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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-99067
PROSPECTUS SUPPLEMENT NO. 14
(To prospectus dated September 19, 2002)
1,101,559 Shares
HCP, Inc.
Common Stock
This prospectus supplement no. 14 supplements and amends the accompanying prospectus dated September 19, 2002 to update the
previously filed prospectus, including to reflect an adjustment factor of 2.2986 due to the 2-for-1 stock split we effected with respect to our common stock on March 2, 2004 and our spin-off of
Quality Care Properties, Inc. on October 31, 2016, resulting in the possible issuance of up to 1,101,559 shares of our common stock, from time to time, to the holders of units
representing
non-managing membership interests in HCPI/Utah II, LLC, upon tender of those units in exchange for shares of our common stock that we may issue in connection with a redemption of the tendered
units.
Registration
of the issuance of shares of our common stock as provided in this prospectus supplement does not necessarily mean that any of the holders of units representing non-managing
membership interests in HCPI/Utah II, LLC will exercise their redemption rights with respect to the units or that we will elect, in our sole discretion, to issue shares of our common stock to
satisfy our redemption obligation instead of cash.
We
will not receive any cash proceeds from the issuance of the shares of our common stock to the holders of units tendered for redemption, but we may acquire units representing
non-managing membership interests in HCPI/Utah II, LLC if we elect to issue shares of our common stock to a holder of units upon redemption of its units.
Our
common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "HCP." On June 19, 2018, the last reported sales price for our common stock on the NYSE was
$24.00 per share. Shares of our common stock are subject to ownership and transfer limitations that are intended to assist us in complying with the requirements to continue to qualify as a real estate
investment trust, or REIT.
Investing in our common stock involves risks. See "Risk Factors" on page S-1 of this prospectus supplement and the risk factors described
in our Annual Report on Form 10-K for the year ended December 31, 2017, as well as the risk factors relating to our business contained in documents we file with the Securities and
Exchange Commission which are incorporated by reference into this prospectus supplement and the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined that this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus supplement is June 21, 2018.
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You should rely only on the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus. We have not
authorized anyone to provide you with different information. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. This document may only be
used where it is legal to sell these securities. You should not assume that the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus is
accurate as of any date other than the date on the front of each document. Our business, financial condition, results of operations and prospects may have changed since then.
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Prospectus Supplement
Prospectus
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the Securities and Exchange
Commission, or SEC. Under this registration statement, we may issue, from time to time, up to 1,101,559 shares of our common stock to the holders of units representing non-managing membership
interests in HCPI/Utah II, LLC upon tender of those units in exchange for shares of our common stock. This prospectus supplement adds to, updates and changes information contained in the
accompanying prospectus. If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.
You
should carefully read (i) this prospectus supplement, (ii) the accompanying prospectus and (iii) the documents incorporated by reference herein and therein that
are described in this prospectus supplement and the accompanying prospectus under the heading "Where You Can Find More Information."
In
this prospectus supplement, unless otherwise indicated herein or the context otherwise indicates, the terms "HCP," "we," "us," "our" and the "Company" refer to HCP, Inc.,
together with its consolidated subsidiaries, the term "units" refers to units representing non-managing membership interests in HCPI/Utah II, LLC; and the term "common stock" refers to shares
of HCP, Inc. common stock. Unless otherwise stated, currency amounts in this prospectus supplement are stated in United States, or U.S., dollars.
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RISK FACTORS
Before acquiring our common stock, you should carefully consider the information under the heading "Risk Factors" in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as updated by our subsequent filings under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and in the accompanying prospectus. Each of the risks described in these documents could materially and adversely affect our business, financial
condition, results of operations and prospects, and could result in a decrease in the value of our common stock and a partial or complete loss of your investment therein.
Risks Related to This Offering
The market price and trading volume of our common stock may be volatile.
The market price of our common stock may be highly volatile and be subject to wide fluctuations. In addition, the trading volume in our common
stock may fluctuate and cause significant price variations to occur. The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies in
industries similar or related to ours and that have been unrelated to these companies' operating performances. If the market price of our common stock declines significantly, you may be unable to
resell your shares at a gain. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect
our share price or result in fluctuations in the price or trading volume of our common stock include:
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actual or anticipated variations in our quarterly operating results or distributions;
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changes in market valuations of similar companies;
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adverse market reaction to any increased indebtedness we may incur in the future;
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issuance of additional equity securities;
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actions by institutional stockholders;
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speculation in the press or investment community; and
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general market and economic conditions.
Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and
future offerings of equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely
affect the market price of our common stock.
In the future, we may raise capital through the issuance of debt or equity securities. Upon liquidation, holders of our debt securities and
preferred stock and lenders with respect to other borrowings will be entitled to our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of
our existing stockholders or reduce the market price of our common stock, or both. Preferred stock could have a preference on liquidating distributions or a preference on dividend payments that could
limit our ability to pay dividends to the holders of our common stock. Sales of substantial amounts of our common stock, or the perception that these sales could occur, could have a material adverse
effect on the price of our common stock. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future offerings. Thus holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and
diluting the value of their stock holdings in us.
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Risks Related to the Exchange of Units for Shares of Our Common Stock
The exchange of units representing non-managing membership interests in HCPI/Utah II, LLC for our
common stock is a taxable transaction.
The exchange of units of HCPI/Utah II, LLC for shares of our common stock (which may occur following the tender of such units for
redemption if we elect to satisfy the redemption obligation in shares of our common stock) will be treated for U.S. federal income tax purposes as a sale of the units by the holders of such units. A
holder of such units will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the fair market value of the shares of our common stock received in the exchange, plus the
amount of the HCPI/Utah II, LLC liabilities allocable to the units being exchanged, less the holder's adjusted tax basis in the units exchanged. The recognition of any loss is subject to a
number of limitations set forth in the Internal Revenue Code of 1986, as amended, referred to herein as the Internal Revenue Code. It is possible that the amount of gain recognized or even the tax
liability resulting from the gain could exceed the value of the shares of our common stock received upon the exchange. In addition, the ability of a holder of units to sell a substantial number of
shares of our common stock in order to raise cash to pay tax liabilities associated with the exchange of units may be restricted and, as a result of stock price fluctuations, the price the holder
receives for the shares of our common stock may not equal the value of the units at the time of the exchange.
An investment in our common stock is different from an investment in units representing non-managing
membership interests in HCPI/Utah II, LLC.
If a unitholder exercises its right to redeem its units, the holder may receive cash or, at our election, shares of common stock in exchange for
the units. If a unitholder tenders all of its units and receives cash, the holder will no longer have any interest in HCPI/Utah II, LLC or us, will not benefit from any subsequent increases in
the share price of our common stock and will not receive any future distributions from HCPI/Utah II, LLC or us (unless the holder currently owns or acquires in the future additional shares of
our common stock or additional units). If a unitholder receives shares of our common stock in exchange for its units, the holder will become one of our stockholders rather than a non-managing member
in HCPI/Utah II, LLC. Although the nature of an investment in shares of our common stock is substantially equivalent economically to an investment in units representing non-managing membership
interests in HCPI/Utah II, LLC, there are differences between ownership of
the units and ownership of our common stock. These differences, some of which may be material to you, include:
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form of organization;
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management control;
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voting and consent rights;
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liquidity; and
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federal income tax considerations.
These
differences are further described under "Comparison of HCPI/Utah II, LLC and HCP."
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You may inspect
without charge any documents filed by us at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov, that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including HCP, Inc.
The
SEC allows us to "incorporate by reference" information we file with the SEC into this prospectus supplement and the accompanying prospectus. This means that we can disclose
important information to you by referring you to another document that HCP has filed separately with the SEC.
The
information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus. Information that HCP files with the SEC after the date
of this prospectus supplement and that is incorporated by reference in this prospectus supplement and the accompanying prospectus will update and supersede the information included or incorporated by
reference into this prospectus supplement and the accompanying prospectus. We incorporate by reference in this prospectus supplement and the accompanying prospectus the following documents (other than
any portions of any such documents deemed to have been furnished and not filed in accordance with the applicable SEC rules):
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our Annual Report on Form 10-K for the fiscal year ended December 31, 2017;
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our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018;
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our Current Reports on Form 8-K filed on January 5, 2018, February 5, 2018, February 8, 2018, May 1, 2018,
May 2, 2018 and May 31, 2018;
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those portions of our Definitive Proxy Statement on Schedule 14A filed on March 16, 2018, that are incorporated by reference into
Part III of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017;
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the description of our common stock contained in our registration statement on Form 10 dated May 7, 1985 (File
No. 1-08895), including the amendments dated May 20, 1985 and May 23, 1985, and any other amendment or report filed for the purpose of updating such description, including the
description of amendments to our charter contained in our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2001, June 30, 2004 and September 30, 2007 and
September 30, 2017; and
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any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until we sell all of the securities
offered by this prospectus or the offering is otherwise terminated.
We
will provide copies, without charge, of any documents incorporated by reference in this prospectus supplement or the accompanying prospectus, excluding exhibits unless specifically
incorporated by reference, to any persons to whom a prospectus is delivered, including any beneficial owner, who requests them in writing or by telephone from:
Legal
Department
HCP, Inc.
1920 Main Street, Suite 1200
Irvine, California 92614
(949) 407-0700
legaldept@hcpi.com
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CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus supplement and the information incorporated by reference in this prospectus supplement or the accompanying
prospectus that are not historical factual statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Exchange Act. Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectation as identified by the use of
words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "forecast," "plan," "potential," "estimate," "could," "would," "should" and other comparable and derivative
terms or the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to risks and uncertainties that could significantly affect our
future financial condition and results of operations. While forward-looking statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can
give no assurance that our expectations or forecasts will be attained. As more fully set forth under "Risk Factors" in this prospectus supplement and under Part I, Item 1A. "Risk
Factors" in our most recent Annual Report on Form 10-K, these risks and uncertainties that may cause our actual results to differ materially from the expectations contained in the
forward-looking statements include, among other things:
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our reliance on a concentration of a small number of tenants and operators for a significant percentage of our revenues;
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the financial condition of our existing and future tenants, operators and borrowers, including potential bankruptcies and downturns in their
businesses, and their legal and regulatory proceedings, which results in uncertainties regarding our ability to continue to realize the full benefit of such tenants' and operators' leases and
borrowers' loans;
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the ability of our existing and future tenants, operators and borrowers to conduct their respective businesses in a manner sufficient to
maintain or increase their revenues and to generate sufficient income to make rent and loan payments to us and our ability to recover investments made, if applicable, in their operations;
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competition for the acquisition and financing of suitable healthcare properties as well as competition for tenants and operators, including
with respect to new leases and mortgages and the renewal or rollover of existing leases;
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our concentration in the healthcare property sector, particularly in senior housing, life sciences and medical office buildings, which makes
our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries;
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our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;
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the risks associated with property development and redevelopment, including costs above original estimates, project delays and lower occupancy
rates and rents than expected;
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the risks associated with our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority
and our reliance on our partners' financial condition and continued cooperation;
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our ability to achieve the benefits of acquisitions or other investments within expected time frames or at all, or within expected cost
projections;
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the potential impact on us and our tenants, operators and borrowers from current and future litigation matters, including the possibility of
larger than expected litigation costs, adverse results and related developments;
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operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA lease
structures;
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the effect on us and our tenants and operators of legislation, executive orders and other legal requirements, including compliance with the
Americans with Disabilities Act, fire, safety and health regulations, environmental laws, the Affordable Care Act, licensure, certification and inspection requirements, and laws addressing entitlement
programs and related services, including Medicare and Medicaid, which may result in future reductions in reimbursements or fines for noncompliance;
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changes in federal, state or local laws and regulations, including those affecting the healthcare industry that affect our costs of compliance
or increase the costs, or otherwise affect the operations, of our tenants and operators;
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our ability to foreclose on collateral securing our real estate-related loans;
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volatility or uncertainty in the capital markets, the availability and cost of capital as impacted by interest rates, changes in our credit
ratings, and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or consummate transactions, or reduce the earnings from potential
transactions;
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changes in global, national and local economic and other conditions, including currency exchange rates;
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our ability to manage our indebtedness level and changes in the terms of such indebtedness;
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competition for skilled management and other key personnel;
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the potential impact of uninsured or underinsured losses;
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our reliance on information technology systems and the potential impact of system failures, disruptions or breaches; and
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our ability to maintain our qualification as a real estate investment trust ("REIT").
Except
as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.
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THE COMPANY
HCP, an S&P 500 company, invests primarily in real estate serving the healthcare industry in the United States. We are a Maryland
corporation organized in 1985 and qualify as a self-administered REIT. We are headquartered in Irvine, California, with offices in Nashville and San Francisco. Our diverse portfolio is comprised of
investments in the following reportable healthcare segments: (i) senior housing triple-net, (ii) senior housing operating portfolio, (iii) life science and (iv) medical
office.
Our
principal executive offices are located at 1920 Main Street, Suite 1200, Irvine California 92614, and our telephone number is (949) 407-0700.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of shares of common stock offered by this prospectus supplement; however, we may acquire
units representing non-managing membership interests in HCPI/Utah II, LLC if we elect to issue shares of our common stock to a holder of units upon redemption of its units.
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DESCRIPTION OF CAPITAL STOCK
The following description summarizes the material provisions of the common stock and preferred stock we may offer. This description is not
complete and is subject to, and is qualified in its entirety by reference to, our charter and our bylaws and applicable provisions of the Maryland General Corporation Law, or the MGCL. The specific
terms of any series of preferred stock will be described in the applicable prospectus supplement. Any series of preferred stock we issue will be governed by our charter and by the articles
supplementary related to that series. We will file the articles supplementary with the SEC and incorporate it by reference as an exhibit to our registration statement at or before the time we issue
any preferred stock of that series of authorized preferred stock.
Our
authorized capital stock consists of 750,000,000 shares of common stock, par value $1.00 per share, and 50,000,000 shares of preferred stock, par value $1.00 per share. The following
description does not contain all the information that might be important to you.
Common Stock
As of June 19, 2018, there were 469,796,924 shares of common stock outstanding. All shares of common stock participate equally in
dividends payable to holders of common stock, when, as and if authorized by our board and declared by us, and in net assets available for distribution to holders of common stock on liquidation,
dissolution, or winding up. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of our stockholders. Holders of common stock do not have
cumulative voting rights in the election of directors.
All
issued and outstanding shares of common stock are, and the common stock offered by this prospectus supplement will be upon issuance, validly issued, fully paid and nonassessable.
Holders of common stock do not have preference, conversion, exchange or preemptive rights. The common stock is listed on the NYSE (NYSE Symbol: HCP).
The
Transfer Agent and Registrar for our common stock is Equiniti Trust Company d/b/a EQ Shareowner Services.
As of June 19, 2018 we had no shares of preferred stock outstanding. Under our charter, our board is authorized without further
stockholder action to establish and issue, from time to time, up to 50,000,000 shares of our preferred stock, in one or more series. Our board may grant the holders of preferred stock of any series
preferences, powers and rightsvoting or otherwisesenior to those of holders of shares of our common stock. Our board can authorize the issuance of shares of preferred stock
with terms and conditions that could have the effect of delaying or preventing a change of control transaction that might involve a premium price for holders of shares of our common stock or otherwise
be in their best interest. All shares of preferred stock will, when issued in exchange for the consideration therefore, be fully paid and nonassessable and will have no preemptive rights. The MGCL and
our charter require our board to determine the terms and conditions of any series of preferred stock, including:
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the number of shares constituting such series and the distinctive designation thereof;
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the voting rights, if any, of such series;
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the rate of dividends payable on such series, the time or times when dividends will be payable, the preference to, or any relation to, the
payment of dividends to any other class or series of stock and whether the dividends will be cumulative or noncumulative;
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whether there shall be a sinking or similar fund for the purchase of shares of such series and, if so, the terms and provisions that shall
govern such fund;
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the rights of the holders of shares of such series upon our liquidation, dissolution or winding up;
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the rights, if any, of holders of shares of such series to convert such shares into, or to exchange such shares for, shares of any other class
or classes or any other series of the same or of any other class or classes of our stock or any other securities, the price or prices or rate or rates of exchange, with such adjustments as shall be
provided, at which such shares shall be convertible or exchangeable, whether such rights of conversion or exchange shall be exercisable at the option of the holder of the shares or upon the happening
of a specified event and any other terms or conditions of such conversion or exchange;
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if the shares are redeemable, the prices at which, and the terms and conditions on which, the shares of such series may be redeemed; and
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any other preferences, powers and relative participating, optional or other special rights and qualifications, limitations or restrictions of
shares of such series.
The
terms and conditions of any particular series of preferred stock will be described in the prospectus supplement relating to that particular series of preferred stock.
Transfer and Ownership Restrictions Relating to Our Common Stock
Our charter contains restrictions on the ownership and transfer of our common stock that are intended to assist us in complying with the
requirements to continue to qualify as a REIT.
Subject
to limited exceptions, no person or entity may own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8%
(by number or value of shares, whichever is more restrictive) of the outstanding shares of our common stock. Our board may, but is in no event required to, waive the applicable ownership limit with
respect to a particular stockholder if it determines that such ownership will not jeopardize our status as a REIT and our board otherwise decides such action would be in our best interests.
These
charter provisions further prohibit:
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any person from actually or constructively owning shares of our stock that would result in our being "closely held" under Section 856(h)
of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT (including but not limited to ownership that would result in us owning, actually or constructively, an interest in a
tenant as described in Section 856(d)(2)(B) of the Internal Revenue Code if the income derived by us, either directly or indirectly, from such tenant would cause us to fail to satisfy any of
the gross income requirements of Section 856(c) of the Internal Revenue Code); and
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any person from transferring shares of our capital stock if such transfer would result in shares of our stock 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 our stock that will or may violate any of these restrictions on ownership and
transfer is required to give notice immediately to us and provide us with such other information as we may request in order to determine the effect of the transfer on our qualification as a REIT.
Under our charter, if any purported transfer of our stock or any other event would otherwise result in any person violating the applicable ownership limit or such other limit as permitted by our
board, then any such purported transfer is void and of no force or effect with respect to the purported transferee as to that number of
shares of our stock in excess of the ownership limit or such other limit, and the transferee will acquire no right or interest in such excess shares. Any excess shares described above are transferred
automatically, by operation of law, to a trust, the beneficiary of which is a qualified charitable organization selected by us. Such automatic transfer will be deemed to be effective as of the
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close
of business on the business day prior to the date of such violative transfer. Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust
is required to sell the excess shares to a person or entity who could own the shares without violating the applicable ownership limit, or such other limit as permitted by our board, and distribute to
the prohibited transferee an amount equal to the lesser of the price paid by the prohibited transferee for the excess shares or the sales proceeds received by the trust for the excess shares. Any
proceeds in excess of the amount distributable to the prohibited transferee are distributed to the beneficiary of the trust. Prior to a sale of any such excess shares by the trust, the trustee is
entitled to receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such excess shares, and also is entitled to exercise all voting rights with respect
to such excess shares.
Subject
to Maryland law, effective as of the date that such shares have been transferred to the trust, the trustee will have the authority, at the trustee's sole
discretion:
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to rescind as void any vote cast by a prohibited transferee prior to the discovery by us that the shares have been transferred to the trust; or
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to recast such vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.
However,
if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast such vote. Any dividend or other distribution paid to
the prohibited transferee, prior to the discovery by us that such shares had been automatically transferred to a trust as described above, are required to be repaid to the trustee upon demand for
distribution to the beneficiary of the trust. In the event that the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the ownership limit
or such other limit as permitted by our board, then our charter provides that the transfer of the excess shares is void ab initio.
In
addition, shares of common stock held in the trust shall be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser
of:
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the price per share in the transaction that resulted in such transfer to the trust or, in the case of a devise or gift, the market price at the
time of such devise or gift; and
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the market price on the date we, or our designee, accepted the offer.
We
will have the right to accept the offer until the trustee has sold the shares of stock held in the trust. Upon a sale to us, the interest of the beneficiary in the shares sold will
terminate and the trustee will distribute the net proceeds of the sale to the prohibited transferee.
If
any purported transfer of shares of common stock would cause us to be beneficially owned by fewer than 100 persons, such transfer will be null and void ab initio in its entirety and
the intended transferee will acquire no rights to the stock.
All
certificates representing shares of common stock bear a legend referring to the restrictions described above. The foregoing ownership limitations could delay, defer or prevent a
transaction or a change in control of us that might involve a premium price for the common stock or otherwise be in the best interest of our stockholders.
In
addition, if our board shall, at any time and in good faith, be of the opinion that direct or indirect ownership of at least 9.9% of the voting shares of capital stock has or may
become concentrated in the hands of one beneficial owner, it shall have the power:
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by lot or other means deemed equitable by it to call for the purchase from any stockholder of a number of voting shares sufficient, in the
opinion of our board, to maintain or bring the direct
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If
our board fails to grant an exemption from this 9.9% ownership limitation, then the transfer of shares, options, warrants, or other securities convertible into voting shares that
would create a beneficial owner of more than 9.9% of the outstanding voting shares shall be deemed void ab initio, and the intended transferee shall be deemed never to have had an interest in the
transferred securities. The purchase price for any voting shares of capital stock so redeemed shall be equal to the fair market value of the shares reflected in the closing sales price for the shares,
if then listed on a national securities exchange, or the average of the closing sales prices for the shares if then listed on more than one national securities exchange, or if the shares are not then
listed on a national securities exchange, the latest bid quotation for the shares if then traded over-the-counter, on the last business day immediately preceding the day on which we send notices of
such acquisitions, or, if no such closing sales prices or quotations are available, then the purchase price shall be equal to the net asset value of such stock as determined by the board in accordance
with the provisions of applicable law. From and after the date fixed for purchase by the board, the holder of any shares so called for purchase shall cease to be entitled to distributions, voting
rights and other benefits with respect to such shares, except the right to payment of the purchase price for the shares.
Business Combination Provisions
Our charter requires that, except in some circumstances, "business combinations" between us and a beneficial holder of 10% or more of our
outstanding voting stock (a "Related
Person") be approved by the affirmative vote of at least 90% of our outstanding voting shares. A "business combination" is defined in our charter as:
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any merger or consolidation with or into a Related Person;
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any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any
"Substantial Part" (as defined below) of our assets, including any voting securities of a subsidiary, to a Related Person;
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any merger or consolidation of a Related Person with or into us;
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any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of the assets of a Related Person to us;
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the issuance of any of our securities, other than by way of pro rata distribution to all stockholders, to a Related Person; and
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any agreement, contract or other arrangement providing for any of the transactions described above.
The
term "Substantial Part" means more than 10% of the book value of our total assets as of the end of our most recent fiscal year ending prior to the time the determination is being
made.
In
addition to the restrictions on business combinations contained in our charter, Maryland law also contains restrictions on business combinations. See "Certain Provisions of Maryland
Law and HCP's Charter and BylawsBusiness Combinations."
The
foregoing provisions may have the effect of discouraging unilateral tender offers or other takeover proposals which stockholders might deem to be in their interests or in which they
might receive a substantial premium. Our board's authority to issue and establish the terms of currently
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authorized
preferred stock, without stockholder approval, may also have the effect of discouraging takeover attempts. See "Preferred Stock."
The
foregoing provisions could also have the effect of insulating current management against the possibility of removal and could, by possibly reducing temporary fluctuations in market
price caused by accumulations of shares of our common stock, deprive stockholders of opportunities to sell at a temporarily higher market price. Our board believes, however, that inclusion of the
business combination provisions in our charter may help assure fair treatment of our stockholders and preserve our assets.
Transfer and Ownership Restrictions Relating to Our Preferred Stock
Our charter may contain restrictions on the ownership and transfer of preferred stock that are intended to assist us in complying with the
requirements to maintain our qualification as a REIT. Subject to limited exceptions, unless otherwise provided in a prospectus supplement relating to a particular series of the preferred stock, no
person or entity may own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% (by number or value of shares, whichever is
more restrictive) of the outstanding shares of such series of preferred stock. Our board may, but in no event will be required to, waive the applicable ownership limit with respect to a particular
stockholder if it determines that such ownership will not jeopardize our qualification as a REIT and our board otherwise decides such action would be in our best interests. The mechanics for the
ownership limits on our preferred stock will be similar to the mechanics related to our common stock, as described in "Transfer and Ownership Restrictions Relating to Our Common Stock" above, unless
otherwise provided in a prospectus supplement relating to a particular series of the preferred stock.
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OPERATING AGREEMENT
The following summarizes the material provisions of the operating agreement, as amended, of
HCPI/Utah II, LLC. The summary is qualified in its entirety by reference to the operating agreement of HCPI/Utah II, LLC, which is filed as an exhibit to the Current Report
on Form 8-K dated November 9, 2012.
Management
HCPI/Utah II, LLC was organized as a Delaware limited liability company under the Delaware Limited Liability Company Act and the terms of
its operating agreement, the Amended
and Restated Limited Liability Company Agreement of HCPI/Utah II, LLC. HCP is the sole managing member of HCPI/Utah II, LLC. Generally, pursuant to the operating agreement, we have
exclusive and complete responsibility and discretion in the management and control of HCPI/Utah II, LLC, including, subject to the restrictions discussed below, the ability to cause it to enter
into major transactions such as acquisitions, dispositions, financings, and refinancings, and to manage and operate its properties. We may not be removed as the managing member of HCPI/Utah
II, LLC, with or without cause, unless we consent to being removed. Non-managing members of HCPI/Utah II, LLC have no authority to transact business for HCPI/Utah II, LLC or
participate in its management activities, except in limited circumstances described below and as required by any non-waivable provision of applicable law.
As
the managing member, we may not take any action in contravention of the operating agreement, including:
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taking any action that would make it impossible to carry out the ordinary business of HCPI/Utah II, LLC, except as otherwise
provided in the operating agreement;
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possessing or assigning any rights in specific property owned by HCPI/Utah II, LLC, other than for a HCPI/Utah II, LLC purpose,
except as otherwise provided in the operating agreement;
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taking any action that would cause a non-managing member to be subject to liability as a managing member or any other liability, except as
provided in the operating agreement or by law;
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entering into any agreement that would have the effect of restricting a member of HCPI/Utah II, LLC from exercising its right to
exchange its units as provided in the operating agreement and discussed below under "Exchange Rights," or the effect of restricting HCPI/Utah II, LLC or us from satisfying our
obligations under the operating agreement to effect such exchange, unless such member gives its prior written consent to such action; or
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entering into any agreement that would have the effect of restricting HCPI/Utah II, LLC's ability to make distributions to its members,
without the written consent of each member affected by the restriction.
The
consent of the holders of a majority of the outstanding non-managing member units is required before we will be permitted to take the following extraordinary actions involving
HCPI/Utah II, LLC, subject to limited exceptions:
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the amendment, modification or termination of the operating agreement other than to reflect the permitted admission, substitution, termination
or withdrawal of members or in connection with a permitted dissolution or termination of HCPI/Utah II, LLC;
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approving or acquiescing to the transfer of all or a portion of the membership interest held by us, other than a transfer to HCPI/Utah
II, LLC;
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the admission of any additional or substitute managing members in HCPI/Utah II, LLC;
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making a general assignment for the benefit of HCPI/Utah II, LLC's creditors, appointing or acquiescing to the appointment of a
custodian for any part of the assets of HCPI/Utah II, LLC or instituting any proceeding for bankruptcy on behalf of HCPI/Utah II, LLC; or
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confessing a judgment against HCPI/Utah II, LLC in excess of $5,000,000.
In
addition to the above restrictions, we, as the managing member, may not amend the operating agreement or take actions without the consent of any non-managing member who would be
adversely affected if such amendments or actions would, among other things:
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convert a non-managing member's interest in HCPI/Utah II, LLC into a managing member interest;
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modify the limited liability of a non-managing member;
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alter the rights of a member to receive distributions or the allocation of income and loss to a member; or
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materially alter the right of a member to exchange its non-managing member units for our common stock.
As
managing member, we may, however, amend the operating agreement without non-managing member consent:
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to reflect the issuance of additional membership interests in exchange for capital contributions of cash or property, or the admission,
substitution, termination or withdrawal of members or the redemption or other reduction in the number of units outstanding as permitted by the operating agreement;
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to reflect inconsequential changes that do not adversely affect the non-managing members, cure ambiguities and make other changes not
inconsistent with law or the provisions of the operating agreement;
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to satisfy any requirements, conditions or guidelines contained in any governmental order or required by law;
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to reflect changes that are reasonably necessary for us, our affiliates or other members to maintain their status as a REIT; or
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to modify the manner in which capital accounts are computed.
Tax Protection Period
Until the earlier of (a) a specified date with respect to certain real properties or (b) such time as certain non-managing members
of HCPI/Utah II, LLC (excluding the non-managing members that were issued non-managing member units on February 28, 2007) have disposed, in taxable transactions, of 80% of the
non-managing member units issued to them in exchange for their contribution of property to HCPI/Utah II, LLC (the "Tax Protection Period"), HCPI/Utah II, LLC will be required to pay to
specified non-managing members a make-whole payment in an amount equal to the aggregate federal, state and local income taxes incurred by the non-managing member as a result of the event, if we do any
of the following, subject to limited exceptions, without the prior consent of the holders of a majority of the non-managing member units held by non-managing members:
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cause HCPI/Utah II, LLC to merge with another entity, sell all or substantially all of its assets or reclassify its outstanding equity
interests (except in connection with certain expenditures and lending and borrowing of money, certain mortgaging and encumbering of the assets of HCPI/Utah II, LLC and the forming of
entities as wholly-owned subsidiaries for certain purposes);
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sell certain of HCPI/Utah II, LLC's real properties;
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refinance specified nonrecourse indebtedness of HCPI/Utah II, LLC, unless such indebtedness is refinanced with nonrecourse indebtedness
that does not require principal payments greater than the existing indebtedness and is secured solely by the property which secured the repayment of the existing indebtedness;
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prepay such specified nonrecourse indebtedness;
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convert such specified nonrecourse indebtedness to recourse indebtedness; or
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fail to provide certain non-managing members the opportunity to guaranty debt of HCPI/Utah II, LLC in an amount up to the
non-managing member's share of a specified recourse debt amount, as determined by the non-managing member representative.
HCPI/Utah
II, LLC will also be required to pay a make-whole payment to specified non-managing members if, without the consent of the holders of a majority of the non-managing
member units held by non-managing members, we dissolve HCPI/Utah II, LLC, unless certain non-managing members have disposed of 90% of the non-managing member units issued to them in exchange
for their contribution of property to HCPI/Utah II, LLC prior to the third anniversary of the issuance of such non-managing member units or 80% of such non-managing member units thereafter (the
"Dissolution Protection Period").
In
the event that HCP/Utah II, LLC fails to pay a required make-whole payment, then we shall make the make-whole payment.
Transferability of Interests
The operating agreement provides that a non-managing member may transfer its units only after first offering those units to us and otherwise
obtaining our consent, except that a non-managing member may, without obtaining our consent, pledge its units as security for the repayment of debt and transfer such units to the lender upon the
foreclosure of such debt if such transfer would not otherwise violate the terms of the operating agreement. A non-managing member may also, without our consent, transfer its units to a partner or
member in such non-managing member, as a distribution or in liquidation of that partner's or member's interest in such non-managing member, to a family member of such non-managing member, a trust all
of the beneficiaries of which are such non-managing member and family members of such non-managing member, a corporation, general or limited partnership or limited liability company all of the owners
of which are such non-managing member and family members of such non-managing member or to an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Internal Revenue
Code, in each case, so long as the transfer would not otherwise violate the terms of the operating agreement. The operating agreement further imposes the following restrictions on the transfer of the
non-managing member units:
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the person to whom any units are transferred must assume all of the obligations of the transferor under the operating agreement;
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we will have the right to receive an opinion of counsel that the proposed transfer may be effected without registration under the Securities
Act, and will not otherwise violate any federal or state securities laws or regulations;
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we may prohibit any transfer otherwise permitted under the operating agreement if such transfer would require the filing of a registration
statement under the Securities Act or would otherwise violate any applicable federal or state securities laws or regulations;
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no transfer may be made to any person without our consent if such transfer could result in HCPI/Utah II, LLC being treated as an
association taxable as a corporation, adversely affect our
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The
admission of a transferee of non-managing membership units as a non-managing member of HCPI/Utah II, LLC is subject to the transferee's acceptance of the terms and conditions
of HCPI/Utah II, LLC's operating agreement.
Capital Contributions
The operating agreement provides that if HCPI/Utah II, LLC requires additional funds for its operation, we may fund those
investments by making a capital contribution to HCPI/Utah II, LLC. In addition, in certain circumstances, we are required to make additional capital contributions, including to the extent
necessary:
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to fund capital additions, tenant improvements and leasing commissions relating to HCPI/Utah II, LLC's real properties except
those tenant improvement costs not assumed by HCPI/Utah II, LLC at the time the applicable property was contributed to it; and
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to repay certain mortgage debt of HCPI/Utah II, LLC that we elect to repay in accordance with the terms of the operating agreement.
If
we fund a capital contribution, we have the right to receive additional managing member units. In the event we receive additional managing member units in return for additional
capital contributions,
our membership interest in HCPI/Utah II, LLC will be increased. Non-managing members of HCPI/Utah II, LLC do not have the right to make additional capital contributions to HCPI/Utah
II, LLC unless permitted to do so by us in our discretion. Accordingly, the membership interests of non-managing members in HCPI/Utah II, LLC will be diluted to the extent we receive an
additional membership interest.
Tax Matters
Pursuant to the operating agreement, we are the tax matters partner of HCPI/Utah II, LLC. The tax matters partner serves as HCPI/Utah
II, LLC's representative in most tax matters. For example, as the tax matters partner, we have the authority to file tax returns and make elections for HCPI/Utah II, LLC, conduct
audits, file refund claims on behalf of HCPI/Utah II, LLC and settle adjustments. In addition, as the tax matters partner, we will receive notices and other information from
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the
Internal Revenue Service, or IRS. The designation of HCP as the tax matters partner of HCPI/Utah II, LLC is not directly relevant to our tax status as a REIT.
Pursuant
to the Bipartisan Budget Act of 2015, the Internal Revenue Code will no longer require that we designate a tax matters partner. For taxable years beginning after
December 31, 2017, we anticipate that HCPI/Utah, II LLC will designate a partnership representative to act on its behalf for purposes of, among other things, U.S. federal income
tax audits and judicial review of administrative adjustments by the IRS.
Operations
The sole purposes of HCPI/Utah II, LLC are to acquire, own, manage, operate, maintain, improve, expand, redevelop, encumber, sell or
otherwise dispose of the real properties contributed to it, and any other properties acquired by it, and to invest and ultimately distribute funds obtained from owning, operating or disposing of such
properties. The operating agreement provides, however, that we, as managing member, may operate HCPI/Utah II, LLC in a manner that will enable
us to satisfy the requirements for being classified as a REIT and avoid any federal income tax liability, among other things. Under the operating agreement, HCPI/Utah II, LLC assumes and pays
when due, or reimburses us for payment of, all costs and expenses that we incur for the benefit of or relating to its operation.
Distributions
Holders of non-managing member units are entitled to receive cumulative preferential distributions from the date of issuance of those
non-managing member units, payable on a quarterly basis. The right of holders of non-managing member units to receive cumulative preferential distributions means that, unless and until each of those
quarterly distributions are paid in full, HCPI/Utah II, LLC cannot make any distributions to us. These preferred distributions are an amount per unit equal to the amount payable with respect to
each share of our common stock for the corresponding quarter (subject to adjustment in the event we pay a dividend or distribution on our common stock in shares of our common stock, split or subdivide
our common stock or effect a reverse stock split or other combination of our common stock into a smaller number of shares). Following the payment of the preferred distribution to holders of the
non-managing member units, HCPI/Utah II, LLC is required to distribute the remaining cash available for distribution to us until all distributions of cash, including prior distributions, have
been made to the members of HCPI/Utah II, LLC pro rata on the basis of the number of managing member or non-managing member units held by them as compared to the total number of managing member
and non-managing member units then outstanding. Thereafter, the remaining cash available for distribution is distributed to the unitholders in proportion to their Sharing Percentages. The "Sharing
Percentage" of a holder of non-managing member units is determined by multiplying 1% by a fraction, the numerator of which is the number of non-managing member units then outstanding and the
denominator of which is the number of non-managing member units issued to certain non-managing members, and multiplying the result by a fraction, the numerator of which is the number of non-managing
member units held by such unitholder, and the denominator of which is the total number of non-managing member units then outstanding. Our "Sharing Percentage," as the managing member of HCPI/Utah
II, LLC, is equal to 100% minus the aggregate Sharing Percentage of the holders of non-managing member units.
In
the event of a taxable disposition of some of HCPI/Utah II, LLC's real property, we may elect to distribute all or a portion of the net proceeds of the taxable disposition to
the unitholders. In this event, we must distribute these proceeds as follows:
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first, to the holders of non-managing member units to pay any previously unpaid preferred distribution on the non-managing member units held by
them;
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second, to us until all distributions of cash, including prior distributions, have been made to the members of HCPI/Utah II, LLC pro
rata on the basis of the number of managing member or non-managing member units held by them as compared to the total number of managing member and non-managing member units then outstanding;
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third, to the holders of managing member units and non-managing member units in proportion to the number of managing member units and
non-managing member units held by them in redemption of those units, as discussed below, until all non-managing member units have been redeemed; and
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finally, the remaining balance to us.
The
distribution of the net proceeds from the taxable disposition of real property will constitute a return of capital to the unitholders of HCPI/Utah II, LLC. As such, we will
cause HCPI/Utah II, LLC to reduce the number of units outstanding at the time of such distributions by causing non-managing member units to be redeemed.
Upon
the refinancing of a property or the incurrence of additional debt, the repayment of which is secured by a property owned by HCPI/Utah II, LLC, we may elect to distribute all
or a portion of the refinancing or other debt proceeds to the unitholders. In this event, we must distribute such proceeds:
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first, to the holders of non-managing member units to pay any previously unpaid preferred distribution on the non-managing member units held by
them; and
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finally, the remaining balance to us.
Allocation of Income and Loss
The operating net income and net loss of HCPI/Utah II, LLC is generally allocated as follows:
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operating net loss for any fiscal year is allocated to the unitholders in accordance with their Sharing Percentages; and
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operating net income for any fiscal year is allocated as follows:
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first, to each unitholder to the extent necessary to offset any operating net loss previously allocated to such unitholder; and
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second, to each unitholder in an amount that will cause the current allocation, together with all previous allocations of
operating net income and net income resulting from the disposition of real property, to be pro rata to the cumulative distributions received by such unitholder for the current and all prior fiscal
years;
In
the event HCPI/Utah II, LLC sells or otherwise disposes of any of its real properties, however, the net income or net loss attributable to such sale or disposition is generally
allocated as follows:
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net loss attributable to the sale or other disposition of real property is allocated to the holders of units in proportion to their Sharing
Percentages; and
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net income attributable to the sale or other disposition of real property is allocated as follows:
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first, to each unitholder to the extent necessary to offset any net loss previously allocated to such unitholder upon the sale or
other disposition of a property;
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second, to each unitholder in an amount that will cause the current allocation, together with all previous allocations of
operating net income and net income resulting from the disposition of real property, to be pro rata to the cumulative distributions received by such unitholder for the current and all prior fiscal
years; and
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thereafter, to each unitholder in proportion to the number of units held by them.
In
the event HCPI/Utah II, LLC liquidates or if no units are held by non-managing members, the net income or net loss for that year and any subsequent years is generally allocated
as follows:
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first, to holders of non-managing member units in such amounts as will cause their capital account per unit to be, to the greatest extent
possible, equal to the sum of: (a) the holder's preferred return shortfall per unit (if any), (b) the value of two shares of our stock (subject to specified adjustments), and
(c) their pro rata share of a 1% (subject to adjustment) sharing amount; and
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thereafter, to us.
Each
of the allocation provisions described above is subject to special allocations relating to depreciation deductions and to compliance with the provisions of Sections 704(b)
and 704(c) of the Internal Revenue Code and related Treasury Regulations.
Term
The operating agreement provides that HCPI/Utah II, LLC will continue until dissolved by us in accordance with the provisions of the
operating agreement or as otherwise provided by law. HCPI/Utah II, LLC also will dissolve if:
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we withdraw as the managing member (other than in an event of bankruptcy) and the non-managing members holding a majority of the non-managing
member units then outstanding do not agree in writing within 90 days to continue the business of HCPI/Utah II, LLC and to the appointment of a substitute managing member;
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we elect to dissolve it in accordance with the provisions of the operating agreement;
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it sells all or substantially all of its assets and properties;
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it is dissolved by judicial order;
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we dissolve or become bankrupt or otherwise incapacitated, unless within 90 days the non-managing members holding a majority of the
outstanding non-managing member units agree in writing to continue the business of HCPI/Utah II, LLC and to the appointment of a substitute managing member; or
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all of the non-managing member units held by non-managing members have been exchanged for cash or our common stock.
Indemnification and Management Liability
The operating agreement provides that, to the fullest extent permitted by law, HCPI/Utah II, LLC will indemnify us, our directors, our
and HCPI/Utah II, LLC's officers and employees and those other persons and entities that we may designate, unless:
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the act taken by an indemnitee that was material to the matter giving rise to the proceeding was in bad faith or was the result of active and
deliberate dishonesty;
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an indemnitee received an improper personal benefit; or
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in the case of any criminal proceeding, an indemnitee had reasonable cause to believe the act was unlawful.
HCPI/Utah
II, LLC is obligated to reimburse the reasonable expenses incurred by an indemnitee in advance of the final disposition of the proceeding if such indemnitee provides
HCPI/Utah II, LLC with an affirmation of its good faith belief that the standard of conduct necessary for indemnification
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has
been met and an undertaking to repay the amount of the reimbursed expenses if it is determined that such standard was not met. No member of HCPI/Utah II, LLC, including HCP, is obligated to
make capital contributions to enable HCPI/Utah II, LLC to fund these indemnification obligations.
The
operating agreement generally provides that neither we nor any of our directors or officers will incur liability to HCPI/Utah II, LLC or any non-managing member for losses
sustained or liabilities incurred as a result of errors in judgment or mistakes of fact or law or of any act or omission if we acted in good faith. In addition, we are not responsible for any
misconduct or negligence on the part of our officers, directors or other agents, provided we have appointed such agents in good faith. We may consult with legal counsel, accountants, appraisers,
management consultants, investment bankers and other consultants and advisors, and any action we take or omit to take in reliance upon their opinion, as to matters which we reasonably believe to be
within their professional or expert competence, will be conclusively presumed to have been done or omitted in good faith and in accordance with their opinion.
Exchange Rights
Non-managing member units are exchangeable in whole or in part for, at our election, cash or shares of our common stock.
Upon
an exchange, the tendering holder will receive, at our election, either (a) that number of shares of our common stock determined by multiplying the number of non-managing
member units tendered by an adjustment factor (the "Exchange Shares") or (b) an amount of cash equal to the market value of such number of Exchange Shares. As of the date of this prospectus
supplement, the adjustment factor is 2.2986 due to the 2-for-1 stock split we effected with respect to our common stock on March 2, 2004
and our spin-off of Quality Care Properties, Inc. on October 31, 2016; the adjustment factor may be further adjusted from time to time to account for the economic effect of the payment
of any dividends or other distributions on our common stock in shares of common stock, any split or subdivision in our outstanding common stock, and any reverse stock split or other combination of our
outstanding common stock into a smaller number of shares. If we elect to deliver cash in exchange for the tendered units, the market value of each Exchange Share will be deemed to be the average of
the closing trading price of our common stock for the 10 trading days ending on the second trading day immediately prior to the date on which the tendering holder delivers a notice of exchange to us.
Non-managing member units that are acquired by us pursuant to the exercise of a non-managing member's exchange rights will be held by us as non-managing member units, with the same rights and
preferences of non-managing member units held by non-managing members of HCPI/Utah II, LLC.
Our
acquisition of non-managing member units, whether they are acquired in exchange for shares of our common stock or cash, will be treated as a sale of the non-managing member units to
us for U.S. federal income tax purposes. See "United States Federal Income Tax ConsiderationsTaxation of an Exchange or Redemption of Units."
A
tendering holder effecting an exchange of all or a portion of the holder's units must deliver to us a notice of exchange as required by the operating agreement. In general, a tendering
holder has the right to receive cash or, at our election, shares of our common stock, which are generally payable in connection with the exchange, on the thirtieth day following our receipt of the
notice of exchange. All shares of our common stock delivered in exchange for non-managing member units will be duly authorized, validly issued, fully paid and non-assessable shares, free of any
pledge, lien, encumbrance or restriction, other than those provided in our charter, our bylaws, the Securities Act and relevant state securities or blue sky laws. Notwithstanding any delay in delivery
of shares in exchange for tendered units, the tendering holder shall be deemed the owner of such shares and vested with all rights of a stockholder as of the date on which the exchange occurs,
including the right to vote or consent, and the
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right
to receive dividends. Correspondingly, the tendering holder's right to receive distributions with respect to the tendered units will cease as of the date on which the exchange occurs.
We
will not be obligated to effect an exchange of tendered units if the issuance of shares of our common stock to the tendering holder upon such exchange would be prohibited under the
provisions of our charter, particularly those which are intended to protect our qualification as a REIT. We will not be obligated to effect an exchange of tendered units until the expiration or
termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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COMPARISON OF HCPI/UTAH II, LLC AND HCP
Generally, the nature of an investment in our common stock is similar in several respects to an investment in units representing non-managing
membership interests in HCPI/Utah II, LLC. However, there are also differences between ownership of such units and ownership of our common stock, some of which may be material to investors.
HCPI/Utah
II, LLC and HCP are organized and incorporated in Delaware and Maryland, respectively. Upon the exchange of units representing non-managing membership interests in
HCPI/Utah II, LLC for shares of our common stock, the rights of stockholders of HCP will be governed by the Maryland General Corporation Law and by our charter and bylaws.
The
information below highlights the material differences between HCPI/Utah II, LLC and us, relating to, among other things, form of organization, management control, voting
rights, compensation and fees, investor rights, liquidity and federal income tax considerations. These comparisons are intended to assist holders of non-managing member units in understanding the ways
in which their investment will be materially changed if they tender their units in exchange for shares of our common stock.
The following discussion is summary in nature and does not constitute a complete discussion of these matters. The differences between the rights of HCPI/Utah
II, LLC unitholders and HCP stockholders may be determined in full by reference to the Maryland General Corporation Law, the Delaware Limited Liability Company Act, our charter and bylaws, the
operating agreement of HCPI/Utah II, LLC, as amended to date, and the balance of this prospectus supplement, the accompanying prospectus and the registration statement of which the accompanying
prospectus is a part.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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Form of Organization and Assets Owned
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HCPI/Utah II, LLC is a Delaware limited liability company. HCPI/Utah II, LLC currently owns 31 properties and 100% membership interests in each of HCPI/Wesley, LLC and HCPI/Stansbury,
LLC.
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We are a Maryland corporation and were organized to qualify as a self-administered REIT that, together with our unconsolidated joint ventures, invests primarily in real estate serving the healthcare industry in the United
States. We acquire, develop, lease, manage and dispose of healthcare real estate, and provide financing to healthcare providers. At March 31, 2018, our portfolio of investments, including properties in our unconsolidated joint ventures,
consisted of interests in 833 facilities.
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Purpose
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HCPI/Utah II, LLC's purpose is to acquire, own, manage, operate, maintain, improve, expand, redevelop, encumber, sell or otherwise dispose of the properties owned by it and any other properties acquired by
it, and to invest and ultimately distribute the funds obtained from owning, operating or disposing of such properties..
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Under our charter, we may engage in the ownership of real property and any other lawful act or activity for which corporations may be organized under Maryland law.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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Additional Equity
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See "Operating AgreementCapital Contributions" above.
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Our board of directors may, in its discretion, authorize the issuance of additional shares of common stock or preferred stock; provided that the total number of shares issued cannot exceed the authorized number of shares
of stock set forth in our charter.
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Borrowing Policies
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The operating agreement provides that HCPI/Utah II, LLC is permitted to incur or assume debt, including debt to us or our affiliates. HCPI/Utah II, LLC will be required to pay to the non-managing
members a make-whole payment in an amount equal to the aggregate federal, state and local income taxes incurred by the non-managing members if it fails to maintain certain indebtedness during the Tax Protection Period, as described above under
"Operating AgreementTax Protection Period."
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We are not restricted under our charter or bylaws from incurring debt.
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Management Control
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All management powers over the business and affairs of HCPI/Utah II, LLC are vested in us as the managing member. No non-managing member has any right to participate in or exercise control or management
power over the business and affairs of HCPI/Utah II, LLC, except for actions which require the consent of the holders of a majority of the non-managing member units held by non-managing members. See "Operating AgreementManagement" and
"Voting Rights."
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Our board of directors has exclusive control over our business affairs subject only to the applicable provisions of Maryland law and the provisions in our charter and bylaws.
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Duties of Managing Members and Directors
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Under Delaware law, we, as managing member of HCPI/Utah II, LLC, are accountable to HCPI/Utah II, LLC as a fiduciary and, consequently, are required to exercise good faith and integrity in all of
our dealings with respect to HCPI/Utah II, LLC's affairs.
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Under Maryland law, directors must act in good faith, in a manner that they reasonably believe to be in the best interests of the corporation, and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. Directors who act in such a manner generally have no liability in any action based on an act of the director. Under Maryland law, an act of a director is generally presumed to be in accordance with such
standards.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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Indemnification and Management Liability
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See "Operating AgreementIndemnification and Management Liability."
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Our charter contains a provision which eliminates the liability of directors and officers to us and our stockholders for money damages to the fullest extent permitted by Maryland law. Neither the provisions of our charter
nor Maryland law limit the ability of us or our stockholders to obtain other relief, such as injunction or rescission. Our bylaws provide for indemnification of directors and officers to the fullest extent permitted by Maryland law. See "Certain
Provisions of Maryland Law and HCP's Charter and Bylaws."
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Anti-Takeover Provisions
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Except in limited circumstances (see "Voting Rights"), we have exclusive management power over the business and affairs of HCPI/Utah
II, LLC. Accordingly, we have the ability to determine whether HCPI/Utah II, LLC engages in a merger transaction or other business combination. We may not be removed as managing member by the other members without our consent.
During the Tax Protection Period HCPI/Utah II, LLC will be required to pay to specified non-managing members a make-whole payment if we cause HCPI/Utah II, LLC to merge with another entity, sell all or substantially all of its assets or
reclassify its outstanding equity interests (subject to limited exceptions) without the prior consent of the holders of a majority of the non-managing member units held by non-managing members. See "Operating AgreementTax Protection Period."
These limitations may have the effect of hindering the ability of HCPI/Utah II, LLC to enter into business combinations.
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Our charter and bylaws contain a number of provisions that may delay or discourage an unsolicited proposal for the acquisition of our company or the removal of incumbent management. These provisions include:
authorized capital stock that may
be issued as preferred stock in the discretion of our board of directors, with voting or other rights superior to the common stock;
provisions designed to avoid
concentration of share ownership in a manner that would jeopardize our status as a REIT under the Internal Revenue Code;
super-majority stockholder vote for
certain business combinations; and
the advance notice provisions of
our bylaws.
Maryland law also contains provisions which could delay, defer or prevent a change of control or other transaction. See "Certain Provisions of Maryland Law and
HCP's Charter and Bylaws."
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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A non-managing member generally may not transfer all or any portion of its membership interest in HCPI/Utah II, LLC without first offering that membership interest to us and otherwise obtaining our consent.
Accordingly, we may elect to exercise our right of first refusal to prevent a membership interest from being transferred to a particular third party. Unless we consent to the admission of a transferee of a membership interest as a substitute member
of HCPI/Utah II, LLC, the transferee is not entitled to vote on any matter submitted to the members for their approval. The ability of a unitholder to transfer its membership interest in HCPI/Utah II, LLC may be further hindered by
other factors. See "Operating AgreementTransferability of Interests."
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Our bylaws contain a provision exempting acquisitions of shares of our stock from the Maryland control share acquisition statute. In addition, our board of directors has adopted a resolution prohibiting us from electing
to be subject to the provisions of the Maryland unsolicited takeover statute relating to the classification of the board unless such election is first approved by our stockholders by the affirmative vote of a majority of all the votes entitled to be
cast on the matter.
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Voting Rights
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Under the operating agreement, the non-managing members have voting rights only as to specified matters including:
amending the operating agreement,
except in limited circumstances; and
those other actions discussed above
under "Operating AgreementManagement."
The non-managing members generally do not otherwise have the right to vote on decisions relating to the operation or management
of HCPI/Utah II, LLC.
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Maryland law requires that major corporate transactions, including most amendments to our charter, must have stockholder approval as
described below. All shares of common stock have one vote per share. Our charter permits our board of directors to classify and issue preferred stock in one or more series having voting power which may differ from that of the common stock. See
"Description of Capital Stock."
Our bylaws generally permit any stockholder or group of up to 25 stockholders who have maintained continuous qualifying ownership of 3% or more of our outstanding common stock for at least the previous three years to include up to a specified number
of director nominees in our proxy materials for an annual meeting of stockholders. The maximum number of stockholder nominees permitted under the proxy access provisions of our bylaws will not exceed the greater of (i) two or (ii) 20% of
the directors in office as of the last day a notice of nomination may be timely received.
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The
following is a comparison of the voting rights of the non-managing members of HCPI/Utah II, LLC and of our stockholders as they relate to major transactions:
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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A. Amendment of Organizational Documents
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Amendments to the operating agreement may be proposed by us as managing member or by holders of a majority of the non-managing member units held by non-managing members. To be effective, amendments must be approved by the
holders of a majority of the outstanding units, subject to certain exceptions. In addition, certain amendments must be approved by each non-managing member that would be adversely affected by such amendment. We may amend the operating agreement
without the consent of the non-managing members if the purpose or the effect of such amendment is to make administrative or inconsequential changes or comply with any federal or state agency rulings, guidelines directives or laws, or as are necessary
for us to maintain our status as a REIT. See "Operating AgreementManagement."
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Under our charter, most amendments to our charter must be approved by our board of directors and by the affirmative vote of at least a majority of the votes entitled to be cast by our stockholders on the matter.
The affirmative vote of holders of at least two-thirds of our voting stock is required to repeal or amend the provisions of the charter relating to:
business combinations;
the removal and setting of the
minimum and maximum number of our directors; and
certain limitations on ownership of
our voting capital stock. See "Description of Capital Stock."
Provisions of our bylaws regarding the number of directors, in certain circumstances, and the vote required to
amend the bylaws may be amended only by unanimous vote of the board of directors or by the affirmative vote of not less than 90% of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our bylaws require the
affirmative vote of a majority of the entire board of directors or the affirmative vote of a majority of all of the votes entitled to be cast by our stockholders on the matter.
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B. Dissolution
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As managing member, we may dissolve HCPI/Utah II, LLC without any vote or approval of non-managing members. However, during the Dissolution Protection Period, HCPI/Utah II, LLC will be required to pay a
make-whole payment to specified non-managing members if a dissolution occurs without the consent of a majority in interest of the non-managing members.
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Our dissolution must be approved by our board of directors by a majority vote of the entire board and by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our stockholders
on the matter.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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C. Sale of Assets; Merger; Transfer of Properties
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During the Tax Protection Period HCPI/Utah II, LLC will be required to pay to specified non-managing members a make-whole payment unless we obtain the consent of the holders of a majority in interest of the non-managing members before
we:
cause HCPI/Utah II, LLC to
merge with another entity, sell all or substantially all of its assets or reclassify its outstanding equity interests, subject to limited exceptions; or
sell certain of HCPI/Utah II,
LLC's real properties.
See "Operating AgreementTax Protection Period."
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Our charter requires that, subject to certain exceptions, business combinations between us and a beneficial holder of 10% or more of our outstanding voting
stock be approved by the affirmative vote of at least 90% of our outstanding voting shares. See "Description of Capital StockBusiness Combination Provisions" and "Certain Provisions of Maryland Law and HCP's Charter and Bylaws."
Generally, mergers, consolidations and sales of all or substantially all of our assets must be approved by our stockholders by the affirmative vote of a majority of all votes entitled to be cast on the matter. No approval of our stockholders is
required for any sale of less than substantially all of our assets which is not a business combination.
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Compensation, Fees and Distributions
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We do not receive any compensation for our services as managing member of HCPI/Utah II, LLC but are reimbursed for expenses.
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Our officers and outside directors receive compensation for their services as more fully described in the compensation information incorporated by reference in our Annual Report on Form 10-K, which is
incorporated by reference into this prospectus supplement and the accompanying prospectus.
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Liability of Investors
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Under the operating agreement and applicable Delaware law, the liability of the non-managing members for the debts and obligations of HCPI/Utah II, LLC is generally limited to the amount of their investment in
HCPI/Utah II, LLC, together with their interest in any undistributed income, if any.
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Under Maryland law, our stockholders are not personally liable for our debts or obligations solely as a result of their status as stockholders.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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Liquidity
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Except in limited circumstances, a non-managing member may not transfer all or any portion of its membership interest in HCPI/Utah II, LLC without first offering that membership interest to us and otherwise
obtaining our consent. HCP has the right to receive an opinion of counsel in connection with the transfer of non-managing member units to the effect that the transfer may be effected without registration under the Securities Act and will not
otherwise violate any applicable federal or state securities laws or regulations.
Also, see "Operating AgreementTransferability of Interests" and "Anti-Takeover Provisions."
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Shares of common stock issued pursuant to this prospectus supplement will be freely transferable, subject to prospectus delivery and other requirements of the Securities Act, and the transfer and ownership restrictions in
our charter.
Our common stock is listed on the New York Stock Exchange.
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HCPI/Utah II, LLC / Delaware Law
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HCP / Maryland Law
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Taxes
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HCPI/Utah II, LLC itself is generally not subject to federal income taxes. Instead, each holder of units includes its allocable share of HCPI/Utah II, LLC's taxable income or loss in determining its
individual federal income tax liability. Cash distributions from HCPI/Utah II, LLC generally are not taxable to a holder of non-managing member units except to the extent they exceed such holder's basis in its interest in HCPI/Utah II,
LLC (which will include such holder's allocable share of HCPI/Utah II, LLC's debt).
Income and loss from HCPI/Utah II, LLC generally are subject to the "passive activity" limitations. Under the "passive activity" limitations, income and loss from HCPI/Utah II, LLC that is considered "passive income" generally can
be offset against income and loss from other investments that constitute "passive activities."
Holders of units are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which HCPI/Utah II, LLC owns property, even if they are not residents of those states.
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As long as we qualify as a REIT, distributions out of our current or accumulated earnings and profits, other than capital gain dividends discussed below, generally will constitute dividends taxable to our taxable U.S.
stockholders as ordinary income and will not be eligible for the dividends-received deduction in the case of U.S. stockholders that are corporations. In addition, these distributions generally will not be eligible for treatment as "qualified dividend
income" for individual U.S. stockholders. However, under the TCJA (as defined below), for taxable years beginning after December 31, 2017 and before January 1, 2026, stockholders that are individuals, trusts, or estates are generally
entitled to deduct up to 20% of certain qualified business income, including "qualified REIT dividends," subject to certain limitations. Distributions that we properly designate as capital gain dividends will be taxable to our taxable U.S.
stockholders as gain from the sale or disposition of a capital asset, to the extent that such gain does not exceed our actual net capital gain for the taxable year. Distributions in excess of current and accumulated earnings and profits will be
treated as a nontaxable return of capital to the extent of a stockholder's adjusted basis in its common stock, with the excess taxed as capital gain.
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Distributions we make and gain arising from the sale or exchange by a U.S. stockholder of our shares will not be treated as passive activity income. As a result, U.S. stockholders generally will not be able to apply
any "passive losses" against this income or gain.
Stockholders who are individuals generally will not be required to file state income tax returns and/or pay state income taxes outside of their state of residence with respect to our operations and distributions. We may be required to pay state
income taxes in various states.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
HCP'S CHARTER AND BYLAWS
The following description summarizes certain provisions of Maryland law and of our charter and bylaws. This summary is not complete and is
subject to, and is qualified in its entirety by reference to, our charter, our bylaws and applicable provisions of the MGCL. For a complete description, we refer you to the MGCL, our charter and our
bylaws.
Our bylaws provide that our board may establish, increase or decrease the number of directors, provided that the number thereof shall never be
less than three nor more than eleven. Our bylaws also provide for the election of directors, in uncontested elections, by a majority of the votes cast. In contested elections, the election of
directors shall be by a plurality of the votes cast. Holders of common stock have no right to cumulative voting for the election of directors. Consequently, at each annual meeting of stockholders, the
holders of a majority of the outstanding shares of our common stock can elect all of our directors. A vacancy resulting from an increase in the number of directors may be filled by a majority vote of
the entire board or by the affirmative vote of the holders of a majority of our shares then entitled to vote at an election of directors. Other vacancies may be filled by the vote of a majority of the
remaining directors.
Our charter provides that a director of ours may be removed by the affirmative vote of the holders of two-thirds of the outstanding shares of
our voting stock or by a unanimous vote of all other directors. Our stockholders may elect a successor to fill any vacancy which results from the removal of a director.
Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation,
share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined
as:
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any person who beneficially owns ten percent or more of the voting power of the corporation's shares; or
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an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting stock of the corporation.
After
the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of the corporation and
approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder
with whom or with whose affiliate the business combination is to be effected or which are held by an affiliate or associate of the interested stockholder.
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These
super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash
or other consideration in the same form as previously paid by the interested stockholder for its shares. None of these provisions of Maryland law will apply, however, to business combinations that are
approved or exempted by the board of the corporation prior to the time that the interested stockholder becomes an interested stockholder.
In
addition to the restrictions on business combinations provided under Maryland law, our charter also contains restrictions on business combinations. See "Description of Capital
StockBusiness Combination Provisions."
Maryland law provides that holders of "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights
with respect to the control shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares entitled to vote on the matter. "Control shares" are voting shares of stock which, if aggregated with all other shares of stock
owned by the acquiror or shares of stock for which the acquiror is able to exercise or direct the exercise of voting power except solely by virtue of a revocable proxy, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges of voting power:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority; or
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a majority or more of all voting power.
Control
shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. Except as otherwise specified in the
statute, a "control share acquisition" means the acquisition of control shares.
Once
a person who has made or proposes to make a control share acquisition has undertaken to pay expenses and satisfied other conditions, the person may compel the board to call a
special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If
voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may be able to
redeem any or all of the control shares for fair value, except for control shares for which voting rights previously have been approved. The right of the corporation to redeem control shares is
subject to certain conditions and limitations. Fair value is determined without regard to the absence of voting rights for control shares, as of the date of the last control share acquisition by the
acquiror or of any meeting of stockholders at which the voting rights of control shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of these
appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. Some of the limitations and restrictions otherwise applicable to the exercise
of dissenters' rights do not apply in the context of a control share acquisition.
The
control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions
approved or
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exempted
by the charter or bylaws of the corporation. Our bylaws contain a provision exempting acquisitions of shares of our stock from the control share acquisition statute. However, our board may
amend our bylaws in the future to repeal or modify this exemption, in which case any control shares of our company acquired in a control share acquisition will be subject to the control share
acquisition statute.
Under Maryland law, a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent
directors may elect to be subject to certain statutory provisions relating to unsolicited takeovers which, among other things, would automatically classify the board into three classes with staggered
terms of three years each and vest in the board the exclusive right to determine the number of directors and the exclusive right, by the affirmative vote of a majority of the remaining directors, to
fill vacancies on the board, even if the remaining directors do not constitute a quorum. These statutory provisions relating to unsolicited takeovers also provide that any director elected to fill a
vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than the next annual meeting of directors as would otherwise be the case,
and until his successor is elected and qualified.
Our
board of directors has adopted a resolution prohibiting us from electing to be subject to the provisions of the unsolicited takeover statute relating to the classification of the
board unless such election is first approved by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast on the matter. An election to be subject to any or all of
the other foregoing statutory provisions may be made in our charter or bylaws, or by resolution of our board without stockholder approval. Any such statutory provision to which we elect to be subject
will apply even if other provisions of Maryland law or our charter or bylaws provide to the contrary. Neither our charter nor our bylaws provides that we are subject to any of the foregoing statutory
provisions relating to unsolicited takeovers. However, our board could adopt a resolution, without stockholder approval, to elect to become subject to some or all of these statutory provisions except
the statutory provisions relating to the classification of the board.
If
we made an election, upon stockholder approval of such election, to be subject to the statutory provisions relating to the classification of the board and our board were divided into
three classes with staggered terms of office of three years each, the classification and staggered terms of office of our directors would make it more difficult for a third party to gain control of
our board since at least two annual meetings of stockholders, instead of one, generally would be required to effect a change in the majority of our board.
Provisions of our charter on business combinations, the number of directors and certain ownership restrictions may be amended only if approved
by our board and by our stockholders by the affirmative vote of two-thirds of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our charter require approval
by our board and approval by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our stockholders on the matter.
Provisions of our bylaws on the number of directors, in certain circumstances, and the vote required to amend the bylaws may be amended only by
unanimous vote of the board or by the affirmative vote of not less than 90% of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our bylaws require the
affirmative vote of a majority of the entire board
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or
the affirmative vote of a majority of all of the votes entitled to be cast by our stockholders on the matter.
Our dissolution must be approved by our board by a majority vote of the entire board and by our stockholders by the affirmative vote of a
majority of all the votes entitled to be cast by our stockholders on the matter.
Advance Notice of Director Nominations and New Business; Procedures of Special Meetings Requested by
Stockholders
Our bylaws provide that nominations of persons for election to the board and the proposal of business to be considered by stockholders at the
annual or special meeting of stockholders may be made only:
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pursuant to our notice of the meeting;
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by or at the direction of the board; or
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by a stockholder who was a stockholder at the time the notice of meeting was given and is entitled to vote at the meeting and who has complied
with the advance notice procedures, including the minimum time period, described in the bylaws.
Our
bylaws also provide that only the business specified in our notice of meeting may be brought before a special meeting of stockholders. Our bylaws provide that our stockholders have
the right to call a special meeting only upon the written request of the stockholders holding in the aggregate not less than 50% of the outstanding shares entitled to vote on the business proposed to
be transacted at such meeting.
Our bylaws permit any stockholder or group of up to 25 stockholders (counting as one stockholder, for purposes of the aggregation limit, any two
or more funds that are part of the same qualifying fund group, as such term is defined in our bylaws) who have maintained continuous qualifying ownership of 3% or more of our outstanding common stock
for at least the previous three years to include up to a specified number of director nominees in our proxy materials for an annual meeting of stockholders. A nominating stockholder is considered to
own only the shares for which the stockholder possesses the full voting and investment rights and the full economic interest (including the opportunity for profit and risk of loss). Under this
provision, borrowed or hedged shares do not count as "owned" shares. Furthermore, to the extent not otherwise excluded pursuant to this definition of ownership, a nominating stockholder's "short
position" as defined in Rule 14e-4 under the Exchange Act is deducted from the shares otherwise "owned." Loaned shares are counted toward the ownership requirement, provided that certain recall
requirements described in our bylaws are met. If a group of stockholders is aggregating its shareholdings in order to meet the 3% ownership requirement, the ownership of the group will be determined
by aggregating the lowest number of shares continuously owned by each member during the three-year holding period.
The
maximum number of stockholder nominees permitted under the proxy access provisions of our bylaws shall not exceed the greater of (i) two or (ii) 20% of the directors in
office as of the last day a notice of nomination may be timely received. If the 20% calculation does not result in a whole number, the maximum number of stockholder nominees is the closest whole
number below 20%. If one or more vacancies occurs for any reason after the nomination deadline and our board decides to reduce the size of our board in connection therewith, the 20% calculation will
be applied to the reduced size of the board, with the potential result that a stockholder nominee may be disqualified. Stockholder-nominated
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candidates
whose nomination is withdrawn or whom the board determines to include in our proxy materials as board-nominated candidates will be counted against the 20% maximum. In addition, any
director in office as of the nomination deadline who was included in our proxy materials as a stockholder nominee for either of the two preceding annual meetings and whom our board decides to
renominate for election to the board also will be counted against the 20% maximum.
Notice
of a nomination pursuant to the proxy access provisions of our bylaws must be received no earlier than 150 days and no later than 120 days before the anniversary of
the date that we distributed our proxy statement for the previous year's annual meeting of stockholders. The proxy access provisions of our bylaws require certain disclosure, representations and
agreements to be provided or made by nominating stockholders and contain certain other procedural provisions.
A
stockholder nominee will not be eligible for inclusion in our proxy materials if any stockholder has nominated a person pursuant to the advance notice provision of our bylaws, if the
nominee would not be independent, if the nominee's election would cause us to violate our bylaws, our charter or any applicable listing standards, laws, rules or regulations, if the nominee is or has
been an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, within the past three years, or if the nominee or the stockholder who nominated him or
her has provided false and misleading information to us or otherwise breached any of its or their obligations, representations or agreements under the proxy access provisions of our bylaws.
Stockholder nominees who are included in our proxy materials but subsequently withdraw from or become ineligible or unavailable for election at the meeting or do not receive at least 10% of the votes
cast in the election will be ineligible for nomination under the proxy access provisions of our bylaws for the next two annual meetings. A nomination made under the proxy access provisions of our
bylaws will be disregarded at the annual meeting under certain circumstances described in our bylaws.
The provisions in the charter on removal of directors and business combinations, the business combinations and control share acquisition
provisions of Maryland law, the unsolicited takeover provisions of Maryland law (if we elect to become subject to such provisions) and the provisions of our bylaws relating to advance notice, proxy
access and stockholder-requested special meetings may delay, defer or prevent a change of control or other transaction in which holders of some, or a majority, of the common stock might receive a
premium for their common stock over the then prevailing market price or which such holders might believe to be otherwise in their best interests.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland corporation may not limit liability resulting from actual receipt of an improper benefit or profit in money, property or
services. Also, liability resulting from active and deliberate dishonesty may not be eliminated if a final judgment establishes that the dishonesty is material to the cause of action. Our charter
contains a provision which limits the liability of directors and officers for money damages to the maximum extent permitted by Maryland law. This provision does not limit our right or that of our
stockholders to obtain equitable relief, such as an injunction or rescission.
Our
bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination as to the ultimate entitlement to
indemnification, to pay or reimburse reasonable expenses before final disposition of a proceeding to:
-
-
any present or former director or officer who is made a party to the proceeding by reason of his service in that capacity; or
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-
-
any individual who, while one of our directors or officers and at our request, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise and who is made a party to the proceeding by reason of his service in that capacity.
The
bylaws authorize us, with the approval of our board, to provide indemnification and advancement of expenses to our agents and employees.
Unless
limited by a corporation's charter, Maryland law requires a corporation to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that capacity, or in the defense of any claim, issue or matter in the proceeding. Our charter does not alter this requirement.
Maryland
law permits a corporation to indemnify its present and former directors and officers, among others, against:
-
-
judgments;
-
-
penalties;
-
-
fines;
-
-
settlements; and
-
-
reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland
law does not permit a corporation to indemnify its present and former directors and officers if it is established that:
-
-
the act or omission of the director or officer was material to the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty;
-
-
the director or officer actually received an improper personal benefit in money, property or services; or
-
-
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
Under
Maryland law, a Maryland corporation generally may not indemnify for an adverse judgment in a suit by or in the right of the corporation. Also, a Maryland corporation generally may
not indemnify for a judgment of liability on the basis that personal benefit was improperly received. In either of these cases, a Maryland corporation may indemnify for expenses only if a court so
orders.
Maryland
law permits a corporation to advance reasonable expenses to a director or officer. First, however, the corporation must receive a written affirmation by the director or officer
of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation. The corporation must also receive a written undertaking, either by the director or
officer or on his behalf, to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted.
It
is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations generally applicable to (i) the tender of units in exchange
for shares of common stock or the redemption of units for cash and (ii) the ownership and disposition of our common stock, which may be acquired upon an exchange of units. This summary does not
purport to be a complete analysis of all of the potential tax considerations relating thereto. This summary is based on current law, is for general information only and is not tax advice. As used in
this section, references to "HCP," "the Company," "we," "us" or "our," mean only HCP, Inc., and not its subsidiaries, except as otherwise indicated.
The
information in this summary is based on:
-
-
the Internal Revenue Code;
-
-
current, temporary and proposed Treasury Regulations promulgated under the Internal Revenue Code;
-
-
the legislative history of the Internal Revenue Code;
-
-
current administrative interpretations and practices of the IRS; and
-
-
court decisions;
in
each case, as of the date of this prospectus supplement. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in
private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. Future legislation, Treasury Regulations,
administrative interpretations and practices and/or court decisions may change or adversely affect the tax considerations described in this prospectus supplement. Any such change could apply
retroactively to transactions preceding the date of the change. We have not requested and do not intend to request a ruling from the IRS that we qualify as a REIT or concerning the treatment of our
common stock, and the statements in this prospectus supplement are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this summary will not
be challenged by the IRS or will be sustained by a court if so challenged.
This
summary assumes that our common stock is held as a "capital asset" (generally, property held for investment). Your tax treatment will vary depending on your particular situation.
This discussion does not purport to deal with all aspects of taxation that may be relevant to holders of our common stock in light of their personal investment or tax circumstances, or to holders who
receive special treatment under the U.S. federal income tax laws except to the extent discussed specifically herein. Holders of common stock offered by this prospectus supplement receiving special
treatment include, without limitation:
-
-
banks, insurance companies or other financial institutions;
-
-
brokers or dealers in securities or commodities;
-
-
traders in securities;
-
-
expatriates and certain former citizens or long-term residents of the U.S.;
-
-
tax-exempt organizations;
-
-
persons who are subject to the alternative minimum tax;
-
-
persons who hold our common stock as a position in a "straddle" or as part of a "hedging," "conversion" or other risk reduction transaction;
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-
-
persons deemed to sell our common stock under the constructive sale provisions of the Internal Revenue Code;
-
-
U.S. persons that have a functional currency other than the U.S. dollar;
-
-
except to the extent specifically discussed below, non-U.S. holders (as defined below); or
-
-
persons that are S corporations, REITs, regulated investment companies, partnerships or other pass-through entities.
In
addition, this discussion does not address any state, local or foreign tax consequences associated with the ownership of our common stock or our election to be taxed as a REIT.
You
are urged to consult your tax advisor regarding the specific tax consequences to you of:
-
-
the acquisition, ownership and sale or other disposition of our common stock, including the U.S. federal, state, local, foreign and other tax
consequences;
-
-
our election to be taxed as a REIT for U.S. federal income tax purposes; and
-
-
potential changes in applicable tax laws.
Taxation of an Exchange or Redemption of Units
In General
If HCP, Inc. acquires a unit in exchange for shares of common stock or redeems a unit for cash, a tendering holder of units will
recognize gain or loss in an amount equal to the difference between (i) the amount realized in the transaction (i.e., the sum of the cash and the fair market value of any shares of
common stock plus the amount of the partnership liabilities allocable to such tendered unit at such time) and (ii) the holder's tax basis in the unit disposed of, which tax basis will be
adjusted for the unit's allocable share of HCPI/Utah II, LLC's income, gain or loss for the taxable year of disposition. The tax liability resulting from the gain recognized on the disposition
of a unit could exceed the amount of cash and the fair market value of any shares of common stock received in exchange therefor. The use of any loss recognized upon an exchange is subject to a number
of limitations set forth in the Internal Revenue Code. A holder's adjusted tax basis in any of our common stock received in exchange for units will be the fair market value of those shares on the date
of the exchange. Similarly, a holder's holding period in such shares will begin on the date of the exchange.
If
HCPI/Utah II, LLC redeems a tendered unit for cash (which is not contributed by us to effect the redemption), the tax consequences generally would be the same as described in
the preceding paragraph, except that if HCPI/Utah II, LLC redeems less than all of a holder's units, the holder would recognize no taxable loss and would recognize taxable gain only to the
extent that the cash, plus the amount of HCPI/Utah II, LLC liabilities allocable to the redeemed units, exceeded the holder's adjusted tax basis in all of such holder's units immediately before
the redemption.
Disguised Sales
Under the Internal Revenue Code, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money
or other property to the partner is treated as a disguised sale if (i) the second transfer would not have occurred but for the first transfer and (ii) the second transfer is not
dependent on the entrepreneurial risks of the partnership's operations. In a disguised sale, the partner is treated as if he or she sold the contributed property to the partnership as of the date the
property was contributed to the partnership. Transfers of money or other property between a partnership and a partner that are made within two years of each other, including redemptions of units made
within two years of a contribution of property by a holder of units to HCPI/Utah II, LLC, must
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be
reported to the IRS and are presumed to be a disguised sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale.
A
redemption of units by HCPI/Utah II, LLC within two years of the date of a contribution of property by a holder of units to HCPI/Utah II, LLC may be treated as a
disguised sale. If this treatment were to apply, such holder of units would be treated for U.S. federal income tax purposes as if, on the date of its contribution of property to HCPI/Utah
II, LLC, HCPI/Utah II, LLC transferred to such holder an obligation to pay such holder the redemption proceeds. In that case, the holder of units would be required to recognize gain on
the disguised sale in such earlier year.
Character of Gain or Loss Recognized
Except as described below, the gain or loss that a holder of units recognizes on a sale, exchange or redemption of a tendered unit will be
treated as a capital gain or loss and will be treated as long-term capital gain or loss if the holding period for the unit exceeds twelve months. Long-term capital gains recognized by individuals and
certain other noncorporate taxpayers generally will be subject to a maximum U.S. federal income tax rate of 20%. If the amount realized with respect to a unit that is attributable to a holder's share
of "unrealized receivables" of HCPI/Utah II, LLC exceeds the tax basis attributable to those assets, such excess will be treated as ordinary income. Among other things, unrealized receivables
include depreciation recapture for certain types of property.
In addition, the maximum U.S. federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be
determined to include an interest in a partnership such as HCPI/Utah II, LLC) held for more than twelve months is currently 25% (rather than 20%) to the extent of previously claimed
depreciation deductions that would not be treated as unrealized receivables.
Passive Activity Losses
The passive activity loss rules of the Internal Revenue Code limit the use of losses derived from passive activities, which generally include
investments in limited liability company interests such as the units. You are urged to consult your tax advisor concerning whether, and the extent to which, you have available suspended passive
activity losses from HCPI/Utah II, LLC or other investments that may be used to offset gain from the sale, exchange or redemption of your units tendered for redemption.
Tax Reporting
If a unit is exchanged or redeemed, the holder must report the transaction by filing a statement with its U.S. federal income tax return for the
year of the disposition which provides certain required information to the IRS. To prevent the possible application of backup withholding with respect to payment of the consideration, a holder of
units must provide HCP, Inc. or HCPI/Utah II, LLC with its correct taxpayer identification number.
Foreign Offerees
Gain recognized by a foreign person on a sale, exchange or redemption of a unit tendered for redemption will be subject to U.S. federal income
tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). If you are a foreign person, HCP, Inc. or HCPI/Utah II, LLC will be required, under the FIRPTA provisions of
the Internal Revenue Code, to deduct and withhold 15% of the amount realized by you on the disposition, and you will be required to file a United States federal income tax return to report your
gain and pay any additional tax due. The amount withheld would be creditable against your U.S. federal income tax liability and, if the amount withheld exceeds your actual tax liability, you could
claim a refund from the IRS.
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Taxation of the Company
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ended
December 31, 1985. We believe we have been organized and have operated in a manner which allows us to qualify for taxation as a REIT under the Internal Revenue Code commencing with our taxable
year ended December 31, 1985. We currently intend to continue to be organized and operate in this manner. However, qualification and taxation as a REIT depend upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code, including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership.
Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a REIT. See
"Failure to Qualify."
The
sections of the Internal Revenue Code and the corresponding Treasury Regulations that relate to the qualification and taxation as a REIT are highly technical and complex. The
following sets forth certain aspects of the sections of the Internal Revenue Code that govern the U.S. federal income tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Internal Revenue Code provisions, Treasury Regulations, and related administrative and judicial interpretations thereof. Skadden, Arps, Slate, Meagher &
Flom LLP has acted as our tax counsel in connection with this prospectus supplement and our election to be taxed as a REIT.
Skadden,
Arps, Slate, Meagher & Flom LLP has rendered an opinion to us to the effect that, commencing with our taxable year ended December 31, 1985, we have been
organized and have operated in conformity with the requirements for qualification and taxation as a REIT, and that our proposed method of operation will enable us to continue to meet the requirements
for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including
representations made by us in factual certificates provided by one or more of our officers. In addition, this opinion was based upon our factual representations set forth in this prospectus
supplement. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Internal Revenue Code which are discussed below,
including through actual annual operating results, asset composition, distribution levels and diversity of stock ownership, all of the results of which have not been and will not be reviewed by
Skadden, Arps, Slate, Meagher & Flom LLP. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year have satisfied or will satisfy those
requirements. See "Failure to Qualify." Further, the anticipated income tax treatment described in this prospectus supplement may be changed, perhaps retroactively,
by legislative, administrative or judicial action at any time. Skadden, Arps, Slate, Meagher & Flom LLP has no obligation to update its opinion subsequent to its date.
New Tax Reform Legislation Enacted December 22, 2017
On December 22, 2017, the President signed into law H.R. 1, which is commonly referred to as the "Tax Cuts and Jobs Act of 2017" (the
"TCJA"). This legislation makes many changes to the U.S. federal income tax laws that significantly impact the taxation of individuals, corporations (both non-REIT C corporations as well as
corporations that have elected to be taxed as REITs), and the taxation of taxpayers with overseas assets and operations. These changes are generally effective for taxable years beginning after
December 31, 2017. However, a number of changes that reduce the tax rates applicable to non-corporate taxpayers (including a new 20% deduction for qualified REIT dividends that reduces the
effective rate of regular income tax on such income), and also limit the ability of such taxpayers to claim certain deductions, will expire for taxable years beginning after 2025 unless Congress acts
to extend them.
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These
changes will impact us and our shareholders in various ways, some of which are adverse relative to prior law, and this summary of U.S. federal income tax considerations
incorporates these changes where material. To date, the IRS has issued only limited guidance with respect to certain provisions of the new law. There are numerous interpretive issues and ambiguities
that will require guidance and that are not clearly addressed in the Conference Report that accompanied the TCJA. Technical corrections legislation will likely be needed to clarify certain of the new
provisions and give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or other legislative changes that may be needed to prevent unintended or
unforeseen tax consequences will be enacted by Congress anytime soon.
Taxation of REITs
Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable
income that is currently distributed to our stockholders. This treatment substantially eliminates the "double taxation" that ordinarily results
from investment in a C corporation. A C corporation is a corporation that is generally required to pay tax at the corporate-level. We will be required to pay U.S. federal income tax, however, as
follows:
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-
We will be required to pay tax at regular corporate tax rates on any undistributed REIT taxable income, including undistributed net capital
gains.
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-
If we have: (a) net income from the sale or other disposition of "foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (b) other nonqualifying income from foreclosure property, we will be required to pay tax at the highest corporate rate on this income. Foreclosure property
generally is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of the property and for which an election is in effect. See
"Foreclosure Property Income."
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-
We will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.
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-
If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our
qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (a) the greater of (i) the amount by which 75% of our gross income exceeds
the amount qualifying under the 75% gross income test and (ii) the amount by which 95% of our gross income exceeds the amount qualifying under the 95% gross income test, multiplied by
(b) a fraction intended to reflect our profitability.
-
-
If we fail to satisfy any of the REIT asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below, due to
reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of
$50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.
-
-
If we fail to satisfy any provision of the Internal Revenue Code that would result in our failure to qualify as a REIT (other than a violation
of the REIT gross income tests or certain violations of the asset tests described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT
qualification but will be required to pay a penalty of $50,000 for each such failure.
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-
We will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (a) 85% of
our REIT ordinary income for the year, (b) 95% of
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Requirements for Qualification as a REIT
The Internal Revenue Code defines a REIT as a corporation, trust or association:
-
1.
-
that
is managed by one or more trustees or directors;
-
2.
-
that
issues transferable shares or transferable certificates to evidence its beneficial ownership;
-
3.
-
that
would be taxable as a domestic corporation but for special Internal Revenue Code provisions applicable to REITs;
-
4.
-
that
is not a financial institution nor an insurance company within the meaning of certain provisions of the Internal Revenue Code;
-
5.
-
that
is beneficially owned by 100 or more persons;
-
6.
-
not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including certain specified entities,
during the last half of each taxable year; and
-
7.
-
that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
The
Internal Revenue Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of twelve months, or during a proportionate part of a taxable year of less than twelve months. Conditions (5) and (6) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term "individual" includes a supplemental unemployment compensation benefit plan, a private
foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.
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We
believe that we have been organized, have operated and have issued sufficient shares of capital stock with sufficient diversity of ownership to allow us to satisfy
conditions (1) through (7) inclusive, during the relevant time periods. In addition, our charter documents provide for restrictions regarding ownership and transfer of our shares which
are intended to assist us in continuing to satisfy the ownership requirements described in conditions (5) and (6) above. These stock ownership and transfer restrictions are described in
"Description of Capital StockTransfer and Ownership Restrictions Relating to Our Common Stock," "Description of Capital StockBusiness Combination Provisions" and "Description
of Capital StockTransfer and Ownership Restrictions Relating to Our Preferred Stock." These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership requirements, except as provided in the last sentence of this paragraph, our
status as a REIT will terminate. See "Failure to Qualify." We have complied with, and believe we will continue to comply with, regulatory rules to send annual letters to certain of our stockholders
requesting information regarding the actual ownership of our stock. If, however, we comply with such rules contained in applicable Treasury Regulations that require us to ascertain the actual
ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in condition (6) above, we
will be treated as having met this requirement.
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships
We own and operate one or more properties through partnerships and limited liability companies treated as partnerships for U.S. federal income
tax purposes. Treasury Regulations provide that if we are a partner in a partnership, we will be deemed to own our proportionate share of the assets of the partnership based on our interest in
partnership capital, subject to special rules relating to the 10% REIT asset test described below. Also, we will be deemed to be entitled to our proportionate share of the income of the partnership.
The assets and gross income of the partnership retain the same character in our hands, including for purposes of satisfying the gross income tests and the asset tests. In addition, for these purposes,
the assets and items of income of any partnership in which we own a direct or indirect interest include such partnership's share of assets and items of income of any partnership in which it owns an
interest. The treatment described above also applies with respect to the ownership of interests in limited liability companies or other entities that are treated as partnerships for tax purposes.
We
may have direct or indirect control of certain partnerships and limited liability companies treated as partnerships for U.S. federal income tax purposes and intend to continue to
operate them in a manner consistent with the requirements for our qualification as a REIT. We are a limited partner or non-managing member in certain partnerships and limited liability companies. If
any such partnership or limited liability company were to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity.
In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT income or asset test, and that we would not become aware of such
action in a time frame which would allow us to dispose of our interest in the applicable entity or take other corrective action on a timely basis. In that case, unless we were entitled to relief, as
described below, we would fail to qualify as a REIT.
Treasury
Regulations provide that for U.S. federal income tax purposes, a domestic business entity not organized or otherwise required to be treated as a corporation (an "eligible
entity") may elect to be taxed (i) as a corporation or as a partnership if it has two or more members and (ii) as a corporation or as a disregarded entity if it has only one member. With
the exception of certain limited
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liability
companies that have elected to be treated as corporations and have also either elected to be treated as REITs or elected with us to be treated as taxable REIT subsidiaries, the partnerships
and limited liability companies in which we own an interest intend to claim classification as partnerships or disregarded entities under these Treasury Regulations. As a result, we believe that these
partnerships and limited liability companies will be classified as partnerships or disregarded entities for U.S. federal income tax purposes.
If
a partnership or limited liability company in which we own an interest, or one or more of its subsidiary partnerships or limited liability companies, were treated as a corporation for
U.S. federal income tax purposes, it would be subject to an entity-level tax on its income. Such treatment would change the character of our assets and items of gross income and could prevent us from
satisfying the REIT asset tests and possibly the REIT income tests. See "Taxation of the CompanyAsset Tests" and "Taxation of the CompanyIncome
Tests." This, in turn, could prevent us from qualifying as a REIT. See "Failure to Qualify" for a discussion of the effect of our failure to meet these tests. In addition, a change in the
tax status of one or more of the partnerships or limited liability companies in which we own an interest might be treated as a taxable event. If so, we might incur a tax liability without any related
cash distributions.
Allocations of Income, Gain, Loss and Deduction
A partnership or limited liability company agreement generally will determine the allocation of income and losses among partners or members.
These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Internal Revenue Code and the related Treasury Regulations.
Generally, Section 704(b) of the Internal Revenue Code and the related Treasury Regulations require that partnership and limited liability company allocations respect the economic arrangement
of the partners or members. If an allocation is not recognized for U.S. federal income tax purposes, the relevant item will be reallocated according to the partners' or members' interests in the
partnership or limited liability company, as the case may be. This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the
partners or members with respect to such item. The allocations of taxable income and loss in each of the entities treated as partnerships in which we own an interest are intended to comply with the
requirements of Section 704(b) of the Internal Revenue Code and the applicable Treasury Regulations.
Tax Allocations with Respect to the Properties
Under Section 704(c) of the Internal Revenue Code, income, gain, loss and deduction attributable to appreciated or depreciated property
that is contributed to a partnership or limited liability company in exchange for an interest in the partnership or limited liability company must be allocated in a manner so that the contributing
partner or member is charged with the unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized
loss generally is equal to the difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution. These allocations are solely
for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners or members. Some of the partnerships and/or limited
liability companies in which we own an interest were formed by way of contributions of appreciated property. The relevant partnership and/or limited liability company agreements require that
allocations be made in a manner consistent with Section 704(c) of the Internal Revenue Code. This could cause us to be allocated lower amounts of depreciation deductions for tax purposes than
would be allocated to us if the contributed properties were acquired in a cash purchase, and could cause us to be allocated taxable gain upon a sale of the contributed properties in excess of the
economic or book
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income
allocated to us as a result of such sale. These adjustments could make it more difficult for us to satisfy the REIT distribution requirements.
Partnership Audit Rules
Under the Bipartisan Budget Act of 2015, Congress revised the rules applicable to U.S. federal income tax audits of partnerships (such as
certain of our subsidiaries) and the collection of any tax resulting from any such audits or other tax proceedings, generally for taxable years beginning after December 31, 2017. Under the new
rules, the partnership itself may be liable for an increase in taxes that would ordinarily apply at the partner-level (including interest and penalties) resulting from an adjustment of partnership tax
items on audit, regardless of changes in the composition of the partners (or their relative ownership) between the year under audit and the year of the adjustment. The new rules also include an
elective alternative method under which the additional taxes resulting from the adjustment are assessed from the affected partners, subject to a higher rate of interest than otherwise would apply.
Many questions remain as to how the new rules will apply, especially with
respect to partners that are REITs, and it is not clear at this time what effect this new legislation will have on us. However, these changes could increase the U.S. federal income tax, interest,
and/or penalties otherwise borne by us in the event of a U.S. federal income tax audit of a subsidiary partnership.
Ownership of Interests in Qualified REIT Subsidiaries and Other Disregarded Entities
We may, from time to time, own interests in subsidiary corporations. We own and operate a number of properties through our wholly-owned
subsidiaries that we believe will be treated as "qualified REIT subsidiaries" under the Internal Revenue Code. A corporation will qualify as our qualified REIT subsidiary if we own 100% of its
outstanding stock and if we do not elect with the subsidiary to treat it as a "taxable REIT subsidiary," as described below. A corporation that is a qualified REIT subsidiary is not treated as a
separate corporation for U.S. federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and
items of income, deduction and credit (as the case may be) of the parent REIT for all purposes under the Internal Revenue Code (including all REIT qualification tests). Thus, in applying the U.S.
federal tax requirements described in this prospectus supplement, the subsidiaries in which we own a 100% interest (other than any taxable REIT subsidiaries) are ignored, and all assets, liabilities
and items of income, deduction and credit of such subsidiaries are treated as our assets, liabilities and items of income, deduction and credit. A qualified REIT subsidiary is not required to pay U.S.
federal income tax, and our ownership of the stock of a qualified REIT subsidiary does not violate the restrictions on ownership of securities of any one issuer which constitute more than 10% of the
voting power or value of such issuer's securities or more than 5% of the value of our total assets, as described below in "Asset Tests." Other entities that are wholly owned by us,
including single-member limited liability companies that have not elected to be taxed as corporations for U.S. federal income tax purposes, are also generally disregarded as separate entities for U.S.
federal income tax purposes, including for purposes of the REIT income and asset tests.
In
the event that a qualified REIT subsidiary or other disregarded entity of ours ceases to be wholly ownedfor example, if any equity interest in such entity is acquired by
another personthe qualified REIT subsidiary's separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, the subsidiary would have multiple owners
and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income
requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of an issuer.
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Ownership of Interests in Subsidiary REITs
We own interests in other corporations that have elected to be taxed as REITs. Provided that each of these REITs qualifies as a REIT, our
interest in each of these REITs will be treated as a qualifying real estate asset for purposes of the REIT asset tests and any dividend income or gains derived by us will generally be treated as
income that qualifies for purposes of the REIT gross income tests. To qualify as a REIT, each of these REITs must independently satisfy the various REIT qualification requirements described in this
summary. If any of these REITs were to fail to qualify as a REIT, and certain relief provisions do not apply, it would be treated as a regular taxable corporation and its income would be subject to
U.S. federal income tax. In addition, a failure of any of these REITs to qualify as a REIT would have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our
ability to qualify as a REIT.
Ownership of Interests in Taxable REIT Subsidiaries
A taxable REIT subsidiary of ours is an entity treated as a corporation (other than a REIT) in which we directly or indirectly hold stock, and
that has made a joint election with us to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any entity treated as a corporation (other than a REIT) with respect to which
a taxable REIT subsidiary owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. A taxable REIT subsidiary generally may engage
in any business, including the provision of customary or non-customary services to tenants of its parent REIT, except that a taxable REIT subsidiary may not directly or indirectly operate or manage a
lodging or healthcare facility or directly or indirectly provide to any other person (under a franchise, license or otherwise) rights to any brand name under which any lodging or healthcare facility
is operated. A taxable REIT subsidiary is subject to U.S. federal income tax, and state and local income tax where applicable, as a regular C corporation. In addition, a taxable REIT subsidiary may be
prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding the taxable REIT subsidiary's debt to equity ratio and interest expense are not
satisfied. Further, a 100% tax applies to any interest payments by a taxable REIT subsidiary to its affiliated REIT to the extent the interest rate is not commercially reasonable. A taxable REIT
subsidiary is permitted to deduct interest payments to unrelated parties without any of these restrictions. We currently own interests in several taxable REIT subsidiaries, and may acquire interests
in additional taxable REIT subsidiaries in the future. Our ownership of securities of our taxable REIT subsidiaries will not be subject to the 5% or 10% asset tests described below. See
"Asset Tests."
New Interest Deduction Limitation Enacted by the TCJA
Commencing in taxable years beginning after December 31, 2017, Section 163(j) of the Internal Revenue Code, as amended by the
TCJA, limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of "adjusted taxable income," subject to certain exceptions. Such
limitation could increase our REIT taxable income. Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to the 30% limitation. Adjusted taxable
income is determined without regard to certain deductions, including those for net interest expense, net operating loss carryforwards and, for taxable years beginning before January 1, 2022,
depreciation, amortization and depletion. Provided the taxpayer makes a timely election (which is irrevocable), the 30% limitation does not apply to a trade or business involving real property
development, redevelopment, construction, reconstruction, rental, operation, acquisition, conversion, disposition, management, leasing or brokerage. If this election is made, however, we must use a
generally less favorable depreciation system under the Internal Revenue Code for our real property (including certain improvements), which would increase our REIT taxable income. The
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decision
of whether to make the election and the availability of such election could therefore impact our REIT distribution requirement.
Similarly,
the limitation could cause our taxable REIT subsidiaries to have greater taxable income and thus potentially greater corporate tax liability. As described above, under
Section 163(j) of the Internal Revenue Code, as amended by the TCJA, taxable REIT subsidiaries may be limited in their ability to deduct interest payments in excess of a certain amount made
directly or indirectly to us or third parties.
Income Tests
In General
We must satisfy two gross income requirements annually to maintain our qualification as a REIT:
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First, in each taxable year, we must derive directly or indirectly at least 75% of our gross income, excluding gross income from prohibited
transactions, certain hedging transactions, and certain foreign currency gains, from (a) certain investments relating to real property or mortgages on real property, including "rents from real
property" and, in certain circumstances, interest, or (b) some types of temporary investments; and
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Second, in each taxable year, we must derive at least 95% of our gross income, excluding gross income from prohibited transactions, certain
hedging transactions, and certain foreign currency gains, from the real property investments described above, dividends, interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
For
these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in
any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents
we receive from a tenant will qualify as "rents from real property" for the purpose of satisfying the gross income requirements for a REIT described above only if all of the
following conditions are met:
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The amount of rent is not based in any way on the income or profits of any person. However, an amount we receive or accrue generally will not
be excluded from the term "rents from real property" solely because it is based on a fixed percentage or percentages of receipts or sales;
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We do not, or an actual or constructive owner of 10% or more of our capital stock does not, actually or constructively own 10% or more of the
interests in the assets or net profits of the tenant, or, if the tenant is a corporation, 10% or more of the voting power or value of all classes of stock of the tenant. Rents we receive from such a
tenant that is our taxable REIT subsidiary, however, will not be excluded from the definition of "rents from real property" as a result of this condition if at least 90% of the space at the property
to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other tenants for comparable space. Whether
rents paid by our taxable REIT subsidiary are substantially comparable to rents paid by our other tenants is determined at the time the lease with the taxable REIT subsidiary is entered into,
extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a "controlled taxable REIT subsidiary" is modified and
such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will not qualify as "rents from real property." For purposes of this rule, a
"controlled taxable REIT subsidiary" is a taxable REIT subsidiary in which we own stock possessing more than 50% of the
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voting
power or more than 50% of the total value of the outstanding stock. In addition, rents we receive from a tenant that also is our taxable REIT subsidiary will not be excluded from the definition
of "rents from real property" as a result of our ownership interest in the taxable REIT subsidiary if the property to which the rents relate is a qualified lodging facility, or a qualified health care
property, and such property is operated on behalf of the taxable REIT subsidiary by a person who is an independent contractor and certain other requirements are met. Our taxable REIT subsidiaries will
be subject to U.S. federal income tax on their income from the operation of these properties.
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Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent we
receive under the lease. If this condition is not met, then the portion of rent attributable to the personal property will not qualify as "rents from real property;" and
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We generally do not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and
except as provided below. We may, however, perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Examples of such services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we
may employ an independent contractor from whom we derive no revenue to provide customary services, or a taxable REIT subsidiary, which may be wholly or partially owned by us, to provide both customary
and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as "rents from real property." Any amounts we receive from a taxable REIT subsidiary
with respect to the taxable REIT subsidiary's provision of non-customary services will, however, be nonqualifying income under the 75% gross income test and, except to the extent received through the
payment of dividends, the 95% gross income test. For purposes of this test, we are deemed to have received income from such non-customary services in an amount equal to at least 150% of the direct
cost of providing the services.
We
generally do not intend to receive rent which fails to satisfy any of the above conditions. Notwithstanding the foregoing, we may have taken and may continue to take actions which
fail to satisfy one or more of the above conditions to the extent that we determine, based on the advice of our tax counsel, that those actions will not jeopardize our tax status as a REIT. In
addition, with respect to the limitation on the rental of personal property, we have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no
assurance that the IRS will agree with our determinations of value.
Income
we receive that is attributable to the rental of parking spaces at our properties will constitute rents from real property for purposes of the REIT gross income tests if any
services provided with respect to the parking facilities are performed by independent contractors from whom we derive no income, either directly or indirectly, or by a taxable REIT subsidiary, and
certain other requirements are met. With the exception of some parking facilities we operate, we believe that the income we receive that is attributable to parking facilities meets these tests and,
accordingly, will constitute rents from real property for purposes of the REIT gross income tests.
Also,
rental revenue will generally not qualify as rents from real property if we directly or constructively hold a 10% or greater interest, as measured by vote or value, in the lessee's
equity. Rents we receive from a tenant that is our taxable REIT subsidiary will, however, generally not be excluded from the definition of "rents from real property" as a result of our ownership
interest in the taxable REIT subsidiary if the property to which the rents relate is a "qualified lodging facility" or a "qualified healthcare property" and such property is operated on behalf of the
taxable REIT subsidiary by a person who is an "eligible independent contractor." An operator of qualified healthcare properties
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will
qualify as an eligible independent contractor if it meets certain ownership tests with respect to us, and if, at the time the operator enters into the property management agreement, the operator
is actively engaged in the trade or business of operating qualified healthcare properties for any person who is not a related person to us or the taxable REIT subsidiary. A "qualified healthcare
property" means any real property (or any personal property incidental thereto) that is, or that is necessary or incidental to the use of, a healthcare facility.
From
time to time, we enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps,
caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is
"clearly identified" as a hedging transaction as specified in the Internal Revenue Code and that is entered into to manage the risk of interest rate or price changes with respect to REIT borrowings or
currency fluctuations with respect to qualifying income will not constitute gross income and thus will be exempt from the 95% gross income test and from the 75% gross income test. This exclusion also
applies to certain offsetting hedging positions. To the extent that we do not properly identify such transactions as hedges or otherwise do not satisfy the requirements with respect to hedging
transactions in the Internal Revenue Code, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. We intend to structure any
hedging transactions in a manner that does not jeopardize our status as a REIT.
Our
foreign investments could cause us to incur foreign currency gains or losses. "Passive foreign exchange gain" will not constitute gross income for purposes of the 95% gross income
test and "real estate foreign exchange gain" will not constitute gross income for purposes of the 75% gross income test. Real estate foreign exchange gain is foreign currency gain (as defined in
Section 988(b)(1) of the Internal Revenue Code) which is attributable to: (i) any qualifying item of income or gain for purposes of the 75% gross income test; (ii) the acquisition
or ownership of obligations secured by mortgages on real property or interests in real property; or (iii) becoming or being the obligor under obligations secured by mortgages on real property
or on interests in real property. Real estate foreign exchange gain also includes certain gain attributable to a qualified business unit of a REIT if the qualified business unit itself meets the 75%
gross income test for the taxable year and the 75% asset test at the close of each quarter that the REIT has directly or indirectly held the qualified business unit. Passive foreign exchange gain
includes all real estate foreign exchange gain and foreign currency gain which is attributable to: (i) any qualifying item of income or gain for purposes of the 95% gross income test;
(ii) the acquisition or ownership of obligations; (iii) becoming or being the obligor under obligations; and (iv) any other foreign currency gain as determined by the Secretary of
the Treasury.
Generally,
other than income from "clearly identified" hedging transactions entered into by us in the normal course of business, any foreign currency gain derived by us from dealing, or
engaging in substantial and regular trading, in securities will constitute gross income that does not qualify under the 95% or 75% gross income tests.
Dividends
we receive from our taxable REIT subsidiaries will qualify under the 95%, but not the 75%, REIT gross income test.
The
Department of Treasury has broad authority to determine whether any item of income or gain which does not otherwise qualify under the 75% or 95% gross income tests may be excluded as
gross income for purposes of such tests or may be considered income that qualifies under either such test.
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We believe that the aggregate amount of our nonqualifying income, from all sources, in any taxable year will not exceed the limit on nonqualifying income under
the gross income tests. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief
under certain provisions of the Internal Revenue Code. We generally may make use of the relief provisions if:
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following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the
IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and
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our failure to meet these tests was due to reasonable cause and not due to willful neglect.
It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. As discussed above in "Taxation of the
CompanyGeneral," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to
comply with the gross income tests for REIT qualification despite our periodic monitoring of our income.
Prohibited Transaction Income
Any gain that we realize on the sale of property held as inventory or otherwise held primarily for sale to customers in the ordinary course of
business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. This prohibited transaction income may also adversely affect our ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that
depends on all the facts and circumstances surrounding the particular transaction. There are a number of safe harbors specified in the Internal Revenue Code under which a sale of property will not be
treated as a prohibited transaction, but these safe harbors are highly technical, and our ability to satisfy their requirements is dependent on a number of non-tax business considerations.
We
intend to hold our properties for investment with a view to long-term appreciation and to engage in the business of acquiring, developing and owning our properties. We have made, and
may in the future make, occasional sales of the properties consistent with our investment objectives. The IRS may contend, however, that one or more of these sales is subject to the 100% penalty tax,
and there can be no assurance that such sales will qualify for a prohibited transaction safe harbor. The 100% tax does not apply to gains from the sale of property that is held through a taxable REIT
subsidiary or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates.
Foreclosure Property Income
We generally will be subject to tax at the maximum corporate rate on any net income from foreclosure property, including any gain from the
disposition of the foreclosure property, other than income that constitutes qualifying income for purposes of the 75% gross income test. Foreclosure property is real property and any personal property
incident to such real property (1) that we acquire as the result of having bid on the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement
or process of law, after a default (or upon imminent default) on a lease of the property or a mortgage loan held by us and secured by the property, (2) for which we
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acquired
the related loan or lease at a time when default was not imminent or anticipated, and (3) with respect to which we made a proper election to treat the property as foreclosure property.
The term "foreclosure property" includes any qualified health care propertygenerally, any real property and incidental personal property that is either (a) a health care facility
or (b) necessary or incidental to the use of a health care facilityacquired by a REIT as the result of the termination of a lease of such property (other than a termination by
reason of a default, or the imminence of a default, on the lease). Any gain from the sale of property for which a foreclosure property election has been made and remains in place generally will not be
subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property. To the extent that we receive any income
from foreclosure property that does not qualify for purposes of the 75% gross income test, we intend to make an election to treat the related property as foreclosure property if the election is
available (which may not be the case with respect to any acquired "distressed loans").
Like-Kind Exchanges
We have in the past disposed of properties in transactions intended to qualify as like-kind exchanges under the Internal Revenue Code, and may
continue this practice in the future. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a
like-kind exchange could subject us to U.S. federal income tax, possibly including the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.
Penalty Tax
Any redetermined rents, redetermined deductions or excess interest we generate will be subject to a 100% penalty tax. In general, redetermined
rents are rents from real property that are overstated as a result of any services furnished by one of our taxable REIT subsidiaries to any of our tenants, and redetermined deductions and excess
interest represent any amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's-length
negotiations. Rents we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in the Internal Revenue Code.
We
believe that, in all instances in which our taxable REIT subsidiaries provide services to our tenants, the fees paid to such taxable REIT subsidiaries for such services are at
arm's-length rates, although the fees paid may not satisfy the safe harbor provisions referenced above. These determinations are inherently factual, and the IRS has broad discretion to assert that
amounts paid between related parties should be reallocated to clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax
on the excess of an arm's-length fee for tenant services over the amount actually paid.
Asset Tests
At the close of each calendar quarter of our taxable year, we also must satisfy the following tests relating to the nature and diversification
of our assets.
First,
at least 75% of the value of our total assets, including assets held by our qualified REIT subsidiaries and our allocable share of the assets held by the partnerships and other
entities treated as partnerships for U.S. federal income tax purposes in which we own an interest, must be represented by real estate assets, cash, cash items, and government securities. For purposes
of this test, the term "real estate assets" generally means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of
beneficial interest) in other REITs, as well as any stock or debt instrument attributable to the investment of the proceeds of a stock
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offering
or a public debt offering with a term of at least five years, but only for the one-year period beginning on the date we receive such proceeds.
Second,
not more than 25% of the value of our total assets may be represented by securities other than those securities includable in the 75% asset test.
Third,
of the investments included in the 25% asset class and except for certain investments in other REITs, our qualified REIT subsidiaries and our taxable REIT subsidiaries, the value
of any one issuer's securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer, except,
in the case of the 10% value test, securities satisfying the "straight debt" safe-harbor or securities issued by a partnership that itself would satisfy the 75% income test if it were a REIT. Certain
types of securities are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from
real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership or limited liability company
in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities
described in the Internal Revenue Code.
Fourth,
not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries.
Fifth,
not more than 25% of our total assets may be represented by debt instruments issued by publicly offered REITs that are "nonqualified" debt instruments (i.e., not secured by
real property or interests in real property).
We
currently own some or all of the outstanding stock of several subsidiaries that have elected, together with us, to be treated as taxable REIT subsidiaries. So long as these
subsidiaries qualify as taxable REIT subsidiaries, we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of their
securities. We may acquire securities in other taxable REIT subsidiaries in the future. We believe that the aggregate value of our taxable REIT subsidiaries has not exceeded and in the future will not
exceed 20% of the aggregate value of our gross assets. With respect to each issuer in which we currently own an interest that does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary, we believe that our ownership of the securities of any such issuer has complied and in the future will comply with the 5% value limitation, the 10% voting securities limitation and the 10%
value limitation. No independent appraisals have been obtained to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value. We
may also own, and may continue to
make, certain loans that do not constitute real estate assets but which we believe qualify under the "straight debt safe harbor" and therefore satisfy the 10% value limitation described above.
In
addition, from time to time, we may acquire certain mezzanine loans secured by equity interests in pass-through entities that directly or indirectly own real property. Revenue
Procedure 2003-65 (the "Revenue Procedure") provides a safe harbor pursuant to which mezzanine loans meeting the requirements of the safe harbor will be treated by the IRS as real estate assets for
purposes of the REIT asset tests. In addition, any interest derived from such mezzanine loans will be treated as qualifying mortgage interest for purposes of the 75% gross income test (described
above).
Although
the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. The mezzanine loans that we hold or acquire may not
meet all of the requirements of the safe harbor. Accordingly, there can be no assurance that the IRS will not challenge the qualification of such assets as real estate assets or the interest generated
by these loans as qualifying income under the 75% gross income test (described above).
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The
asset tests described above must be satisfied at the close of each calendar quarter of our taxable year. After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values unless we (directly or through our partnerships or
limited liability companies) acquire securities in the applicable issuer, increase our ownership of securities of such issuer (including as a result of increasing our interest in a partnership or
limited liability company which owns such securities), or acquire other assets. If we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a
result of an increase in our interests in a partnership or limited liability company), we can cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of
that quarter. We believe that we have maintained and intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests. In addition, we intend to take such
actions within 30 days after the close of any calendar quarter as may be required to cure any noncompliance.
Certain
relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30 day cure period. Under these provisions, we will
be deemed to have met the 5% and 10% REIT asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such asset tests within (a) six months after the last day of the
quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to
reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT
after
the 30 day cure period, by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within
(a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued,
(ii) paying a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and
(iii) disclosing certain information to the IRS.
Although
we believe that we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is
to occur, there can be no assurance that we will always be successful or will not require a reduction in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure
any noncompliance with the asset tests in a timely manner and the relief provisions described above are not available, we would cease to qualify as a REIT. See "Failure to Qualify" below.
Distribution Requirements
To maintain our qualification as a REIT, we are required to annually distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to the sum of:
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90% of our "REIT taxable income"; and
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90% of our after tax net income, if any, from foreclosure property; minus
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the excess of the sum of specified items of our non-cash income over 5% of our "REIT taxable income" as described below.
For
these purposes, our "REIT taxable income" is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income
means
income attributable to leveling of stepped rents, original issue discount on purchase money debt, cancellation of indebtedness, and any like-kind exchanges that are later determined to be taxable.
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In
addition, if we dispose of any asset we acquired from a corporation which is or has been a C corporation in a transaction in which our basis in the asset is determined by
reference to the basis of the asset in the hands of that C corporation, within the five-year period following our acquisition of such asset, we would be required to distribute at least 90% of the
after-tax gain, if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the excess of (a) the fair market value of the asset, over (b) our adjusted
basis in the asset, in each case, on the date we acquired the asset.
We
generally must make dividend distributions in the taxable year to which they relate. Dividend distributions may be made in the following year in two circumstances. First, if we
declare a dividend in October, November, or December of any year with a record date in one of these months and pay the dividend on or before January 31 of the following year, such distributions
are treated as both paid by us and received by each shareholder on December 31 of the year in which they are declared. Second, distributions may be made in the following year if they are
declared before we timely file our tax return for the year and if made with or before the first regular dividend payment after such declaration. These distributions are taxable to our shareholders in
the year in which paid, even though the distributions relate to our prior taxable year for purposes of the 90% distribution requirement.
For
distributions to satisfy the annual distribution requirement for REITs, and to provide REITs with a REIT-level tax deduction, the distributions must not be "preferential dividends."
A dividend is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares of stock within a particular class and (2) in accordance with the preferences
among different classes of stock as set forth in the REIT's organizational documents. This requirement does not apply to publicly offered REITs, including us, but does apply to our subsidiary REITs.
To
the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our "REIT taxable income," as adjusted, we will be required to pay
tax on the undistributed amount at regular corporate tax rates. We believe we have made, and intend to continue to make, timely distributions sufficient to satisfy these annual distribution
requirements and to minimize our corporate tax obligations. In certain circumstances we may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains. In this
case, we could elect for our shareholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax
that we paid. Our shareholders would then increase their adjusted basis of their stock by the difference between (1) the amounts of capital gain dividends that we designated and that they
included in their taxable income, minus (2) the tax that we paid on their behalf with respect to that income.
We
expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we
anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient
cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and payment of deductible expenses, and the inclusion of income and
deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing
differences occur, we may be required to borrow funds to pay cash dividends or we may be required to pay dividends in the form of taxable stock dividends in order to meet the distribution
requirements.
In
an acquisition of a C corporation in a transaction in which the basis of the corporation's assets in our hands is determined by reference to the basis of the assets in the hands of
the acquired corporation (a "Carry-Over Basis Transaction"), we may succeed to the tax liabilities and earnings and profits of the acquired C corporation. To qualify as a REIT, we must distribute any
such earnings and profits by the close of the taxable year in which the transaction occurs. Any adjustments to the acquired
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corporation's
income for taxable years ending on or before the date of the transaction, including as a result of an examination of the corporation's tax returns by the IRS, could affect the
calculation of the corporation's earnings and profits. If the IRS were to determine that we acquired earnings and profits from a corporation that we failed to distribute prior to the end of the
taxable year in which the Carry-Over Basis Transaction occurred, we could avoid disqualification as a REIT by using "deficiency dividend" procedures. Under these procedures, we generally would be
required to distribute any such earnings and profits to our stockholders within 90 days of the determination and pay a statutory interest charge at a specified rate to the IRS.
Under
certain circumstances, we may be able to rectify an inadvertent failure to meet the distribution requirements for a year by paying "deficiency dividends" to our stockholders in a
later year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4%
excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.
Furthermore,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year or at least the sum of 85% of our ordinary income for such year, 95%
of our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which this excise tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating such tax.
Failure to Qualify
Specified cure provisions are available to us in the event that we discover a violation of a provision of the Internal Revenue Code that would
result in our failure to qualify as a REIT. Except with respect to violations of the REIT income tests and assets tests (for which the cure provisions are described above), and provided the violation
is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to qualify for
taxation as a REIT in any taxable year, and the relief provisions of the Internal Revenue Code do not apply, we will be required to pay tax on our taxable income at regular corporate tax rates.
Distributions to our stockholders in any year in which we fail to qualify as a REIT will not be deductible by us, and we will not be required to distribute any amounts to our stockholders. As a
result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition, if we fail to qualify as a REIT, all distributions
to our stockholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In this event, subject to certain limitations under the Internal
Revenue Code, corporate distributees may be eligible for the dividends-received deduction and individuals may be eligible for preferential tax rates on any qualified dividend income. Unless entitled
to relief under specific statutory provisions, we will also be disqualified from taxation as a REIT for the four taxable years following the year in which we lost our qualification. It is not possible
to state whether in all circumstances we would be entitled to this statutory relief.
Taxation of Holders of Our Common Stock
The following summary describes certain of the U.S. federal income tax considerations of owning and disposing of our common stock, which a
holder of units may acquire upon an exchange. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address
all aspects of U.S. federal income taxation that may be relevant to a holder in light of its particular circumstances and does not address any state, local or foreign tax consequences. We urge holders
to consult their tax advisors to determine the impact of U.S. federal, state, local and foreign income tax laws on the acquisition, ownership, and disposition of shares of our common stock, including
any reporting requirements.
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Taxable U.S. Stockholders Generally
If you are a "U.S. holder," as defined below, this section or the section entitled "Tax-Exempt Stockholders" applies to you. Otherwise, the
section entitled "non-U.S. Stockholders," applies to you.
A "U.S. holder" is a beneficial holder of our common stock who is:
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an individual citizen or resident of the United States;
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a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or (2) has a
valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
A
"non-U.S. holder" is a beneficial holder of shares of our common stock who is not a U.S. holder.
Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other than capital gain dividends and
certain amounts that have previously been subject to corporate level tax, discussed below, will be taxable to taxable U.S. holders as ordinary income when received, except as described below. See
"Tax Rates" below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or,
except to the extent provided in "Tax Rates" below, the preferential rates on qualified dividend income applicable to non-corporate taxpayers. However, under the TCJA, for taxable years
beginning after December 31, 2017 and before January 1, 2026, stockholders that are individuals, trusts, or estates are generally entitled to deduct up to 20% of certain qualified
business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to
certain limitations. For purposes of determining whether distributions to holders of our stock are out of current or accumulated earnings and profits, our earnings and profits will be allocated first
to our outstanding preferred stock and then to our outstanding common stock.
To
the extent that we make distributions on our stock in excess of our current and accumulated earnings and profits, these distributions will be treated first as a return of capital to a
U.S. holder which will not be subject to tax. This treatment will reduce the U.S. holder's adjusted tax basis in its shares of our stock by the amount of the distribution, but not below zero.
Distributions in excess of our current and accumulated earnings and profits and in excess of a U.S. holder's adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable
as long-term capital gain if the shares have been held for more than one year. Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a
specified date in any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the dividend on or before
January 31 of the following year. U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.
Certain
dividends partially paid in our common stock and partially paid in cash that comply with IRS guidance, will be taxable to recipient U.S. holders to the same extent as if paid in
cash. See "Taxation of the CompanyAnnual Distribution Requirements" above.
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Dividends that we properly designate as capital gain dividends will be taxable to taxable U.S. holders as gains from the sale or disposition of
a capital asset, to the extent that such gains do not exceed our actual net capital gain for the taxable year. These dividends may be taxable to non-corporate U.S. holders at preferential rates
applicable to capital gains. See "Tax Rates" below. U.S. holders that are corporations may, however, be required to treat up to 20% of some capital gain dividends as ordinary income. If
we properly designate any portion of a dividend as a capital gain dividend then, except as otherwise required by law, we are required by the terms of our corporate charter to allocate a portion of the
total capital gain dividends paid to holders of all classes of our stock for the year to the holders of our preferred stock in proportion to the amount that our total dividends, as determined for U.S.
federal income tax purposes, paid to the holders of such stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all
classes of our stock for the year.
We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our net capital gains. If we make this election,
we would pay tax on our retained net capital gains. In addition, to the extent we so elect, a U.S. holder generally would:
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include its pro rata share of our undistributed net capital gains in computing its long-term capital gains in its return for its taxable year
in which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;
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be deemed to have paid the capital gains tax imposed on us on the designated amounts included in the U.S. holder's long-term capital gains;
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receive a credit or refund for the amount of tax deemed paid by it;
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increase the adjusted basis of its stock by the difference between the amount of includable gains and the tax deemed to have been paid by it;
and
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in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance
with Treasury Regulations to be promulgated by the IRS.
If a U.S. holder sells or disposes of shares of our common stock to a person other than us, it will recognize gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and its adjusted basis in the
shares for tax purposes. This gain or loss, except as provided below, will be long-term capital gain or loss if the U.S. holder has held the stock for more than one year at the time of such sale or
disposition. If, however, a U.S. holder recognizes loss upon the sale or other disposition of our common stock that it has held for six months or less, after applying certain holding period rules, the
loss recognized will be treated as a long-term capital loss, to the extent the U.S. holder received distributions from us that were required to be treated as long-term capital gains.
A redemption of shares of our common stock will be treated under the Internal Revenue Code as a distribution taxable as a dividend to the extent
of our current and accumulated earnings and profits at ordinary income rates unless the redemption satisfies one of the tests set forth in Section 302(b) of
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the
Internal Revenue Code and is therefore treated as a sale or exchange of the redeemed shares. The redemption will be treated as a sale or exchange if it:
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is "substantially disproportionate" with respect to the U.S. holder;
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results in a "complete termination" of the U.S. holder's stock interest in the Company; or
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is "not essentially equivalent to a dividend" with respect to the U.S. holder;
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all within the meaning of Section 302(b) of the Internal Revenue Code.
In
determining whether any of these tests have been met, shares of capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by
reason of certain constructive ownership rules set forth in the Internal Revenue Code, as well as shares of capital stock actually owned by the U.S. holder, must generally be taken into account.
Because the determination as to whether any of the alternative tests of Section 302(b) of the Internal Revenue Code will be satisfied with respect to the U.S. holder depends upon the facts and
circumstances at the time of the redemption, U.S. holders are advised to consult their tax advisors to determine the appropriate tax treatment.
If
a redemption of shares of our common stock is treated as a distribution taxable as a dividend, the amount of the distribution will be measured by the amount of cash and the fair
market value of any
property received. A U.S. holder's adjusted basis in the redeemed shares for tax purposes will be transferred to its remaining shares of our capital stock, if any. If a U.S. holder owns no other
shares of our capital stock, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely.
If
a redemption of shares of our stock is not treated as a distribution taxable as a dividend, it will be treated as a taxable sale or exchange in the manner described above under
"Dispositions of Our Stock."
The maximum tax rate for non-corporate taxpayers for (1) capital gains, including certain "capital gain dividends," is currently 20%
(although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25% rate);
(2) "qualified dividend income" is currently 20%; and (3) ordinary income is currently 37%. Non-corporate taxpayers may also be subject to certain Medicare tax on investment income, as
described below. In general, dividends payable by REITs are not eligible for the reduced tax rate on corporate dividends, except to the extent that certain holding requirements have been met and the
REIT's dividends are attributable to dividends received from taxable corporations (such as its taxable REIT subsidiaries), to income that was subject to tax at the corporate/REIT level (for example,
if it distributed taxable income that it retained and paid tax on in the prior taxable year), or to dividends properly designated by the REIT as "capital gain dividends." However, as described above
under "Distributions Generally," stockholders that are individuals, trusts, or estates may currently deduct up to 20% of "qualified REIT dividends" received, subject to certain
limitations.
Dividend income from us and gain arising upon a sale of shares of our common stock generally should not be unrelated business taxable income
("UBTI") to a tax-exempt holder, except as described below. This income or gain will be UBTI, however, if a tax-exempt holder holds its shares as "debt-financed property" within the meaning of the
Internal Revenue Code or if the shares are used in a trade or business of the tax-exempt holder. Generally, debt-financed property is property the acquisition or holding of which was financed through
a borrowing by the tax-exempt holder.
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For
tax-exempt holders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified group legal services plans exempt from U.S.
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Internal Revenue Code, respectively, income from an investment in our shares will constitute UBTI unless the
organization is able to properly claim a deduction for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set aside" and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a "pension-held REIT" may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the
interests in the REIT. A REIT will not be a "pension-held REIT" if it is able to satisfy the "not closely held" requirement without relying on the "look-through" exception with respect to certain
trusts or if such REIT is not "predominantly held" by "qualified trusts." As a result of limitations on the transfer and ownership of stock contained in our charter, we do not expect to be classified
as a "pension-held REIT," and as a result, the tax treatment described in this paragraph should be inapplicable to our holders. However, because our stock is publicly traded, we cannot guarantee that
this will always be the case.
Non-U.S. Stockholders
The following discussion addresses the rules governing U.S. federal income taxation of the ownership and disposition of our common stock by
non-U.S. holders.
Distributions (including certain stock dividends) that are neither attributable to gain from our sale or exchange of U.S. real property
interests nor designated by us as capital gain dividends will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits. Such
distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty unless the distributions are
treated as effectively connected with the conduct by the
non-U.S. holder of a U.S. trade or business. Under certain treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification and
disclosure requirements must be satisfied to be exempt from withholding under the effectively connected income exemption. Dividends that are treated as effectively connected with such a trade or
business (and, in the case of certain income tax treaties, are attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the U.S.) will be subject to tax on a net
basis at graduated rates, in the same manner as dividends paid to U.S. holders are subject to tax, and are generally not subject to withholding. Any such dividends received by a non-U.S. holder that
is a corporation may also be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the non-U.S.
holder's adjusted basis in our common stock, but rather will reduce the non-U.S. holder's adjusted basis of such stock. To the extent that these distributions exceed a non-U.S. holder's adjusted basis
in our common stock, they will give rise to gain from the sale or exchange of such stock. The tax treatment of this gain is described below.
For
withholding purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. As a result, except with respect to certain distributions
attributable to
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the
sale of U.S. real property interests described below, we expect to withhold U.S. income tax at the rate of 30% on any distributions made to a non-U.S. holder
unless:
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a lower treaty rate applies and the non-U.S. holder files with us an IRS Form W-8BEN evidencing eligibility for that reduced treaty
rate; or
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the non-U.S. holder files an IRS Form W-8ECI with us claiming that the distribution is income effectively connected with the non-U.S.
holder's trade or business (and, in the case of certain income tax treaties, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the U.S.).
However,
amounts withheld should generally be refundable if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and
profits, provided that certain conditions are met.
Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of U.S. Real Property
Interests
Distributions to a non-U.S. holder that we properly designate as capital gain dividends, other than those arising from the disposition of a U.S.
real property interest, generally should not be subject to U.S. federal income taxation, unless:
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the investment in our common stock is treated as effectively connected with the non-U.S. holder's U.S. trade or business (and, in the case of
certain income tax treaties, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the U.S.), in which case the non-U.S. holder will be subject to the same
treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a foreign corporation may also be subject to the 30% branch profits tax, as discussed above; or
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the non-U.S. holder is a nonresident alien individual who is present in the U.S. for 183 days or more during the taxable year and
certain other conditions are met, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains.
Pursuant
to FIRPTA, distributions to a non-U.S. holder that are attributable to gain from our sale or exchange of U.S. real property interests (whether or not designated as capital gain
dividends) will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders would generally be taxed at the same
rates applicable to U.S. holders, subject to a special alternative minimum tax in the case of nonresident alien individuals (although, under the TCJA, the corporate alternative minimum tax has been
repealed for taxable years beginning after December 31, 2017). We will also be required to withhold and to remit to the IRS 21% of any distribution to a non-U.S. holder that is designated as a
capital gain dividend, or, if greater, 21% of a distribution to the non-U.S. holder that could have been designated as a capital gain dividend. The amount withheld is creditable against the non-U.S.
holder's U.S. federal income tax liability. However, any distribution with respect to any class of stock which is regularly traded on an established securities market located in the U.S. is not
subject to FIRPTA, and therefore, not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of
stock at any time during the one-year period ending on the date of the distribution. Instead, such distributions generally will be treated in the same manner as ordinary dividend distributions.
Although the law is not clear on the matter, it appears that amounts we designate as retained capital gains in respect of the common stock held
by U.S. holders generally should be treated with respect to non-U.S. holders in the same manner as actual distributions by us of capital gain dividends. Under this approach, a non-U.S. holder would be
able to offset as a credit against its U.S. federal
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income
tax liability resulting from its proportionate share of the tax paid by us on such retained capital gains, and to receive from the IRS a refund to the extent of the non-U.S. holder's
proportionate share of such tax paid by us exceeds its actual U.S. federal income tax liability.
Gain recognized by a non-U.S. holder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation
under FIRPTA unless such stock constitutes a U.S. real property interest within the meaning of FIRPTA. Our common stock will not constitute a U.S. real property interest so long as we are a
domestically-controlled qualified investment entity. As discussed above, a domestically-controlled qualified investment entity includes a REIT in which at all times during a specified testing period
less than 50% in value of its stock is held directly or indirectly by non-U.S. holders. We believe, but cannot guarantee, that we have been a "domestically-controlled qualified investment entity."
Even if we have been a "domestically-controlled qualified investment entity," because our capital stock is publicly traded, no assurance can be given that we will continue to be a
"domestically-controlled qualified investment entity."
Even
if we do not qualify as a "domestically-controlled qualified investment entity" at the time a non-U.S. holder sells or exchanges our stock, gain arising from such a sale or exchange
would not be
subject to U.S. taxation under FIRPTA as a sale of a "U.S. real property interest" if:
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(1)
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our
stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market such as the NYSE; and
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(2)
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such
non-U.S. holder owned, actually and constructively, 10% or less of our stock throughout the five-year period ending on the date of the sale or exchange.
If
gain on the sale or exchange of our common stock were subject to U.S. taxation under FIRPTA, the non-U.S. holder would be subject to regular U.S. federal income tax with respect to
such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In
addition, if our stock is not then traded on an established securities market, the purchaser of the stock would be required to withhold and remit to the IRS 15% of the purchase price. If amounts
withheld on a sale, redemption, repurchase, or exchange of our stock exceed the holder's substantive tax liability resulting from such disposition, such excess may be refunded or credited against such
non-U.S. holder's U.S. federal income tax liability, provided that the required information is provided to the IRS on a timely basis. Amounts withheld on any such sale, exchange or other taxable
disposition of our stock may not satisfy a non-U.S. holder's entire tax liability under FIRPTA, and such non-U.S. holder remains liable for the timely payment of any remaining tax liability. In
general, even if we are a domestically controlled qualified investment entity, upon disposition of our common stock (subject to the 10% exception applicable to "regularly traded" stock described
above), a non-U.S. holder may be treated as having gain from the sale or exchange of U.S. real property interest if the non-U.S. holder (1) disposes of our stock within a 30-day period
preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a U.S. real property interest and
(2) acquires, enters into a contract or option to acquire, or is deemed to acquire other shares of our stock during the 61-day period beginning with the first day of the 30-day period described
in clause (1).
Gain
from the sale or exchange of our common stock not otherwise subject to FIRPTA will nonetheless be taxable in the U.S. to a non-U.S. holder in two cases: (1) if the non-U.S.
holder's investment in our stock is treated as effectively connected with the non-U.S. holder's U.S. trade or business (and, in the case of certain income tax treaties, is attributable to a permanent
establishment or fixed base maintained by the non-U.S. holder in the U.S.), such non-U.S. holder will be subject to the same treatment as a U.S. holder with respect to such gain; and (2) if the
non-U.S. holder is a
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nonresident
alien individual who was present in the U.S. for 183 days or more during the taxable year and has a "tax home" in the U.S., such non-U.S. holder will be subject to a 30% tax on such
non-U.S. holder's capital gain. Non-U.S. holders should contact their tax advisors regarding the tax consequences of any sale, exchange, or other taxable disposition of our common stock.
If our common stock is owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate
tax purposes) of the United States at the time of such individual's death, the stock will be includable in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise, and may therefore be subject to U.S. federal estate tax.
Other Tax Considerations
State, Local and Foreign Taxes
We may be required to pay tax in various state, local or foreign jurisdictions, including those in which we transact business, and holders of
our common stock may be required to pay tax in various state, local or foreign jurisdictions, including those in which they reside. Our state, local and foreign tax treatment may not conform to the
U.S. federal income tax consequences discussed above. For example, certain states apply a built-in gains tax to the sale of assets acquired from a C corporation in a Carry-Over Basis Transaction,
described above, during the ten-year period following such asset acquisition. In addition, a holder's state, local and foreign tax treatment may not conform to the U.S. federal income tax consequences
discussed above. Consequently, prospective investors should consult their tax advisors regarding the effect of state, local and foreign tax laws on an investment in our common stock.
Legislative or Other Actions Affecting REITs
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or
administrative action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department which may result in
statutory changes as well as revisions to regulations and interpretations.
The
effect of the significant changes made by the TCJA is highly uncertain, and administrative guidance, technical corrections, and amendments will be required in order to fully evaluate
the effect of many provisions. We cannot predict the long-term effect of the TCJA or any future law changes on REITs or their stockholders. Changes to the U.S. federal tax laws and interpretations
thereof could adversely affect an investment in our common stock.
Medicare 3.8% Tax on Investment Income
Certain U.S. holders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare
tax on dividends, interest and certain other investment income, including (i) capital gains from the sale or other disposition of our common stock and (ii) gain from the redemption of
units for cash or the exchange of units for shares of our common stock. U.S. holders of our common stock should consult their tax advisors regarding the possible applicability of this additional tax
in their particular circumstances.
Foreign Account Tax Compliance Act
Under the Foreign Account Tax Compliance Act ("FATCA"), withholding at a rate of 30% will generally be required on dividends in respect of, and,
after December 31, 2018, gross proceeds from
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the
sale of, shares of our common stock held by or through certain foreign financial institutions (including investment funds), unless such institution (i) enters into an agreement with the
U.S. Department of the Treasury to report, on an annual basis, information with respect to shares in, and accounts maintained by, the institution to the extent such shares or accounts are held by
certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (ii) complies with the terms of an
intergovernmental agreement between the U.S. and an applicable foreign country. Accordingly, the entity through which our stock is held will affect the determination of whether such withholding is
required. Similarly, dividends in respect of, and, after December 31, 2018, gross proceeds from the sale of shares of our common stock held by an investor that is a non-financial non-U.S.
entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any "substantial
United States owners" or (ii) provides certain information regarding the entity's "substantial United States owners," which we or the applicable withholding agent will in turn provide to the
Secretary of the Treasury. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements.
We will not pay any additional amounts to investors in respect of any amounts withheld. Non-U.S. investors are encouraged to consult their tax advisors regarding the possible implications of the
legislation on their investment in our common stock.
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PLAN OF DISTRIBUTION
This prospectus supplement relates to the possible issuance by us of up to 1,101,559 shares of our common stock if, and to the extent that, the
holders of units representing non-managing membership interests in HCPI/Utah II, LLC tender such units for redemption and we elect, in our discretion, to satisfy our redemption obligation by
issuing shares of our common stock in exchange for such tendered units. Registration of the issuance of such shares does not necessarily mean that any of the holders of units representing non-managing
membership interests in HCPI/Utah II, LLC will exercise their redemption rights with respect to the units or that we will issue any shares of our common stock to satisfy such redemption
obligation. Upon the tender of any units for redemption, we may elect to pay cash for some or all of such units rather than issue shares of our common stock in exchange for such units.
We
will not receive any cash proceeds from the issuance of the shares of our common stock pursuant to this prospectus supplement to the holders of units tendered for redemption, but we
will acquire units representing non-managing membership interests in HCPI/Utah II, LLC in exchange for shares of our common stock issued to a holder of units upon redemption of its units.
We
have agreed to pay the following expenses for the registration of the shares:
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all registration and filing fees;
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fees and expenses of compliance with securities or blue sky laws (including the reasonable fees and expenses of counsel to the Company);
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printing and distribution expenses;
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internal expenses;
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fees and expenses incurred in connection with the listing of the shares on each securities exchange on which our common stock is then listed;
and
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fees and expenses of our legal counsel, independent public accountants and other experts we retain in connection with the registration.
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VALIDITY OF COMMON STOCK
The validity of the shares of our common stock offered hereby has been passed upon for us by Ballard Spahr LLP, Baltimore, Maryland.
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York represents HCP in respect of the transactions contemplated by this prospectus supplement.
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PROSPECTUS
Health Care Property Investors, Inc.
738,923 Shares
Common Stock
This prospectus relates to the possible issuance of up to 738,923 shares of common stock of Health Care Property Investors, Inc., a
Maryland corporation, from time to time, to the holders of non-managing member units in HCPI/Utah II, LLC and the possible resale of shares of our common stock by these holders.
We
will not receive any proceeds from the issuance of the shares of our common stock to the selling holders except that we will acquire membership units of HCPI/Utah II, LLC
currently held by the selling holders tendered in exchange for shares of our common stock.
Our
shares of common stock are traded on the New York Stock Exchange under the symbol "HCP." On September 18, 2002, the last reported sales price of our common stock on the New
York Stock Exchange was $41.50 per share.
You should consider the risks discussed in "Risk Factors" beginning on page 1 of this prospectus before you invest in our common
stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The
date of this prospectus is September 19, 2002
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All references in this prospectus to "HCPI" "we," "us" or "our" mean Health Care Property Investors, Inc., its majority-owned subsidiaries and other
entities controlled by Health Care Property Investors, Inc. except where is clear from the context that the term means only the issuer, Health Care Property
Investors, Inc.
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RISK FACTORS
Below are the risks that we believe are material to investors who purchase or own our common stock. In addition to other
information contained or incorporated by reference in this prospectus, you should carefully consider the following factors before acquiring the common stock offered by this prospectus.
Decline in the assisted living sector and the long-term care industry may have significant adverse
consequences to us.
Assisted Living Industry.
The assisted living industry, from which we derived 14% of our annualized revenue as of June 30, 2002,
has been
challenged by overbuilding in certain areas, slower than projected fill-up rates, margin pressure from lower than projected rents and shortage of capital. Various assisted living companies continue
their efforts to restructure their capital, debt and lease structures.
Long-Term Care Industry.
We derived 27% of our annualized revenue as of June 30, 2002 from the long-term care industry. Certain
long-term care
operators and facilities continue to experience operating problems in part due to low levels of Medicaid reimbursements in certain states. In addition, if the most recent Medicare reimbursement
increase is not extended beyond October 1, 2002 and various states institute Medicaid rate cuts to reduce budget shortfalls, additional operators may begin feeling the strain of inadequate
reimbursement.
We
cannot assure you that the trouble experienced by assisted living operators and long-term care operators will not have a material adverse effect on our net income, funds from
operations or the value of the common stock.
The health care industry is heavily regulated by the government, which may adversely affect our rental and
debt payment revenues.
The health care industry is heavily regulated by federal, state and local laws. This government regulation of the health care industry affects
us because:
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the financial ability of lessees to make rent and debt payments to us may be affected by governmental regulations such as licensure,
certification for participation in government programs, and government reimbursement; and
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our additional rents are based on our lessees' gross revenue from operations in many instances, which in turn are affected by the amount of
reimbursement such lessees receive from the government.
The
failure of any borrower of funds from us or lessee of any of our properties to comply with such laws and regulations could affect its ability to operate its facility or facilities
and could adversely affect such borrower's or lessee's ability to make debt or lease payments to us.
Fraud and Abuse.
Various federal and state governments have considered or passed laws that attempt to eliminate fraud and abuse by
prohibiting
payment arrangements that include compensation for patient referrals. We cannot assure you that the operators of our facilities are in compliance or will remain in compliance in the future with these
laws.
Licensure Risks.
Most health care facilities must obtain a license to operate. Failure to obtain licensure or loss of licensure would
prevent a
facility from operating which could adversely affect the facility operator's ability to make rent and debt payments.
Environmental Matters.
A wide variety of federal, state and local environmental and occupational health and safety laws and regulations
affect health
care facility operations. Under various federal, state
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and
local environmental laws, ordinances and regulations, an owner of real property or a secured lender (such as us) may be liable for the costs of removal or remediation of hazardous or toxic
substances at, under or disposed of in connection with such property, as well as other potential costs
relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The presence of any environmental liability at any of our properties
would affect the property owner's ability to sell or rent the property or to borrow using the property as collateral which, in turn, would reduce our revenue.
Medicare and Medicaid Programs.
Sources of revenue for lessees and mortgagors may include the federal Medicare program, state Medicaid
programs,
private insurance carriers, health care service plans and health maintenance organizations, among others. Efforts to reduce costs by these payors will likely continue, which may result in reduced or
slower growth in reimbursement for certain services provided by some of our operators. In addition, the failure of any of our operators to comply with various laws and regulations could jeopardize its
ability to continue participating in the Medicare and Medicaid programs.
Cost Control.
The healthcare industry has continually faced various challenges, including increased government and private payor
pressure on health
care providers to control costs, the migration of patients from acute care facilities into extended care and home care settings and the vertical and horizontal consolidation of health care providers.
Changes in the law, new interpretations of existing laws, and changes in payment methodology may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs
associated with doing business and the amount of reimbursement furnished by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of
legislative efforts cannot be predicted and may impact us in different ways.
Loss of our tax status as a real estate investment trust would have significant adverse consequences to us
and the value of our common stock.
We currently operate and have operated commencing with our taxable year ended December 31, 1985 in a manner that is intended to allow us
to qualify as a real estate investment trust for federal income tax purposes under the Internal Revenue Code of 1986, as amended.
Qualification
as a real estate investment trust involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and
administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a real estate investment trust. For
example, in order to qualify as a real estate investment trust, at least 95% of our gross income in any year must be derived from qualifying sources, and we must satisfy a number of requirements
regarding the composition of our assets. Also, we must make distributions to stockholders aggregating annually at least 90% of our net taxable income, excluding capital gains. In addition, new
legislation, regulations, administrative
interpretations or court decisions may adversely affect our investors or our ability to qualify as a REIT for tax purposes. Although we believe that we are organized and have operated in such manner,
we can give no assurance that we have qualified or will continue to qualify as a REIT for tax purposes.
If
we lose our real estate investment trust status, we will face serious tax consequences that will substantially reduce the funds available to make payments of principal and interest on
our outstanding debt we issue and to make distributions to our stockholders. If we fail to qualify as a real estate investment trust:
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we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income
tax at regular corporate rates;
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we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
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unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a real estate investment trust for four
taxable years following the year during which we were disqualified.
In
addition, if we fail to qualify as a real estate investment trust, all distributions to stockholders would be subject to tax as ordinary income to the extent of our current and
accumulated earnings and profits, and we will not be required to make distributions to stockholders.
As
a result of all these factors, our failure to qualify as a real estate investment trust also could impair our ability to expand our business and raise capital, and would adversely
affect the value of our common stock.
Our prior engagement of Arthur Andersen as our independent auditors during fiscal years 1999, 2000, and 2001
may adversely affect our ability to access the capital markets and make timely filings with the Securities and Exchange Commission in the future.
On March 14, 2002, Arthur Andersen LLP, our former independent public auditors, was indicted on federal obstruction of justice
charges arising from the federal government's investigation of Enron Corp. On June 15, 2002, Arthur Andersen was found guilty of these charges. Although we dismissed Arthur Andersen as our
independent public auditors and engaged Ernst & Young LLP during May 2002, our consolidated financial statements for the fiscal years ended December 31, 1999, 2000, and 2001 were
audited by Arthur Andersen and are incorporated by reference into this prospectus. The Securities and Exchange Commission has said that it will continue accepting financial statements audited by
Arthur Andersen as long as a reasonable effort is made to have Arthur Andersen reissue its reports and to obtain a manually signed accountant's report from Arthur Andersen. Arthur Andersen notified us
that, as of June 6, 2002, it is no longer able to reissue its reports because both of the partners who were assigned to our account have resigned from the firm. Our access to the capital
markets and our ability to make timely filings with the SEC could be impaired if the SEC ceases accepting financial statements from a prior period audited by Arthur Andersen for which Arthur Andersen
will not reissue an audit report. In that case, we would not be able to access the public capital markets unless another independent accounting firm is able to audit the financial statements
originally audited by Arthur Andersen. Any delay or inability to access the public capital markets caused by these circumstances could have a material adverse effect on us.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports,
statements or other information that we have filed at the SEC's public reference rooms. You may read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. You may inspect information that we file with The New
York Stock Exchange at the offices of The New York Stock Exchange at 20 Broad Street, New York, New York 10005.
The
SEC allows us to "incorporate by reference" the information we file with the SEC, which means that we can disclose important information to you by referring to the other information
we have filed with the SEC. The information that we incorporate by reference is considered a part of this prospectus and information that we file later with the SEC will automatically update and
supersede the information contained in this prospectus. We incorporate by reference the following documents we filed with the SEC pursuant to Section 13 of the Securities Exchange Act of 1934,
as amended:
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our Current Reports on Form 8-K dated May 14, 2002 and June 19, 2002;
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our Quarterly Reports on Form 10-Q/A and Form 10-Q for the fiscal quarter ended March 31, 2002 and for the fiscal quarter
ended June 30, 2002, respectively;
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our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001;
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our Proxy Statement dated March 27, 2002;
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the description of our common stock contained in our registration statement on Form 10 dated May 7, 1985 (File
No. 1-8895), including the amendments dated May 20, 1985 and May 23, 1985, and any other amendment or report filed for the purpose of updating such description, including the
description of amendments to our charter contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001; and
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the description of our preferred share purchase rights (which were issued pursuant to our Stockholder Rights Plan dated June 20, 2000)
contained in our Form 8-A dated July 28, 2000 (File No. 1-08895).
We
are also incorporating by reference additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the
date of this prospectus and before we stop offering the securities described in this prospectus. These documents include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of
this prospectus.
If
you are a stockholder, we may have sent you some of the documents incorporated by reference, but you can obtain any of them through us or the SEC. Documents incorporated by reference
are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference the exhibit in this prospectus. Stockholders may obtain documents incorporated by
reference
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in
this prospectus by requesting them in writing or by telephone from the appropriate party at the following address:
James
G. Reynolds
Executive Vice President and Chief Financial Officer
Health Care Property Investors, Inc.
4675 MacArthur Court, 9th Floor
Newport Beach, California 92660
(949) 221-0600
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CAUTIONARY LANGUAGE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus and the information incorporated by reference in this prospectus or any prospectus supplement that are not
historical factual statements are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward looking statements to be covered by
the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this section for purposes of complying with these safe
harbor provisions. The statements include, among other things, statements regarding the intent, belief or expectations of us and our officers and can be identified by the use of terminology such as
"may," "will," "expect," "believe," "intend," "plan," "estimate," "should" and other comparable terms or the negative thereof. In addition, we, through our senior management, from time to time make
forward looking oral and written public statements concerning our expected future operations and other developments. You are cautioned that, while forward looking statements reflect our good faith
belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Actual results may differ
materially from the expectations contained in the forward looking statements as a result of various factors. In addition to the factors set forth in our annual report on Form 10-K/A for the
fiscal year ended December 31, 2001, you should consider the following:
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Legislative, regulatory, or other changes in the health care industry at the local, state or federal level which increase the costs of or
otherwise affect the operations of our lessees or mortgagors;
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Changes in the reimbursement available to our lessees and mortgagors by governmental or private payors, including changes in Medicare and
Medicaid payment levels and the availability and cost of third party insurance coverage;
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Competition for lessees and mortgagors, including with respect to new leases and mortgages and the renewal or rollover of existing leases;
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Availability of suitable health care facilities to acquire at a favorable cost of capital and the competition for such acquisition and
financing of health care facilities;
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The ability of our lessees and mortgagors to operate our properties in a manner sufficient to maintain or increase revenues and to generate
sufficient income to make rent and loan payments;
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The financial weakness of operators in the long-term care and assisted living sectors, which results in uncertainties in our ability to
continue to realize the full benefit of such operators' leases;
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Changes in national or regional economic conditions, including changes in interest rates and the availability and our cost of capital; and
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The risk that we will not be able to sell or lease facilities that are currently vacant.
We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and
uncertainties, the forward looking events discussed in this prospectus or discussed in or incorporated by reference in this prospectus may not occur.
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NOTICE REGARDING ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act provides that if any part of a registration statement at the time it becomes effective contains an
untrue statement of a material fact or an omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security
pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has
consented to be named as having prepared or certified any part of the registration statement or as having prepared or certified any report or valuation which is used in connection with the
registration statement with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. On May 14, 2002, we
announced that we appointed Ernst & Young LLP to replace Arthur Andersen LLP as our independent accountants. Prior to the date of this prospectus, the Arthur Andersen partners who
reviewed our most recent audited financial statements have resigned from Arthur Andersen. As a result, after reasonable efforts, we have been unable to obtain Arthur Andersen's written consent to the
incorporation by reference into this registration statement of its audit reports with respect to our financial statements. Under these circumstances, Rule 437a under the Securities Act permits
us to file this registration statement without a written consent from Arthur Andersen. Accordingly, Arthur Andersen may not be liable to you under Section 11(a) of the Securities Act because it
has not consented to being named as an expert in the registration statement.
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THE COMPANY
We were organized in 1985 to qualify as a real estate investment trust, or a REIT. We invest in health care related real estate located
throughout the United States. We commenced business 17 years ago, making us the second oldest REIT specializing in health care real estate. Since
1986, the debt rating agencies have rated our debt investment grade. The market value of our common stock was approximately $2.5 billion as of September 18, 2002.
As
of June 30, 2002, our gross investment in our properties, including partnership interests and mortgage loans, was approximately $2.9 billion. As of June 30, 2002,
our portfolio of 432 properties in 42 states consisted of:
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181 long-term care facilities;
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89 assisted living facilities;
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84 medical office buildings;
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37 physician group practice clinics;
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21 acute care hospitals;
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Nine rehabilitation hospitals;
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Six health care laboratory and biotech research facilities; and
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Five retirement living communities.
Our
principal offices are located at 4675 MacArthur Court, Suite 900, Newport Beach, California 92660, and our telephone number is (949) 221-0600.
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USE OF PROCEEDS
We are filing the registration statement of which this prospectus is a part pursuant to our contractual obligation to the holders named in the
section entitled "Selling Holders." We will acquire non-managing member interests in HCPI/Utah II, LLC in exchange for any shares of common stock that we may issue to the selling holders
pursuant to this prospectus. We will not receive any proceeds from the issuance of shares of common stock to the selling holders or the resale of the shares by the selling holders other than the
non-managing member interests of HCPI/Utah II, LLC. However, we will pay registration expenses which we estimate to be approximately $70,000.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $1.00 per share, and 50,000,000 shares of preferred
stock, par value $1.00 per share. The following description is qualified in all respects by reference to our charter, a copy of which was filed as an exhibit to our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, our Second Amended and Restated Bylaws, a copy of which was filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, and Amendment No. 1 and Amendment No. 2 to our Second Amended and Restated Bylaws, filed as an exhibit to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 and filed as an exhibit to our Registration Statement on Form S-3 filed on August 30, 2002, respectively, and the rights agreement between us
and The Bank of New York, as rights agent.
DESCRIPTION OF COMMON STOCK
As of August 28, 2002, there were 58,550,002 shares of common stock outstanding. All shares of common stock participate equally in
dividends payable to holders of common stock, when and as authorized by our board and declared by HCPI, and in net assets available for distribution to holders of common stock on our liquidation,
dissolution, or winding up. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of HCPI stockholders. Holders of our common stock do not have
cumulative voting rights in the election of directors. Our charter contains restrictions on the ownership and transfer of our common stock. See "Transfer Restrictions, Redemptions and Business
Combination Provisions."
All
issued and outstanding shares of common stock are, and the common stock offered under this prospectus will be upon issuance, validly issued, fully paid and nonassessable. Holders of
our common stock do not have preference, conversion, exchange or preemptive rights. Our common stock is listed on the New York Stock Exchange (NYSE Symbol: HCP).
The
transfer agent and registrar of our common stock is The Bank of New York.
DESCRIPTION OF PREFERRED STOCK
Under our charter, our board is authorized without further stockholder action to establish and issue, from time to time, up to 50,000,000 shares
of preferred stock of HCPI, in one or more series, with such designations, preferences, powers and relative participating, optional or other special rights, and the qualifications, limitations or
restrictions thereon, including, but not limited to, dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as shall be stated in the resolution providing for the issue of a series of such stock, adopted, at any time or from time to time, by our
board. As of August 28, 2002, HCPI had outstanding 2,400,000 shares of 7
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% Series A Cumulative Redeemable Preferred Stock, 5,345,000 shares of 8.70% Series B
Cumulative Redeemable Preferred Stock and 3,976,600 depositary shares each representing a one-one-hundredth interest in one share of 8.60% Series C Cumulative Redeemable Preferred Stock. The
material terms of our series A preferred stock, series B preferred stock and series C preferred stock are described below.
Series A Preferred Stock
Voting Rights.
Holders of the series A preferred stock generally do not have any voting rights, except in limited circumstances.
The
consent of the holders of series A preferred stock is not required for the taking of any corporate action, including any merger or consolidation involving HCPI or a sale of
all or substantially
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all
of the assets of HCPI, regardless of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the series A preferred stock,
except as expressly set forth in the exhibit to our charter which relates to the series A preferred stock.
Rank.
With respect to dividend rights and rights upon liquidation, dissolution or winding up of HCPI, the series A preferred stock
ranks:
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senior to all classes or series of common stock of HCPI, and to all equity securities issued by HCPI ranking junior to the series A
preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of HCPI;
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on a parity with the series B preferred stock, series C preferred stock and with all equity securities issued by HCPI the terms
of which specifically provide that such equity securities rank on a parity with the series A preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding
up of HCPI; and
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junior to all equity securities issued by HCPI the terms of which specifically provide that such equity securities rank senior to the
series A preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of HCPI. See "Voting Rights" above.
The
term "equity securities" does not include convertible debt securities, which rank senior to the series A preferred stock prior to conversion.
Dividends.
Holders of shares of the series A preferred stock are entitled to receive, when, as, and if declared by our board out
of funds of
HCPI legally available for the payment of dividends, cumulative preferential annual cash dividends at the rate of 7
7
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8
% of the liquidation preference (equivalent to $1.96875 per annum
per share).
Dividends
on the series A preferred stock are cumulative from the date of original issue and are payable quarterly in arrears on or about the last day of each March, June,
September and December or, if not a business day, the next succeeding business day.
No
dividends may be declared by our board or paid or set apart for payment on the series A preferred stock if the terms of any agreement of HCPI, including any agreement relating
to its indebtedness, prohibits such a declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach of or default
under such an agreement. Likewise, no dividends may be declared by our board or paid or set apart for payment if such declaration or payment is restricted or prohibited by law.
Dividends
on the series A preferred stock accrue, however, whether or not HCPI has earnings, whether or not there are funds legally available for the payment of such dividends and
whether or not such dividends are declared. Accrued but unpaid dividends on the series A preferred stock do not bear interest and holders of the series A preferred stock are not entitled
to any dividends in excess of full cumulative dividends described above. Any dividend payment made on the series A preferred stock is first credited against the earliest accrued but unpaid
dividend due that remains payable.
No
full dividends may be declared or paid or set apart for payment on any class or series of preferred stock ranking, as to dividends, on a parity with or junior to the series A
preferred stock, other than a dividend in shares of any class of stock ranking junior to the series A preferred stock as to dividends and upon liquidation, for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and set apart for such payment on the series A preferred stock for all past dividend periods and the then current
dividend period. When dividends are not paid in full, or full payment is not so set apart, upon the series A preferred stock and the shares of any other class or series of preferred stock
ranking on a parity as to dividends with the series A preferred stock, including the series B preferred stock or the series C preferred stock, all dividends declared upon the
series A preferred stock and any other class or series of preferred stock ranking on
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a
parity as to dividends with the series A preferred stock are declared pro rata so that the amount of dividends declared per share of series A preferred stock and such other class or
series of preferred stock shall in all cases bear to each other the same ratio that accrued dividends per share on the series A preferred stock and such other class or series of preferred
stock, which cannot include any accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend, bear to each other.
Except
as provided in the preceding paragraph, unless full cumulative dividends on the series A preferred stock have been or contemporaneously are declared and paid or declared
and set apart for payment for all past dividend periods and the then current dividend period, then, other than the payment of dividends in shares of our common stock or other shares of capital stock
ranking junior to the series A preferred stock as to dividends and upon liquidation:
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no dividends may be declared or paid or set aside for payment upon our common stock, or any other capital stock of HCPI ranking junior to or on
a parity with the series A preferred stock as to dividends or upon liquidation;
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no other distribution may be declared or made upon our common stock, or any other capital stock of HCPI ranking junior to or on a parity with
the series A preferred stock as to dividends or upon liquidation;
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no shares of our common stock, or any other shares of capital stock of HCPI ranking junior to or on a parity with the series A preferred
stock as to dividends or upon liquidation may be redeemed, purchased or otherwise acquired for any consideration by HCPI, except by conversion into or exchange for other capital stock of HCPI ranking
junior to the series A preferred stock as to dividends and upon liquidation or for the purpose of preserving HCPI's qualification as a real estate investment trust. See "Restrictions on
Ownership and Transfer Relating to Preferred Stock."
Liquidation Preferences.
Upon any liquidation, dissolution or winding up of the affairs of HCPI, the holders of series A preferred
stock are
entitled to be paid out of the assets of HCPI legally available for distribution to its stockholders a liquidation preference of $25 per share, plus an amount equal to any accrued and unpaid dividends
to the date of payment, before any distribution of assets is made to holders of our common stock or any other class or series of capital stock of HCPI that ranks junior to the series A
preferred stock as to liquidation rights.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of stock of HCPI or otherwise is
permitted under the Maryland General Corporation Law, no effect is given to amounts that would be needed if HCPI would be dissolved at the time of the distribution, to satisfy the preferential rights
upon distribution of holders of shares of stock of HCPI whose preferential rights upon distribution are superior to those receiving the distribution.
Maturity; Redemption.
The series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory
redemption and is
not convertible into any other securities of HCPI. The series A preferred stock is not redeemable prior to September 30, 2002. HCPI is entitled, however, pursuant to
the articles supplementary relating to the series A preferred stock, to purchase shares of the series A preferred stock in order to preserve its status as a real estate investment trust
for federal or state income tax purposes at any time. Following September 30, 2002, HCPI may, at its option, redeem the series A preferred stock at $25 per share ($60,000,000 in the
aggregate), plus accrued and unpaid dividends. The redemption price (other than the portion consisting of accrued and unpaid interest) is payable solely out of the sale proceeds of other capital stock
of HCPI.
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Restrictions on Ownership and Transfer.
See "Restrictions on Ownership and Transfer Relating to Preferred Stock."
Series B Preferred Stock
Voting Rights.
Holders of the series B preferred stock generally do not have any voting rights, except in limited circumstances.
The
consent of the holders of series B preferred stock is not required for the taking of any corporate action, including any merger or consolidation involving HCPI or a sale of
all or substantially all of the assets of HCPI, regardless of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the
series B preferred stock, except as expressly set forth in the exhibit to our charter which relates to the series B preferred stock.
Rank.
With respect to dividend rights and rights upon liquidation, dissolution or winding up of HCPI, the series B preferred stock
ranks:
-
-
senior to all classes or series of common stock of HCPI, and to all equity securities issued by HCPI ranking junior to the series B
preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of HCPI;
-
-
on a parity with the series A preferred stock, series C preferred stock and with all equity securities issued by HCPI the terms
of which specifically provide that such equity securities rank on a parity with the series B preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding
up of HCPI; and
-
-
junior to all equity securities issued by HCPI the terms of which specifically provide that such equity securities rank senior to the
series B preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of HCPI. See "Voting Rights" above.
The
term "equity securities" does not include convertible debt securities, which rank senior to the series B preferred stock prior to conversion.
Dividends.
Holders of the series B preferred stock are entitled to receive, when, as, and if declared by our board, out of funds
legally
available for the payment of dividends, cumulative preferential annual cash dividends at the rate of 8.70% of the liquidation preference (equivalent to $2.175 per annum per share).
Dividends
on the series B preferred stock are cumulative from the date of original issue and payable quarterly in arrears on or about the last day of each March, June, September
and December or, if not a business day, the next succeeding business day. Any dividend payable on the series B preferred stock, including dividends payable for any partial dividend period, are
computed on the basis of a 360-day year consisting of twelve 30-day months.
No
dividends may be declared by our board or paid or set apart for payment on the series B preferred stock if the terms of any agreement of HCPI, including any agreement relating
to its indebtedness, prohibits such a declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach of or default
under such an agreement.
Likewise, no dividends may be declared by our board or paid or set apart for payment if such declaration or payment is restricted or prohibited by law.
Dividends
on the series B preferred stock accrue, however, whether or not HCPI has earnings, whether or not there are funds legally available for the payment of such dividends and
whether or not such dividends are declared. Accrued but unpaid dividends on the series B preferred stock do not bear interest and holders of the series B preferred stock are not entitled
to any dividends in excess of full
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cumulative
dividends described above. Any dividend payment made on the series B preferred stock is first credited against the earliest accrued but unpaid dividend due that remains payable.
No
full dividends may be declared or paid or set apart for payment on any class or series of preferred stock ranking, as to dividends, on a parity with or junior to the series B
preferred stock, other than a dividend in shares of any class of stock ranking junior to the series B preferred stock as to dividends and upon liquidation, for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and set apart for such payment on the series B preferred stock for all past dividend periods and the then current
dividend period. When dividends are not paid in full (or full payment is not so set apart) upon the series B preferred stock and the shares of any other class or series of preferred stock
ranking on a parity as to dividends with the series B preferred stock, including the series A preferred stock or the series C preferred stock, all dividends declared upon the
series B preferred stock and any other class or series of preferred stock ranking on a parity as to dividends with the series B preferred stock are declared pro rata so that the amount
of dividends declared per share of series B preferred stock and such other class or series of preferred stock shall in all cases bear to each other the same ratio that accrued dividends per
share on the series B preferred stock and such other class or series of preferred stock, which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend, bear to each other.
Except
as provided in the preceding paragraph, unless full cumulative dividends on the series B preferred stock have been or contemporaneously are declared and paid or declared
and set apart for payment for all past dividend periods and the then current dividend period, then, other than the payment of dividends in shares of our common stock or other shares of capital stock
ranking junior to the series B preferred stock as to dividends and upon liquidation:
-
-
no dividends may be declared or paid or set aside for payment upon our common stock, or any other capital stock of HCPI ranking junior to or on
a parity with the series B preferred stock as to dividends or upon liquidation;
-
-
no other distribution may be declared or made upon our common stock, or any other capital stock of HCPI ranking junior to or on a parity with
the series B preferred stock as to dividends or upon liquidation;
-
-
no shares of our common stock, or any other shares of capital stock of HCPI ranking junior to or on a parity with the series B preferred
stock as to dividends or upon liquidation may be redeemed, purchased or otherwise acquired for any consideration by HCPI, except by conversion into or exchange for other capital stock of HCPI ranking
junior to the series B preferred stock as to dividends and upon liquidation or for the purpose of preserving HCPI's qualification as a real estate investment trust. See
"Restrictions on Ownership and Transfer Relating to Preferred Stock."
Liquidation Preferences.
Upon any liquidation, dissolution or winding up of the affairs of HCPI, the holders of series B preferred
stock are
entitled to be paid out of the assets of HCPI legally available for distribution to its stockholders a liquidation preference of $25 per share, plus an amount equal to any accrued and unpaid dividends
to the date of payment, before any distribution of assets is made to holders of our common stock or any other class or series of capital stock of HCPI that ranks junior to the series B
preferred stock as to liquidation rights.
In
determining whether a distribution, other than upon voluntary or involuntary liquidation, by dividend, redemption or other acquisition of shares of stock of HCPI or otherwise is
permitted under the Maryland General Corporation Law, no effect is given to amounts that would be needed if HCPI would be dissolved at the time of the distribution, to satisfy the preferential rights
upon distribution of
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holders
of shares of stock of HCPI whose preferential rights upon distribution are superior to those receiving the distribution.
Maturity; Redemption.
The series B preferred stock has no stated maturity, is not subject to any sinking fund or mandatory
redemption and is
not convertible into any other securities of HCPI. The series B preferred stock is not redeemable prior to September 30, 2003. HCPI is entitled, however, pursuant to the articles
supplementary relating to the series B preferred stock, to purchase shares of the series B preferred stock in order to preserve its status as a real estate investment trust for federal
or state income tax purposes at any time. Following September 30, 2003, HCPI may, at its option, redeem the series B preferred stock at $25 per share ($134,625,000 in the aggregate),
plus accrued and unpaid dividends. The redemption price (other than the portion consisting of accrued and unpaid interest) is payable solely out of the sale proceeds of other capital stock of HCPI.
Restrictions on Ownership and Transfer.
See "Restrictions on Ownership and Transfer Relating to HCPI Preferred Stock."
Depositary Shares for Series C Preferred Stock
General.
On November 4, 1999, HCPI merged with American Health Properties, Inc. At the effective time of the merger between
HCPI and
AHP, HCPI assumed the obligations of AHP under the deposit agreement dated October 27, among AHP, ChaseMellon Shareholder Services, L.L.C., as depositary and the holders from time to time of
the depositary receipts issued by the depositary under the deposit agreement. Following the merger, HCPI deposited the series C preferred stock with the depositary and instructed the depositary
to treat the shares of series C preferred stock as new deposited securities under the deposit agreement. In accordance with the terms of the deposit agreement, the existing depositary receipts,
formerly evidencing AHP depositary shares automatically evidence depositary shares which will evidence an ownership interest in series C preferred stock.
The
following is a summary of material provisions of the deposit agreement. This description does not purport to be complete and is qualified by reference to the deposit agreement, the
form of which has been incorporated by reference into the registration statement on Form S-3 of which this prospectus forms a part. See "Where You Can Find More Information."
Each
HCPI depositary share represents a one-one-hundredth interest in one share of series C preferred stock. The depositary shares representing series C preferred stock are
listed on The New York Stock Exchange.
Subject
to the terms of the deposit agreement, each owner of a share of depositary share is entitled through the depositary, in proportion to the one-one-hundredth interest in a share of
series C preferred stock underlying such depositary share, to all rights and preferences, and subject to all restrictions, of a share of series C preferred stock (including dividend,
voting, redemption and liquidation rights).
Since
each share of series C preferred stock entitles the holder thereof to one vote on matters on which the series C preferred stock is entitled to vote, each depositary
share, in effect, entitles the holder to one-one-hundredth of a vote, rather than one full vote.
Dividends and Other Distributions.
The depositary will distribute all the dividends or other cash distributions received in respect of
the
series C preferred stock to the record holders of the depositary shares in proportion to the numbers of such depositary shares owned by such holders on the relevant record date.
Restrictions on Ownership and Transfer.
For information regarding provisions of HCPI's charter and bylaws, including restrictions on
ownership which
are applicable to the series C preferred stock and the depositary shares, see "Restrictions on Ownership and Transfer Relating to Preferred Stock."
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Series C Preferred Stock
Voting Rights.
Holders of the series C preferred stock generally do not have any voting rights, except in limited circumstances.
The
consent of the holders of series C preferred stock is not required for the taking of any corporate action, including any merger or consolidation involving HCPI or a sale of
all or substantially all of the assets of HCPI, regardless of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the
series C preferred stock, except as expressly set forth in the exhibit to our charter which relates to the series C preferred stock.
Rank.
With respect to dividend rights and rights upon liquidation, dissolution or winding up of HCPI, the series C preferred stock
ranks:
-
-
senior to all classes or series of common stock of HCPI, and to all other classes and series of equity securities issued by HCPI;
-
-
on a parity with the series A preferred stock, series B preferred stock and all equity securities issued by HCPI the terms of
which specifically provide that such equity securities rank on a parity with the series C preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up
of HCPI;
-
-
junior to all outstanding debt issued by HCPI; and
-
-
junior to all equity securities issued by HCPI ranking senior to the series C preferred stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of HCPI. See "Voting Rights" above.
Dividends.
Holders of the series C preferred stock are entitled to receive, when, as, and if declared by our board, out of funds
legally
available for the payment of dividends, cumulative preferential annual cash dividends of 8.60% of the liquidation preference (equivalent to $215.00 per annum per share, or $2.15 per depositary share
per annum).
Dividends
on the series C preferred stock are cumulative from the last payment date through which dividends were paid on the shares of AHP series B preferred stock in
respect of which shares of series C preferred stock were issued and are payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year or, if
not a business day, the next business day. Any dividend payable on the series C preferred stock for other than a full dividend period is computed on the basis of a 360-day year consisting of
twelve 30-day months. All dividends on the series C preferred stock accrue day by day and are cumulative.
Accrued
and unpaid dividends for any past dividend periods may be declared and paid at any time and for such interim periods to holders of record on the applicable record date. Any
dividend payment made on the series C preferred stock is first credited against the earliest accrued but unpaid dividend due with respect to the series C preferred stock that remains
payable.
No
dividends will be authorized by our board or paid or set aside for payment if any agreement of HCPI prohibits such authorization, payment or setting apart for payment or provides that
such authorization, payment or setting aside of payment would constitute a breach thereof or a default thereunder, or if such authorization or payment is restricted or prohibited by law. Dividends on
series C preferred stock accrue whether or not HCPI has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are
authorized. No interest, or sum of money in lieu of interest, is payable in respect of any dividend payment or payments on the series C preferred stock that may be in arrears. Holders of
series C preferred stock are not entitled to any dividends, whether payable in cash, property or shares of stock, in excess of the full cumulative dividends, as described herein, on the
series C preferred stock. If, for any taxable year,
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HCPI
elects to designate as "capital gain dividends" (as defined in Section 857 of the Internal Revenue Code) any portion (the "Capital Gains Amount") of the dividends (within the meaning of
the Internal Revenue Code) paid or made available for the year to holders of all classes of capital stock (the "Total Dividends"), then the portion of the Capital Gains Amount that will be allocable
to holders of series C preferred stock will be in the same portion that the Total Dividends paid or made available to the holders of series C preferred stock for the year bears to the
Total Dividends.
No
full dividends may be declared or paid or set apart for payment on any class or series of preferred stock ranking, as to dividends, on a parity with or junior to the series C
preferred stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and set apart for such payment on the series C preferred stock
for all past dividend periods and the then current dividend period. When dividends are not paid in full (or full payment is not so set apart) upon the series C preferred stock and the shares of
any other class or series of preferred stock ranking on a parity as to dividends with the series C preferred stock (including the series A preferred stock or
the series B preferred stock), all dividends declared upon the series C preferred stock and any other class or series of preferred stock ranking on a parity as to dividends with the
series C preferred stock are declared pro rata so that the amount of dividends declared per share of series C preferred stock and such other class or series of preferred stock shall in
all cases bear to each other the same ratio that accrued dividends per share on the series C preferred stock and such other class or series of preferred stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other.
Except
as provided in the preceding paragraph, unless full cumulative dividends on the series C preferred stock have been or contemporaneously are declared and paid or declared
and set apart for payment for all past dividend periods and the then current dividend period, then, other than the payment of dividends in shares of our common stock or other shares of capital stock
ranking junior to the series C preferred stock as to dividends and upon liquidation or options or rights to acquire the same:
-
-
no cash dividend or other distribution may be declared or paid or set aside for payment upon our common stock, or any other capital stock of
HCPI ranking junior to the series C preferred stock as to dividends or upon liquidation;
-
-
HCPI may not repurchase, redeem or otherwise acquire shares of our common stock, or any other shares of capital stock of HCPI ranking junior to
or on a parity with the series C preferred stock as to dividends or upon liquidation, or pay or make any amount available for a sinking fund for redemption of such shares, except by conversion
into or exchange for other capital stock of HCPI ranking junior to the series C preferred stock as to dividends and upon liquidation or for the purpose of preserving HCPI's qualification as a
real estate investment trust. See "Restrictions on Ownership and Transfer Relating to Preferred Stock."
Liquidation Preferences.
Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs HCPI, the holders of
series C
preferred stock are entitled to receive out of assets of HCPI legally available for distribution to stockholders a liquidation preference of $2,500.00 per share of series C preferred stock
($25.00 per depositary share), plus an amount equal to any accrued and unpaid dividends for prior dividend periods, before any distribution of assets is made to holders of our common stock or any
other class or series of capital stock of HCPI that ranks junior to the series C preferred stock as to liquidation rights.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of stock of HCPI or otherwise is
permitted under
the Maryland General Corporation Law, no effect is given to amounts that would be needed if HCPI would be dissolved at the time of the distribution, to satisfy the preferential rights upon
distribution of
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holders
of shares of stock of HCPI whose preferential rights upon distribution are superior to those receiving the distribution.
Maturity; Redemption.
The series C preferred stock is not redeemable by HCPI prior to October 27, 2002, other than a
redemption by HCPI
to preserve its status as a real estate investment trust. On and after October 27, 2002, HCPI, at its option, upon publication in a newspaper of general circulation in New York, New York at
least once a week for two successive weeks and written notice to the holders of series C preferred stock, may redeem the series C preferred stock, in whole or in part, at any time, for
cash at a redemption price of $2,500.00 per share of series C preferred stock ($25.00 per depositary share), plus accumulated, accrued and unpaid dividends thereon to the date fixed for
redemption, without interest. The redemption price (other than the portion consisting of accrued and unpaid interest) is payable solely out of the sale proceeds of other capital stock of HCPI.
Restrictions on Ownership and Transfer.
See "Restrictions on Ownership and Transfer Relating to Preferred Stock."
TRANSFER RESTRICTIONS, REDEMPTION AND BUSINESS COMBINATION PROVISIONS
Among other requirements, in order for us to qualify as a REIT under the Internal Revenue Code, no more than 50% in value of our outstanding
shares of stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. In
addition, if we, or an owner of 10% or more of our capital stock, actually or constructively owns 10% or more of one of our tenants (or a tenant of any partnership or limited liability company in
which we are a partner or member), the rent received by us (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 Internal Revenue 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.
Our
charter contains restrictions on the ownership and transfer of our common stock which are intended to assist us in complying with these requirements and continuing to qualify as a
REIT. The relevant sections of our charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own by virtue of the applicable constructive ownership
provisions of the Internal Revenue Code, more than 9.8% (by number of shares or value, whichever is more restrictive) of the outstanding shares of common stock. We refer to the limits described in
this paragraph as the "ownership limits."
The
constructive ownership rules under the Internal Revenue 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 our common stock (or the acquisition of an interest in an entity that owns, actually or
constructively, our 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 our
outstanding common stock and thereby subject the common stock to the applicable ownership limit.
Our
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 our status as a REIT; and
-
-
our board of directors otherwise decides such action would be in our best interest.
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.
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These
charter provisions further prohibit:
-
-
any person from beneficially or constructively owning shares of our stock that would result in us being "closely held" under
Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT; and
-
-
any person from transferring shares of our common stock if such transfer would result in shares of our stock 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 beneficial 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 us and provide us with such other information as we may request in order to determine the effect of such transfer on our
status as a REIT.
Pursuant
to our charter, if any purported transfer of common stock or any other event would otherwise result in any person violating the ownership limits or such other limit as permitted
by our board of directors, then any such purported transfer will be void and of no force or effect as to that number of shares in excess of the applicable ownership limit. 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 organization selected by us. The automatic transfer will be
effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust.
The
trustee shall sell the shares to us or to another person designated by the trustee whose ownership of the shares will not violate the ownership limit.
The
trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust:
-
-
sell the excess shares to a person or entity who could own the shares without violating the ownership limits or as otherwise permitted by our
board of directors, and
-
-
distribute to the prohibited transferee or owner, as applicable, an amount equal to the lesser of (1) the price paid by the prohibited
transferee or owner for the excess shares (or, if the event which resulted in the transfer to the trust did not involve a purchase of such shares at market price, the last reported sales price
reported on the New York Stock Exchange on the trading day immediately preceding the relevant date) and (2) the sales proceeds received by the trustee for the excess shares.
The
trustee shall be designated by us and shall be unaffiliated with us and any prohibited transferee or owner. Prior to the sale of any excess shares by the trust, the trustee will
receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to the excess shares, and may also exercise all voting rights with respect to the excess shares.
Subject
to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee shall have the authority, at the trustee's sole discretion,
-
-
to rescind as void any vote cast by a prohibited transferee or owner, as applicable, prior to our discovery that the shares have been
transferred to the trust; and
-
-
to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.
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However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote. Any dividend or other distribution paid to
the prohibited transferee or owner, prior to our discovery that the shares had been automatically transferred to a trust as described above, must be repaid to the trustee upon demand for distribution
to the beneficiary of the trust. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable ownership limit or as otherwise
permitted by the board of directors, then our charter provides that the transfer of the excess shares will be void.
All
certificates representing shares of our common stock bear a legend referring to the restrictions described above.
In
addition, if our board of directors shall, at any time and in good faith, be of the opinion that direct or indirect ownership of at least 9.9% of the voting shares of capital stock
has or may become concentrated in the hands of one beneficial owner, it shall have the power:
-
-
by lot or other means deemed equitable by it to call for the purchase from any stockholder of a number of voting shares sufficient, in the
opinion of our board of directors, to maintain or bring the direct or indirect ownership of voting shares of capital stock of the beneficial owner to a level of no more than 9.9% of our outstanding
voting shares; and
-
-
to refuse to transfer or issue voting shares of capital stock to any person whose acquisition of such voting shares would, in the opinion of
the board of directors, result in the direct or indirect ownership by that person of more than 9.9% of the outstanding voting shares of our capital stock.
If
our board of directors fails to grant an exemption from this 9.9% ownership limitation, then the transfer of shares, options, warrants, or other securities convertible into voting
shares that would create a beneficial owner of more than 9.9% of the outstanding voting shares shall be deemed void ab initio and the intended transferee shall be deemed never to have had an interest
in the transferred securities. The purchase price for any voting shares of capital stock so redeemed shall be equal to the fair market value of the shares reflected in the closing sales price for the
shares, if then listed on a national securities exchange, or the average of the closing sales prices for the shares if then listed on more than one national securities exchange, or if the shares are
not then listed on a national securities exchange, the latest bid quotation for the shares if then traded over-the-counter, on the last business day immediately preceding the day on which we send
notices of such acquisitions, or, if no such closing sales prices or quotations are available, then the purchase price shall be equal to the net asset value of such stock as determined by the board of
directors in accordance with the provisions of applicable law. From and after the date fixed for purchase by the board of directors, the holder of any shares so called for purchase shall cease to be
entitled to distributions, voting rights and other benefits with respect to such shares, except the right to payment of the purchase price for the shares.
Our
charter requires that, except in certain circumstances, business combinations between us and a beneficial holder of 10% or more of our outstanding voting stock, or a related person,
must be approved by the affirmative vote of at least 90% of our outstanding voting shares.
A
business combination is defined in our charter as:
-
-
our merger or consolidation with or into a related person;
-
-
any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any
substantial part (as defined below) of our assets (including, without limitation, any voting securities of a subsidiary) to a related person;
-
-
any merger or consolidation of a related person with or into us;
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-
-
any sale, lease, exchange, transfer or other disposition of all or any substantial part of the assets of a related person to us;
-
-
the issuance of any of our securities (other than by way of pro rata distribution to all stockholders) to a related person; and
-
-
any agreement, contract or other arrangement providing for any of the transactions described in the definition of business combination.
The
term "substantial part" means more than 10% of the book value of our total assets as of the end of our most recent fiscal year ending prior to the time the determination is being
made.
In
addition to the restrictions on business combinations contained in our charter, Maryland law also contains restrictions on business combinations. See "Provisions of Maryland Law and
HCPI's Charter and BylawsBusiness Combinations."
The
foregoing provisions of our charter and certain other matters may not be repealed, and no amendment to our charter that is inconsistent with such provisions can be adopted without
the affirmative vote of at least two-thirds of our outstanding voting shares.
The
rights and the foregoing provisions may have the effect of discouraging unilateral tender offers or other takeover proposals which certain stockholders might deem to be in their
interests or in which they might receive a substantial premium. Our board of directors' authority to issue and establish the terms of currently authorized preferred stock, without stockholder
approval, may also have the effect of discouraging takeover attempts. See "Description of Preferred Stock." The rights and the foregoing provisions could also have the effect of insulating current
management against the possibility of removal and could, by possibly reducing temporary fluctuations in market price caused by accumulations of shares of common stock, deprive stockholders of
opportunities to sell at a temporarily higher market price. However, our board of directors believes that inclusion of the business combination provisions in our charter and the rights may help assure
fair treatment of stockholders and preserve our assets.
RESTRICTIONS ON OWNERSHIP AND TRANSFER RELATING TO PREFERRED STOCK
Each of the articles supplementary relating to the series A preferred stock, the series B preferred stock and the series C
preferred stock contain restrictions on the ownership and transfer of preferred stock which are intended to assist HCPI in complying with the requirements to maintain its status as a real estate
investment trust. Subject to limited exceptions, no person or entity may own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than
9.9% (by number or value, whichever is more restrictive) of the outstanding shares of series A preferred stock or series B preferred stock or, with regard to the series C
preferred stock, 9.8% (by value or number of shares, whichever is more restrictive) of the outstanding shares of capital stock of HCPI, inclusive of the series C preferred stock. Our Board may,
but in no event is required to, waive the applicable ownership limit with respect to a particular stockholder if it determines that such ownership will not jeopardize HCPI's status as a real estate
investment trust and our board otherwise decides such action would be in the best interest of HCPI.
STOCKHOLDER RIGHTS AGREEMENT
On June 20, 2000, we adopted a Stockholder Rights Plan and declared a dividend of one preferred share purchase right for each outstanding
share of our common stock. The rights will become exercisable if a person or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 15% of more of our common stock or following the commencement or announcement of an intention to make a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of 15% or more of our common stock.
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After
the rights become exercisable, each right will entitle the holder to purchase from us one one-hundredth (
1
/100th) of a share of Series D Junior Participating Preferred Stock
at a price of $95 per one one-hundredth (
1
/100th) of a share of series D preferred stock, subject to certain anti-dilution adjustments. The rights will at no time have any voting
rights.
Each
share of series D preferred stock purchasable upon exercise of the rights will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend, if any, declared on our common stock. In the event of our liquidation, dissolution or winding up, the holders
of the shares of the series D preferred stock will be entitled to a preferential liquidation payment of $100 per share plus any accrued but unpaid dividends and distributions thereon, whether
or not declared, provided that the holders of shares of the series D preferred stock shall be entitled to receive an aggregate amount per share, subject to adjustment, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of our common stock. Each share of series D preferred stock will have 100 votes and will vote together with our common stock.
Finally, in the event of any merger, consolidation or other transaction in which shares of our common stock are exchanged, each share of series D preferred stock will be entitled to receive 100
times the amount received per share of common stock. Shares of series D preferred stock will not be redeemable. The rights are protected by customary anti-dilution provisions. Because of the
nature of the series D preferred stock's dividend, liquidation and voting rights, the value of one one-hundredth of a share of series D preferred stock purchasable upon exercise of each
right should approximate the value of one common share.
Under
certain circumstances, each holder of a right, other than rights that are or were acquired or beneficially owned by a person or group acquiring 15% or more (which rights will
thereafter be void), will have the right to receive upon exercise that number of shares of our common stock having a market value of two times the then current purchase price of one right. In the
event that, after a person acquired 15% or more of our common stock, we were acquired in a merger or other business combination transaction or more than 50% of our assets or earning power were sold,
each holder of a right shall have the right to receive, upon the exercise thereof at the then current purchase price of the right, that number of shares of common stock of the acquiring company which
at the time of such transaction would have a market value of two times the then current purchase price of one right.
The
rights may be redeemed by our board of directors at any time prior to the time a person or group acquires 15% or more of our common stock.
The
rights will expire on July 27, 2010 (unless earlier redeemed, exchanged or terminated). The Bank of New York is the rights agent.
The
rights are designed to assure that all of our stockholders receive fair and equal treatment in the event of any proposed takeover of us and to guard against partial tender offers,
open market accumulations and other abusive tactics to gain control of us without paying all stockholders a control premium. The rights will cause substantial dilution to a person or group that
acquires 15% or more of our stock on terms not approved by our board of directors. The rights should not interfere with any merger or other business combination approved by our board of directors at
any time prior to the first date that a person or group acquires 15% or more of our common stock.
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RELATIONSHIP OF THE PARTIES
On August 17, 2001, we formed HCPI/Utah II, LLC and acquired the sole managing member interest in HCPI/Utah II, LLC. On
August 17, 2001, we caused HCPI/Utah II, LLC to issue 942,670 managing member units to us in exchange for a capital contribution of approximately $33 million. Also in connection
with our contribution, partnerships and limited liability companies affiliated with The Boyer Company, L.C., a Utah limited liability company, made a capital contribution to HCPI/Utah II, LLC
of real property and improvements with an equity value net of assumed debt of approximately $26 million in exchange for an aggregate of 738,923 non-managing member units in HCPI/Utah
II, LLC. These partnerships and limited liability companies that received the 738,923 non-managing member units were:
-
-
Boyer-Research Park Associates, Ltd.;
-
-
Boyer-Research Park Associates VII, L.C.;
-
-
Chimney Ridge, L.C.;
-
-
Boyer-Foothill Associates, Ltd.;
-
-
Boyer-Research Park Associates VI, L.C.;
-
-
Boyer Old Mill II, L.C.;
-
-
Boyer Rancho Vistoso, L.C.;
-
-
Boyer Kaysville Associates, L.C.; and
-
-
Boyer Tatum Highlands Dental Clinic, L.C.
The
above-referenced partnerships and limited liability companies, as well as certain parties that received non-managing member units from the above-referenced partnerships and limited
liability companies, are referred to herein as the "selling holders."
On
August 17, 2002, the 738,923 of non-managing member units held by the selling holders may be exchanged for our common stock or, at our option, for cash. At the time of the
selling holders' acquisition of the non-managing member units, we agreed to provide registration rights with respect to the shares of common stock for which the non-managing member units may be
exchanged.
On
October 30, 2001, Boyer Stansbury II, L.C., a Utah limited liability company affiliated with The Boyer Company, L.C., made a capital contribution to HCPI/Stansbury, LLC,
a Delaware limited liability company and subsidiary of HCPI/Utah II, LLC, in exchange for a membership interest in HCPI/Stansbury, LLC. Immediately upon receipt of such interest, Boyer
Stansbury II, L.C. contributed its interest in HCPI/Stansbury, LLC, with an equity value net of assumed debt of $1.2 million, to HCPI/Utah II, LLC in exchange for 33,969
non-managing member units.
Also
on October 30, 2001, Boyer-Alta View Associates, Ltd., a Utah limited partnership affiliated with the Boyer Company, L.C., made a capital contribution to HCPI/Wesley,
a Delaware limited liability company and subsidiary of HCPI/Utah II, LLC, in exchange for a membership interest in HCPI/Wesley, LLC. Immediately upon receipt of such interest, Boyer-Alta
View Associates, Ltd. contributed its interest in HCPI/Wesley, LLC, with any equity value net of assumed debt of $1 million, to HCPI/Utah II, LLC in exchange for 28,789
non-managing member units. In connection with these transactions, we caused HCPI/Utah II, LLC to issue 14,305 managing member units to us in exchange for a capital contribution of approximately
$.5 million.
On
July 3, 2002, Boyer-106
th
South Associates, Ltd., a Utah limited partnership affiliated with The Boyer Company, L.C., made a capital contribution to
HCPI/Utah II, LLC with an equity value of net of assumed debt of $1.6 million in exchange for 37,781 non-managing member units. In connection with
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this
transaction, we caused HCPI/Utah II, LLC to issue 67,128 managing member units to us in exchange for a capital contribution of approximately $2.9 million.
The
non-managing member units issued to Boyer Stansbury II, L.C., Boyer-Alta View Associates, Ltd. and Boyer-106
th
South Associates, Ltd. are
exchangeable for our common stock or, at our option, cash, beginning one year following the date of the last issuance of any non-managing member units pursuant to the contribution agreement between
HCPI/Utah II, LLC and certain affiliates of The Boyer Company, L.C. This registration statement does not relate to the common stock issuable upon the exchange of non-managing member issued to
Boyer Stansbury II, L.C., Boyer-Alta View Associates, Ltd. or Boyer-106
th
South Associates, Ltd. A separate registration statement will be filed with respect to such
shares of common stock.
HCPI/Utah
II, LLC has relied on the exemption provided by Section 4(2) of the Securities Act in connection with the issuances and sales of the managing member and
non-managing member units described above.
As
of August 17, 2002, HCPI/Utah II, LLC has 1,863,565 units issued and outstanding, which are held by the following:
-
-
1,024,103 managing member units by HCPI;
-
-
282,052 non-managing member units by Boyer-Research Park Associates, Ltd.;
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-
22,099 non-managing member units by Boyer Research Park Associates VII, L.C.;
-
-
104,772 non-managing member units by Chimney Ridge, L.C.;
-
-
90,619 non-managing member units by Boyer-Foothill Associates, Ltd.;
-
-
59,991 non-managing member units by Boyer-Research Park Associates VI, L.C.;
-
-
71,383 non-managing member units by Boyer Old Mill II, L.C.;
-
-
43,773 non-managing member units by Boyer Rancho Vistoso, L.C.;
-
-
28,597 non-managing member units by Boyer Kaysville Associates, L.C.;
-
-
4,737 non-managing member units by Boyer Tatum Highlands Dental Clinic, L.C.;
-
-
33,969 non-managing member units by Boyer Stansbury II, L.C.;
-
-
28,789 non-managing member units by Boyer-Alta View Associates, Ltd.;
-
-
37,781 non-managing member units by Boyer-106
th
South Associates, Ltd.;
-
-
15,450 non-managing member units by Lynn L. Summerhays; and
-
-
15,450 non-managing member units by H. Lewis Swain, as Trustee of the H. Lewis Swain Family Trust.
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OPERATING AGREEMENT
The following summarizes the material provisions of the operating agreement, as amended, of HCPI/Utah II, LLC.
The summary is qualified in its entirety by reference to the operating agreement of HCPI/Utah II, LLC.
Management
HCPI/Utah II, LLC was organized as a Delaware limited liability company under the Delaware Limited Liability Company Act and the terms of
its operating agreement, the Amended and Restated Limited Liability Company Agreement of HCPI/Utah II, LLC. Our company is the sole managing member of HCPI/Utah II, LLC. Generally,
pursuant to the operating agreement, we have exclusive and complete responsibility and discretion in the management and control of HCPI/Utah II, LLC, including, subject to the restrictions
discussed below, the ability to cause it to enter into major transactions such as acquisitions, dispositions, financings, and refinancings, and to manage and operate its properties. We may not be
removed as the managing member of HCPI/Utah II, LLC, with or without cause, unless we consent to being removed. Non-managing members of HCPI/Utah II, LLC have no authority to transact
business for HCPI/Utah II, LLC or participate in its management activities, except in limited circumstances described below and as required by any non-waivable provision of applicable law.
As
the managing member, we may not take any action in contravention of the operating agreement, including:
-
-
taking any action that would make it impossible to carry out the ordinary business of HCPI/Utah II, LLC;
-
-
owning or assigning any rights in specific property owned by HCPI/Utah II, LLC, other than for an HCPI/Utah II, LLC purpose;
-
-
taking any action that would cause a non-managing member to be subject to liability as a managing member, except those acts permitted by the
operating agreement and by law;
-
-
entering into any agreement that would have the effect of restricting a member of HCPI/Utah II, LLC from exercising its right to
exchange its units as provided in the operating agreement and discussed below under "Exchange Rights," unless such member gives its prior written consent to such action; or
-
-
entering into any agreement that would have the effect of restricting HCPI/Utah II, LLC's ability to make distributions to its members,
without the written consent of each member affected by the restriction.
The
consent of the holders of a majority of the outstanding non-managing member units is required before we will be permitted to take the following extraordinary actions involving
HCPI/Utah II, LLC:
-
-
the amendment, modification or termination of the operating agreement other than to reflect the admission, substitution, termination or
withdrawal of members or in connection with a permitted dissolution or termination of HCPI/Utah II, LLC;
-
-
approving the transfer of all or a portion of the membership interest held by us, other than a transfer to HCPI/Utah II, LLC;
-
-
the admission of any additional or substitute managing members in HCPI/Utah II, LLC;
-
-
making a general assignment for the benefit of HCPI/Utah II, LLC's creditors or instituting any proceeding for bankruptcy on behalf of
HCPI/Utah II, LLC; or
-
-
confessing a judgment against HCPI/Utah II, LLC in excess of $5,000,000.
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In
addition to the above restrictions, we, as the managing member, may not take the following actions unless we obtain the consent of any non-managing member who would be adversely
affected:
-
-
convert a non-managing member's interest in HCPI/Utah II, LLC into a managing member interest;
-
-
modify the limited liability of a non-managing member;
-
-
materially alter the rights of a member to receive distributions or the allocation of income and loss to a member; or
-
-
materially alter the right of a member to exchange its non-managing member units for our common stock.
As
managing member, we may, however, amend the operating agreement without non-managing member consent:
-
-
to reflect the issuance of additional membership interests in exchange for capital contributions of cash or property, or the admission,
substitution, termination or withdrawal of members;
-
-
to reflect inconsequential changes, cure ambiguities and make other changes not inconsistent with law or the provisions of the operating
agreement;
-
-
to satisfy any requirements, conditions or guidelines contained in any governmental order or required by law;
-
-
to reflect changes that are reasonably necessary for us to maintain our status as a real estate investment trust; and
-
-
to modify the manner in which capital accounts are computed.
Until
such time as the initial non-managing members of HCPI/Utah II, LLC, have disposed, in taxable transactions, of 80% of the non-managing member units issued to them in
exchange for their contribution of property to HCPI/Utah II, LLC, HCPI/Utah II, LLC will be required to pay to the non-managing members a make whole payment in an amount equal to the
aggregate federal, state and local income taxes incurred by the non-managing member as a result of the event, if we do any of the following without the consent of the holders of a majority of the
non-managing member units held by non-managing members:
-
-
cause HCPI/Utah II, LLC to merge with another entity, sell all or substantially all of HCPI/Utah II, LLC's assets or reclassify
the outstanding equity interests of HCPI/Utah II, LLC prior to August 17, 2011except in connection with certain expenditures and lending and borrowing of money, certain
mortgaging and encumbering of the assets of HCPI/Utah II, LLC and the forming of entities as wholly owned subsidiaries for certain purposes;
-
-
sell some of HCPI/Utah II, LLC's real properties prior to August 17, 2005 or sell HCPI/Utah II, LLC's other real
properties prior to August 17, 2011;
-
-
prior to August 17, 2011:
-
-
refinance specified nonrecourse indebtedness of HCPI/Utah II, LLC, unless such indebtedness is refinanced with nonrecourse
indebtedness that does not require principal payments greater than the existing indebtedness and is secured solely by the property which secured the repayment of the existing indebtedness;
-
-
prepay the specified nonrecourse indebtedness; or
-
-
convert the specified nonrecourse indebtedness to recourse indebtedness;
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-
-
prior to August 17, 2011, fail to provide non-managing members the opportunity to guaranty debt of HCPI/Utah II, LLC in an amount
up to the non-managing member's share of the recourse debt amount (initially $6.5 million), as determined by the non-managing member representative.
HCPI/Utah
II, LLC will also be required to pay a make whole payment if, without the consent of the holders of a majority of the non-managing member units held by non-managing
members, we dissolve HCPI/Utah II, LLC unless the initial non-managing members have disposed of 90% of the non-managing member units issued to them in exchange for their contribution of
property to HCPI/Utah II, LLC prior to the third anniversary of the issuance of such non-managing member units or 80% of such non-managing member units thereafter.
Transferability of Interests
The operating agreement provides that a non-managing member may transfer its non-managing member units only after first offering those
non-managing member units to us and otherwise obtaining our consent, except that a non-managing member may without obtaining our consent, pledge its membership interest as security for the repayment
of debt and transfer such membership interest to the lender upon the foreclosure of such debt if such transfer would not otherwise violate the terms of the operating agreement. A non-managing member
may also, without our consent, transfer its membership interest in HCPI/Utah II, LLC to a partner in such non-managing member in liquidation of that partner's interest in such non-managing
member, to a family member of such non-managing member or to an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Internal Revenue Code. The operating agreement
further imposes the following restrictions on the transfer of the non-managing member units:
-
-
the person to whom any non-managing member units are transferred must assume all of the obligations of the transferor under the operating
agreement;
-
-
we will have the right to receive an opinion of counsel that the proposed transfer may be effected without registration under the Securities
Act and will not otherwise violate any federal or state securities laws or regulations;
-
-
we may prohibit any transfer otherwise permitted under the operating agreement if such transfer would require the filing of a registration
statement under the Securities Act by HCPI/Utah II, LLC or would otherwise violate any applicable federal or state securities laws or regulations;
-
-
no transfer may be made to any person if, in the opinion of legal counsel to HCPI/Utah II, LLC, such transfer could result in HCPI/Utah
II, LLC being treated as an association taxable as a corporation or for state income or franchise tax purposes, or such transfer could adversely affect our ability to qualify as a real estate
investment trust or subject us to additional taxes under Sections 857 or 4981 of the Internal Revenue Code;
-
-
no transfer may be made if such transfer is effected through an "established securities market" or a "secondary market" within the meaning of
Section 7704 of the Internal Revenue Code;
-
-
no transfer may be made to a lender of HCPI/Utah II, LLC or any person related to such a lender whose loan constitutes "nonrecourse
liability" within the meaning of the Internal Revenue Code, without our consent as managing member;
-
-
transfers may be made only as of the first day of a fiscal quarter of HCPI/Utah II, LLC, unless we otherwise consent; and
-
-
no transfer may be made (1) to any person or entity who lacks the legal right, power or capacity to own a membership interest;
(2) in violation of applicable law; (3) if such transfer would, in the opinion of legal counsel to HCPI/Utah II, LLC, cause an increased tax liability to any other
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member
as a result of the termination of HCPI/Utah II, LLC; (4) if such transfer would cause HCPI/Utah II, LLC to become a reporting company under the Exchange Act; (5) if
such transfer would cause HCPI/Utah II, LLC to cease to be classified as a partnership or to be classified as a publicly traded partnership or treated as a corporation; or (6) if such
transfer would cause HCPI/Utah II, LLC to lose material tax benefits or become subject to regulations not currently applicable to it.
Capital Contributions
The operating agreement provides that if HCPI/Utah II, LLC requires additional funds for its operation, we may fund those investments by
making a capital contribution to HCPI/Utah II, LLC. In addition, we are required to make additional capital contributions to the extent necessary:
-
-
to fund capital additions, tenant improvements and leasing commissions relating to HCPI/Utah II, LLC's real properties except those
tenant improvement costs not assumed by HCPI/Utah II, LLC at the time the related property was contributed to it;
-
-
to repay any mortgage debt of HCPI/Utah II, LLC that we elect to repay in accordance with the terms of the operating agreement; or
-
-
to fund HCPI/Utah II, LLC's obligation under the development agreement between HCPI/Utah II, LLC and The Boyer Company, L.C.
If
we fund a capital contribution, we have the right to receive additional managing member units. In the event we receive additional managing member units in return for additional
capital contributions, our membership interest in HCPI/Utah II, LLC will be increased. Non-managing members of HCPI/Utah II, LLC do not have the right to make additional capital
contributions to HCPI/Utah II, LLC unless permitted to do so by us in our discretion. Accordingly, the membership interest of non-managing members in HCPI/Utah II, LLC will be diluted to
the extent we receive an additional membership interest.
Tax Matters
Pursuant to the operating agreement, we are the tax matters partner of HCPI/Utah II, LLC. The tax matters partner serves as HCPI/Utah
II, LLC's representative in most tax matters. For example, as the tax matters partner, we have the authority to file tax returns and make elections for HCPI/Utah II, LLC, conduct audits,
file refund claims on behalf of HCPI/Utah II, LLC and settle adjustments. In addition, as the tax matters partner, we will receive notices and other information from the Internal Revenue
Service. The designation of HCPI as the tax matters partner of HCPI/Utah II, LLC is not directly relevant to our tax status as a real estate investment trust.
Operations
The sole purposes of HCPI/Utah II, LLC are to manage, operate, maintain, expand, redevelop, encumber or sell the real properties
contributed to it, and any other properties acquired by it, and to invest and ultimately distribute funds obtained from owning, operating or disposing of such properties. The operating agreement
provides, however, that we, as managing member, may operate HCPI Utah, LLC in a manner that will enable us to satisfy the requirements for being classified as a real estate investment trust and
avoid any federal income tax liability. Under the operating agreement, HCPI/Utah II, LLC assumes and pays when due, or reimburses us for payment of, all costs and expenses that we incur for the
benefit of or relating to its operation.
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Distributions
Holders of non-managing member units are entitled to receive cumulative preferential distributions from the date of issue of those non-managing
member units, payable on a quarterly basis. The right of holders of non-managing member units to receive cumulative preferential distributions means that, unless and until each of those quarterly
distributions are paid in full, HCPI/Utah II, LLC cannot make any distributions to us. These preferred distributions are an amount per unit equal to the amount payable with respect to each
share of our common stock for the corresponding quarter (subject to adjustment in the event we pay a dividend or distribution on our common stock in shares of our common stock, split or subdivide our
common stock or effect a reverse stock split or other combination of our common stock into a smaller number of shares). Following the payment of the preferred distribution to holders of the
non-managing member units, HCPI/Utah II, LLC is required to distribute the remaining cash available for distribution to us until all distributions of cash, including prior distributions, have
been made to the members of HCPI/Utah II, LLC pro rata on the basis of the number of managing member or non-managing member units held by them as compared to the total number of managing member
and non-managing member units then outstanding. Thereafter, the remaining cash available for distribution is distributed to the unitholders in proportion to their Sharing Percentages. The "Sharing
Percentage" of a holder of non-managing member units is determined by multiplying 1% by a fraction, the numerator of which is the number of non-managing member units then outstanding and the
denominator of which is the number of non-managing member units issued to the initial non-managing members and multiplying the result by a fraction, the numerator of which is the number of
non-managing member units held by such unitholder, and the denominator of which is the total number of non-managing member units then outstanding. Our "Sharing Percentage," as the managing member of
HCPI/Utah II, LLC is equal to 100% minus the aggregate Sharing Percentage of the holders of non-managing member units.
In
the event of a taxable disposition of some of HCPI/Utah II, LLC's real property, we may elect to distribute all or a portion of the net proceeds of the taxable disposition to
the members. In this event, we must distribute these proceeds as follows:
-
-
first, to holders of non-managing member units to pay any previously unpaid preferred distribution on the non-managing member units held by
them;
-
-
second, to us until all distributions of cash, including prior distributions, have been made to the members of HCPI/Utah II, LLC pro
rata on the basis of the number of managing member or non-managing member units held by them as compared to the total number of managing member and non-managing member units then outstanding;
-
-
third, to the holders of units in proportion to the number of units held by them in redemption of those units, as discussed below, until all
non-managing member units have been redeemed; and
-
-
finally, the remaining balance to us.
The
distribution of the net proceeds from the taxable disposition of real property will constitute a return of capital to the unitholders of HCPI/Utah II, LLC. As such, we will
cause HCPI/Utah II, LLC to reduce the number of units outstanding at the time of such distributions.
Upon
the refinancing of a property or the incurrence of additional debt, the repayment of which is secured by a property owned by HCPI/Utah II, LLC, we may elect to distribute all
or a portion of the refinancing or other debt proceeds to the members. In this event, we must distribute such proceeds:
-
-
first, to the holders of non-managing member units to pay any previously unpaid preferred distribution on the non-managing member units held by
them; and
-
-
second, the remaining balance to us.
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Allocation of Income and Loss
The operating net income and net loss of HCPI/Utah II, LLC is generally allocated as follows:
-
-
operating net loss for any fiscal year is allocated to the unitholders in accordance with their Sharing Percentages;
-
-
operating net income for any fiscal year is allocated as follows:
-
-
first, to each unitholder to the extent necessary to offset any operating net loss previously allocated to such unitholder; and
-
-
second, to each unitholder in an amount that will cause the current allocation together with all previous allocations of operating
net income and net income resulting from the disposition of real property to be pro rata to the cumulative distributions received by such unitholder for the current and all prior fiscal years.
In
the event HCPI/Utah II, LLC sells or otherwise disposes of any of its real properties, however, the net income or net loss attributable to such sale or disposition is generally
allocated as follows:
-
-
net loss attributable to the sale or other disposition of real property is allocated to the holders of units in proportion to their Sharing
Percentages;
-
-
net income attributable to the sale or other disposition of real property is allocated as follows:
-
-
first, to each unitholder to the extent necessary to offset any net loss previously allocated to such unitholder upon the sale or
other disposition of a property;
-
-
second, to each unitholder in an amount that will cause the current allocation together with all previous allocations of operating
net income and net income resulting from the disposition of a real property to be pro rata to the cumulative distributions received by such unitholder for the current and all prior fiscal years; and
-
-
thereafter, to each unitholder in proportion to the number of units held by them.
In
the event HCPI/Utah II, LLC liquidates, the net income or net loss for that year is generally allocated as follows:
-
-
first, to holders of nonmanaging member units in such amounts as will cause their capital account per unit to be equal to the sum of:
(a) the holder's preferred return shortfall per unit (if any), (b) the value of a share of our stock (subject to specified adjustments), and (c) their pro rata share of a 1%
(subject to adjustment) sharing amount; and
-
-
thereafter to us.
Each
of the allocation provisions described above is subject to special allocations relating to depreciation deductions and to compliance with the provisions of Sections 704(b)
and 704(c) of the Internal Revenue Code and related Treasury Regulations.
Term
The operating agreement provides that HCPI/Utah II, LLC will continue until dissolved by us in accordance with the provisions of the
operating agreement. HCPI/Utah II, LLC also will dissolve if:
-
-
we withdraw as the managing member and the non-managing members holding a majority of the non-managing member units then outstanding do not
appoint a substitute managing member and elect in writing to continue the business of HCPI/Utah II, LLC within 90 days;
-
-
we elect to dissolve it in accordance with the provisions of the operating agreement;
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-
-
it sells substantially all of its assets and properties;
-
-
it is dissolved by judicial order;
-
-
we become bankrupt, unless within 90 days the non-managing members holding a majority of the outstanding non-managing member units elect
in writing to continue the business of HCPI/Utah II, LLC and to the appointment of a substitute managing member; or
-
-
all of the non-managing member units held by non-managing members have been exchanged for cash or our common stock.
Indemnification
The operating agreement provides that HCPI/Utah II, LLC will indemnify us, our officers and directors and those other persons that we may
designate. Our liability to HCPI/Utah II, LLC and its members is limited for losses sustained, liabilities incurred or benefits not derived as a result of good faith errors, mistakes of fact or
law, or acts or omissions. See "Provisions of Maryland Law and the Company's Charter and BylawsLimitation of Liability and Indemnification."
Exchange Rights
The non-managing member units held by the selling holders that were originally issued on August 17, 2001 became exchangeable in whole or
in part on August 17, 2002. Accordingly, after August 17, 2002, each selling holder has the right to cause us to acquire all or a portion of the non-managing member units held by it and
originally issued on August 17, 2001 in exchange for, at our election, cash or shares of our common stock.
In
general, the non-managing member units issued to Boyer Stansbury II, L.C. and Boyer-Alta View Associates, Ltd on October 30, 2001 and to
Boyer-106
th
South Associates Ltd. on July 3, 2002 and any other entities receiving non-managing member units in the future will be exchangeable for our common stock
or, at our option, cash, one year following the date of the last issuance of any non-managing member units pursuant to the contribution agreement between HCPI/Utah II, LLC and certain
affiliates of The Boyer Company, L.C. However, a third party lender that acquires non-managing units upon foreclosure of debt secured by these units will have the right to exchange the units beginning
one year after the date of the original issuance of the units.
Upon
an exchange, the tendering holder will receive either that number of exchange shares (the "Exchange Shares") determined by multiplying the number of non-managing member units
tendered by an adjustment factor or, at our election, an amount of cash equal to the market value of such number of Exchange Shares. As of the date of this prospectus, the adjustment factor is 1.0;
however, the adjustment factor will be adjusted to account for the economic effect of the payment of any dividends or other distributions on our common stock in shares of common stock, any split or
subdivision in our outstanding common stock, and any reverse stock split or other combination of our outstanding common stock into a smaller number of shares. If we elect to deliver cash in lieu of
all or any portion of the Exchange Shares, the market value of those shares will be deemed to be the average of the closing trading price of our common stock for the 10 trading days ending on the
second trading day immediately prior to the day on which the tendering holder delivers a notice of exchange to us. Non-managing member units that are acquired by us pursuant to the exercise of
non-managing member's exchange rights will be held by us as non-managing member units, with the same rights and preferences of non-managing member units held by non-managing members of HCPI/Utah
II, LLC.
Our
acquisition of the non-managing member units, whether they are acquired for shares of common stock or cash, will be treated as a sale of the non-managing member units to us for
United States federal income tax purposes. See "United States Federal Income Tax ConsiderationsTax Consequences of the Exercise of Exchange Rights."
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A
tendering holder effecting an exchange of all or a portion of the non-managing member units held by him must deliver to us a notice of exchange as required by the operating agreement.
In general, a tendering holder shall have the right to receive the Exchange Shares or cash, which is payable in connection with the exchange, on the thirtieth day following our receipt of the notice
of exchange. All Exchange Shares delivered will be as duly authorized, validly issued, fully paid and non-assessable shares, free of any pledge, lien, encumbrance or restriction, other than those
provided in our charter, our bylaws, the Securities Act, relevant state securities or blue sky laws and any applicable registration rights or other agreement with respect to the Exchange Shares that
the tendering holder has entered into. Notwithstanding any delay in delivery, the tendering holder shall be deemed the owner of such shares and vested with all rights of a stockholder as of the date
on which the exchange occurs, including the right to vote or consent, and the right to receive dividends. Correspondingly, the
tendering holder's right to receive distributions with respect to the tendered non-managing member units will cease as of the date on which the exchange occurs.
We
will not be obligated to effect an exchange of tendered non-managing member units if the issuance of Exchange Shares to the tendering holder would be prohibited under the provisions
of our charter, particularly those which are intended to protect our qualification as an real estate investment trust. We will not be obligated to effect an exchange of tendered non-managing member
units until the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
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COMPARISON OF HCPI/UTAH II, LLC AND HCPI
Generally, the nature of an investment in our common stock is similar in several respects to an investment in non-managing member units.
However, there are also differences between ownership of non-managing member units and ownership of common stock, some of which may be material to investors.
HCPI/Utah
II, LLC and HCPI are organized and incorporated in Delaware and Maryland, respectively. Upon the exchange of non-managing member units for our common stock, the rights
of stockholders of HCPI will be governed by the Maryland General Corporation Law and by our charter and bylaws.
The
information below highlights the material differences between HCPI/Utah II, LLC and us, relating to, among other things, form of organization, management control, voting
rights, compensation and
fees, investor rights, liquidity and federal income tax considerations. These comparisons are intended to assist holders of non-managing member units in understanding the ways in which their
investment will be materially changed if they exchange their non-managing member units for shares of our common stock.
The following discussion is summary in nature and does not constitute a complete discussion of these matters. The differences between the rights of HCPI/Utah
II, LLC unitholders and HCPI stockholders may be determined in full by reference to the Maryland General Corporation Law, the Delaware Limited Liability Company Act, our charter and bylaws, the
operating agreement of HCPI/Utah II, LLC, and the balance of this prospectus and the registration statement of which this prospectus is a part.
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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Form of Organization and Assets Owned
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HCPI/Utah II, LLC is a Delaware limited liability company. HCPI/Utah II, LLC currently owns ten properties, and the sole membership interests in HCPI/Wesley, LLC and HCPI/ Stansbury, LLC. All of
HCPI/Utah II, LLC's assets were contributed to it by partnerships and limited liability companies affiliated with The Boyer Company, L.C. or Spring Creek Medical Building, LLC. See "Relationship of the Parties."
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We are a Maryland corporation. We have elected to be taxed as a real estate investment trust under the Internal Revenue Code, commencing with our taxable year ended December 31, 1985, and intend to maintain our
qualification as a real estate investment trust. As of June 30, 2002, our gross investment in our properties, including partnership and limited liability company interests and mortgage loans, was approximately $2.9 billion. As of
June 30, 2002, our portfolio of 432 properties consisted of:
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181 long-term care
facilities;
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89 congregate care and
assisted living facilities;
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84 medical office
buildings;
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37 physician group
practice clinics;
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21 acute care
hospitals;
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Nine rehabilitation
facilities;
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Six health care
laboratory and biotech research facilities; and
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Five retirement living
communities.
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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Purpose
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HCPI/Utah II, LLC's purpose is to own, manage, operate, maintain, expand, redevelop, encumber or sell the properties owned by it and any other properties acquired by it in the future, and to invest and ultimately
distribute the funds obtained from its business.
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Under our charter, we may engage in the ownership of real property and any other lawful act or activity for which corporations may be organized under the Maryland law. Our qualification and taxation as a real estate
investment trust depends upon our ability to meet the various qualification tests imposed under the Internal Revenue Code relating to our actual annual operating results, asset diversification, distribution levels, and diversity of stock ownership.
See "United States Federal Income Consequences."
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Additional Equity
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See "Operating AgreementCapital Contributions."
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The board of directors may issue, in its discretion, additional shares of common stock or preferred stock. However, the total number of shares issued cannot exceed the authorized number of shares of stock set forth in
our charter.
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Borrowing Policies
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The operating agreement provides that HCPI/Utah II, LLC is permitted to incur or assume debt, including debt to us or our affiliates.
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We are not restricted under our charter or bylaws from incurring debt.
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The operating agreement provides that for a period of ten years from the date that a property securing the repayment of specified nonrecourse indebtedness was contributed to HCPI/Utah II, LLC, or
until the initial non-managing members have disposed, in taxable transactions, of 80% of the non-managing member units issued to them, HCPI/Utah II, LLC will be required to pay to the non-managing members a make whole payment in an amount equal
to the aggregate federal, state and local income taxes incurred by the non-managing member as a result of the event, if HCPI/Utah II, LLC does any of the following without the consent of the holders of a majority of the non-managing member units
held by non-managing members:
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prepays such specified
nonrecourse indebtedness;
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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refinances such specified
nonrecourse indebtedness, unless such indebtedness is refinanced with nonrecourse indebtedness that does not require principal payments greater than the existing indebtedness and is secured solely by the property which secured the repayment of the
existing indebtedness; or
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converts such specified
nonrecourse indebtedness to recourse indebtedness. See "Operating AgreementManagement."
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Management Control
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All management powers over the business and affairs of HCPI/Utah II, LLC are vested in us as the managing member. No non-managing member has any right to participate in or exercise control or management power
over the business and affairs of HCPI/Utah II, LLC, except for actions which require the consent of the holders of a majority of the non-managing member units held by non-managing members. See "Operating AgreementManagement" and
"Voting Rights."
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Our board of directors has exclusive control over our business affairs subject only to the applicable provisions of the Maryland law and the provisions in our charter and bylaws.
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Duties of Managing Members and Directors
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Under Delaware law, we, as managing member of HCPI/Utah II, LLC, are accountable to HCPI/Utah II, LLC as a fiduciary and, consequently, are required to exercise good faith and integrity in all of our
dealings with respect to HCPI/Utah II, LLC's affairs.
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Under Maryland law, directors must perform their duties in good faith, in a manner that they reasonably believe to be in our best interests and with the care of an ordinarily prudent person in a like position under
similar circumstances. Directors who act in such a manner generally will not be liable by reason of being a director. Under Maryland law, an act of a director is presumed to satisfy such standards.
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Management Liability and Indemnification
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HCPI/Utah II, LLC has agreed to indemnify us, our director and officers and any other persons we designate from and against all claims and expenses, judgments, and other amounts incurred in connection with any actions relating to the operation
of HCPI/Utah II, LLC in which these indemnitees are involved, unless:
the act taken by an indemnitee was in bad faith and was material to the action;
an indemnitee received an improper
personal benefit; or
in
the case of any criminal proceeding, an indemnity had reasonable cause to believe the act was unlawful.
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Our charter contains a provision which eliminates the liability of directors and officers to us and our stockholders to the fullest extent
permitted by Maryland law. Neither the provisions of our charter nor Maryland law limit the ability of us or our stockholders to obtain other relief, such as injunction or recision. Our bylaws provide for indemnification of directors and officers to
the fullest extent permitted by Maryland law.
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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HCPI/Utah II, LLC is obligated to reimburse the reasonable expenses incurred by an indemnitee in advance of the final disposition of the proceeding if such indemnitee provides HCPI/Utah II, LLC with
an affirmation of its good faith belief that the standard of conduct necessary for indemnification has been met and an undertaking to repay the amount of the reimbursed expenses if it is determined that such standard was not met. No member of
HCPI/Utah II, LLC, including HCPI, is obligated to make capital contributions to enable HCPI/Utah II, LLC to fund these indemnification obligations.
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The operating agreement generally provides that we will not incur liability to HCPI/Utah II, LLC or any non-managing member for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if we acted in good faith. In addition, we are not responsible for any misconduct or negligence on the part of our officers, directors or other agents, provided we appointed such agents in good faith. We may consult
with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisors, and any action we take or omit to take in reliance upon their opinion, as to matters which we reasonably believe to be within
their professional or expert competence, will be conclusively presumed to have been done or omitted in good faith and in accordance with their opinion.
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Anti-takeover Provisions
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Except in limited circumstances (See "Voting Rights" below), we have exclusive management power over the business and affairs of HCPI/Utah II, LLC. Accordingly, we may hinder the ability of HCPI/Utah II,
LLC to engage in a merger transaction or other business combination. We may not be removed as managing member by the other members with or without cause. We must obtain the consent of the holders of a majority of the non-managing member units
held by non-managing members causing HCPI/Utah II, LLC to enter into a merger transaction at any time prior to ten years from the date of the contribution of properly to HCPI/Utah II, LLC by the selling holders. These limitations may have the
effect of hindering the ability of HCPI/Utah II, LLC to enter into business combinations.
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Our charter, bylaws and agreements to which we are a party contain a number of provisions that may delay or discourage an unsolicited proposal for the acquisition or the removal of incumbent management. These
provisions include:
(1) a staggered Board of Directors;
(2) authorized capital stock that may be issued as preferred stock in the discretion of the board of directors, with voting or other rights superior to the common stock;
(3) provisions designed to avoid concentration of share ownership in a manner that would jeopardize our status as a real estate investment trust under the Internal Revenue Code;
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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A non-managing member generally may not transfer all or any portion of its membership interest in HCPI/Utah II, LLC without first offering that membership interest to us and otherwise obtaining our consent.
Accordingly, we may elect to exercise our right of first refusal to prevent a membership interest from being transferred to a particular third party. Furthermore, upon the transfer by a non-managing member of its membership interest in HCPI/Utah II,
LLC, the transferee may become a member of HCPI/Utah II, LLC only upon our approval, which we may give or withhold in our sole and absolute discretion. Until admitted to HCPI/Utah II, LLC as a member, a transferee of a membership
interest is not entitled to vote on any matter submitted to the members for their approval.
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(4) super-majority vote for business combinations;
(5) the advance notice provisions of our bylaws; and
(6) a stockholder rights plan. See "Description of Capital Stock." Maryland law also contains provisions which could delay, defer or prevent a change of control or other transaction. See "Provisions of Maryland Law
and HCPI's Charter and Bylaws."
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The ability of a non-managing member to transfer its membership interest in HCPI/Utah II, LLC may be further hindered by other factors. See "Operating AgreementTransferability of
Interests."
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Voting Rights
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Under the operating agreement, the non-managing members have voting rights only as to specified matters including:
amending the operating agreement, except in limited circumstances; and
those other actions discussed above under "Operating
AgreementManagement."
The non-managing members generally do not otherwise have the right to vote on decisions relating to the operation or management HCPI/Utah II, LLC.
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The Board of Directors is classified into three classes of directors whose terms are staggered. At each annual meeting of the stockholders,
the stockholders elect the successors of the class of directors whose three-year term has expired.
Maryland law requires that major corporate transactions, including most amendments to our charter, must have stockholder approval as described below. All shares of common stock have one vote per share. Our charter permits the board of
directors to classify and issue preferred stock in one or more series having voting power which may differ from that of the common stock. See "Description of Capital Stock."
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The
following is a comparison of the voting rights of the non-managing members of HCPI/Utah II, LLC and of our stockholders as they relate to major transactions:
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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A. Amendment of the Charter Documents
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Amendments to the operating agreement may be proposed by us as managing member of HCPI/Utah II, LLC or by holders of a majority of the non-managing member units held by non-managing members. Such proposal, in order to be effective, must be
approved by the holders of a majority of the outstanding managing member units and non-managing member units voting together. In addition, amendments that would, among other things:
convert a non-managing member's interest into a managing member
interest;
modify the
limited liability of any non-managing member;
alter the interest of any non-managing member in profits, losses or distributions;
alter or modify the right of a non-managing member to exchange its non-managing member units for our common stock; or
cause the termination of HCPI/Utah II, LLC at a time
inconsistent with the terms of the operating agreement,
must be approved by each non-managing member that would be adversely affected by any such amendment. We may amend the operating agreement without the consent of the non-managing members if the purpose or the effect of such amendment is
to make administrative or inconsequential changes, comply with any federal or state agency rulings, guidelines or directives, or as are necessary for us to maintain our status as a real estate investment trust
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Under our charter, most amendments to our charter must be approved by the board of directors and by the affirmative vote of at least a
majority of the votes entitled to be cast by our stockholders on the matter.
The affirmative vote of holders of at least two-thirds of our voting stock is required to repeal or amend the provisions of the charter relating to:
(1) business combinations,
(2) the classification, removal and setting of the minimum and maximum number of our directors and
(3) limitations on ownership of our voting capital stock. See "Description of Capital Stock."
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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B. Vote Required to Dissolve; Vote Required to Sell Assets or Merge
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Dissolution. The consent of HCPI and the holders of a majority of the non-managing members is generally required to dissolve HCPI/Utah II, LLC. See "Voting Rights."
Sale of Assets. HCPI/Utah II, LLC will be required to pay to the non-managing members a make whole payment unless we first obtain the consent of the holders of a majority of the non-managing member units held
by non-managing members before we dispose of several properties for a period of four years or dispose of the remaining properties for a period of ten years, with each time period measured from the date such property was contributed to HCPI/Utah II,
LLC. These restrictions are removed, however, if the initial non-managing members have disposed of 80% of the non-managing member units issued to them in taxable transactions.
Merger. See "Anti-Takeover Provisions."
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Our dissolution must be approved by our board of directors by a majority vote of the entire board and by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our stockholders
on the matter. Our charter require that "Business Combinations" between us and a beneficial holder of 10% or more of our outstanding voting stock be approved by the affirmative vote of at least 90% of our outstanding voting shares, unless unanimously
approved in advance by our board or the "Business Combination" is between us and a wholly owned subsidiary. See the disclosure under "Transfer Restrictions, Redemption and Business Combination Provisions" in this prospectus. No approval of our
stockholders is required for any sale of less than all or substantially all of our assets which is not a business combination.
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Compensation, Fees and Distributions
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We do not receive any compensation for our services as managing member of HCPI/Utah II, LLC. HCPI/Utah II, LLC will, however, reimburse HCPI for all expenses incurred relating to the ongoing operation of
HCPI/Utah II, LLC and any other offering of additional interests in HCPI/Utah II, LLC.
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Our officers and outside directors receive compensation for their services as more fully described in the compensation information incorporated by reference in our annual report on Form 10-K/A, which is
incorporated by reference into this prospectus.
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Liability of Investors
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Under the operating agreement and applicable Delaware law, the liability of the non-managing members for the debts and obligations of HCPI/Utah II, LLC is generally limited to the amount of their investment in
HCPI/Utah II, LLC, together with their interest in any undistributed income, if any.
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Under Maryland law, our stockholders are not personally liable for our debts or obligations.
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HCPI/Utah II, LLC/ Delaware Law
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HCPI/ Maryland Law
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Liquidity
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Except in limited circumstances, see "Operating AgreementTransferability of Interests," a non-managing member may not transfer all or any portion of its membership interest in HCPI/Utah II, LLC without
first offering that membership interest to us and otherwise obtaining our consent. HCPI has the right to receive an opinion of counsel in connection with the transfer of a membership interest by a non-managing member to the effect that the transfer
may be effected without registration under the Securities Act and will not otherwise violate any applicable federal or state securities law.
A transferee of a non-managing member's interest in HCPI/Utah II, LLC may not become a member of HCPI/Utah II, LLC without our consent.
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Shares of common stock issued pursuant to this prospectus will be freely transferable, subject to prospectus delivery and other requirements of the Securities Act, and the transfer restrictions in our
charter.
Our common stock is listed on the New York Stock Exchange. The breadth and strength of this secondary market will depend, among other things, upon the number of shares outstanding, our financial results and prospects, the general
interest in our and other real estate investments, and our dividend yield compared to that of other debt and equity securities.
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Taxes
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HCPI/Utah II, LLC itself is not subject to federal income taxes. Instead, each holder of units includes its allocable share of HCPI/Utah II, LLC's taxable income or loss in determining its individual federal
income tax liability. Cash distributions from HCPI/Utah II, LLC are not taxable to a holder of non-managing member units except to the extent they exceed such holder's basis in its interest in HCPI/Utah II, LLC (which will include such
holder's allocable share of HCPI/Utah II, LLC's non-recourse debt).
Income and loss from HCPI/Utah II, LLC generally are subject to the "passive activity" limitations. Under the "passive activity" limitations, income and loss from HCPI/Utah II, LLC that is considered "passive income" generally
can be offset against income and loss from other investments that constitute "passive activities."
Holders of non-managing member units are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which HCPI/Utah II, LLC owns property, even if they are not residents of those
states.
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Distributions made by us to our taxable domestic stockholders out of our current or accumulated earnings and profits will be taken into account by them as ordinary income. Distributions that we designate as capital
gain dividends generally will be taxed as gains from the sale or disposition of a capital asset. Distributions in excess of our current or accumulated earnings and profits will be treated as a non-taxable return of basis to the extent of a
stockholder's adjusted basis in its common stock, with the excess taxed as capital gain. See "United States Federal Income Tax Consequences."
Dividends paid by us will be treated as "portfolio" income and cannot be offset with losses from "passive activities."
Stockholders who are individuals generally will not be required to file state income tax returns and/or pay state income taxes outside of their state of residence with respect to our operations and distributions. We may be required to
pay state income taxes in various states.
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PROVISIONS OF MARYLAND LAW AND
HCPI'S CHARTER AND BYLAWS
The following paragraphs summarize provisions of Maryland law and describe our charter and bylaws. This is a summary, and does not completely
describe Maryland law, our charter or our bylaws. For a complete description, we refer you to the Maryland General Corporation Law, our charter and our bylaws. We have incorporated by reference our
charter and bylaws as exhibits to the registration statement of which this prospectus is a part.
Classification of the Board of Directors
Under our bylaws, we have seven directors unless changed by the board of directors or our stockholders. However, this number may not be fewer
than three nor more than nine. A vacancy resulting from an increase in the number of directors may be filled by a majority vote of the entire board of directors or by the affirmative vote of the
holders of a majority of our shares then entitled to vote at an election of directors. Other vacancies may be filled, at any regular meeting or at any special meeting called for that purpose, by a
majority of the remaining directors. Pursuant to our charter, the directors are divided into three classes. Three directors hold office for a term which expires at the annual meeting of stockholders
to be held in the spring of 2003. Two directors hold office for a term which expires at the annual meeting of stockholders to be held in the spring of 2004. Two directors hold office for a term which
expires at the annual meeting of stockholders to be held in the spring of 2005. As the term of each class expires, directors in that class will be elected for a term of three years and until their
successors are duly elected and qualify. We believe that classification of the board of directors helps to assure the continuity and stability of our business strategies and policies.
The
classification of the Board may make the replacement of incumbent directors more time-consuming and difficult. This could discourage a third party from making a tender offer or
otherwise attempting to obtain control of us, even though such an attempt might be beneficial to us and our stockholders. A change in a majority of the board of directors will generally require at
least two annual meetings of stockholders, instead of one. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. Holders of common
stock have no right to cumulative voting for the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of shares of common stock can elect all of the
successors of the class of directors whose term expires at that meeting and the holders of the remaining shares of common stock cannot elect any directors.
Removal of Directors
Under the terms of our charter and Maryland law, a director of ours may be removed only for cause and only by the affirmative vote of the
holders of two-thirds of the outstanding shares of our voting stock or by a unanimous vote of all other directors. The Maryland General Corporation Law does not define the term "cause." As a result,
removal for "cause" is subject to Maryland common law and to judicial interpretation and review in the context of the unique facts and circumstances of any particular situation. Our stockholders may
elect a successor to fill any vacancy which results from the removal of a director.
Business Combinations
Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation,
share exchange, or, in circumstances specified in the
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statute,
an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
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any person who beneficially owns ten percent or more of the voting power of the corporation's shares; or
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an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting stock of the corporation.
After
the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder
with whom or with whose affiliate the business combination is to be effected or which are held by an affiliate or associate of the interested stockholder.
These
super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash
or other consideration in the same form as previously paid by the interested stockholder for its shares. None of these provisions of the Maryland law will apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to the time that the interested stockholder becomes an interested stockholder.
In
addition to the restrictions on business combinations provided under Maryland law, our charter also contains restrictions on business combinations. See "Transfer Restrictions,
Redemption and Business Combination Provisions."
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to
the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquiror, by officers or by directors who are employees of the corporation are
excluded from shares entitled to vote on the matter. "Control shares" are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or shares of stock for which
the acquiror is able to exercise or direct the exercise of voting power except solely by virtue of a revocable proxy, would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority; or
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a majority or more of all voting power.
Control
shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. Except as otherwise specified in the
statute, a "control share acquisition" means the acquisition of control shares.
Once
a person who has made or proposes to make a control share acquisition has undertaken to pay expenses and satisfied other conditions, the person may compel the board of directors to
call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of
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the
shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If
voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may be able to
redeem any or all of the control shares for fair value, except for control shares for which voting rights previously have been approved. The right of the corporation to redeem control shares is
subject to certain conditions and limitations. Fair value is determined without regard to the absence of voting rights for control shares, as of the date of the last control share acquisition by the
acquiror or of any meeting of stockholders at which the voting rights of control shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of these
appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. Some of the limitations and restrictions otherwise applicable to the exercise
of dissenters' rights do not apply in the context of a control share acquisition.
The
control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions
approved or exempted
by the charter or bylaws of the corporation. Our charter and bylaws do not provide for any such exemption.
Amendments to the Charter
Provisions of our charter on business combinations, the number of directors, classification of the board of directors and certain ownership
restrictions may be amended only if approved by our board of directors and by our stockholders by the affirmative vote of two-thirds of all of the votes entitled to be cast by our stockholders on the
matter. Other amendments to our charter require approval by our board of directors and approval by our stockholders by the affirmative vote of a majority of all the votes entitled to be cast by our
stockholders on the matter.
Amendment to the Bylaws
Provisions of our bylaws on the number of directors and the vote required to amend the bylaws may be amended only by unanimous vote of the board
of directors or by the affirmative vote of not less than 90% of all of the votes entitled to be cast by our stockholders on the matter. Other amendments to our bylaws require the affirmative vote of a
majority of the entire board of directors or the affirmative vote of two-thirds of all of the votes entitled to be cast by our stockholders on the matter.
Dissolution of Health Care Property Investors, Inc.
Our dissolution must be approved by our board of directors by a majority vote of the entire board and by our stockholders by the affirmative
vote of a majority of all the votes entitled to be cast by our stockholders on the matter.
Advance Notice of Director Nominations and New Business; Procedures of Special Meetings Requested by
Stockholders
Our bylaws provide that nominations of persons for election to the board of directors and the proposal of business to be considered by
stockholders at the annual or special meeting of stockholders may be made only:
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pursuant to our notice of the meeting;
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by or at the direction of the board of directors; and
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by a stockholder who was a stockholder at the time the notice of meeting was given and is entitled to vote at the meeting and who has complied
with the advance notice procedures, including the minimum time period, described in the bylaws.
Our
bylaws also provide that only the business specified in our notice of meeting may be brought before a special meeting of stockholders.
Anti-Takeover Effect of Provisions of Maryland Law, our Rights Plan and of the Charter and Bylaws
The provisions in the charter on classification of the board of directors and removal of directors and business combinations, the business
combinations and control share acquisition provisions of Maryland law, the advance notice provisions of our bylaws, the provisions of our bylaws relating to stockholder-requested special meetings and
our stockholder rights plan may delay, defer or prevent a change of control or other transaction in which holders of some, or a majority, of the common stock might receive a premium for their common
stock over the then prevailing market price or which such holders might believe to be otherwise in their best interests.
Limitation of Liability and Indemnification
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland corporation may not limit liability resulting from actual receipt of an improper benefit or profit in money, property or
services. Also, liability resulting from active and deliberate dishonesty may not be eliminated if a final judgment establishes that the dishonesty is material to the cause of action. Our charter
contains a provision which limits liability of directors and officers to the maximum extent permitted by Maryland law. This provision does not limit our right or that of our stockholders to obtain
equitable relief, such as an injunction or rescission.
Our
bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses before final disposition of a proceeding
to:
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any present or former director or officer who is made a party to the proceeding by reason of his service in that capacity; or
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any individual who, while one of our directors or officers and at our request, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise and who is made a party to the proceeding by reason of his service in that capacity.
The
bylaws authorize us, with the approval of our board of directors, to provide indemnification and advancement of expenses to our agents and employees.
Unless
limited by a corporation's charter, Maryland law requires a corporation to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that capacity. Our charter does not alter this requirement.
Maryland
law permits a corporation to indemnify its present and former directors and officers, among others, against:
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judgments;
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penalties;
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fines;
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settlements; and
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reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland
law does not permit a corporation to indemnify its present and former directors and officers if it is established that:
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the act or omission of the director or officer was material to the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty;
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the director or officer actually received an improper personal benefit in money, property or services; or
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in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
Under
Maryland law, a Maryland corporation generally may not indemnify for an adverse judgment in a suit by or in the right of the corporation. Also, a Maryland corporation generally may
not indemnify for a judgment of liability on the basis that personal benefit was improperly received. In either of these cases, a Maryland corporation may indemnify for expenses only if a court so
orders.
Maryland
law permits a corporation to advance reasonable expenses to a director or officer. First, however, the corporation must receive a written affirmation by the director or officer
of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation. The corporation must also receive a written undertaking, either by the director or
officer or on his behalf, to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted.
The
operating agreement also provides for indemnification of us, as managing member, and our officers and directors generally to the same extent as permitted by Maryland law for a
corporation's officers and directors. The operating agreement also limits our liability to HCPI/Utah II, LLC and its partners in the case of losses sustained, liabilities incurred or benefits
not derived as a result of errors in judgment or mistakes of fact or law or any act or omission made in good faith.
It
is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax considerations which are anticipated to be material to purchasers of our common stock and
which are expected to result from the exchange of units in HCPI/Utah II, LLC for common stock. The information in this section is based on:
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the Internal Revenue Code of 1986, as amended;
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current, temporary and proposed Treasury Regulations promulgated under the Internal Revenue Code;
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the legislative history of the Internal Revenue Code;
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current administrative interpretations and practices of the Internal Revenue Service; and
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court decisions;
in
each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the Internal Revenue Service include its practices and policies as expressed in
private letter rulings which are not binding on the Internal Revenue Service, except with respect to the particular taxpayers who requested and received these rulings. Future legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions may adversely affect the tax considerations contained in this discussion. Any change could apply retroactively to
transactions preceding the date of the change. We have not requested, and do not plan to request, any rulings from the Internal Revenue Service concerning our tax treatment, and the statements in this
prospectus are not binding on the Internal Revenue Service or any court. Thus, we can provide no assurance that the tax considerations contained in this discussion will not be challenged by the
Internal Revenue Service or if challenged, will be sustained by a court.
The
summary below does not consider the effect of any foreign, state, local or other tax laws that may be applicable to us or a purchaser of our common stock. The summary below is for
general information only and is not tax advice. You are urged to consult your tax advisor regarding the specific tax consequences to you of:
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the acquisition, ownership and sale or other disposition of common stock offered under this prospectus, including the federal, state, local,
foreign and other tax consequences;
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our election to be taxed as a REIT for federal income tax purposes; and
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potential changes in the tax laws.
Tax Consequences of the Exercise of Exchange Rights
If you exchange units in HCPI/Utah II, LLC for common stock, the transaction will be a fully taxable transaction. In the exchange, you
will generally recognize gain to the extent that the value of the common stock received pursuant to the exchange, plus the amount of liabilities of HCPI/Utah II, LLC that is allocated to the
units being exchanged, exceeds your tax basis in the units. Your ability to recognize a loss resulting from an exchange is subject to a number of limitations set forth in the Internal Revenue Code.
The character of any such gain or loss as capital or ordinary will depend on what types of assets HCPI/Utah II, LLC holds at the time of the exchange.
Taxation of the Company
General.
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable
year ending
December 31, 1985. We believe we have been organized and have operated in a manner which allows us to qualify for taxation as a REIT under the Internal Revenue Code commencing with our taxable
year ending December 31, 1985. We intend to continue to operate in this manner, but there is no assurance that we have operated or will continue to operate in a manner so as to qualify or
remain qualified as a REIT. See "Failure to Qualify."
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The sections of the Internal Revenue Code and the corresponding Treasury regulations that relate to the qualification and operation of a REIT are highly technical
and complex. This summary is qualified in its entirety by the applicable Internal Revenue Code provisions, rules and regulations promulgated thereunder, and administrative and judicial interpretations
thereof.
Latham &
Watkins has rendered an opinion to us, dated as of the date of this prospectus, to the effect that, commencing with our taxable year ending December 31, 1985, we
have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT, and our proposed method of operation will enable us to continue to meet the
requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual
matters, including representations made by us in a certificate provided by one of our officers. Our tax counsel has no obligation to update its opinion subsequent to its date. In addition, this
opinion was based upon our factual representations set forth in this prospectus. Moreover, our qualification and taxation as a REIT depends upon our ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Internal Revenue Code discussed below, the results of which have
not been and will not be reviewed by our tax counsel. Accordingly, no assurance can be given that our actual results of operation for any particular taxable year will satisfy
those requirements. Further, the anticipated income tax treatment described in this prospectus may be changed, perhaps retroactively, by legislative, administrative or judicial action at any time.
If
we qualify for taxation as a REIT, we generally will not be required to pay federal corporate income taxes on our net income that is currently distributed to our stockholders. This
treatment substantially eliminates the "double taxation" that ordinarily results from investment in a corporation. Double taxation means taxation once at the corporate level when income is earned and
once again at the stockholder level when this income is distributed. We will be required to pay federal income tax, however, as follows:
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We will be required to pay tax at regular corporate rates on any undistributed "REIT taxable income," including undistributed net capital
gains.
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We may be required to pay the "alternative minimum tax" on our items of tax preference.
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If we have: (a) net income from the sale or other disposition of "foreclosure property" which is held primarily for sale to customers in
the ordinary course of business; or (b) other nonqualifying income from foreclosure property, we will be required to pay tax at the highest corporate rate on this income. Foreclosure property
is generally defined as property acquired through foreclosure or after a default on a loan secured by the property or a lease of the property.
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We will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
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If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, but nonetheless maintain our qualification as a
REIT because certain other requirements are met, we will be required to pay a tax equal to (a) the greater of (i) the amount by which 75% of our gross income exceeds the amount
qualifying under the 75% gross income test described below and (ii) the amount by which 90% of our gross income exceeds the amount qualifying under the 95% gross income test described below,
multiplied by (b) a fraction intended to reflect our profitability.
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We will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (a) 85% of
our REIT ordinary income for the year, (b) 95% of
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Requirements for qualification as a REIT.
The Internal Revenue Code defines a REIT as a corporation, trust or association:
(1) that
is managed by one or more trustees or directors;
(2) that
issues transferable shares or transferable certificates to evidence beneficial ownership;
(3) that
would be taxable as a domestic corporation but for Sections 856 through 860 of the Internal Revenue Code;
(4) that
is not a financial institution or an insurance company within the meaning of the Internal Revenue Code;
(5) that
is beneficially owned by 100 or more persons;
(6) not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including specified entities, during the
last half of each-taxable year; and
(7) that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
The
Internal Revenue Code provides that all of conditions (1) to (4), must be met during the entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of twelve months, or during a proportionate part of a taxable year of less than twelve months. Conditions (5) and (6) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT.
For purposes of condition (6), pension funds and other specified tax-exempt entities generally are treated as individuals, except that a "look-through" exception applies with respect to pension
funds.
We
believe that we have satisfied conditions (1) through (7) during the relevant time periods. In addition, our charter provides for restrictions regarding ownership and
transfer of shares. These restrictions are intended to assist us in continuing to satisfy the share ownership requirements described
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in
(5) and (6) above. These ownership and transfer restrictions are described in "Description of Capital StockTransfer Restrictions, Redemption and Business Combination
Provisions" in this prospectus. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in (5) and
(6) above. If we fail to satisfy these share ownership requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however, we comply with the rules
contained in the Treasury regulations that require us to ascertain the actual ownership of our shares, and we do not know, or would not have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition (6) above, we will be treated as having met this requirement. See "Failure to Qualify."
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of a partnership interest.
We own and operate one or more properties through partnerships and limited liability companies.
Treasury
regulations provide that if we are a partner in a partnership, we will be deemed to own our proportionate share of the assets of the partnership. Also, we will be deemed to be entitled to our
proportionate share of the income of the partnership. The character of the assets and gross income of the partnership retains the same character in our hands for purposes of Section 856 of the
Internal Revenue Code, including satisfying the gross income tests and the asset tests. In addition, for these purposes, the assets and items of income of any partnership in which we own a direct or
indirect interest include such partnership's share of assets and items of income of any partnership in which it owns an interest. We have included a brief summary of the rules governing the federal
income taxation of partnerships and their partners below in "Tax Aspects of the Partnerships." The treatment described above also applies with respect to the ownership of interests in
limited liability companies or other entities that are treated as partnerships for tax purposes.
We
have direct or indirect control of certain partnerships and limited liability companies and intend to continue to operate them in a manner consistent with the requirements for
qualification as a REIT. We are a limited partner or non-managing member in certain partnerships and limited liability companies.
If a partnership or limited liability company in which we own an interest takes or expects to take actions which could jeopardize our status as a REIT or require us to pay tax, we may be forced to
dispose of our interest in that entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT income or asset test, and
that we would not become aware of such action in a time frame which would allow us to dispose of our interest in the applicable entity or take other corrective action on a timely basis. In such a
case, we could fail to qualify as a REIT.
Ownership of Interests in Qualified REIT Subsidiaries.
We own and operate a number of properties through our wholly-owned subsidiaries
that we
believe will be treated as "qualified REIT subsidiaries" under the Internal Revenue Code. A corporation will qualify as a qualified REIT subsidiary if we own 100% of its outstanding stock and if we do
not elect with the subsidiary to treat it as a "taxable REIT subsidiary," described below. A corporation that is a qualified REIT subsidiary is not treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, deduction and credit (as the case may be) of the parent
REIT for all purposes under the Internal Revenue Code (including all REIT qualification tests). Thus, in applying the requirements described in this prospectus, the subsidiaries in which we own a 100%
interest (other than any taxable REIT subsidiaries) will be ignored, and all assets, liabilities and items of income, deduction and credit of such subsidiaries will be treated as our assets,
liabilities and items of income, deduction and credit. A qualified REIT subsidiary is not subject to federal income tax and our ownership of the stock of such a subsidiary will not violate the REIT
asset tests, described below under "Asset Tests."
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Ownership of Interests in Taxable REIT Subsidiaries.
A taxable REIT subsidiary is a corporation other than a REIT in which a REIT
directly or
indirectly holds stock and that has made a joint election with the REIT to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes any corporation other than a REIT with
respect to which a taxable REIT subsidiary owns, directly or indirectly, securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. A
taxable REIT subsidiary may generally engage in any business, including the provision of customary or noncustomary services to tenants of its parent REIT, except that a taxable REIT subsidiary may not
directly or indirectly operate or manage a lodging or health care facility or directly or indirectly provide to any other person (under a franchise, license or otherwise) rights to any brand name
under which any lodging or health care facility is operated. A taxable REIT subsidiary is subject to federal income tax, and state and local income tax where applicable, as a regular C corporation. In
addition, a taxable REIT subsidiary may be prevented from deducting interest on debt that is directly or indirectly funded by its parent REIT if certain tests regarding the taxable REIT subsidiary's
debt-to-equity ratio and interest expense are satisfied. We own interests in HCPI Investments and Indiana HCP GP, and we have jointly elected with each of these corporations to have them be
treated as taxable REIT subsidiaries. We may acquire interests in
additional taxable REIT subsidiaries in the future. As a result, our ownership of securities of HCPI Investments, Indiana HCP GP and any additional taxable REIT subsidiaries will not be subject
to the 10% asset test described below, and their operations will be subject to the provisions described above which are applicable to a taxable REIT subsidiary. See "Asset Tests."
Income tests.
We must satisfy two gross income requirements annually to maintain our qualification as a
REIT:
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First, each taxable year we must derive directly or indirectly at least 75% of our gross income, excluding gross income from prohibited
transactions, from (a) certain investments relating to real property or mortgages on real property, including "rents from real property" and, in some circumstances, interest, or (b) some
types of temporary investments; and
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Second, each taxable year we must derive at least 95% of our gross income, excluding gross income from prohibited transactions, from
(a) the real property investments described above, and (b) dividends, interest and gain from the sale or disposition of stock or securities.
For
these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in
any way on the income or profits of any person. An amount received or accrued generally will not be excluded from the term "interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents
we receive from a tenant will qualify as "rents from real property" for the purpose of satisfying the gross income requirements for a REIT described above only if the following
conditions are met:
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The amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount we receive or accrue
generally will not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales;
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We, or an actual or constructive owner of 10% or more of our stock, must not actually or constructively own 10% or more of the interests in the
assets or net profits of the tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of
all classes of stock of the tenant. Rents received from such tenant that is a taxable REIT subsidiary, however, will not be excluded from the definition of "rents from real property" if at least 90%
of the space at the property to
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We
generally do not intend to receive rent which fails to satisfy any of the above conditions. Notwithstanding the foregoing, we have taken and may continue to take actions which fail to
satisfy one or more of the above conditions to the extent that we determine, based on the advice of our tax counsel, that those actions will not jeopardize our status as a REIT.
We
believe that the aggregate amount of our nonqualifying income, from all sources, in any taxable year will not exceed the limit on nonqualifying income under the gross income tests. If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under the Internal Revenue
Code. Generally, we may avail ourselves of the relief provisions if:
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our failure to meet these tests was due to reasonable cause and not due to willful neglect;
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we attach a schedule of the sources of our income to our federal income tax return; and
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any incorrect information on the schedule was not due to fraud with intent to evade tax.
It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. As discussed above in "Taxation of the
CompanyGeneral," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to
maintain compliance with the gross income tests for REIT qualification despite our periodic monitoring of our income.
Prohibited transaction income.
Any gain that we realize on the sale of any property held as inventory or other property held primarily
for sale to
customers in the ordinary course of business will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax. Our gain would include our share of any gain realized by any of the partnerships, limited liability companies or qualified
REIT subsidiaries in which we own an interest. This prohibited transaction income may also adversely affect our ability to satisfy the income tests for qualification as a REIT. Under existing law,
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whether
property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business depends on all the facts and circumstances surrounding the particular
transaction. We intend to hold our properties for investment with a view to long-term appreciation and to engage in the business of acquiring, developing and owning our properties. We have and may in
the future make occasional sales of the properties as are consistent with our investment objectives. We do not intend to enter into any sales that are prohibited transactions. The Internal Revenue
Service may contend, however, that one or more of these sales is subject to the 100% penalty tax.
Redetermined Rents.
Any redetermined rents, redetermined deductions or excess interest we generate will be subject to a 100% penalty
tax. In general,
redetermined rents are rents from real property that are overstated as a result of services furnished by one of our taxable REIT subsidiaries to any of our tenants, and redetermined deductions and
excess interest represent amounts that are deducted by a taxable REIT subsidiary for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's length
negotiations. Rents we receive will not constitute redetermined rents if they qualify for the safe harbor provisions contained in the Internal Revenue Code. Safe harbor provisions are provided where
generally:
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Amounts are received by a REIT for services customarily furnished or rendered in connection with the rental of real property;
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Amounts are excluded from the definition of impermissible tenant service income as a result of satisfying the 1%
de
minimis
exception;
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The taxable REIT subsidiary renders a significant amount of similar services to unrelated parties and the charges for such services are
substantially comparable;
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Rents paid to the REIT by tenants who are not receiving services from the taxable REIT subsidiary are substantially comparable to the rents
paid by the REIT's tenants leasing comparable space who are receiving such services from the taxable REIT subsidiary and the charge for the services is separately stated; and
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The taxable REIT subsidiary's gross income from the service is not less than 150% of the subsidiary's direct cost in furnishing or rendering
the service.
Asset tests.
At the close of each quarter of our taxable year, we also must satisfy four tests relating to the nature and
diversification of our
assets:
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First, at least 75% of the value of our total assets, including assets held by our qualified REIT subsidiaries and our allocable share of the
assets held by the partnerships and limited liability companies in which we own an interest, must be represented by real estate assets, cash, cash items and government securities. For purposes of this
test, the term "real estate assets" generally means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of
beneficial interest) in other REITs, as well as any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public debt offering with a term of at least five
years, but only for the one-year period beginning on the date the REIT receives such proceeds;
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Second, not more than 25% of the value of our total assets may be represented by securities, other than those securities included in the 75%
asset test;
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Third, of the securities included in the 25% asset test, the value of any one issuer's securities may not exceed 5% of the value of our total
assets, and we may not own more than 10% by vote or value of any one issuer's outstanding securities. For years prior to 2001, the 10% limit applies only with respect to voting securities of any
issuer and not to the value of the securities of any issuer; and
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Fourth, not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries. The
10% value limitation and the 20% asset test are part of recently enacted legislation and are effective for taxable years ending after December 31, 2000.
We
own 100% of the outstanding stock of HCPI Investments and Indiana HCP GP Each of HCPI Investments and Indiana HCP GP elected, together with us, to have these
corporations be treated as taxable REIT subsidiaries. So long as HCPI Investments and Indiana HCP GP qualify as taxable REIT subsidiaries, we will not be subject to the 5% asset test, 10%
voting securities limitation or 10% value limitation with respect to our ownership of securities in HCPI Investments or Indiana HCP GP We or HCPI Investments or Indiana HCP GP may
acquire securities in other taxable REIT subsidiaries in the future. We believe that the aggregate value of our taxable REIT subsidiaries will not exceed 20% of the aggregate value of our gross
assets. With respect to each issuer in which we currently own an interest that does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary, we believe that (1) the
value of the securities of any such issuer has not exceeded 5% of the total value of our assets and (2) our ownership of the securities of any such issuer has complied with the 10% voting
securities limitation and 10% value limitation. No independent appraisals have been obtained to support these conclusions. In addition, there can be no assurance that the Internal Revenue Service will
not disagree with our determinations of value. We also own, and may continue to make, loans which must qualify under the "straight debt safe-harbor" in order to satisfy the 10% value limitation
described above. We believe, based on the advice of our tax counsel, that all such existing loans qualify under this safe-harbor. However, there is very little authority interpreting this safe-harbor
and, as a result, there can be no assurance that the Internal Revenue Service would not take a contrary position.
The
asset tests must be satisfied not only on the date that we (directly or through our qualified REIT subsidiaries, partnerships or limited liability companies) acquire securities in
the applicable issuer, but also each time we increase our ownership of securities of such issuer, including as a result of increasing our interest in a partnership or limited liability company which
owns such securities. For example, our indirect ownership of securities of an issuer may increase as a result of our capital contributions to a partnership or limited liability company. After
initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later
quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a result of an increase in our
interests in a partnership or limited liability company), we can cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. Although we
expect to satisfy the asset tests and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is to occur, there can be no assurance that such steps
will always be successful or will not require a reduction in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to timely cure any noncompliance with the asset
tests, we would cease to qualify as a REIT.
Annual distribution requirements.
To maintain our qualification as a REIT, we are required to distribute dividends, other than capital
gain
dividends, to our stockholders in an amount at least equal to the sum of:
-
-
90% (95% for taxable years beginning before January 1, 2001) of our "REIT taxable income"; and
-
-
90% (95% for taxable years beginning before January 1, 2001) of our after tax net income, if any, from foreclosure property; minus
-
-
the excess of the sum of specified items of our noncash income items over 5% of "REIT taxable income" as described below.
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Our
"REIT taxable income" is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income means income
attributable to leveled stepped rents, original issue discount on purchase money debt, or a like-kind exchange that is later determined to be taxable.
In
addition, if we dispose of any asset we acquired from a corporation which is or has been a C corporation in a transaction in which our basis in the asset is determined by reference to
the basis of the asset in the hands of that C corporation, within the ten-year period following our acquisition of such asset, we would be required to distribute at least 90% (95% for taxable years
beginning before January 1, 2001) of the after-tax gain, if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the excess of (a) the fair market
value of the asset on the date we acquired the asset over (b) our adjusted basis in the asset on the date we acquired the asset.
We
must pay these distributions in the taxable year to which they relate, or in the following taxable year if they are declared before we timely file our tax return for that year and
paid on or before the first regular dividend payment following their declarations. Except as provided below, these distributions are taxable to our stockholders, other than tax-exempt entities in the
year in which paid. This is so even though these distributions relate to the prior year for purposes of our 90% distribution requirement. The amount distributed must not be preferential. To avoid
being preferential, every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated
other than according to its dividend rights as a class. To the extent that we do not distribute all of our net capital gain or distribute at least 90% (95% for taxable years beginning before
January 1, 2001), but less than 100%, of our "REIT taxable income," as adjusted, we will be required to pay tax on the undistributed amount at regular ordinary and capital gain corporate tax
rates. We believe we have made, and intend to continue to make, timely distributions sufficient to satisfy these annual distribution requirements.
We
anticipate that we will generally have sufficient cash or liquid assets to enable us to satisfy our distribution requirements. However, we may not have sufficient cash or other liquid
assets to meet these distribution requirements because of timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction
of expenses in determining our taxable income. If these timing differences occur, we may need to arrange for short-term, or possibly long-term, borrowings or need to pay dividends in the form of
taxable stock dividends in order to meet the distribution requirements.
We
may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying "deficiency dividends" to stockholders in a later year, which we may
include in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends. However, we will be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
In
addition, we will be required to pay a 4% excise tax to the extent we fail to distribute at least the sum of 85% of our REIT ordinary income for such year, 95% of our REIT capital
gain net income for the year and any undistributed taxable income from prior periods. Any REIT taxable income and net capital gain on which this excise tax is imposed for any year will be treated as
an amount distributed during that year for purposes of calculating such tax.
Distributions
with declaration and record dates falling in the last three months of the calendar year, which are paid to our stockholders by the end of January immediately following that
year, will be treated for federal income tax purposes as having been paid on December 31 of the prior year.
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Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions of the Internal Revenue Code do not apply, we will
be required to pay tax, including any alternative minimum tax, on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will
not be deductible by us and we will not be required to distribute any amounts to our stockholders. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for
distribution by us to our stockholders. In addition, if we fail to qualify as a REIT, all distributions to stockholders will be taxable at ordinary income rates to the extent of our current and
accumulated earnings and profits. In this event, corporate distributees may be eligible for the dividends-received deduction. Unless entitled to relief under specific statutory provisions, we will
also be disqualified from taxation as a REIT for the four taxable years following the year in which we lose our qualification. It is not possible to state whether in all circumstances we would be
entitled to this statutory relief.
Tax Aspects of the Partnerships
General.
We own, directly or indirectly, interests in various partnerships and limited liability companies and may own interests in
additional
partnerships and limited liability companies in the future. Our ownership of an interest in such partnerships and limited liability companies involves special tax considerations. These special tax
considerations include, for example, the possibility that the Internal Revenue Service might challenge the status of one or more of the partnerships or limited liability companies in which we own an
interest as partnerships, as opposed to associations taxable as corporations, for federal income tax purposes. If a partnership or limited liability company in which we
own an interest, or one or more of its subsidiary partnerships or limited liability companies, were treated as an association, it would be taxable as a corporation and therefore be subject to an
entity-level tax on its income. In this situation, the character of our assets and items of gross income would change, and could prevent us from satisfying the REIT asset tests and/or the REIT income
tests. This, in turn, would prevent us from qualifying as a REIT. In addition, a change in the tax status of one or more of the partnerships or limited liability companies in which we own an interest
might be treated as a taxable event. If so, we might incur a tax liability without any related cash distributions.
Treasury
Regulations that apply for tax periods beginning on or after January 1, 1997, provide that a domestic business entity not otherwise organized as a corporation and which
has at least two members may elect to be treated as a partnership for federal income tax purposes. Unless it elects otherwise, an eligible entity in existence prior to January 1, 1997, will
have the same classification for federal income tax purposes that it claimed under the entity classification Treasury Regulations in effect prior to this date. In addition, an eligible entity which
did not exist or did not claim a classification prior to January 1, 1997, will be classified as a partnership for federal income tax purposes unless it elects otherwise. All of the partnerships
in which we own an interest intend to claim classification as partnerships under these Treasury Regulations. As a result, we believe that these partnerships will be classified as partnerships for
federal income tax purposes. The treatment described above also applies with respect to our ownership of interests in limited liability companies that are treated as partnerships for tax purposes.
Allocations of Income, Gain, Loss and Deduction.
A partnership or limited liability company agreement will generally determine the
allocation of
income and losses among partners or members. These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) of the Internal Revenue
Code and the Treasury Regulations. Generally, Section 704(b) of the Internal Revenue Code and the related Treasury Regulations require that partnership and limited liability company allocations
respect the economic arrangement of the partners and members. If an allocation is not recognized for federal income tax purposes, the relevant item will be reallocated according to the partners' or
members' interests in the partnership or limited liability
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company.
This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners or members with respect to such item. The
allocations of taxable income and loss in each of the partnerships and limited liability companies in which we own an interest are intended to comply with the requirements of Section 704(b) of
the Internal Revenue Code and the Treasury Regulations thereunder.
Tax Allocations With Respect to the Properties.
Under Section 704(c) of the Internal Revenue Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a partnership or limited liability company in exchange for an interest in the partnership or limited liability company must
be allocated in a manner so that the contributing partner or member is charged with the unrealized gain or benefits from the unrealized loss associated with the property at the time of the
contribution. The amount of the unrealized gain or unrealized loss is generally equal to the difference between the fair market value or book value and the adjusted tax basis of the contributed
property at the time of contribution. These allocations are solely for federal income tax purposes. These allocations do not affect the book capital accounts or other economic or legal arrangements
among the partners or members. Some of the partnerships and/or limited liability companies in which we own an interest were formed by way of contributions of appreciated property. The relevant
partnership and/or limited liability company agreements require that allocations be made in a manner consistent with-Section 704(c) of the Internal Revenue Code.
Treasury
regulations issued under Section 704(c) of the Internal Revenue Code provide partnerships with a choice of several methods of accounting for book-tax differences,
including the "traditional method," which we have used in all cases. Under the traditional method, the carryover basis of contributed interests in the properties in the hands of the applicable
partnership could cause us to be allocated (i) lower amounts of depreciation deductions for tax purposes than would be allocated to us if all contributed properties were to have a tax basis
equal to their fair market value at the time of the contribution and (ii) taxable gain in the event of a sale of such contributed interests or properties in excess of the economic or book
income allocated to us as a result of such sale, with a corresponding benefit to the other partners in the partnership. An allocation described in (ii) above might cause us or the other
partners to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition of property, which might adversely affect our ability to comply with the REIT distribution
requirements. See "Taxation of the CompanyRequirements for Qualification as a REIT" and "Annual Distribution Requirements."
Tax Liabilities and Attributes Inherited From AHP
On November 4, 1999, we acquired American Health Properties, Inc., or AHP, in a merger. AHP had also made an election to be taxed
as a REIT. If AHP failed to qualify as a REIT for any of its taxable years, it would be required to pay federal income tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless statutory relief provisions apply, AHP would be disqualified from treatment as a REIT for the four taxable years following the year during which it lost qualification.
We, as successor-in-interest to AHP, would be required to pay this tax. The built-in gain rules described under "Taxation of the CompanyGeneral" above would apply with
respect to any assets acquired by us from AHP in connection with the merger if the merger qualified as a tax-free reorganization under the Internal Revenue Code and if AHP failed to qualify as a REIT
at any time during its existence. In that case, if we had not made an election under Treasury Regulation Section 1.337(d)-5T, AHP would recognize taxable gain as a result of the merger under
the built-in gain rules, notwithstanding that the merger otherwise qualified as a tax-free reorganization under Internal Revenue Code. The liability for any tax due with respect to the gain described
above would have been assumed by us in the merger. We have made a protective election under Treasury Regulation Section 1.337(d)-5T with respect to the
merger to prevent the recognition of this gain. Even with this election, under these circumstances, if we disposed of any of the assets acquired from AHP
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during
a specified ten-year period, we would be required to pay tax on all or a portion of the gain on this disposition at the highest corporate tax rate under the built-in gain rules. In addition, in
connection with the merger, we succeeded to various tax attributes of AHP assuming the merger is treated as a tax-free reorganization under the Internal Revenue Code, including any undistributed C
corporation earnings and profits of AHP. If AHP qualified as a REIT for all years prior to the merger and the merger is treated as a tax-free reorganization under the Internal Revenue Code, then AHP
would not have any undistributed C corporation earnings and profits. If, however, AHP failed to qualify as a REIT for any year, then it is possible that we acquired undistributed C corporation
earnings and profits from AHP. If we did not distribute these C corporation earnings and profits prior to the end of 1999, we would be required to distribute these earnings and profits through
deficiency dividends or would fail to qualify as a REIT. Furthermore, after the merger, the asset and income tests described in "Requirements for qualification as a
REITIncome Tests" and "Asset Tests" apply to all of our assets, including the assets acquired from AHP, and to all of our income, including the income derived from the assets
we acquired from AHP. As a result, the nature of the assets that we acquired from AHP and the income derived from those assets may have an effect on our tax status as a REIT.
Qualification
as a REIT required AHP to satisfy numerous requirements, some on an annual and others on a quarterly basis, established under highly technical and complex Internal Revenue
Code provisions. These include requirements relating to AHP's:
-
-
actual annual operating results;
-
-
asset diversification;
-
-
distribution levels, including the effect, if any, of the characterization of AHP's psychiatric group preferred stock on distribution levels;
and
-
-
diversity of stock ownership.
There
are only limited judicial and administrative interpretations of these requirements and qualification as a REIT involves the determination of various factual matters and
circumstances which were not entirely within AHP's control.
AHP's
REIT counsel rendered an opinion to the effect that, based on the facts, representations and assumptions stated therein, commencing with its taxable year ended December 31,
1987, AHP was organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and its method of operation enabled it to meet, through the
effective time of the merger, the requirements for qualification and taxation as a REIT under the Internal Revenue Code. This opinion assumed, among other things, the accuracy of an opinion rendered
by AHP's corporate counsel with respect to the characterization of AHP's psychiatric group preferred stock and dividends thereon, which corporate counsel's opinion was based on the facts,
representations and assumptions stated therein.
Because
many of the properties formerly owned by AHP, and now owned by us, have fair market values in excess of their tax bases, assuming the merger was treated as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code, AHP's tax basis in the assets transferred in the merger carried over to us. This lower tax basis causes us to have lower
depreciation deductions and results in higher gain on sale with respect to these properties than would be the case if these properties had been acquired by us in a taxable transaction.
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Taxation of Holders of Common Stock
Scope of Discussion.
This general discussion of United States federal income tax considerations which are anticipated to be material to
purchasers of
our common stock applies to you if you are a United States stockholder who holds our common stock as a "capital asset" within the meaning of Section 1221 of the Internal Revenue Code. This
summary, however, does not consider state, local or foreign tax laws. In addition, it does not include all of the rules which may affect the United States tax treatment of your investment in our
common stock or address your personal investment circumstances. For example, special rules not discussed here may apply to you if you are:
-
-
not a United States stockholder
-
-
a broker-dealer, a dealer in securities or a financial institution;
-
-
an S corporation;
-
-
a bank;
-
-
a thrift;
-
-
an insurance company;
-
-
a tax-exempt organization;
-
-
subject to the alternative minimum tax provisions of the Internal Revenue Code;
-
-
holding the common stock as part of a hedge, straddle or other risk reduction or constructive sale transaction;
-
-
a United States person with a "functional currency" other than the United States dollar; or
-
-
a United States expatriate.
When
we use the term "United States stockholder," we mean a holder of shares of our capital stock who is, for United States federal income tax
purposes:
-
-
a citizen or resident of the United States;
-
-
a corporation, partnership, or other entity created or organized in or under the laws of the United States or of any state or in the District
of Columbia, unless, in the case of a partnership, treasury regulations provide otherwise;
-
-
an estate which is required to pay United States federal income tax regardless of the source of its income; or
-
-
a trust whose administration is under the primary supervision of a United States court and which has one or more United States persons who have
the authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence, to the extent provided in the treasury regulations, some trusts in existence on
August 20, 1996, and treated as United States persons prior to this date that elect to continue to be treated as United States persons, shall also be considered United States stockholders.
Distributions Generally
Distributions out of our current or accumulated earnings and profits, other than capital gain dividends discussed below, will constitute
dividends taxable to our taxable United States stockholders as ordinary income. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the
case of United States stockholders that are corporations.
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For
purposes of determining whether distributions to holders of common stock are out of current or accumulated earnings and profits, our earnings and profits will be allocated first to
our outstanding preferred stock and then to the common stock.
To
the extent that we make distributions in excess of our current and accumulated earnings and profits, these distributions will be treated first as a tax-free return of capital to each
United States stockholder. This treatment will reduce the adjusted tax basis which each United States stockholder has in its shares of common stock by the amount of the excess distribution, but not
below zero. Distributions in excess of our current and accumulated earnings and profits and in excess of a United States stockholder's adjusted tax basis in its shares will be taxable as capital gain,
provided that the shares have been held as capital assets. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year. Dividends we declare in October,
November, or December of any year and payable to a stockholder of record on a specified date in any of these months will be treated as both paid by us and received by the stockholder on
December 31 of that year, provided we actually pay the dividend on or before January 31 of the following year. Stockholders may not include in their own income tax returns any of our net
operating losses or capital losses.
Capital Gain Distributions
Distributions that we properly designate as capital gain dividends will be taxable to our taxable United States stockholders as gain from the
sale or disposition of a capital asset, to the
extent that such gain does not exceed our actual net capital gain for the taxable year. Depending on the characteristics of the assets which produced these gains, and on specified designations, if
any, which we may make, these gains may be taxable to non-corporate United States stockholders at a 20% or 25% rate. United States stockholders that are corporations may, however, be required to treat
up to 20% of some capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend, your share of such capital gain dividend would be an amount
which bears the same ratio to the total amount of dividends, as determined for federal income tax purposes, paid to you for the year as the aggregate amount designated as a capital gain dividend bears
to the aggregate amount of all dividends, as determined for federal income tax purposes, paid on all classes of shares of our capital stock for the year.
Passive Activity Losses and Investment Interest Limitations
Distributions we make and gain arising from the sale or exchange by a United States stockholder of our shares will not be treated as passive
activity income. As a result, United States stockholders generally will not be able to apply any "passive losses" against this income or gain. Distributions we make, to the extent they do not
constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation. Gain arising from the sale or other disposition of our
shares, however, may not be treated as investment income depending upon your particular situation.
Retention of Net Long-Term Capital Gains
We may elect to retain, rather than distribute as a capital gain dividend, our net long-term capital gains. If we make this election, we would
pay tax on our retained net long-term capital gains. In addition, to the extent we designate, a United States stockholder generally would:
-
-
include its proportionate share of our undistributed long-term capital gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
-
-
be deemed to have paid the capital gains tax imposed on us on the designated amounts included in the United States stockholder's long-term
capital gains;
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-
-
receive a credit or refund for the amount of tax deemed paid by it;
-
-
increase the adjusted basis of its common stock by the difference between the amount of includable gains and the tax deemed to have been paid
by it; and
-
-
in the case of a United States stockholder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains
as required by treasury regulations to be prescribed by the Internal Revenue Service.
Dispositions of Common Stock
If you are a United States stockholder and you sell or dispose of your shares of common stock, you will recognize gain or loss for federal
income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property you receive on the sale or other disposition and your adjusted basis in
the shares for tax purposes. This gain or loss will be capital if you have held the common stock as a capital asset. This gain or loss, except as provided below, will be long-term capital gain or loss
if you have held the common stock for more than one year. In general, if you are a United States stockholder and you recognize loss upon the sale or other disposition of common stock that you have
held for six months or less, the loss you recognize will be treated as a long-term capital loss to the extent you received distributions from us which were required to be treated as long-term capital
gains.
Backup Withholding
We report to our United States stockholders and the Internal Revenue Service the amount of dividends paid during each calendar year and the
amount of any tax withheld. Under the backup withholding rules, a stockholder may be subject to backup withholding at a maximum rate of 31% with respect to dividends paid unless the holder is a
corporation or is otherwise exempt and, when required, demonstrates this fact or provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise
complies with the backup withholding rules. A United States stockholder that does not provide us with his correct taxpayer identification number may also be subject to penalties imposed by the
Internal Revenue Service. Backup withholding is not an additional tax. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. In addition, we may be
required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign status. See "Taxation of Non-United States Stockholders."
Taxation of Tax-Exempt Stockholders
The Internal Revenue Service has ruled that amounts distributed as dividends by a qualified REIT do not constitute unrelated business taxable
income when received by a tax-exempt entity. Based on that ruling, except as described below, dividend income from us and gain arising upon your sale of shares generally will not be unrelated business
taxable income to a tax-exempt stockholder. This income or gain will be unrelated business taxable income, however, if the tax-exempt stockholder holds its shares as "debt financed property" within
the meaning of the Internal Revenue Code or if the shares are used in a trade or business of the tax-exempt stockholder. Generally, debt financed property is property the acquisition or holding of
which was financed through a borrowing by the tax-exempt stockholder.
For
tax-exempt stockholders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt
from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly claim a deduction for amounts set aside or placed in reserve
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for
specific purposes so as to offset the income generated by its investment in our shares. These prospective investors should consult their tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a "pension held REIT" will be treated as unrelated business taxable income as to some trusts that hold more than
10%, by value, of the interests of a REIT. A REIT will not be a "pension held REIT" if it is able to satisfy the "not closely held" requirement without relying on the "look-through" exception with
respect to certain trusts. As a result of limitations on the transfer and ownership of stock contained in our charter, we do not expect to be classified as a "pension-held REIT," and as a result, the
tax treatment described in this paragraph should be inapplicable to our stockholders.
Taxation of Non-United States Stockholders
The preceding discussion does not address the rules governing United States federal income taxation of the ownership and disposition of our
common stock by persons that are non-United States stockholders. When we use the term "non-United States stockholder" we mean stockholders who are not United States stockholders. In general,
non-United States stockholders may be subject to special tax withholding requirements on distributions from us and with respect to their sale or other disposition of our common stock, except to the
extent reduced or eliminated by an income tax treaty between the United States and the non-United States stockholder's country. A non-United States stockholder who is a stockholder of record and is
eligible for reduction or elimination of withholding must file an appropriate form with us in order to claim such treatment. Non-United States stockholders should consult their own tax advisors
concerning the federal income tax consequences to them of an acquisition of shares of our common stock, including the federal income tax treatment of dispositions of interests in and the receipt of
distributions from us.
Other Tax Consequences
We may be required to pay state or local taxes in various state or local jurisdictions, including those in which we transact business and our
stockholders may be required to pay state or local taxes in various state or local jurisdictions, including those in which they reside. Our state and local tax treatment may not conform to the federal
income tax consequences summarized above. In
addition, your state and local tax treatment may not conform to the federal income tax consequences summarized above. Consequently, you should consult your tax advisor regarding the effect of state
and local tax laws on an investment in our common stock.
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SELLING HOLDERS
"Selling holders" are those persons who may receive shares of our common stock registered pursuant to this registration statement upon exchange
of non-managing member units. The following table provides the names of the selling holders, the number of non-managing member units owned by the selling holders and the aggregate number of shares of
common stock that will be owned by the selling holders if they exchange all of the non-managing member units. The number of shares on the following table represents the number of shares of common
stock into which the non-managing member units held by the person are currently exchangeable and assumes that no change in the adjustment factor, which determines the number of shares of our common
stock issuable upon the exchange of an HCPI/Utah II, LLC unit, will have occurred. A change in the adjustment factor will occur if we declare a dividend on our common stock payable in common
stock, split or subdivide our common stock or effect a reverse stock split or combine our common stock into a smaller number of shares.
Since
the selling holders may sell all, some or none of their shares, we cannot estimate the aggregate number of shares that the selling holders will offer pursuant to this prospectus or
that each selling holder will own upon completion of the offering to which this prospectus relates.
The
selling holders named below may from time to time offer the shares of common stock offered by this prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Managing
Member Units
Exchangeable for
Common Stock
Offered Hereby
|
|
Common Stock to be Held After the Exchange(1)(2)
|
|
|
|
Non-Managing
Member Units
Owned Prior to the
Exchange(1)
|
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Name
|
|
Shares
|
|
Percent
|
|
Boyer-Research Park Associates, Ltd.
|
|
|
282,052
|
|
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282,052
|
|
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282,052
|
|
|
*
|
|
Boyer Research Park Associates VII, L.C.
|
|
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22,099
|
|
|
22,099
|
|
|
22,099
|
|
|
*
|
|
Chimney Ridge, L.C
|
|
|
104,772
|
|
|
104,772
|
|
|
104,772
|
|
|
*
|
|
Boyer-Foothill Associates, Ltd.
|
|
|
90,619
|
|
|
90,619
|
|
|
90,619
|
|
|
*
|
|
Boyer-Research Park Associates VI, L.C.
|
|
|
59,991
|
|
|
59,991
|
|
|
59,991
|
|
|
*
|
|
Boyer Old Mill II, L.C.
|
|
|
71,383
|
|
|
71,383
|
|
|
71,383
|
|
|
*
|
|
Boyer Rancho Vistoso, L.C.
|
|
|
43,773
|
|
|
43,773
|
|
|
43,773
|
|
|
*
|
|
Boyer Kaysville Associates, L.C.
|
|
|
28,597
|
|
|
28,597
|
|
|
28,597
|
|
|
*
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|
Boyer Tatum Highlands Dental Clinic, L.C.
|
|
|
4,737
|
|
|
4,737
|
|
|
4,737
|
|
|
*
|
|
Lynn L. Summerhays
|
|
|
15,450
|
|
|
15,450
|
|
|
44,962
|
|
|
*
|
|
H. Lewis Swain, as Trustee of the H. Lewis Swain Family Trust
|
|
|
15,450
|
|
|
15,450
|
|
|
63,047
|
|
|
*
|
|
Merrill Lynch Private Finance Inc.
|
|
|
471,868
|
(3)
|
|
409,110
|
(3)
|
|
975,287
|
(3)
|
|
*
|
|
Total
|
|
|
738,923
|
(4)
|
|
738,923
|
(4)
|
|
816,032
|
(4)
|
|
1.3
|
|
-
*
-
Represents
less than 1% of the total outstanding shares of our common stock.
-
(1)
-
Based
on information available to us as of September 17, 2002.
-
(2)
-
Assumes
the selling holders exchange all of their non-managing member units in HCPI/Utah, LLC and HCPI/Utah II, LLC originally issued on or before
August 17, 2001 for shares of common stock.
-
(3)
-
Merrill
Lynch Private Finance Inc. does not own any non-managing member units of HCPI/Utah II, LLC or HCPI/Utah, LLC as of the date of the
Registration Statement. However, pursuant to a Loan and Collateral Agreement, dated as of June 12, 2002, among The Boyer Company, L.C., certain affiliates of The Boyer Company, L.C., Merrill
Lynch Private Finance Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Loan Agreement"), 409,110 of the
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Table of Contents
non-managing
member units of HCPI/Utah II, LLC that are subject to this prospectus and an additional 456,894 and 109,283 non-managing member units of HCPI/Utah, LLC have been pledged to
Merrill
Lynch Private Finance Inc. as security for a loan to The Boyer Company, L.C. Upon any default under the Loan Agreement, Merrill Lynch Private Finance Inc., its parent, Merrill
Lynch & Co. Inc. or any subsidiary thereof, may be a selling holder hereunder and upon exchange of such non-managing member units, sell the applicable shares of common stock
offered by this prospectus. The additional 456,894 and 109,283 non-managing member units of HCPI/Utah, LLC are subject to other registration statements.
-
(4)
-
The
non-managing member units pledged to Merrill Lynch Private Finance Inc. and the shares of common stock into which such units are exchangeable are not
included in the total number of non-managing member units/shares. subsidiary thereof, may be a selling holder hereunder and upon the exchange of such non-managing member units, sell the applicable
shares of common stock offered by this prospectus.
The
operating agreement provides that the selling holders may transfer their non-managing member units. Such transferees of the non-managing members' units may also be selling holders
under this prospectus. We will file one or more supplemental prospectuses pursuant to Rule 424 under the Securities Act to describe the required information regarding any additional selling
holder. We will also file one or more supplemental prospectuses pursuant to Rule 424 under the Securities Act to describe any material arrangements for the distribution of the shares when such
arrangements are entered into by the selling holders and any broker-dealers that participate in the distribution of shares of our common stock.
PLAN OF DISTRIBUTION
This prospectus relates to:
(1) the
possible issuance by us of the shares of our common stock if, and to the extent that, holders of non-managing member units tender such non-managing member units for
exchange; and
(2) the
offer and sale from time to time of any shares that may be issued to holders of such non-managing member units.
We
have registered the shares for sale to provide the holders of non-managing member units with freely tradable securities, but registration of the shares does not necessarily mean that
any of the shares will be offered or sold by the holders of non-managing member units.
We
will not receive any proceeds from the issuance of the shares of common stock to the selling holders or from the sale of the shares by the selling holders, but we have agreed to pay
the following expenses, estimated to be $70,000, for the registration of the shares:
-
-
all registration and filing fees;
-
-
fees and expenses for complying with securities or blue sky laws, including reasonable fees and disbursements of counsel in connection with
blue sky qualifications; and
-
-
the fees and expenses incurred in connection with listing our common stock on each securities exchange on which our similar securities issued
are then listed.
We
have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of our common stock. We also have no obligation to pay any out-of-pocket expenses of
the selling holders, or the agents who manage their accounts, or any transfer taxes relating to the registration or sale of the common stock.
Shares
of our common stock may be sold from time to time to purchasers directly by the selling holders. Alternatively, the selling holders may from time to time offer the shares through
dealers or
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Table of Contents
agents,
who may receive compensation in the form of commissions from the selling holders and the purchasers of shares for whom they may act as agent. The sale of the shares by the selling holders may
be effected from time to time in one or more negotiated transactions at negotiated prices or in transactions on any exchange or automated quotation system on which the securities may be listed or
quoted. The selling holders and any dealers or agents that participate in the distribution of shares of our common stock may be deemed to be underwriters within the meaning of the Securities Act and
any profit on the sale of shares of our common stock by them and any commissions received by any such dealers or agents might be deemed to be underwriting commissions under the Securities Act.
In
connection with distribution of the shares of common stock covered by this prospectus:
-
-
the selling holders may enter into hedging transactions with broker-dealers,
-
-
the broker-dealers may engage in short sales of the common stock in the course of hedging the position they assume with the selling holders,
-
-
the selling holders may sell the common stock short and deliver the common stock to close out these short positions,
-
-
the selling holders may write non-traded options,
-
-
the selling holders may enter into option or other transactions with broker-dealers that involve the delivery of the shares to the
broker-dealers, who may then resell or otherwise transfer the shares,
-
-
the selling holders may sell the shares pursuant to Rule 144 or another exemption from registration, and
-
-
the selling holders may also loan or pledge the shares to a broker-dealer and the broker-dealer may sell the shares so loaned or upon a default
may sell or otherwise transfer the pledged shares.
Persons
participating in the distribution of the shares of our common stock offered by this prospectus may engage in transactions that stabilize the price of our common stock. The
anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of common stock in the market and to the activities of the selling holders.
In
order to comply with the securities laws of various states, the shares of our common stock will not be sold in a particular state unless the shares have been registered or qualified
for sale in such state or an exemption from registration or qualification is available and is complied with.
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Table of Contents
LEGAL MATTERS
Ballard, Spahr, Andrews & Ingersoll, LLP, Baltimore, Maryland, will issue an opinion to us regarding matters of Maryland law.
Latham & Watkins will issue an opinion to us regarding tax matters described under "United States Federal Income Tax Consequences."
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Table of Contents
EXPERTS
We have not been able to obtain, after reasonable efforts, the written consent of Arthur Andersen LLP to our naming it in this prospectus
as having certified our consolidated financial statements for the three years ended December 31, 2001, as required by Section 7 of the Securities Act. Accordingly, Arthur Andersen may
not have any liability under Section 11 of the Securities Act of 1933 for false and misleading statements and omissions contained in this prospectus, including the financial statements, and any
claims against Arthur Andersen related to any such false and misleading statements and omissions may be limited.
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Table of Contents
1,101,559 Shares
HCP, Inc.
Common Stock
PROSPECTUS SUPPLEMENT
June 21, 2018
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