduce the
affirmative stockholder vote required to approve certain charter amendments
relating to Sections 2, 3 and 4 of Article V of the Company's Charter from
90% to two-thirds of all votes entitled to be cast on the matter by our
stockholders,
(5) approving amendments to the Company's Charter to set forth new
restrictions on the ownership and transfer of shares to preserve the
Company's status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, and to clarify the power of the Board of
Directors to grant exemptions from the ownership restrictions contained in
the Charter,
(6) ratifying the selection of Arthur Andersen LLP as independent
accountants for the fiscal year ending December 31, 2001, and
(7) transacting such other business as may properly come before the
meeting.
The proposed amendments to the Company's Charter described in proposals (2)
through (5) are specifically set forth on pages 22 through 28 and Exhibit B of
the Proxy Statement accompanying this Notice and such proposed amendments are
incorporated herein by reference.
Only those stockholders whose names appear on our books as owning our common
stock at the close of business on March 5, 2001, are entitled to notice of,
and to vote at, our annual meeting or any adjournment or adjournments of our
annual meeting.
You are cordially invited to attend the meeting in person. Whether or not
you expect to attend this meeting, please sign and date the enclosed proxy and
return it as promptly as possible in the enclosed self-addressed, postage-
prepaid envelope. If you attend the annual meeting and wish to vote in person,
your proxy will not be used.
By Order of the Board of Directors
/s/ Edward J. Henning
Edward J. Henning
Corporate Secretary
Newport Beach, California
March 28, 2001
HEALTH CARE PROPERTY INVESTORS, INC.
----------------
PROXY STATEMENT
This proxy statement is furnished to our stockholders in connection with our
Board of Directors' solicitation of proxies for use at the annual meeting of
stockholders to be held on May 3, 2001, and at any and all adjournments of our
annual meeting. Our principal executive offices are located at 4675 MacArthur
Court, Suite 900, Newport Beach, California 92660. The approximate date on
which this proxy statement and form of proxy solicited on behalf of the Board
of Directors will be sent to our stockholders is March 28, 2001.
On March 5, 2001, the record date for the determination of which
stockholders are entitled to notice of, and to vote at, our annual meeting,
Health Care Property Investors ("HCPI" or the "Company"), had
50,978,878 shares of common stock outstanding. Each such share is entitled to
one vote on all matters properly brought before the meeting. Stockholders are
not permitted to cumulate their shares for the purpose of electing directors
or otherwise.
You may revoke the enclosed proxy at any time before it is exercised. If you
attend the meeting and vote in person your proxy will not be used.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 1, 2001, with respect
to each person who is known by HCPI to own beneficially more than 5% of our
common stock and with respect to the common stock owned beneficially by all
directors and executive officers of HCPI as a group.
Shares Beneficially Owned
--------------------------------
Amount and Nature of Percent
Name of Beneficial Owner Address of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------------ --------------------------- ----------------------- --------
Cohen & Steers Capital
Management,
Inc.................... 757 Third Avenue 5,987,300(2) 11.7%
New York, NY 10017
Capital Research &
Management Company..... 333 South Hope Street 2,832,900(3) 5.6%
Los Angeles, CA 90071
Franklin Resources,
Inc.................... 777 Mariners Island Boulevard 2,789,572(4) 5.5%
San Mateo, CA 94404
All directors and
executive officers as a
group (11 persons)..... 2,072,015 3.95%(5)
- --------
(1) Nature of beneficial ownership is voting and/or investment power.
(2) Based on information set forth in a Schedule 13G/A filed by Cohen & Steers
Capital Management, Inc. on February 14, 2001.
(3) According to a Schedule 13G/A filed on February 12, 2001, Capital Research
& Management Company, an investment adviser registered under the
Investment Advisers Act of 1940, is deemed to be the beneficial
1
owner as a result of acting as investment adviser to various investment
companies. Capital Research & Management Company disclaims beneficial
ownership pursuant to Rule 13d-4 of the Securities Exchange Act of 1934.
(4) According to a Schedule 13G/A filed by Franklin Resources, Inc. on
February 8, 2001, represents shares owned by one or more investment
companies or other managed accounts which are advised by investment
advisory subsidiaries of Franklin Resources, Inc. The investment advisory
subsidiaries of Franklin Resources, Inc. exercise voting and dispositive
power over the securities owned by the advisory clients.
(5) Includes 1,467,860 shares purchasable within 60 days upon exercise of
outstanding stock options.
2
ELECTION OF DIRECTORS
(Proxy Item No. 1)
Pursuant to our Charter, the directors have been divided into three classes,
each being elected to hold office for a term of three years and until their
respective successors have been duly elected and qualified. At the annual
meeting, two directors will be elected in one class to hold office for a term
of three years and, in each case, until their respective successors have been
duly elected and qualified. The remaining directors shall continue in office
until their respective terms expire and until successors have been duly
elected and qualified.
The nominees for election to the two positions of director to be voted upon
at our annual meeting are Paul V. Colony and Peter L. Rhein. Unless you
specifically withhold authority in the attached proxy for the election of
these two directors, the persons named in the attached proxy intend to vote
for the election of Messrs. Colony and Rhein to hold office as directors for a
term of three years each and until their respective successors have been duly
elected and qualified.
If any nominee becomes unavailable for any reason (which event is not
anticipated), the shares that you vote by returning the enclosed proxy may be
voted for such other person or persons as may be determined by the holders of
such proxies unless your proxy contains instructions to the contrary. In no
event will your proxy be voted for more than two nominees.
BOARD OF DIRECTORS AND OFFICERS
The following table sets forth HCPI's executive officers, nominees for
election as directors and the other persons whose terms as directors continue
after our annual meeting. With respect to these individuals, HCPI has provided
information regarding their principal occupations for the past five years or
more, their ages, their positions and offices with HCPI, information as to
their terms in office as directors, and the number of shares of our common
stock owned beneficially by them on March 1, 2001:
Shares Beneficially Owned (1)
--------------------------------
Number Number of
First Term of Option Percent
Name Age Elected Expires Shares Shares(2) of class(3)
---- --- ------- ------- ------- --------- -----------
Paul V. Colony.......... 61 1988 2001 24,300 45,000 (4)
Robert R. Fanning, Jr... 58 1985 2003 8,993 66,500 (4)
Devasis Ghose........... 47 -- -- 32,649 100,880 (4)
Edward J. Henning....... 47 -- -- 24,775 110,000 (4)
Stephen R. Maulbetsch... 43 -- -- 35,770 85,040 (4)
Michael D. McKee........ 55 1989 2003 21,050 43,000 (4)
Orville E. Melby........ 79 1985 2002 12,900 52,000 (4)
Harold M. Messmer, Jr. . 55 1985 2003 65,700(5) 31,000 (4)
James G. Reynolds....... 49 -- -- 86,276 203,000 (4)
Peter L. Rhein.......... 59 1985 2001 28,600 55,000 (4)
Kenneth B. Roath........ 65 1986 2002 263,142 676,440 1.79 %
3
- --------
(1) Except as otherwise noted below, all shares are owned beneficially by the
individual listed with voting and/or investment power.
(2) Consists of shares purchasable within 60 days upon exercise of outstanding
stock options.
(3) For purposes of computing the percentages, the number of shares
outstanding includes shares purchasable within 60 days upon exercise of
outstanding stock options.
(4) Less than 1%.
(5) Includes 7,600 shares held as custodian for his children.
Mr. Colony is a director and has been associated in various capacities with
the insurance firm of Alexander & Alexander, Inc., now Aon Worldwide
Resources, for over 30 years. He is presently Vice Chairman of Aon Worldwide
Resources and Chairman, Advisory Board of Aon Risk Services Companies, Inc.
Mr. Fanning is a director and was President of Beverly Hospital Corporation,
now Northeast Hospital Corporation, since 1980, until September 2000. Mr.
Fanning was President of Northeast Health Systems, Inc. since July 1983 and
has been President Emeritus of Northeast Health Systems, Inc. since October
2000. Since January 2001 he has been a Principal of BBK Consulting,
Southfield, MI, specializing in health care consulting and business
revitalization. Mr. Fanning has been a member of the Massachusetts Health and
Educational Facilities Authority since 1985 and Chairman of the Authority
since 1993. He currently serves as a Director of Warren Bancorp, Inc. and is a
past Chairman of the American College of Healthcare Executives.
Mr. Ghose has been Senior Vice President -- Finance and Treasurer of HCPI
since 1995 and has been in various positions with HCPI since 1986.
Mr. Henning became Senior Vice President, General Counsel and Corporate
Secretary of HCPI in 1995 and joined HCPI in 1994 as Vice President, Senior
Legal Counsel and Corporate Secretary. Mr. Henning was Vice President and
Legal Counsel for Weyerhaeuser Mortgage Company from 1992 to 1994 and prior
thereto was an attorney with the law firm of Latham & Watkins from 1984 to
1992.
Mr. Maulbetsch has been employed by HCPI since 1985 and became Senior Vice
President--Property and Acquisition Analysis in 1995, which title changed to
Senior Vice President--Acquisitions in 1998.
Mr. McKee is a director and Vice Chairman of The Irvine Company and has been
Executive Vice President of The Irvine Company since 1994 where he also serves
as its Chief Financial Officer and a member of its Board of Directors. Prior
thereto, he was a partner with the law firm of Latham & Watkins from 1986 to
1994. Mr. McKee is also a Director of Realty Income Corporation and Mandalay
Resort Group, formerly Circus Circus Enterprises, Inc., both of which are NYSE
listed companies.
Mr. Melby is a director and retired Vice Chairman of Rainier National Bank
(which was subsequently acquired by Bank of America) where he served from 1974
through 1986. Prior to his service with Rainier, Mr. Melby was Treasurer and
later Vice President of Sales and Contracts of the Boeing Company.
Mr. Messmer is a director and has been Chairman, Chief Executive Officer and
President of Robert Half International Inc., a NYSE listed company, since
1986. Mr. Messmer is also a Director of Airborne Freight Corporation and
Spieker Properties, Inc., both of which are NYSE listed companies.
Mr. Reynolds became Executive Vice President of HCPI in 1995 and also serves
as its Chief Financial Officer. He has been employed with HCPI since its
inception in 1985 and served as Senior Vice President beginning in 1988.
4
Mr. Rhein is a director and has been a general partner of Sarlot and Rhein,
a real estate investment and development partnership, since 1967. From 1970
until 1984 he was employed in various capacities by Wells Fargo Realty
Advisors and its affiliates. From 1976 until 1984 he was Vice President,
Treasurer and Chief Financial Officer of Wells Fargo Mortgage and Equity
Trust, a real estate investment trust. Mr. Rhein is a Certified Public
Accountant.
Mr. Roath is Chairman of the Board of Directors and became President and
Chief Executive Officer of HCPI in 1988, having previously served as President
and Chief Operating Officer since the inception of HCPI in 1985. Mr. Roath is
a past Chairman of the National Association of Real Estate Investment Trusts,
Inc. and also serves as a Special Member of its Board of Governors and is a
former member of the Executive Committee. He is a Director of Franchise
Finance Corporation of America and Arden Realty, Inc., both of which are NYSE
listed companies.
Board of Directors and Committees of the Board
The Board of Directors held five meetings during 2000. During that period,
all directors attended all meetings of the Board and committees of the Board
on which they served other than Mr. Messmer, who attended 70% of the total
number of meetings of the Board and of committees of the Board on which he
served.
The Board of Directors has an audit committee, an investment committee and a
compensation committee.
The audit committee is comprised of Messrs. Fanning, McKee, Melby and Rhein.
The audit committee held two meetings during 2000. The audit committee:
. selects the independent accountants to serve HCPI for the ensuing year,
subject to stockholder approval;
. reviews with the independent accountants the scope and results of the
audit;
. reviews management's evaluation of HCPI's system of internal controls;
and
. reviews non-audit professional services provided by the independent
accountants and the range of audit and non-audit fees.
The audit committee meets with the independent accountants twice a year. In
addition, Mr. Rhein, the chairman of the audit committee, holds quarterly
discussions with the independent accountants.
To ensure independence of the audit, the audit committee consults separately
and jointly with the independent accountants and management. On June 12, 2000,
the Board of Directors adopted an audit committee charter that meets the
requirements of the New York Stock Exchange. The full text of the audit
committee charter is attached as Exhibit A to this proxy statement.
The investment committee is comprised of Messrs. Fanning, Melby, Rhein and
Roath. The investment committee held no meetings during 2000. The investment
committee is authorized to approve all real estate acquisitions and other
investments and any financing activity related to a real estate acquisition.
The compensation committee, which held four meetings during 2000, is
comprised of outside directors of the Board who are not employees of the
Company. This committee is currently comprised of Messrs. Colony, Melby and
Messmer. The compensation committee is responsible for the administration of
HCPI's employee
5
benefit plans and is authorized to determine the persons eligible to
participate in any of the plans, the extent of such participation and the
terms and conditions under which benefits may be vested, received or
exercised. The compensation committee also reviews and approves the
compensation of HCPI's executive officers and determines the general
compensation policy for HCPI.
Board of Directors Compensation
HCPI currently pays each non-employee outside director:
(1) a fee of $24,000 per year for services as a director,
(2) $1,000 for attendance in person at each meeting of the Board of
Directors or any committee meeting, and
(3) $500 for participation in any telephonic Board of Directors meeting
or committee meeting, when such meeting lasts longer than one-half hour.
In addition, HCPI reimburses the outside directors for travel expenses
incurred in connection with their duties as directors of HCPI. The one inside
director, who is an employee of HCPI, does not receive any fees for serving on
the Board or for attending meetings.
Non-employee outside directors also participate in the 2000 Stock Incentive
Plan, which was adopted by HCPI and approved by stockholders in May 2000.
Under the 2000 Stock Incentive Plan, on the last Thursday of April of each
year, HCPI grants to each outside director 400 shares of restricted common
stock and non-qualified options to acquire 7,000 shares of common stock. In
addition, for any year in which HCPI's total return to shareholders exceeds by
three percentage points the total return of the health care equity segment of
the National Association of Real Estate Investment Trusts (NAREIT), outside
directors are granted an additional 3,000 options to purchase common stock.
HCPI's total return is defined in the Directors Stock Incentive Plan as
(A) the sum of (1) the fair market value of HCPI's common stock as of December
31 of the year in question minus the fair market value of the common stock as
of January 1 of that year, plus (2) the aggregate dividends paid to
stockholders during that year, divided by (B) the fair market value of HCPI's
common stock as of January 1 of that year. The total return of the NAREIT
health care equity segment is defined as the average total return of companies
in the NAREIT health care equity segment as published by NAREIT.
Options granted as part of the 7,000 annual grant and the 3,000 performance-
based grant, if any, are exercisable one year after the date of grant and
expire not later than 10 years from the date of grant. The exercise price of
the options is equal to the per share market value of HCPI's common stock on
the date of grant. The directors' restricted stock vests ratably over four
years and is subject to forfeiture if the outside director's membership on the
Board is terminated other than under certain circumstances.
In January 2000, HCPI adopted an amendment to the Second Amended and
Restated Directors Stock Incentive Plan that provided that any directors
serving on the Board as of January 4, 2000 would be immediately granted an
option to acquire 21,000 shares of common stock (the "Special Option") in lieu
of yearly grants of an option to acquire 7,000 shares of common stock in April
of 2000, 2001 and 2002. The Special Option is exercisable in one-third
cumulative installments over three years (i.e., 7,000 shares on the last
Thursday in April 2001, 7,000 shares on the last Thursday in April 2002 and
7,000 shares on the last Thursday in April 2003). The exercise price for the
Special Option is $23.875, the fair market value of the common stock as of
January 4, 2000. In order to exercise any of the one-third installments of the
Special Option, the directors must be serving
6
on the Board one-year prior to the specified exercise date. Messrs. Colony,
Fanning, McKee, Melby, Messmer and Rhein were each granted a Special Option,
and received grants of 400 shares of restricted stock in April 2000. Based
upon HCPI's 2000 performance as compared to the health care equity segment of
NAREIT, Messrs. Colony, Fanning, McKee, Melby, Messmer and Rhein will also
each receive 3,000 performance-based options on April 26, 2001 with an
exercise price equal to the closing price of HCPI's common stock on the
New York Stock Exchange on that date. Although the existing outside directors
will not receive the 7,000 option grants in April 2001 or 2002, any newly
appointed directors to the Board will be eligible for the 7,000 option grant
and beginning in 2003, HCPI intends to resume yearly 7,000 option grants to
any existing directors who are then members of the Board of Directors.
Amended and Restated Director Deferred Compensation Plan. In January 1996,
HCPI adopted an Amended and Restated Director Deferred Compensation Plan that
permits the outside directors to elect to defer fees and retainers.
Compensation deferred under the Director Deferred Compensation Plan is payable
to a participating director upon:
. his or her retirement,
. death,
. disability,
. upon the occurrence of a substantial hardship in the sole discretion of
the compensation committee, or
. at such earlier date as may be designated by the director at the time of
election to participate in the plan.
Each director participating in the Director Deferred Compensation Plan elects
the amount of deferred compensation to be credited to:
. an interest rate account wherein the deferred amount will accrue
interest at a rate equal to the prime rate of Bank of New York minus one
percent, or
. a stock credit account wherein the deferred amount is treated as if it
were invested in HCPI common stock with the account increasing for
dividends paid, and increasing or decreasing with changes in the price
of the common stock.
In 1997 the Company terminated the retirement plan it had historically
maintained for directors and allowed the directors to transfer the directors'
accrued benefits under the old retirement plan into the Director Deferred
Compensation Plan into newly created retirement benefit stock accounts and
interest accounts. These new retirement benefit stock accounts and interest
accounts are substantially identical to the stock credit accounts and the
interest rate accounts described above, except that amounts available in the
retirement benefit stock accounts and interest accounts will be paid only
after the director's retirement from the Board of Directors. Under the
Director Deferred Compensation Plan, a director may periodically transfer
amounts between the retirement benefit stock account and interest account or
between the stock credit account and interest rate account subject to certain
restrictions, including that the transfers not be made more often than every
six months. As of December 31, 2000, the participating directors had allocated
in the aggregate 63% of their benefits to stock accounts ($1,030,000 to their
retirement benefit stock accounts and $538,000 to their deferred compensation
stock accounts), and 37% of their benefits ($916,000) to their deferred
compensation interest accounts.
7
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual Compensation Long-Term Compensation
-------------------------------------- ------------------------------------
Restricted
Name and Principal Other Annual Stock Stock All Other
Position Year Salary Bonus(1) Compensation(2) Awards(3)(4) Options Compensation(5)
------------------ ---- -------- -------- --------------- ------------ ------- ---------------
Kenneth B. Roath........ 2000 $516,000 $362,300 $961,900 300,000 $30,000
Chairman, President 1999 475,000 486,400 778,100 370,000 30,000
and Chief Executive 1998 440,000 461,000 799,200 250,000 30,000
Officer
James G. Reynolds....... 2000 304,500 177,300 416,800 100,000 20,000
Executive Vice 1999 290,000 270,500 337,200 250,000 20,000
President 1998 271,700 213,000 $197,000 194,300 85,000 20,000
and Chief Financial
Officer
Edward J. Henning....... 2000 212,100 95,300 224,400 60,000 20,000
Senior Vice President, 1999 202,000 150,200 181,600 175,000 17,000
General Counsel and 1998 190,000 68,000 124,900 52,000 19,000
Corporate Secretary
Devasis Ghose........... 2000 194,300 79,300 240,500 55,000 20,000
Senior Vice President-- 1999 185,000 119,500 181,600 150,000 17,000
Finance and Treasurer 1998 159,500 55,000 105,000 111,000 46,000 19,000
Stephen R. Maulbetsch... 2000 186,000 77,300 240,500 55,000 20,000
Senior Vice President-- 1999 171,000 131,300 168,600 140,000 15,000
Acquisitions 1998 145,000 63,000 72,000 97,000 40,000 17,000
- --------
(1) Bonuses are paid at the end of a year or the beginning of the following
year for the indicated year's performance.
(2) Includes amounts paid to Messrs. Reynolds, Ghose and Maulbetsch in 1998 to
reimburse these individuals for expenses incurred for moving their
personal residences when the Company moved its headquarters, in the
amounts of $188,000, $100,000 and $72,000, respectively.
(3) Restricted stock awards vest ratably over five years. The table below
shows:
. the amounts of all restricted stock held at December 31, 2000,
. the value of such restricted stock (calculated by multiplying the
amount of restricted stock by the closing market price of $29.875 on
the last trading day of 2000), and
. total restricted stock awards granted for the past three years.
8
Dividends are paid on the restricted shares at the same rate as on all
other shares of common stock of HCPI. Such dividends are not included in
the summary compensation table.
Restricted Stock
Grants with Respect
Number of Shares of Value of Restricted to Indicated Year
Restricted Stock at Stock at --------------------
December 31, 2000 December 31, 2000 1998 1999 2000
------------------- ------------------- ------ ------ ------
Kenneth B. Roath........ 64,640 $1,931,100 28,800 30,000 30,000
James G. Reynolds....... 22,900 684,100 7,000 13,000 13,000
Edward J. Henning....... 14,000 418,300 4,500 7,000 7,000
Devasis Ghose........... 12,830 383,300 4,000 7,000 7,500
Stephen R. Maulbetsch... 11,600 346,600 3,500 6,500 7,500
(4) Long-term incentive stock award amounts have been calculated based upon
the closing market price as of the date of grant.
(5) These amounts represent HCPI's contributions to HCPI's 401(k) plan and,
for Mr. Roath only, also includes the value of $10,000 of premiums paid in
2000 by HCPI for Mr. Roath's term life insurance. HCPI is not the
beneficiary of this life insurance policy and the premiums that HCPI pays
are taxable as income to Mr. Roath.
Employment Agreement. On October 13, 2000, HCPI entered into a new
employment agreement, effective as of January 1, 2000, with Kenneth B. Roath
which supersedes Mr. Roath's amended and restated employment agreement entered
into as of January 31, 1991. The term of the employment agreement is for three
years and is automatically extended for an additional year on each anniversary
of the effective date so that at all times the employment period will be at
least three years, unless earlier terminated pursuant to the terms of the
agreement. The employment agreement provides for an initial base salary of
$516,000, to be adjusted annually at the discretion of the Board of Directors
but, at a minimum, to reflect increases in the Consumer Price Index. Mr. Roath
also is eligible for annual bonus compensation to be determined by the
Compensation Committee of the Board of Directors. The employment agreement
also provides that HCPI will pay the premiums for a term life insurance policy
on the life of Mr. Roath in the amount of $2,000,000, payable to a beneficiary
named by Mr. Roath.
If Mr. Roath's employment with HCPI is terminated before a change in
control, as defined in the employment agreement, either by HCPI without cause
or by constructive termination resulting from a material breach of the
employment agreement by HCPI, he is entitled to receive:
. a lump sum severance payment equal to two times his base salary as of
the date of termination, plus two times his targeted annual bonus as of
the date of termination or the highest annual bonus received by him in
the three years immediately prior to the date of termination, whichever
is greater, and
. accelerated vesting of any outstanding stock options or restricted
stock.
If within two years following a change in control of HCPI, Mr. Roath's
employment with HCPI is terminated (a) by Mr. Roath for good reason, as
defined in the employment agreement, or within the thirty day period following
the first anniversary of the occurrence of the change in control, or (b) by
HCPI without cause, as defined in the employment agreement, he is entitled to
receive:
. a lump sum severance payment equal to three times his base salary as of
the date of termination or immediately prior to the change in control,
whichever is greater, plus three times his targeted annual bonus as of
the date of termination or the highest annual bonus received by him in
the three years immediately prior to the change in control, whichever is
greater,
9
. accelerated vesting of any outstanding stock options or restricted
stock,
. accelerated vesting in his accrued benefits under HCPI's qualified or
nonqualified pension, profit sharing, deferred compensation or
supplemental plans, unless the acceleration would violate any applicable
laws or require HCPI to accelerate vesting for all participants in such
plans, in which case he would receive a lump sum payment equal to the
unvested accrued benefits in lieu of acceleration of vesting of his
benefits,
. forgiveness of any outstanding restricted stock purchase loans not to
exceed $2,000,000, plus an additional payment to fully reimburse him for
all federal and California incomes taxes arising from the forgiveness of
the loans.
Furthermore, if Mr. Roath is subject to an excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
with respect to the payments or distributions in the nature of compensation
made to him by HCPI in connection with a change in control of HCPI, HCPI will
pay Mr. Roath an additional amount so as to place him in the same after-tax
position he would have been in had the excise tax not applied.
The employment agreement also provides that upon Mr. Roath's termination of
employment, he agrees to not disclose any confidential information of HCPI. As
a condition to receiving the severance payments and other benefits described
above in the event of Mr. Roath's termination of employment, Mr. Roath also
agrees that during the period of his employment with HCPI and for one year
following his termination of employment, he will not accept employment or be
engaged as a consultant with a competitor of HCPI in the health care real
estate investment trust industry if (a) such position is comparable to the
position held by Mr. Roath at HCPI and (b) the new employer is not able to
take adequate steps to prevent disclosure of HCPI's confidential information.
In addition, for a period of one year following his termination of employment,
Mr. Roath agrees to not solicit HCPI's officers or employees or offer
employment to anyone who is or was an employee of HCPI during the six month
period immediately preceding the date of such offer.
Change in Control Agreements. On October 16, 2000, HCPI entered into change
in control agreements with all of the named executive officers in the Summary
Compensation Table, other than Mr. Roath who entered into an employment
agreement as described above. Each change in control agreement provides that
the executive officer is entitled to severance payments and other benefits in
the event of the executive officer's termination of employment within two
years following a change in control of HCPI, as defined, (a) by HCPI other
than for cause, as defined in the agreement, or disability, as defined in the
agreement or (b) by the executive officer for good reason, as defined in the
agreement (each, a "Change in Control Termination"). Each agreement is in
effect through December 31, 2003 and is automatically extended for an
additional year on each January 1 beginning January 1, 2001, unless HCPI
notifies the executive officer of its intention not to extend the agreement by
September 30 of the preceding year. However, if a change in control occurs
during the original or any extended term of the agreement, the term of the
agreement will continue for at least thirty-six months after the month in
which the change in control occurred.
Except as described below, in the event of a Change in Control Termination,
each executive officer is entitled to receive:
. a lump sum severance payment equal to three times for Mr. Reynolds and
two and a half times for Messrs. Ghose, Henning and Maulbetsch of the
executive officer's base salary as of the date of termination or
immediately prior to the change in control, whichever is greater, and
three times for
10
Mr. Reynolds and two and a half times for Messrs. Ghose, Henning and
Maulbetsch of the executive officer's targeted annual bonus as of the
date of termination or the highest annual bonus received by the
executive officer in the three years immediately prior to the change in
control, whichever is greater,
. accelerated vesting of any outstanding stock options or restricted
stock, and
. accelerated vesting in their accrued benefits under HCPI's qualified or
nonqualified pension, profit sharing, deferred compensation or
supplemental plans, unless the acceleration would violate any applicable
laws or require HCPI to accelerate vesting for all participants in such
plans, in which case the executive officer would receive a lump sum
payment equal to the unvested accrued benefits in lieu of acceleration
of vesting of his benefits.
Furthermore, if the executive officer is subject to an excise tax under
Section 4999 of the Internal Revenue Code, with respect to the payments or
distributions in the nature of compensation made to him by HCPI in connection
with a change in control of HCPI, HCPI will pay the executive officer an
additional amount so as to place him in the same after-tax position he would
have been in had the excise tax not applied.
Each agreement also provides that upon the executive officer's termination
of employment, he agrees to not disclose any confidential information of HCPI.
As a condition to receiving the severance payments and other benefits
described above in the event of a Change in Control Termination, the executive
officer also agrees that during the period of his employment with HCPI and for
one year following his termination of employment, he will not accept
employment or be engaged as a consultant with a competitor of HCPI in the
health care real estate investment trust industry if (a) such position is
comparable to the position held by the executive officer at HCPI and (b) the
new employer is not able to take adequate steps to prevent disclosure of
HCPI's confidential information. In addition, for a period of one year
following his termination of employment, the executive officer agrees to not
solicit HCPI's officers or employees or offer employment to anyone who is or
was an employee of HCPI during the six month period immediately preceding the
date of such offer.
Compensation Pursuant to Plans
Section 401(k) Plan. In 1988, HCPI adopted a tax-qualified cash or deferred
profit-sharing plan. Under the profit-sharing plan, which covers all HCPI
employees after they have completed one year of service, employees may elect
to reduce their current compensation up to a maximum of $10,500 for each of
2000 and 2001 and have the amount of the reduction contributed to the profit
sharing plan. HCPI also contributes to the profit-sharing plan an amount equal
to the lesser of $6,800 for each of 2000 and 2001 or 4% of such employee's
compensation if such employee's contribution to the profit-sharing plan is at
least the lesser of 3% of his compensation or the maximum contribution
allowable by law. The employee's right to retain HCPI's contributions vests at
the rate of 20% per year, beginning after the employee has been in the profit
sharing plan for one year. The profit sharing plan is intended to qualify
under Section 401 of the internal revenue code so that contributions by
employees or by HCPI are not taxable to employees until withdrawn from the
profit sharing plan, and so that contributions by HCPI will be deductible by
HCPI when made. For the fiscal year ended December 31, 2000, HCPI made
contributions to the profit sharing plan, including Section 401(a)
contributions discussed below, as follows: $97,500 on behalf of its five most
highly compensated executive officers each of whose total remuneration
exceeded $85,000 during such fiscal year; and $271,700 on behalf of all
employees as a group. At December 31, 2000, 31 of the 37 employees of HCPI
were participants in the profit-sharing plan.
In 1993, the compensation committee adopted an amendment to the profit-
sharing plan to provide for a Section 401(a) profit sharing contribution as
provided for in the Internal Revenue Code. Contributions under the
11
profit-sharing plan are subject to various limitations under the Internal
Revenue Code. Maximum combined employee and employer 401(k) and 401(a)
contributions were limited to the lesser of 25% of taxable compensation or
$30,000 per person in 2000.
Supplemental Executive Retirement Plan. On May 1, 1988, the Board of
Directors adopted a Supplemental Executive Retirement Plan, amended effective
January 1, 1993, which provides certain executives selected by the
compensation committee with supplemental deferred benefits in the form of
retirement payments for life. Currently, the compensation committee has
selected Kenneth B. Roath to be the only participant.
The annual retirement benefit available to a participant under the Executive
Retirement Plan varies according to:
(1) the age of the participant at retirement, with the youngest
retirement age being 55, and
(2) the number of years the participant has served HCPI, with minimum
service being five years.
Pursuant to the formula established in the Supplemental Executive Retirement
Plan, Mr. Roath, who has reached age 65, will be entitled to receive 50% of
his final average earnings (defined to mean the average of the three highest,
not necessarily consecutive, years' earnings). Under the Executive Retirement
Plan, a participant's earnings include total annual cash compensation,
including base salary and bonus incentive awards, and deferred cash
compensation, including 401(a) contributions made by HCPI under the profit-
sharing plan described above. If a participant retires before age 65, his
benefits may be subject to reduction for early retirement.
The Executive Retirement Plan benefit is reduced by 100% of any retirement
employee benefit received from any of HCPI's other retirement plans available
to a participant (other than Section 401(a), employee Section 401(k)
contributions and Social Security). In the event of death of a participant
after retirement, 50% of the benefit earned by the participant will be paid to
the surviving spouse for life and if survived by dependent children, each such
child will receive a benefit equal to $1,500 per month until age 18, or age 25
if a full time student. In the event of a participant's death prior to
retirement, the participant's surviving spouse will be paid the participant's
retirement benefit as if the participant had retired the day before his or her
death.
Based on Mr. Roath's historical earnings, he would currently be entitled to
$490,000 per year upon retirement.
A life insurance policy has been purchased on the life of Mr. Roath naming
HCPI as sole beneficiary to provide for a portion of the obligations under the
Executive Retirement Plan. The policy is designed so that HCPI will recover a
portion of its executive retirement plan payments plus a factor for the use of
its money.
HCPI believes that the Executive Retirement Plan aids in the ability to
attract, retain, motivate and provide financial security to management
employees who render valuable services to HCPI.
12
OPTION GRANTS IN JANUARY 2001 WITH RESPECT TO 2000 PERFORMANCE
Percentage
of Total Exercise
Options Options Price(2) Expiration
Name Granted(1) Granted ($/sh) Date Valuation(3)
---- ---------- ---------- -------- ---------- ------------
Kenneth B. Roath........ 300,000 42.38% $32.062 1/18/11 $327,000
James G. Reynolds....... 100,000 14.13% 32.062 1/18/11 109,000
Edward J. Henning....... 60,000 8.48% 32.062 1/18/11 65,400
Devasis Ghose........... 55,000 7.77% 32.062 1/18/11 60,000
Stephen R. Maulbetsch... 55,000 7.77% 32.062 1/18/11 60,000
- --------
(1) The options vest over five years in equal installments of 20% of the
shares subject to the option per year.
(2) The exercise price is equal to the market value of HCPI's common stock on
the date of grant.
(3) Calculated using the Black Scholes option valuation methodology, using the
following variables:
. risk-free rate of return of 5.11%;
. .1923 five year volatility factor;
. 9.48% dividend yield;
. 3% termination discount factor; and
. ten-year option term;
which yields a discount Black Scholes value for the options of $1.09. The
actual value, if any, that an executive officer may realize will depend
upon the excess of the closing market price over the exercise price on the
date the option is exercised so that there is no assurance that the value
realized by an executive officer will be at or near the value estimated by
the Black Scholes model.
13
AGGREGATED OPTION EXERCISES IN 2000 AND OPTION VALUES AT DECEMBER 31, 2000
Number of Value of Unexercised
Unexercised Options at December In-the-Money Options at
Value 31, 2000 December 31, 2000(3)
Shares Acquired at ------------------------------- -------------------------
Name on Exercise Exercise(1) Exercisable(2) Unexercisable(2) Exercisable Unexercisable
---- --------------- ----------- -------------- ---------------- ----------- -------------
Kenneth B. Roath........ 0 $ 0 497,440 680,000 $1,563,400 $2,645,000
James G. Reynolds....... 0 0 143,200 356,800 321,700 1,644,500
Edward J. Henning....... 0 0 66,650 248,100 26,600 1,138,400
Devasis Ghose........... 0 0 64,080 213,600 102,400 978,200
Stephen R. Maulbetsch... 0 0 52,790 192,500 71,000 908,000
- --------
(1) Value at exercise is the difference between the closing market price on
the date of exercise less the exercise price per share, multiplied by the
number of shares acquired on exercise.
(2) In January 1995, 30,000, 5,000, 3,000, 2,700 and 2,700 options were
granted to Messrs. Roath, Reynolds, Henning, Ghose and Maulbetsch,
respectively, which included dividend share rights, providing for the
accrual of dividends between the time the options were granted and when
the options are exercised. At December 31, 2000, Mr. Roath held 30,000
dividend share right options that are currently exercisable, Mr. Henning
held 3,000 of such options that are currently exercisable, Mr. Reynolds
held 1,000 of such options that are currently exercisable, Mr. Ghose held
1,080 of such options that are currently exercisable and Mr. Maulbetsch
held 540 of such options that are currently exercisable. Dividend share
rights on such options accrue at the same rate as dividends on our common
stock. As described in footnote 1 to the Option Grant table set forth
above, in January 2000 the Compensation Committee granted options to
Messrs. Roath, Reynolds, Henning, Ghose and Maulbetsch, which are not
currently exercisable.
(3) Calculated based on the closing market price on the last trading day of
2000 multiplied by the number of applicable shares in-the-money, less the
total exercise price for such shares. No additional value has been
assigned to the dividend shares discussed above.
Notwithstanding anything to the contrary set forth in any of HCPI's previous
filings under the Securities Act or the Exchange Act that refer to future
filings for additional information, including specifically to this proxy
statement, in whole or in part, the following report and the stock performance
graph shall not be considered to be a part of any such filing.
14
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The compensation committee of the Board of Directors is comprised of three
outside members of the Board who are not employees of HCPI. The compensation
committee is responsible for establishing and governing the compensation and
benefit practices of HCPI. The compensation committee establishes the general
compensation policies of HCPI, reviews and approves compensation of the
executive officers of HCPI and administers all of HCPI's employee benefit
plans. The compensation committee conducts an annual review of the executive
compensation program of HCPI to ensure that:
. compensation levels are reasonable and consistent with practices of
comparably sized equity REITs, particularly those that specialize in
health care, and other real estate and finance organizations,
. the program adequately rewards performance which is tied to creating
stockholder value, and
. the program is designed to achieve HCPI's goals of promoting financial
and operational success by attracting, motivating and facilitating the
retention of key employees with outstanding talent and ability.
The compensation committee has committed to a program that emphasizes both
short- and long-term performance, with a significant component of compensation
consisting of long-term incentive awards. On a short-term basis, cash bonuses
are awarded based upon the achievement of performance goals. Long-term
incentives consist of restricted stock and option awards as a substantial
portion of compensation, which the compensation committee believes align
management's interests with those of HCPI's stockholders. The compensation
program is also designed to promote teamwork, initiative and resourcefulness
on the part of key employees whose performance and responsibilities directly
affect the company's profits. The compensation committee reviews with the
Board of Directors all aspects of compensation for executive officers.
The compensation committee bases its compensation decisions on an analysis
of HCPI's performance and an evaluation of comparative compensation and
performance information. To assist it in this regard, the compensation
committee retained the services of Shuman Management Consulting, an executive
compensation consulting firm. In the course of its deliberations, the
compensation committee reviews survey and other data supplied by Shuman
relating to the compensation practices of competitors and other comparably
sized companies. Shuman also provides advice to the compensation committee
with respect to the reasonableness of the compensation paid to the executive
officers.
For the compensation committee deliberations in January 2001, Shuman
reviewed the compensation practices of real estate organizations and financial
services firms, including self-administered equity REITs, real estate
development firms and general industry companies for positions where the labor
market is not restricted to the REIT industry. Companies reviewed had assets
approximating $2.5 billion and market capitalization approximating $1.6
billion. In addition, Shuman provided to the compensation committee an
analysis of base salary, total cash and total direct compensation for 22 self-
administered REITs, which included triple-net lease REITs, three health care
REITs, and other well-established equity REITs, ranging from $1 billion to $6
billion in assets and $500 million to $3.5 billion in market capitalization.
The compensation committee considers both the more general compensation
analysis as well as the information regarding the 22 selected REITs in
determining what constitutes "competitive practices" in setting compensation
for HCPI's executive officers.
Shuman also provided to the compensation committee an analysis of HCPI's
performance measured by growth in funds from operations (FFO) and total return
to shareholders compared to 13 peer REITs specializing
15
in health care or triple net leases and compared to the NAREIT equity
healthcare segment. Some, but not all, of the companies included in the stock
price performance graph are included in the compensation surveys.
The compensation committee noted that HCPI's total return to shareholders
for 2000 of 39.6% was at about the 95th percentile compared to the 13 selected
peer REITs and outperformed both the NAREIT equity health care segment and the
S&P 500. HCPI's growth in FFO during 2000 was its 15th straight year of
increased FFO, and approximated the 85th percentile as compared to the 13
selected REITs. Although HCPI's 2000 FFO growth was below the NAREIT equity
health care segment average FFO growth for 2000, HCPI's FFO growth for the
past three and five years is in the upper quartiles as compared to the 13
selected REITs.
The compensation committee also considered other measurements of HCPI's
performance, which contribute to its long-term overall success, including:
. HCPI's diversified portfolio provided significant protection against the
bankruptcies that have plagued the health care industry during the last
18 months
. Despite an unfavorable capital market and little opportunity for
profitable acquisition activity in 2000, HCPI continued to achieve FFO
growth and recorded its 60th consecutive quarterly dividend increase
. HCPI continues to maintain investment grade senior debt ratings from all
three major ratings agencies
Compensation Mix for Executive Officers Other Than the Chief Executive Officer
HCPI's executive compensation is based on three components, which are
designed to accomplish the Company's compensation philosophy:
. base salary,
. annual cash incentive bonuses, and
. long-term stock incentive awards.
The compensation committee has designed a highly leveraged program that is
intended to result in approximately 55% to 75% (depending on position) of
total direct compensation in incentive compensation tied directly to
stockholder value creation with the remainder in base salary. The compensation
committee noted that HCPI's officer compensation levels in 2000 achieved that
desired mix.
Base Salary. Salaries for executive officers are reviewed by the
compensation committee on an annual basis. The compensation committee targets
base pay levels in the middle quartiles of competitive practices. For 2000,
base salary levels approximated the 50th percentile of competitive practices.
The compensation committee believes that the base compensation levels of the
executive officers generally is reasonable in view of competitive practices,
HCPI's performance and the contribution of those officers to that performance.
In the future, salaries may be increased based upon an assessment of
competitive pay levels or the individual's contribution to the asset and
financial growth of HCPI.
Annual Cash Incentive Awards. Annual cash incentive bonuses are awarded
based upon multiple performance criteria, including subjective evaluations of
personal job performance and performance measured against objective business
criteria. Although historically such objective performance targets have
included a targeted amount of new investment and acquisition activity and a
FFO target, due to market conditions during 2000 that did not permit favorable
new investment and acquisition activity, the compensation committee instead
16
took into consideration the performance achievements noted above as well as
management's efforts in improving occupancy rates in medical office buildings,
continuing successful lease "roll-overs" of mature leases, the profitable
disposition of more than $80 million of properties and the successful
integration of the portfolio of properties acquired in late 1999 through the
merger with American Health Properties. Bonus awards are also based on
personal performance measured by the extent to which each officer meets his
personal goals. Personal performance goals necessarily vary among executive
officers based upon their specific roles within HCPI and specific objectives
established each year for each executive officer by HCPI's chief executive
officer. The annual cash bonus incentive awards are heavily weighted toward
satisfaction of the performance targets, consistent with the compensation
committee's focus on tying incentive compensation to stockholder value
creation.
A target bonus is established for each executive officer other than the
chief executive officer based on the level of his position, the
responsibilities and duties involved therein and on competitive practices. The
compensation committee approves each executive officer's target bonus at the
beginning of each calendar year. The target bonus is expressed as a percentage
of base salary. Based upon the factors set forth above, target bonuses were
approved by and awarded by the compensation committee for 2000 performance.
Long-Term Incentive Stock Plans. The compensation committee administers
HCPI's benefits and stock plans, including the amended and restated stock
incentive plan. Pursuant to the stock incentive plan, annual stock grants and
stock options have been awarded in order to retain and motivate executives to
improve long-term stock market performance. Stock options usually are granted
at 100% of the current fair market value of the common stock. Generally, stock
option grants and restricted stock awards vest ratably over a five-year
period, and the executive must be employed by HCPI at the time of vesting in
order to receive restricted stock and to exercise the options. The
compensation committee may make grants based on a number of factors,
including:
. the executive officer's position with HCPI,
. performance of his responsibilities,
. equity participation levels of comparable executives at competitive
companies, and
. individual contribution to the success of HCPI's financial performance.
In addition, the size, frequency and type of long-term incentive grants may
be determined on the basis of tax consequences of the grants to the individual
and HCPI, accounting impact and the number of shares available for issuance.
For 2000, each of the executive officers received restricted stock and
options, which were based on his responsibilities, relative position with
HCPI, competitive practices and the committee's philosophy of leveraging
compensation toward long-term incentives. The compensation committee did not
consider the amount of options and restricted stock currently held by the
officers in determining the size of current awards. The executive officers'
compensation mix for 2000 was leveraged 60% toward incentive-based
compensation and 40% comprised of base salary.
Chief Executive Compensation
The chief executive officer is evaluated on the basis of senior management's
collective achievements of HCPI's performance goals, as well as progress in
successful roll-over of maturing leases and mortgages, the level of
stockholder dividends, and the diversity and stability of the portfolio. As
noted above, despite an unfavorable capital markets environment, which
contributed to the absence of profitable acquisition targets and serious
financial weakness in the long term care segment of the health care industry,
including the bankruptcies of several operators, HCPI achieved its 15th
consecutive year of increased FFO and its 60th consecutive quarterly
17
dividend increase. In addition, HCPI's total return to shareholders far
exceeded that of its peer group. Under the direction of Mr. Roath, the company
has achieved consistent FFO growth and dividend increases, has increased
market capitalization, and has established unparalleled diversification in its
investment portfolio, creating an opportunity for greater internal growth.
Mr. Roath's compensation in 2000 was leveraged 75% toward compensation based
upon HCPI's performance and 25% comprised of a base salary component. Mr.
Roath's base salary is targeted at the 60th percentile of competitive
practices and his total direct compensation is targeted at the upper quartile
of these companies. Mr. Roath received a base salary of $516,000 in 2000 which
represents an 8.63% increase from his base salary in 1999, as recommended by
the compensation committee last year in order to ensure that his base salary
is at about the 50th percentile of competitive practices while maintaining his
total compensation leveraged toward performance based incentives. The
compensation committee believes that this compensation package both recognizes
Mr. Roath's contributions to the success of HCPI and appropriately leverages
his compensation toward components directly linked to stockholder value
creation. The compensation committee also awarded Mr. Roath a cash bonus
incentive award of $375,000, a decrease from last year, reflecting reduced
acquisition activity. Mr. Roath also received restricted stock grants of
30,000 shares of common stock and 300,000 stock option grants at an exercise
price of $32.062. These awards are consistent with HCPI's pay-for-performance
philosophy, reflecting Mr. Roath's significant contribution to HCPI's
consistent growth in FFO and dividend increases, the continued successful
execution of the Company's long-term business plan, and the diversification of
HCPI's investment portfolio.
HCPI provides Mr. Roath other benefits under his employment agreement and
HCPI has reported them in the summary compensation table.
Based upon the foregoing, the compensation committee has reviewed and
approved the total compensation for 2000 of the five most highly compensated
executive officers of HCPI.
Policy with Respect to Section 162(m)
Section 162(m) of the Internal Revenue Code denies deduction for certain
compensation in excess of $1,000,000 paid to executive officers, unless
certain performance, disclosure, stockholder approval and other requirements
are met. The compensation committee will continue to review the effects of its
compensation programs with regard to internal revenue code Section 162(m). A
substantial portion of the compensation program will be exempted from the
$1,000,000 deduction limitation. HCPI will continue to evaluate alternatives
to ensure executive compensation is reasonable, performance-based, and
consistent with HCPI's overall compensation objectives. The compensation
committee reserves the right to design programs that recognize a full range of
performance criteria important to HCPI's success, even where the compensation
paid under such programs may not be deductible.
Compensation Committee
Orville E. Melby, Chairman
Paul V. Colony Harold M. Messmer, Jr.
18
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total return of HCPI, the S&P 500 Index,
the Equity REIT Index and the Healthcare Equity REIT Index of the National
Association of Real Estate Investment Trusts, Inc., from January 1, 1996 to
December 31, 2000. Total return assumes quarterly reinvestment of dividends
before consideration of income taxes. HCPI has elected to compare its
cumulative total return to the NAREIT Healthcare Equity REIT Index rather than
the Equity REIT Index because it believes that the Healthcare Equity REIT
Index is a closer approximation of HCPI's peer group. For purposes of
comparison, we have also included the Equity Reit Index in the graph below.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500 EQUITY REITS AND HCPI
HEALTH CARE PROPERTY INVESTORS, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1996 -- DECEMBER 31, 2000
(DECEMBER 31, 1995 = 100)
Stock Price Performance Graph
Total Return Index
[PERFORMANCE GRAPH]
HEALTHCARE
S&P 500 EQUITY REITS EQUITY REITS HCPI
------- ------------ ------------ ------
Dec-95........................... 100.00 100.00 100.00 100.00
Mar-96........................... 105.37 102.27 102.02 91.16
Jun-96........................... 106.90 110.28 105.99 99.37
Sep-96........................... 114.04 114.37 108.54 99.72
Dec-96........................... 124.83 138.91 120.19 106.58
Mar-97........................... 128.17 139.89 116.68 102.63
Jun-97........................... 151.15 146.88 123.39 111.17
Sep-97........................... 164.80 165.24 130.56 124.29
Dec-97........................... 170.93 168.64 139.06 123.22
Mar-98........................... 194.78 167.85 140.07 122.32
Jun-98........................... 201.11 160.20 135.58 121.64
Sep-98........................... 178.60 144.19 125.53 113.64
Dec-98........................... 218.92 140.62 115.05 108.14
Mar-99........................... 229.82 133.84 102.05 102.64
Jun-99........................... 246.02 147.33 110.96 106.42
Sep-99........................... 230.66 135.48 95.32 99.40
Dec-99........................... 265.85 134.12 85.37 92.91
Mar-00........................... 271.94 137.20 90.89 101.90
Jun-00........................... 264.55 152.01 96.76 112.06
Sep-00........................... 262.00 165.15 103.00 125.13
Dec-00........................... 241.79 172.65 109.66 129.46
- --------
Assumes $100 Invested January 1, 1996 in HCPI, S&P 500 Index, NAREIT Equity
REIT Index and NAREIT Healthcare Equity REIT Index.
19
CERTAIN TRANSACTIONS
Mr. Roath, a director and officer of HCPI, has remaining balances on loans
of $473,576 with an interest rate of 6.45% due on November 17, 2002, $187,902
with an interest rate of 7.31% due on April 29, 2003, $257,495 with an
interest rate of 6.78% due on January 27, 2004, $134,827 with an interest rate
of 6.39% due on April 30, 2001, $141,873 with an interest rate of 6.31% due on
September 20, 2001, $91,692 with an interest rate of 5.81% due on May 3, 2002,
$101,466 with an interest rate of 7.06% due January 31, 2003, $55,370 with an
interest rate of 7.30% due February 3, 2003 and $80,204 with an interest rate
of 7.27% due May 1, 2003. HCPI made a loan to Mr. Reynolds, an officer of
HCPI, of $139,851 with an interest rate of 5.97% due on October 8, 2001. In
addition, HCPI made loans to Mr. Melby, a director of HCPI, of $158,438 with
an interest rate of 5.97%, due on October 21, 2001 and to Mr. Fanning, also a
director of HCPI, of $87,750 with an interest rate of 6.40% due on April 29,
2001 and $8,191 with an interest rate of 6.31% due on September 28, 2001. All
of the loans were made either for the purpose of purchasing shares or meeting
payroll taxes due upon vesting of stock grants, and such loans are secured by
the stock of HCPI.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Board of Directors compensation committee for fiscal 2000
were Messrs. Colony, Melby and Messmer, none of whom are employed by the
Company. Mr. Colony is Vice Chairman of Aon Worldwide Resources and Chairman
of the Advisory Board of Aon Risk Services Companies, Inc. Since 1985, HCPI
has been insured through Aon Worldwide Resources, insurance brokers for
general liability, workmen's compensation, and other insurance. The terms of
such insurance policies were established after evaluation of market rates, and
were no less favorable to HCPI than might have been negotiated with an
unrelated party. For the fiscal year ending December 31, 2000, the commissions
paid to Aon Worldwide Resources for the procurement of the insurance policies
were approximately $96,000.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act, requires HCPI's directors and executive
officers, and persons who own more than 10% of a registered class of HCPI's
equity securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of equity securities of our common stock.
These people are required by SEC regulations to furnish HCPI with copies of
all these reports they file. To HCPI's knowledge, based solely on its review
of the copies of such reports furnished to us and written representations from
certain insiders that no other reports were required during the year ended
December 31, 2000, all Section 16(a) filing requirements applicable to such
insiders were complied with, except that one filing of a Form 4 by Mr. Melby
was late.
AUDIT COMMITTEE REPORT TO STOCKHOLDERS
The audit committee of the Board of Directors is comprised of four
independent directors and operates under a charter adopted by the Board of
Directors as required by the rules of the New York Stock Exchange. The members
of the audit committee are Messrs. Fanning, McKee, Melby and Rhein. The
Committee recommends to the Board of Directors, subject to stockholder
ratification, the selection of the Company's independent accountants.
20
Management of the Company is primarily responsible for the Company's
financial statements, internal controls and the financial reporting process.
The independent accountants are responsible for performing an independent
audit of the Company's consolidated financial statements in accordance with
generally accepted auditing standards and to issue a report thereon. The audit
committee's responsibility is to monitor and oversee these processes.
In this context, the audit committee has met and held discussions with
management and the independent accountants. Management represented to the
audit committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles, and the
audit committee has reviewed and discussed the consolidated financial
statements with management and the independent accountants. The audit
committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). Additionally, the audit committee meets twice a year with the
independent accountants and the chairman of the audit committee holds
quarterly discussions with the independent accountants.
The Company's independent accountants also provided to the audit committee
the written disclosures required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and the Committee
discussed with the independent accountants that firm's independence.
Based upon the audit committee's discussion with management and the
independent accountants and the audit committee's review of the representation
of management and the report of the independent accountants to the audit
committee, the audit committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 2000 filed with the Securities
and Exchange Commission.
Robert R. Fanning, Jr. Michael D. McKee Orville E. Melby Peter L. Rhein
21
AMENDMENT TO THE COMPANY'S CHARTER
TO INCREASE THE COMPANY'S AUTHORIZED COMMON STOCK
FROM 100,000,000 SHARES TO 200,000,000 SHARES
(Proxy Item No. 2)
The Board of Directors has adopted a resolution declaring advisable an
amendment to the Company's Charter to increase the Company's authorized common
stock from 100,000,000 shares to 200,000,000 shares. The proposed amendment is
subject to approval by the Company's stockholders. The common stock, including
the additional shares proposed for authorization, do not have preemptive or
similar rights. The proposed amendment would not change the authorized number
of shares of preferred stock.
The Company is currently authorized to issue 150,00,000 shares of stock,
consisting of 100,000,000 shares of common stock and 50,000,000 shares of
preferred stock. As of March 1, 2001, 50,978,878 shares of common stock and
11,721,600 shares of preferred stock were issued and outstanding. If the
proposed amendment is approved, the Company will be authorized to issue
250,000,000 shares of stock, consisting of 200,000,000 shares of common stock
and 50,000,000 shares of preferred stock.
The Board of Directors unanimously recommends a vote FOR approval of the
amendment of Section 1 of Article IV of the Charter so that, as amended, it
shall read as follows:
"The total number of shares of capital stock which the corporation shall
have the authority to issue is Two Hundred Fifty Million (250,000,000), of
which Two Hundred Million (200,000,000) shall be shares of Common Stock
having a par value of $1.00 per share and Fifty Million (50,000,000) shall
be shares of Preferred Stock having a par value of $1.00 per share. The
aggregate par value of all of said shares shall be Two Hundred Fifty
Million Dollars ($250,000,000)."
The Board of Directors of the Company believes that it is advisable and in
the best interests of the Company to have available additional authorized but
unissued shares of common stock in an amount adequate to provide for the
future needs of the Company. The increase in authorized common stock will not
have any immediate effect on the rights of existing stockholders. The
additional shares, however, will be available for issuance from time to time
by the Company in the discretion of the Board of Directors, subject to
stockholder approval as may be required under applicable law or exchange
regulations. These shares may be issued for any proper corporate purpose,
including, without limitation:
. acquiring other businesses in exchange for shares of the Company's
common stock;
. facilitation of broader ownership of the Company's common stock by
effecting a stock split;
. raising capital through the sale of common stock; and
. attracting and retaining valuable employees by the issuance of
additional stock options.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO AMEND THE COMPANY'S CHARTER TO INCREASE THE NUMBER OF SHARES OF THE
COMPANY'S AUTHORIZED COMMON STOCK, PAR VALUE $1.00 PER SHARE, FROM 100,000,000
SHARES TO 200,000,000 SHARES.
22
AMENDMENT TO THE COMPANY'S CHARTER TO REDUCE THE
AFFIRMATIVE STOCKHOLDER VOTE REQUIRED TO APPROVE
MOST AMENDMENTS TO THE COMPANY'S CHARTER AND
EXTRAORDINARY CORPORATE ACTIONS SUCH AS
MERGERS, CONSOLIDATIONS, SALES OF ALL OR SUBSTANTIALLY
ALL OF THE ASSETS OR DISSOLUTION OF THE COMPANY FROM
TWO-THIRDS TO A MAJORITY OF ALL VOTES ENTITLED TO BE CAST
ON THE MATTER BY OUR STOCKHOLDERS
(Proxy Item No. 3)
The Maryland General Corporation Law (the "MGCL") requires that a charter
amendment or an extraordinary corporate action such as a merger,
consolidation, transfer of all or substantially all of the assets or
dissolution of a Maryland corporation be approved by the stockholders of the
corporation by the affirmative vote of two-thirds of all votes entitled to be
cast on the matter. The MGCL also provides, however, that a corporation's
charter may include a provision which increases or decreases the affirmative
vote of stockholders required to approve a charter amendment or extraordinary
corporate action from two-thirds to a greater or lesser proportion, but not
less than a majority of all votes entitled to be cast on the matter.
Because the Company's Charter was originally adopted in 1985, the Board of
Directors believes that certain aspects of the Charter should be updated.
Accordingly, the Board of Directors believes that it is advisable and in the
best interests of the Company that the Charter be amended, subject to approval
by the stockholders, to reduce the affirmative stockholder vote required to
approve most amendments of the Charter and extraordinary corporate actions
from two-thirds to a majority of all votes entitled to be cast on the matter
by the holders of the Company's outstanding voting stock.
The Board of Directors unanimously recommends a vote FOR approval of the
amendment of Article VI of the Company's Charter by changing the title thereof
from "Amendments" to "Amendments and Extraordinary Actions" and by the
addition of the following new Section 3 thereto:
"Except as specifically required in Sections 2 and 3 of Article V and in
Section 1 of this Article VI of the charter of the corporation,
notwithstanding any provision of law requiring a greater proportion of the
votes entitled to be cast by the stockholders in order to take or approve
any action, such action shall be valid and effective if taken or approved
by the affirmative vote of a majority of all votes entitled to be cast by
the stockholders on the matter."
The Board of Directors believes the adoption of the amendment is advisable
because it will bring the Company in line with other public companies, in
general, and with similar REITs, in particular, which typically require a
majority, rather than a two-thirds vote, to amend their charter. In addition,
approval of this amendment will provide the Company with greater flexibility
in connection with possible future acquisitions of other companies and other
proper corporate purposes. This amendment will also have the effect of
allowing mergers and other extraordinary corporate actions approved by the
Board of Directors to be approved by our stockholders by the affirmative vote
of a majority, rather than two-thirds, of all votes entitled to be cast on the
matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO REDUCE THE AFFIRMATIVE
23
STOCKHOLDER VOTE REQUIRED TO APPROVE MOST AMENDMENTS TO THE COMPANY'S CHARTER
AND EXTRAORDINARY CORPORATE ACTIONS SUCH AS MERGERS, CONSOLIDATIONS, SALES OF
ALL OR SUBSTANTIALLY ALL OF THE ASSETS OR DISSOLUTION OF THE COMPANY FROM TWO-
THIRDS TO A MAJORITY OF ALL VOTES ENTITLED TO BE CAST ON THE MATTER BY OUR
STOCKHOLDERS.
24
AMENDMENT TO THE COMPANY'S CHARTER TO REDUCE THE
AFFIRMATIVE STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN
CHARTER AMENDMENTS RELATING TO SECTIONS 2, 3 AND 4 OF
ARTICLE V OF THE COMPANY'S CHARTER FROM 90% TO TWO-THIRDS OF ALL VOTES
ENTITLED TO BE CAST ON THE MATTER BY OUR STOCKHOLDERS
(Proxy Item No. 4)
The Company's Charter currently requires the affirmative vote of at least
90% of all voting stock to repeal or adopt amendments that would be
inconsistent with Sections 2, 3 and 4 of Article V of the Charter. These
sections contain:
. the requirement of a 90% vote to enter into a transaction such as a
merger, consolidation, sale of substantially all of the Company's
assets, issuance of the Company's securities or mortgage of the
Company's assets with a "Related Person," as that term is defined in the
Charter, without the approval of the Board of Directors prior to the
Related Person becoming a Related Person;
. the prohibition on any one person or group having "beneficial
ownership," as defined in the Securities Exchange Act of 1934, of more
than 9.9% of the voting stock of the Company; and
. the classification of the Company's Board of Directors and the
requirement of a supermajority vote for the removal of a member of the
Board of Directors with or without cause.
Because the Charter was originally adopted in 1985, the Board of Directors
believes that certain aspects of the Charter should be updated. Accordingly,
the Board of Directors believes that it is advisable and in the best interests
of the Company that the Charter be amended, subject to approval by the
stockholders, to reduce the affirmative stockholder vote required to approve
the repeal of any provisions or adopt any amendments to the Charter that would
be inconsistent with Sections 2, 3 or 4 of Article V of the Charter from 90%
to two-thirds of the outstanding voting stock of the Company. The Board of
Directors believes that it is impracticable to obtain a 90% stockholder vote.
Additionally, the Board of Directors believes that a two-thirds vote
requirement still affords the Company's stockholders with a protective vote
threshold. The Board of Directors believes the adoption of the amendment is
advisable because it will bring the Company in line with other public
companies.
Section 1 of Article VI of the Company's Charter currently reads as
follows:
"Notwithstanding any of the provisions of these Articles or the Bylaws of
the corporation (and notwithstanding the fact that a lesser percentage may
be specified by law, these Articles or the Bylaws of the corporation) the
affirmative vote of the holders of at least 90% of the "voting stock" of
the corporation, voting together as a single class, shall be required to
repeal or amend any provision inconsistent with Section 2, Section 3 or
Section 4 of Article V."
The Board of Directors unanimously recommends a vote FOR approval of the
amendment of Section 1 of Article VI of the Company's Charter so that, as
amended, it shall read as follows:
"Notwithstanding any other provisions of these Articles or the Bylaws of
the corporation (and notwithstanding any provision of law requiring a
different proportion of the votes entitled to be cast by the stockholders
in order to take or approve any such action) the affirmative vote of two-
thirds of all votes entitled to be cast by the stockholders upon the matter
shall be required to repeal any provision of, or adopt an amendment
inconsistent with, Section 2, Section 3 or Section 4 of Article V."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO REDUCE THE AFFIRMATIVE STOCKHOLDER
VOTE REQUIRED TO APPROVE CERTAIN CHARTER AMENDMENTS RELATING TO SECTIONS 2, 3
AND 4 OF ARTICLE V OF THE COMPANY'S CHARTER FROM 90% TO TWO-THIRDS OF ALL
VOTES ENTITLED TO BE CAST ON THE MATTER BY OUR STOCKHOLDERS.
25
AMENDMENT TO THE CHARTER
OF THE COMPANY TO SET FORTH NEW RESTRICTIONS ON
THE OWNERSHIP AND TRANSFER OF SHARES TO PRESERVE THE
COMPANY'S STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED AND
TO CLARIFY THE POWER OF THE BOARD OF DIRECTORS TO
GRANT EXEMPTIONS FROM THE OWNERSHIP RESTRICTIONS
CONTAINED IN THE CHARTER
(Proxy Item No. 5)
The Company's Charter currently provides in Section 4 of Article V, that if
the Board of Directors at any time is of the opinion that a stockholder is or
may become the "beneficial owner," as defined on October 1, 1982 in Rule 13d-3
under the Securities Exchange Act of 1934, of more than 9.9% of the Company's
voting stock, the Board of Directors shall have the power to (1) require that
the Company purchase stock from such stockholder to bring the stockholder's
beneficial ownership to no more than 9.9% or (2) refuse to issue or transfer
the shares of the Company's stock that would result in a person beneficially
owning more than 9.9% of the Company's voting stock. The Charter does not
state that the Board of Directors is required to take any of such actions. The
Company's Charter also currently provides, however, in the next to last
sentence of Section 4 of Article V that:
"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 shares of stock of this corporation shall be
deemed void ab initio and the intended transferee shall be deemed never to
have had an interest therein."
The Board of Directors believes that the language of the next to last
sentence of Section 4 of Article V creates an ambiguity within Section 4 of
Article V that requires clarification. Accordingly, the Board of Directors
believes that it is advisable and in the best interests of the Company that
Section 4 of Article V of the Charter be amended, subject to approval by the
stockholders, to clarify that the Board of Directors is not required to
exercise the powers granted to it in Section 4 of Article V to present a
person from becoming the "beneficial owner" of more than 9.9% of the Company's
voting stock, that the Board of Directors has the authority to grant
exemptions from this stock ownership limit and that only when the Board of
Directors fails to take any action to grant an exemption that such a transfer
is void. The Board of Directors believes the adoption of such an amendment is
advisable because it will confirm that the Company's stock ownership
restrictions in line with other similar REITs. The charters of substantially
all REITs contain stock ownership restrictions and the Board of Directors
believes that many REIT charters contain provisions that permit the boards of
such REITs to grant exemptions from such stock ownership restrictions. In
addition, approval of this amendment will provide the Company and its
stockholders with greater flexibility while allowing the Company to maintain
its status as a REIT.
The Board of Directors unanimously recommends a vote FOR approval of the
amendment to Section 4, Article V, of the Company's Charter by deleting the
next to last sentence of such section and inserting in lieu thereof, the
following new sentence:
"If the Board of Directors fails to grant an exemption from the ownership
limitation described in this Section 4, then any transfer of shares,
shares, options, warrants or other securities convertible into voting
shares that would create a beneficial owner of more than 9.9% of the
outstanding shares of stock of this corporation shall be deemed void ab
initio and the intended transferee shall be deemed never to have had an
interest therein."
26
The Board of Directors also believes that it is advisable and in the best
interests of the Company that the Charter be amended, subject to approval by
the stockholders, to add additional restrictions on ownership and transfer of
shares of stock of the Company which conform more closely with the provisions
of the Internal Revenue Code of 1986, as amended in order to preserve the
Company's status as a REIT.
In order for the Company to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), no more than 50% in value of its
outstanding shares of stock may be owned, actually or constructively, by five
or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. In addition, if the Company, or an
owner of 10% or more of the Company's capital stock, actually or
constructively owns 10% or more of one of the Company's tenants (or a tenant
of any partnership or limited liability company in which the Company is a
partner or member), the rent received by the Company (either directly or
through the partnership or limited liability company) from the tenant will not
be qualifying income for purposes of the gross income tests for REITs
contained in the Code. A REIT's stock must also be beneficially owned by 100
or more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year.
The proposed charter amendments to be set forth in new Sections 6, 7, 8 and
9 to Article V contain restrictions on the ownership and transfer of the
Company's common stock which are intended to assist the Company in complying
with these requirements and continuing to qualify as a REIT. These proposed
charter amendments provide that, subject to certain specified exceptions, no
person or entity may own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Code, more than 9.8% (by number or
value, whichever is more restrictive) of the outstanding shares of common
stock (the "Ownership Limit"). The constructive ownership rules under the Code
are complex and may cause stock owned actually or constructively by a group of
related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 9.8% of the
Company's common stock (or the acquisition of an interest in an entity that
owns, actually or constructively, common stock) by an individual or entity,
could, nevertheless cause that individual or entity, or another individual or
entity, to own constructively in excess of 9.8% of the Company's outstanding
common stock and thereby subject the common stock to the applicable ownership
limit. The Board of Directors may, but in no event will be required to, waive
the Ownership Limit with respect to a particular stockholder if it determines
that such ownership will not jeopardize the Company's status as a REIT and the
Board of Directors otherwise decides such action would be in the best interest
of the Company. As a condition of such waiver, the Board of Directors may
require an opinion of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to preserving our REIT status.
These proposed charter amendments further prohibit (1) any person from
actually or constructively owning shares of stock of the Company that 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 (2) any person
from transferring shares of common stock of the Company if such transfer would
result in shares of stock of the Company 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 common stock that will or may violate any
of the foregoing restrictions on transferability and ownership will be
required to give notice immediately to the Company and provide the Company
with such other information as the Company may request in order to determine
the effect of such transfer on the Company's status as a REIT.
Pursuant to these proposed charter amendments, if any purported transfer of
common stock or any other event would otherwise result in any person violating
the Ownership Limit or such other limit as permitted by the Board of
Directors, then any such purported transfer will be void and of no force or
effect and the shares proposed to be transferred will be deemed to have been
transferred to, and held by, a trustee of a trust for the exclusive benefit of
a charitable beneficiary. The trustee shall sell the shares to the Company or
to another person designated by the trustee whose ownership of the
27
shares will not violate the Ownership Limit. The proceeds of any such sale
will be distributed to the purported transferee and the charitable beneficiary
as provided in the proposed charter amendments. The shares of stock held by
the trustee will not provide the proposed transferee with any voting or
dividend rights. However, the proposed transferee does have certain rights in
the event of our liquidation, dissolution or winding up. The proposed charter
amendments would not preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange.
The full text of proposed new Sections 6, 7, 8 and 9 of Article V are set
forth in their entirety in Exhibit B to this Proxy Statement. The Board of
Directors believes that the provisions of these proposed new sections are
similar, in most material respects, to the restrictions on ownership and
transfer of shares contained in the charters of many publicly-traded REITs
formed within the past five years.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO SET FORTH NEW RESTRICTIONS ON THE
OWNERSHIP AND TRANSFER OF SHARES TO PRESERVE THE COMPANY'S STATUS AS A REAL
ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
AND TO CLARIFY THE POWER OF THE BOARD OF DIRECTORS TO GRANT EXEMPTIONS FROM
THE OWNERSHIP RESTRICTIONS CONTAINED IN THE CHARTER.
28
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proxy Item No. 6)
Arthur Andersen LLP audited our financial statements for the year ended
December 31, 2000 and has been HCPI's auditors since HCPI's inception.
Audit Fees. The aggregate fees billed for professional services rendered by
Arthur Andersen LLP for professional services rendered for the audit of the
Company's annual financial statements for the year ended December 31, 2000 and
the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q for that year were $587,000.
Financial Information Systems Design and Implementation Fees. Arthur
Andersen LLP did not render any professional services to the Company relating
to (1) directly or indirectly operating, or supervising the operation of, the
Company's information system or managing the Company's local area network and
(2) designing and implementing hardware or software systems that aggregate
data underlying the Company's financial statements or that generate
information significant to the Company's financial statements as a whole.
All Other Fees. The aggregate fees billed for services rendered by Arthur
Andersen LLP, other than fees for the services referenced under the captions
"Audit Fees" and "Financial Information Systems Design and Implementation
Fees," during the 2000 fiscal year were $531,000. These services consisted of
the preparation of the Company's tax returns and consulting services.
The directors have selected the firm of Arthur Andersen LLP as independent
accountants for HCPI for the fiscal year ending December 31, 2001, and are
submitting our selection for ratification by our stockholders. Unless you
specifically make another choice in the attached proxy, HCPI will count your
vote as for the ratification of the selection of Arthur Andersen LLP. If
stockholders do not ratify the selection of Arthur Andersen LLP, the selection
of independent accountants will be considered by the directors, although the
directors would not be required to select different independent accountants
for HCPI. The directors retain the power to replace the independent
accountants whose selection was ratified by stockholders if the directors
determine that the best interests of HCPI warrant a change of its independent
accountants. A representative of Arthur Andersen LLP is expected to be present
at the May 3, 2001 annual meeting and will have an opportunity to make a
statement if he desires to do so. Arthur Andersen's representative is expected
to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE SELECTION OF ARTHUR ANDERSEN LLP AS HCPI'S INDEPENDENT ACCOUNTANTS FOR
THE SUCCEEDING YEAR.
29
VOTING PROCEDURES
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
annual meeting is necessary to constitute a quorum at the 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 annual meeting.
Shares that abstain from voting on any proposal will be treated as shares that
are present and entitled to vote at the annual meeting for purposes of
determining whether a quorum exists, but will not be treated as votes cast and
therefore will have no effect of the result of the vote with respect to
proposals 1 and 6 but will have the effect of a negative vote with respect to
proposals 2 through 5.
Election of Directors (Proxy Item No. 1)
The affirmative vote of a plurality of all of the votes cast at a meeting at
which a quorum is present is necessary for the election of a director. For the
purposes of the election of directors, abstentions will have no effect on the
outcome of the vote. The election of directors is a matter on which a broker
or other nominee is empowered to vote. Accordingly, no broker non-votes will
result from this proposal.
Increase in Authorized Common Stock (Proxy Item No. 2)
Amendment of the Company's Charter to Clarify Ownership Restrictions (Proxy
Item No. 5)
The affirmative vote of a two-thirds of all of the votes entitled to be cast
at a meeting at which a quorum is present is necessary for the approval of
these proposals. Abstention from voting on these proposals will have the same
effect as a negative vote on these proposals. The increase in authorized
common stock and the charter amendment to clarify ownership restrictions are
matters on which a broker or other nominee is empowered to vote. Accordingly,
no broker non-votes will result from these proposals.
Decrease in Affirmative Votes Required for Most Charter Amendments and
Extraordinary Actions (Proxy Item No. 3)
Decrease in Affirmative Votes Required for Certain Charter Amendments from
90% to Two-thirds (Proxy Item No. 4)
The affirmative vote of two-thirds of all votes entitled to be cast by the
stockholders of the Company on each of these proposal is required for the
approval of such proposal. Abstention from voting on these proposals and
broker non-votes will have the same effect as a negative vote on these
proposals.
Under NYSE regulations, a broker or nominee holding shares of HCPI common
stock in "street name" for a beneficial owner will not be able to vote those
shares with respect to the approval of these proposals 3 and 4 without
instructions. If you do not provide your broker with instruction on how to
vote your shares that are held in "street name," your broker will not be
permitted to vote your shares on these proposals. Shareholders should contact
their brokers to instruct them how to vote your shares on these proposals. If
a broker or nominee holding shares of record for a customer indicates that it
does not have discretionary authority to vote on proposals 3 or 4, those
shares, which are referred to as broker non-votes, will be treated as present
and entitled to vote at the annual meeting for purposes of determining a
quorum and thus will have the effect of a negative vote on such proposals.
30
Ratification of Independent Accountants (Proxy Item No. 6)
The affirmative vote of a majority of all of the votes cast at a meeting at
which a quorum is present is required for the ratification of the selection of
Arthur Andersen LLP as independent accountants for the fiscal year ending
December 31, 2001. Abstentions as to this proposal will have no effect on the
outcome of the vote. The ratification of the Company's independent accountants
is a matter on which a broker or other nominee is empowered to vote.
Accordingly, no broker non-votes will result from this proposal.
31
DEADLINE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
The proxy rules adopted by the SEC provide that certain stockholder
proposals must be included in the proxy statement for HCPI's annual meeting.
For a proposal to be considered for inclusion in next year's proxy statement,
it must be received by HCPI no later than December 30, 2001.
OTHER MATTERS
The Board of Directors knows of no matters to be presented at the annual
meeting other than those described in this proxy statement. Other business may
properly come before the meeting, and in that event it is the intention of the
persons named in the accompanying proxy to vote in accordance with their
judgment on such matters.
The cost of the solicitation of proxies will be borne by HCPI. In addition
to solicitation by mail, directors and officers of HCPI, without receiving any
additional compensation, may solicit proxies personally or by telephone or
telegraph. HCPI will request brokerage houses, banks, and other custodians or
nominees holding stock in their names for others to forward proxy materials to
their customers or principals who are the beneficial owners of shares of our
common stock and will reimburse them for their expenses in doing so. HCPI has
retained the services of Georgeson Shareholder Communications Inc., for a fee
of $12,500 plus a flat fee per telephone call made by Georgeson plus out-of-
pocket expenses, to assist in the solicitation of proxies.
HCPI's annual report to stockholders, including HCPI's audited financial
statements for the year ended December 31, 2000, is being mailed herewith to
all stockholders of record as of March 5, 2001. HCPI WILL PROVIDE WITHOUT
CHARGE TO ANY PERSON SOLICITED HEREBY, UPON THE WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF HCPI'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2000 FILED WITH THE SEC. SUCH REQUESTS SHOULD BE DIRECTED TO
JAMES G. REYNOLDS, EXECUTIVE VICE PRESIDENT OF HEALTH CARE PROPERTY INVESTORS,
INC., AT 4675 MACARTHUR COURT, SUITE 900, NEWPORT BEACH, CALIFORNIA 92660.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Edward J. Henning
Edward J. Henning
Corporate Secretary
Newport Beach, California
March 28, 2001
32
EXHIBIT A
HEALTH CARE PROPERTY INVESTORS, INC.
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee (the "Committee") shall provide assistance to the Board
of Directors (the "Board") of Health Care Property Investors, Inc. (the
"Company") in fulfilling the Board's oversight responsibilities regarding the
Company's accounting and system of internal controls, the quality and
integrity of the Company's financial reports, and the independence and
performance of the Company's outside auditor. In so doing, the Committee will
be responsible for maintaining free and open means of communication between
the members of the Committee, other members of the Board, the outside auditor
and the financial management of the Company.
Membership
The Committee shall consist of at least three members of the Board. The
members shall be appointed by action of the Board and shall serve at the
discretion of the Board. Each Committee member shall be "financially literate"
as determined by the Board and shall satisfy the "independence" requirements
of the New York Stock Exchange. At least one member of the Committee shall
have "accounting or related financial management expertise," as determined by
the Board.
Committee Organization and Procedures
1. The members of the Committee shall appoint a Chair of the Committee by
majority vote. The Chair (or in his or her absence, a member designated by the
Chair) shall preside at all meetings of the Committee.
2. The Committee shall establish its own rules and procedures consistent
with the bylaws of the Company for notice and conduct of its meetings.
3. The Committee shall meet, in person or by telephonic conference call, at
least two times in each fiscal year, and more frequently as the Committee, in
its discretion, deems necessary to fulfill its responsibilities under this
charter.
4. The Committee may, in its discretion, include in its meetings members of
the Company's financial management, representatives of the outside auditor, a
representative of the accounting department and other financial personnel
employed or retained by the Company. The Committee may meet, in person or by
telephonic conference call, with the outside auditor or the designated
representative of the accounting department in separate executive sessions to
discuss any matters that the Committee believes should be addressed privately,
in person or by telephonic conference call, without management's presence. The
Committee may likewise meet privately with management, as it deems
appropriate.
5. The Committee may, in its discretion, utilize the services of the
Company's regular corporate legal counsel with respect to legal matters or, at
its discretion, retain separate legal counsel if it determines that such
counsel is necessary or appropriate under the circumstances.
6. The Committee shall prepare or cause to be prepared minutes of each of
its meetings. Copies of all minutes shall be delivered to the Board for its
information and action, when appropriate.
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Responsibilities
Outside Auditor
7. The outside auditor shall be ultimately accountable to the Committee and
the Board in connection with the audit of the Company's annual financial
statements and related services.
8. The Committee shall select and periodically evaluate the performance of
the outside auditor and, if necessary, recommend that the Board replace the
outside auditor.
9. The Committee shall approve the fees to be paid to the outside auditor
and any other terms of the engagement of the outside auditor.
10. The Committee shall receive from the outside auditor, at least annually,
a written statement delineating all relationships between the outside auditor
and the Company, consistent with Independence Standards Board Standard 1. The
Committee shall actively engage in a dialogue with the outside auditor with
respect to any disclosed relationships or services that, in the view of the
Committee, may impact the objectivity and independence of the outside auditor.
If the Committee determines that further inquiry is advisable, the Committee
shall recommend that the Board take any appropriate action in response to the
outside auditor's report to satisfy itself of the auditor's independence.
Annual Audit
11. The Committee shall meet, in person or by telephonic conference call,
with the outside auditor and management of the Company early in the process of
the annual audit to discuss the scope of the audit and the procedures to be
followed.
12. The Committee shall meet, in person or by telephonic conference call,
with the outside auditor and management prior to the public release of the
financial results of operations for the year under audit and discuss with the
outside auditor any matters within the scope of the pending audit that have
not yet been completed.
13. The Committee shall review and discuss the audited financial statements
with the management of the Company.
14. The Company shall discuss with the outside auditor the matters required
to be discussed by Statement on Auditing Standards No. 61 including, among
others, (i) the methods used to account for any significant unusual
transactions reflected in the audited financial statements; (ii) the effect of
significant accounting policies in any controversial or emerging areas for
which there is a lack of authoritative guidance or a consensus to be followed
by the outside auditor; (iii) the process used by management in formulating
particularly sensitive accounting estimates and the basis for the auditor's
conclusions regarding the reasonableness of those estimates; and (iv) any
disagreements with management over the application of accounting principles,
the basis for management's accounting estimates or the disclosures in the
financial statements.
15. The Committee shall, based on the review and discussions in paragraphs
13 and 14 above, and based on the disclosures received from the outside
auditor regarding its independence and discussions with the auditor regarding
such independence in paragraph 10 above, recommend, in writing, to the Board
whether the audited financial statements should be included in the Company's
Annual Report on Form 10-K for the fiscal year subject to the audit.
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Quarterly Review
16. The outside auditor is required to conduct a review of the interim
financial statements to be included in any Form 10-Q of the Company, prior to
its filing. The review is to be conducted using professional standards and
procedures for conducting such reviews, as established by generally accepted
auditing standards as modified or supplemented by the Securities and Exchange
Commission. The Committee, prior to filing the Form 10-Q, shall discuss with
management and the outside auditor in person, at a meeting, or by conference
telephone call, the results of the quarterly review including such matters as
significant adjustments, management judgments, accounting estimates,
significant new accounting policies and disagreements with management. The
Chair may represent the entire Committee for purposes of this discussion.
Internal Controls
17. The Committee shall discuss with the outside auditor and the designated
representative of the accounting department, at least annually, the adequacy
and effectiveness of the accounting and financial controls of the Company, and
consider any recommendations for improvement of such internal control
procedures.
18. The Committee shall discuss with the outside auditor and with management
any management letter provided by the outside auditor and any other
significant matters brought to the attention of the Committee by the outside
auditor as a result of its annual audit. The Committee should allow management
adequate time to consider any such matters raised by the outside auditor.
Other Responsibilities
19. The Committee shall review and reassess the Committee's charter at least
annually and submit any recommended changes to the Board for its
consideration.
20. The Committee shall submit, at least annually, to the New York Stock
Exchange, a written statement of affirmation of compliance with the audit
committee rules of the New York Stock Exchange.
21. The Committee shall provide for inclusion in the Company's Annual Proxy
Statement a report, required by Item 306 of Regulation S-K of the Securities
and Exchange Commission, describing procedures undertaken under paragraphs 10,
13, 14 and 15 above.
22. The Committee, through its Chair, shall report periodically, as deemed
necessary or desirable by the Committee, but at least annually, to the full
Board regarding the Committee's actions and recommendations, if any.
A-3
EXHIBIT B
HCPI STOCK TRANSFER RESTRICTION PROVISION FOR AMENDMENT TO THE
ARTICLES OF RESTATEMENT
ARTICLE V
Section 6. Restrictions on Ownership and Transfer to Preserve Tax Benefits.
(a) Definitions. For the purposes of Section 6 of this Article V, the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Common Stock by a Person
who is or would be treated as an owner of such Common 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 Own," "Beneficially Owns" and "Beneficially Owned" shall have
the correlative meanings.
"Charitable Beneficiary" shall mean one or more beneficiaries of a Trust,
as determined pursuant to Subsection 6(c)(vi) of this Article V.
"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.
"Common Stock" shall mean that Common Stock that may be issued pursuant
to Article IV, Section 1, of the Articles of Restatement.
"Constructive Ownership" shall mean ownership of Common Stock by a Person
who is or would be treated as an owner of such Common 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 Own," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
"Corporation" shall have the meaning set forth in the preamble to the
Articles of Restatement.
"Filing Date" shall mean the date this Amendment to the Articles of
Restatement is filed with the Department.
"Individual" means an individual, 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, or a private foundation within the meaning of section 509(a) of
the Code.
"IRS" means the United States Internal Revenue Service.
"Market Price" shall mean the last reported sales price reported on the
New York Stock Exchange of the Common Stock on the trading day immediately
preceding the relevant date, or if the Common Stock is not then traded on
the New York Stock Exchange, the last reported sales price of the Common
Stock on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which the Common Stock
may be traded, or if the Common Stock is not then traded over any exchange
or quotation system, then the market price of the Common Stock on the
relevant date as determined in good faith by the Board of Directors of the
Corporation.
"Ownership Limit" shall mean 9.8% (by value or by number of shares,
whichever is more restrictive) of the outstanding Common Stock of the
Corporation. The number and value of shares of outstanding Common Stock of
the Corporation shall be determined by the Board of Directors in good
faith, which determination shall be conclusive for all purposes hereof.
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"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 Common Stock provided that the ownership of such
shares of Common Stock by such underwriter would not result in the
Corporation being "closely held" within the meaning of Section 856(h) of
the Code, or otherwise result in the Corporation 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 Subsection 6(b)(ii) of this Article V, the Purported Record
Transferee, unless the Purported Record Transferee would have acquired or
owned shares of Common Stock for another Person who is the beneficial
transferee or 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 Subsection 6(b)(ii) of this Article V, the record holder of the
shares of Common Stock if such Transfer had been valid under Subsection
6(b)(i) of this Article V.
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors of the Corporation determines that it is no longer in
the best interests of the Corporation to attempt to, or continue to,
qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Common Stock, including (i) the granting of any option
or entering into any agreement for the sale, transfer or other disposition
of Common Stock or (ii) the sale, transfer, assignment or other disposition
of any securities (or rights convertible into or exchangeable for Common
Stock), whether voluntary or involuntary, whether such transfer has
occurred of record or beneficially or Beneficially or Constructively
(including but not limited to transfers of interests in other entities
which result in changes in Beneficial or Constructive Ownership of Common
Stock), and whether such transfer has occurred by operation of law or
otherwise.
"Trust" shall mean each of the trusts provided for in Subsection 6(c) of
this Article V.
"Trustee" shall mean any Person unaffiliated with the Corporation, or a
Purported Beneficial Transferee, or a Purported Record Transferee, that is
appointed by the Corporation to serve as trustee of a Trust.
(b) Restriction on Ownership and Transfers.
(i) From the Filing Date and prior to the Restriction Termination Date:
(A) except as provided in Subsection 6(i) of this Article V, no
Person shall Beneficially Own Common Stock in excess of the Ownership
Limit;
(B) except as provided in Subsection 6(i) of this Article V, no
Person shall Constructively Own Common Stock in excess of the Ownership
Limit; and
(C) no Person shall Beneficially or Constructively Own Common Stock
to the extent that such Beneficial or Constructive Ownership would
result in the Corporation being "closely held" within the meaning of
Section 856(h) of the Code, or otherwise failing to qualify as a REIT
(including but not
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limited to ownership that would result in the Corporation 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
Corporation (either directly or indirectly through one or more
partnerships or limited liability companies) from such tenant would
cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
(ii) If, during the period commencing on the Filing Date and prior to the
Restriction Termination Date, any Transfer or other event occurs that, if
effective, would result in any Person Beneficially or Constructively Owning
Common Stock in violation of Subsection 6(b)(i) of this Article V, (i) then
that number of shares of Common Stock that otherwise would cause such
Person to violate Subsection 6(b)(i) of this Article V (rounded up to the
nearest whole share) shall be automatically transferred to a Trust for the
benefit of a Charitable Beneficiary, as described in Subsection 6(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 (ii) if, for any reason,
the transfer to the Trust described in clause (i) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Common Stock in violation of
Subsection 6(b)(i) of this Article V, then the Transfer of that number of
shares of Common Stock that otherwise would cause any Person to violate
Subsection 6(b)(i) shall, subject to Section 9, be void ab initio, and the
Purported Beneficial Transferee shall have no rights in such shares.
(iii) Subject to Section 9 of this Article V and notwithstanding any
other provisions contained herein, during the period commencing on the
Filing Date and prior to the Restriction Termination Date, any Transfer of
Common Stock that, if effective, would result in the capital stock of the
Corporation 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 Common Stock.
(iv) It is expressly intended that the restrictions on ownership and
Transfer described in this Subsection 6(b) of Article V shall apply to
restrict the rights of any members or partners in limited liability
companies or partnerships to exchange their interest in such entities for
Common Stock of the Company.
(c) Transfers of Common Stock in Trust.
(i) Upon any purported Transfer or other event described in Subsection
6(b)(ii) of this Article V, such Common 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 Subsection 6(b)(ii). The
Trustee shall be appointed by the Corporation and shall be a Person
unaffiliated with the Corporation, any Purported Beneficial Transferee, and
any Purported Record Transferee. Each Charitable Beneficiary shall be
designated by the Corporation as provided in Subsection 6(c)(vi) of this
Article V.
(ii) Common Stock held by the Trustee shall be issued and outstanding
Common Stock of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall have no rights in the shares of Common
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 Common Stock held in the Trust.
B-3
(iii) The Trustee shall have all voting rights and rights to dividends
with respect to Common Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or distribution paid prior to the discovery by the Corporation
that shares of Common 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
Common 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 Common Stock held in the Trust and, subject to Maryland
law, effective as of the date the Common 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 Common Stock prior to the discovery by the
Corporation that the Common 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 Corporation has already taken irreversible corporate action,
then the Trustee shall not have the authority to rescind and recast such
vote. Notwithstanding the provisions of this Article V, until the
Corporation has received notification that the Common Stock has been
transferred into a Trust, the Corporation 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 Corporation that shares
of Common Stock have been transferred to the Trust, the Trustee of the
Trust shall sell the shares of Common Stock held in the Trust to a person,
designated by the Trustee, whose ownership of the shares of Common Stock
will not violate the ownership limitations set forth in Subsection 6(b)(i).
Upon such sale, the interest of the Charitable Beneficiary in the shares of
Common 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 Subsection 6(c)(iv). The
Purported Record Transferee shall receive the lesser of (i) the price paid
by the Purported Record Transferee for the shares of Common 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 Common Stock at Market Price, the Market Price of such
shares of Common Stock on the day of the event which resulted in the
transfer of such shares of Common Stock to the Trust) and (ii) 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
Common 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 Corporation that
shares of such Common Stock have been transferred to the Trustee, such
shares of Common Stock are sold by a Purported Record Transferee then (x)
such shares of Common Stock shall be deemed to have been sold on behalf of
the Trust and (y) to the extent that the Purported Record Transferee
received an amount for such shares of Common Stock that exceeds the amount
that such Purported Record Transferee was entitled to receive pursuant to
this Subsection 6(c)(iv), such excess shall be paid to the Trustee upon
demand.
(v) Common Stock transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, 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 Common 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 Common
Stock at Market Price, the Market Price of such shares of Common Stock on
the day of the
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event which resulted in the transfer of such shares of Common Stock to the
Trust) and (ii) the Market Price on the date the Corporation, or its
designee, accepts such offer. The Corporation shall have the right to
accept such offer until the Trustee has sold the shares of Common Stock
held in the Trust pursuant to Subsection 6(c)(iv). Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares of
Common 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 Common
Stock shall thereupon be paid to the Charitable Beneficiary.
(vi) By written notice to the Trustee, the Corporation shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that (i) the shares of Common Stock held in the
Trust would not violate the restrictions set forth in Subsection 6(b)(i) in
the hands of such Charitable Beneficiary and (ii) each Charitable
Beneficiary is an organization described in Sections 170(b)(1)(A),
170(c)(2) and 501(c)(3) of the Code.
(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
Subsection 6(b) of this Article V 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 the Corporation in violation of Subsection 6(b) of
this Article V, 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 Corporation to redeem shares of Common Stock,
refusing to give effect to such Transfer on the books of the Corporation 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 Subsection
6(b)(i) of this Article V, shall automatically result in the transfer to a
Trust as described in Subsection 6(b)(ii) and any Transfer in violation of
Subsection 6(b)(iii) shall, subject to Section 9, 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 in violation of Subsection 6(b) of this Article V, or any
Person who is a Purported Beneficial Transferee such that an automatic
transfer to a Trust results under Subsection 6(b)(ii) of this Article V, shall
immediately give written notice to the Corporation of such event and shall
provide to the Corporation such other information as the Corporation may
request in order to determine the effect, if any, of such Transfer or
attempted Transfer on the Corporation's status as a REIT.
(f) Owners Required to Provide Information. From the Filing Date and prior
to the Restriction Termination Date, each Person who is a beneficial owner or
Beneficial Owner or Constructive Owner of shares of Common Stock and each
Person (including the stockholder of record) who is holding shares of Common
Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall,
on demand, provide to the Corporation a completed questionnaire containing the
information regarding their ownership of such shares, as set forth in the
regulations (as in effect from time to time) of the U.S. Department of
Treasury under the Code. In addition, each Person who is a beneficial owner or
Beneficial Owner or Constructive Owner of shares of Common Stock and each
Person (including the stockholder of record) who is holding shares of Common
Stock for a beneficial owner or Beneficial Owner or Constructive Owner shall,
on demand, be required to disclose to the Corporation in writing such
information as the Corporation may request in order to determine the effect,
if any, of such stockholder's actual and constructive ownership of shares of
Common Stock on the Corporation's status as a REIT and to ensure compliance
with the Ownership Limit, or as otherwise permitted by the Board of Directors.
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(g) Remedies Not Limited. Nothing contained in this Article V (but subject
to Section 9 of this Article V) shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders by preservation
of the Corporation's status as a REIT.
(h) Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Section 6 of this Article V, including any definition
contained in Subsection 6(a), the Board of Directors shall have the power to
determine the application of the provisions of this Section 6 with respect to
any situation based on the facts known to it (subject, however, to the
provisions of Section 9 of this Article V). In the event Section 6 requires an
action by the Board of Directors and the Articles of Restatement or this
Amendment to the Articles of Restatement 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 6. Absent a decision to the contrary by the Board of
Directors (which the Board may make in its sole and absolute discretion), if a
Person would have (but for the remedies set forth in Subsection 6(b)(ii))
acquired Beneficial or Constructive Ownership of Common Stock in violation of
Subsection 6(b)(i), such remedies (as applicable) shall apply first to the
shares of Common Stock which, but for such remedies, would have been actually
owned by such Person, and second to shares of Common 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 Common Stock based upon the relative number of the shares of
Common Stock held by each such Person.
(i) Exceptions.
(i) Subject to Subsection 6(b)(i)(C) of this Article V, the Board of
Directors, in its sole discretion, may exempt a Person from the limitation
on a Person Beneficially Owning shares of Common Stock in excess of the
Ownership Limit if the Board determines that such exemption will not cause
any Individual's Beneficial Ownership of shares of Common Stock to violate
the Ownership Limit or that any such violation will not cause the
Corporation to fail to qualify as a REIT under the Code.
(ii) Subject to Subsection 6(b)(i)(C) of this Article V, the Board of
Directors, in its sole discretion, may exempt a Person from the limitation
on a Person Constructively Owning Common Stock in excess of the Ownership
Limit, as set forth in Subsection 6(b)(i)(B), of this Article V, if the
Board determines that such Person does not and will not own, actually or
Constructively, an interest in a tenant of the Corporation (or a tenant of
any entity owned in whole or in part by the Corporation) that would cause
the Corporation 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
or that any such ownership would not cause the Corporation to fail to
qualify as a REIT under the Code.
(iii) In granting a person an exemption under (i) or (ii) above, the
Board of Directors may require such Person to make certain representations
or undertakings or to agree that any violation or attempted violation of
such representations or undertakings (or other action which is contrary to
the restrictions contained in Subsection 6(b) of this Article V) will
result in such Common Stock being transferred to a Trust in accordance with
Subsection 6(b)(ii) of this Article V. Prior to granting any exception
pursuant to Subsection 6(i)(i) or (ii) of this Article V, the Board of
Directors may require a ruling from the IRS, 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 Corporation's status as a REIT.
B-6
Section 7. Legends. Each certificate for Common Stock and Preferred Stock
shall bear the following legends:
Classes of Stock
"THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS,
CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK. THE
BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ANY CLASS OF PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES
OF SUCH CLASS OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT
CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE
CORPORATION'S ARTICLES OF RESTATEMENT AND A WRITTEN STATEMENT OF THE
DESIGNATIONS, RELATIVE RIGHTS, 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 CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION
IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS 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. REQUESTS FOR SUCH
WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS
PRINCIPAL OFFICE."
Restriction on Ownership and Transfer
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE
PURPOSE OF THE CORPORATION'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 CORPORATION'S ARTICLES OF RESTATEMENT, (i) NO PERSON MAY
BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON STOCK IN
EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION; (ii) NO
PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK THAT
WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(h) OF
THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND
(iii) NO PERSON MAY TRANSFER SHARES OF COMMON STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100
PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF COMMON STOCK IN VIOLATION OF THE
ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST
FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE
CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE
BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES
B-7
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 THAT ARE DEFINED IN THE ARTICLES OF
RESTATEMENT OF THE CORPORATION SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
ARTICLES OF RESTATEMENT OF THE CORPORATION, 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 SHARES OF COMMON STOCK ON
REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE."
Section 8. Severability. If any provision of this Article V 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 provision shall not be affected and other applications of such
provisions shall be affected only to the extent necessary to comply with the
determination of such court.
Section 9. New York Stock Exchange. Nothing in this Article V shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange. The shares of Common Stock that are the subject of
such a transaction shall continue to be subject to the provisions of this
Article V after such settlement.
B-8
PROXY
HEALTH CARE PROPERTY INVESTORS, INC.
ANNUAL MEETING OF STOCKHOLDERS--MAY 3, 2001
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. (the "Company"), hereby appoints Kenneth B. Roath and Orville
E. Melby as Proxies, with the full power of substitution, to represent and to
vote as designated on this card all of the shares of Common Stock of the
Company which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held on May 3, 2001 at 9:30 A.M., or any adjournment or
postponement thereof.
Unless otherwise marked, this Proxy will be voted FOR the election of the
Board of Directors' nominees to the Board of Directors, FOR proposals 2, 3, 4
and 5 and FOR the ratification of Arthur Andersen LLP as independent auditors.
If any other business is presented at the Annual Meeting of Stockholders, the
Proxy will be voted in accordance with the discretion of the Proxies named
above.
The Board of Directors recommends a vote "FOR" the nominees listed below and
"FOR" Proposals 2, 3, 4, 5 and 6.
(IMPORTANT: PLEASE DATE AND SIGN THE PROXY ON REVERSE SIDE)
1. ELECTION OF DIRECTORS: Paul V. Colony and Peter L. Rhein
[_] WITHHOLD AUTHORITY to [_] *EXCEPTIONS
[_] FOR all nominees listed vote
above (except as marked to for all nominees listed
the contrary hereon) above
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name on the line provided below.)
Exceptions:
2. Increase the Company's authorized common stock from 100,000,000 shares to
200,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Reduce the affirmative stockholder vote required to approve most
amendments to the Company's Charter and extraordinary corporate actions from
two-thirds to a majority.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Reduce the affirmative stockholder vote required to approve certain
charter amendments relating to Sections 2, 3 and 4 of Article V of the
Company's Charter from 90% to two-thirds.
[_] FOR [_] AGAINST [_] ABSTAIN
5. Amend the Company's Charter to set forth new restrictions on the ownership
and transfer of shares to preserve the Company's REIT status and to clarify the
power of the Board of Directors to grant exemptions from the ownership
restrictions.
[_] FOR [_] AGAINST [_] ABSTAIN
6. Ratification of Arthur Andersen LLP as independent auditors for the year
ending December 31, 2001.
[_] FOR [_] AGAINST [_] ABSTAIN
7. In their discretion, upon any other matter that may properly come before
the Annual Meeting of Stockholders or any adjournment thereof.
[_] FOR [_] AGAINST [_] ABSTAIN
Please mark, date and sign as your name appears above. 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: _________, 2001
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Signature
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Signature
PLEASE DATE, SIGN AND
MAIL THIS PROXY IN
THE ENCLOSED
ENVELOPE.