THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-73936
Subject to completion. September 3, 2002
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 21, 2001)
[HEALTH CARE REIT LOGO]
$150,000,000
% NOTES DUE , 20
- We are offering and selling $ in aggregate principal amount of our
% Notes due , 20 . We will receive the proceeds from the
sale of the Notes.
- Interest on the Notes will accrue from , 2002. We will pay
interest on the Notes on 15 and 15 of each year, beginning
15, 200 . The Notes will mature on 15, 20 .
- The Notes are unsecured and rank equally with all of the other
unsecured and senior indebtedness of Health Care REIT, Inc. The Notes
will be effectively subordinated to all liabilities of our subsidiaries
and to our secured indebtedness.
- The Notes will not be listed on any national securities exchange or
traded on the Nasdaq system.
- INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-5
IN THIS PROSPECTUS SUPPLEMENT.
PER
NOTE TOTAL
Initial public offering price % $
Underwriting discounts and commissions % $
Our proceeds, before expenses % $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters expect to deliver the Notes in book-entry form through
the facilities of The Depository Trust Company on or about September ,
2002, against payment therefor in immediately available funds.
DEUTSCHE BANK SECURITIES UBS WARBURG
Prospectus Supplement dated September , 2002
PROSPECTUS SUPPLEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS SUPPLEMENT.
IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO
UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS CAREFULLY. IN THIS PROSPECTUS SUPPLEMENT, UNLESS SPECIFICALLY
NOTED OTHERWISE, "WE," "US," "OUR," OR THE "COMPANY" REFER TO HEALTH CARE REIT,
INC. AND ITS SUBSIDIARIES.
ABOUT OUR COMPANY
Health Care REIT, Inc. is a self-administered real estate investment trust
that invests in health care facilities, primarily nursing homes and assisted
living facilities. Founded in 1970, we were the first real estate investment
trust to invest exclusively in health care facilities.
As of June 30, 2002, our investment portfolio included 157 assisted living
facilities, 65 skilled nursing facilities and seven specialty care facilities
comprising $1,406,132,000 in net real estate investments.
Our principal executive offices are located at One SeaGate, Suite 1500,
Toledo, Ohio 43604, and our telephone number is (419) 247-2800.
OUR STRATEGY
We seek to increase funds from operations and enhance shareholder value
through relationship investing with public and emerging health care chains. The
primary components of our strategy include:
- Relationship Investing. We establish relationships with emerging health
care companies and seek to provide financing throughout their growth
cycles. We target companies with experienced management teams,
substantial insider ownership interests, venture capital backing and
significant growth potential.
- Portfolio Management. We derive portfolio strength from diversity by
operator, health care sector and geographic location. We emphasize
long-term investment structures that result in a predictable asset base
with corresponding recurring income and funds from operations. Generally,
our operating leases extend for 10 to 15 years and our mortgage loans
provide five to seven years of prepayment protection. At June 30, 2002,
the average life of our portfolio was nine years, with 86% of our
annualized revenue derived from investments that mature after the year
2006.
- Depth of Management. Our management team includes six individuals with a
total of 105 years of experience in health care and real estate finance.
S-2
THE OFFERING
SECURITIES OFFERED............ $ aggregate principal amount of Notes (the
"Notes").
INTEREST RATE................. % per annum.
MATURITY...................... , 20 .
INTEREST PAYMENT DATES........ Semi-annually on 15 and 15
commencing 15, 200 .
RANKING....................... The Notes will be senior and unsecured
obligations of Health Care REIT, Inc. and will
rank equally with all of its other unsecured
and senior indebtedness. The Notes will be
effectively subordinated to all liabilities of
our subsidiaries and to our secured
indebtedness. See "Description of the Notes"
and "Description of Other Indebtedness."
USE OF PROCEEDS............... The net proceeds from the sale of the Notes
will be used to invest in additional health
care property investments. Pending such use,
the proceeds will be used primarily to repay
borrowings under our unsecured revolving lines
of credit arrangements, which had an
outstanding balance of $96 million at August
27, 2002.
OPTIONAL REDEMPTION........... The Notes are redeemable at any time at our
option, in whole or in part, at a redemption
price equal to the sum of (i) the principal
amount of the Notes (or portion thereof) being
redeemed plus accrued interest thereon to the
redemption date and (ii) the Make-Whole Amount,
if any, with respect to the Notes (or portion
thereof). See "Description of Notes -- Optional
Redemption."
CERTAIN COVENANTS............. The Notes and the Supplemental Indenture under
which they will be issued contain various
covenants including the following:
- We will covenant in our Supplemental
Indenture not to pledge or otherwise subject
to any lien, any of our property or assets or
our subsidiaries unless the Notes are secured
equally and ratably with all other
obligations so secured. This covenant will
not apply to liens securing obligations which
do not in the aggregate at any one time
outstanding exceed 15% of our Consolidated
Net Tangible Assets. In addition, this
covenant will not apply to certain of our
other obligations as more fully explained in
"Description of Notes -- Certain Covenants."
- We will also covenant in the Supplemental
Indenture that we will not incur or otherwise
become liable for any Senior Debt unless the
outstanding principal amount of all of our
Senior Debt will not, at the time we incur it
and after giving effect to our incurrence of
that debt and to any concurrent transactions,
exceed the greater of (i) 150% of Capital
Base or (ii) 225% of Tangible Net Worth.
S-3
- We will also covenant in the Supplemental
Indenture that we will have or maintain, on a
consolidated basis, as of the last day of
each of our fiscal quarters, Interest
Coverage of not less than 150%.
SINKING FUND.................. The Notes are not entitled to any sinking fund
payments.
S-4
RISK FACTORS
Before making an investment in the Notes, you should consider the risks
described below. This prospectus supplement does not describe all of the risks
of an investment in the Notes or the risks relating to our business. You should
consult your own financial and legal advisors before making an investment in the
Notes.
- THESE NOTES WILL BE SUBORDINATED TO OUR SECURED INDEBTEDNESS AND SUBORDINATED
TO ALL LIABILITIES OF OUR SUBSIDIARIES.
The Notes are obligations only of Health Care REIT, Inc. and will not be
guaranteed by our subsidiaries or secured by any of our or their properties or
assets. Our subsidiaries, which own approximately 38% of our real estate
investments, are separate legal entities and have no obligation to pay any
amounts due pursuant to the Notes. Our subsidiaries have guaranteed outstanding
debt that may exist from time to time under certain of our Credit Facilities.
See "Description of Other Indebtedness -- Credit Facilities."
- OUR BUSINESS OPERATIONS MAY NOT GENERATE THE CASH NEEDED TO SERVICE OUR
INDEBTEDNESS.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will enable us to pay our
indebtedness, including these Notes.
- YOU MAY NOT BE ABLE TO RESELL THE NOTES BECAUSE THERE MAY NOT BE AN ACTIVE
TRADING MARKET FOR THE NOTES.
We do not intend to apply for listing of the Notes on any securities
exchange or for quotation on the Nasdaq system. There may not be a market for
the Notes. The marketability of the Notes will depend on the number of holders,
the market for notes of other issuers, our performance and interest rates.
- BANKRUPTCIES INVOLVING OUR OPERATORS MAY ADVERSELY AFFECT OUR ABILITY TO MEET
OUR OBLIGATIONS UNDER THE NOTES.
We are exposed to the risk that our operators may not be able to meet the
rent, or principal and interest payments due us, which may result in an operator
bankruptcy or insolvency.
Although our operating lease agreements provide us the right to evict an
operator, demand immediate payment of rent and exercise other remedies, and our
mortgage loans provide us the right to terminate an investment, demand immediate
payment of principal and unpaid interest and foreclose on the collateral, the
bankruptcy laws afford certain rights to a party that has filed for bankruptcy
or reorganization. An operator in bankruptcy may be able to restrict or delay
our ability to collect unpaid rent in the case of a lease or to receive unpaid
principal or interest in the case of a mortgage loan.
The receipt of liquidation proceeds or the replacement of an operator that
has defaulted on its lease or loan could be delayed by the approval process of
any federal, state or local agency necessary for the transfer of the facility or
the replacement of the operator licensed to manage the facility. In addition, we
may be required to fund certain expenses (e.g. real estate taxes and
maintenance) to retain control of a facility or to transition it to a new
operator. In some instances, we have terminated our lease with an operator and
leased the facility to another operator. In some of those situations, we
provided working capital loans and limited indemnification to the new operator.
If we cannot transition the facility to a new operator, we may take possession
of a facility, which may expose us to successor liabilities. Should such events
occur, our revenue and operating cash flow may be adversely affected.
S-5
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made and incorporated by reference statements in this prospectus
supplement that constitute "forward-looking statements" as that term is defined
in the federal securities laws. These forward-looking statements concern:
- the possible expansion of our portfolio;
- the performance of our operators and properties;
- our ability to obtain new viable operators for properties which we take
back from financially troubled operators, if any;
- our ability to make distributions;
- our policies and plans regarding investments, financings and other
matters;
- our tax status as a real estate investment trust;
- our ability to appropriately balance the use of debt and equity; and
- our ability to access capital markets or other sources of funds.
When we use words such as "believes," "expects," "anticipates," "estimates"
or similar expressions, we are making forward-looking statements.
Forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Our expected results may not be achieved, and actual
results may differ materially from our expectations. This may be a result of
various factors, including:
- the status of the economy;
- the status of capital markets, including prevailing interest rates;
- compliance with and changes to regulations and payment policies within
the health care industry;
- changes in financing terms;
- competition within the health care and senior housing industries; and
- changes in federal, state and local legislation.
Other important factors are identified in our Annual Report on Form 10-K
for the year ended December 31, 2001, which is incorporated by reference into
this prospectus supplement, including factors identified under the headings
"Business." We assume no obligation to update or revise any forward-looking
statements or to update the reasons why actual results could differ from those
projected in any forward-looking statements.
THE COMPANY
Health Care REIT, Inc. is a self-administered real estate investment trust
that invests in health care facilities, primarily nursing homes and assisted
living facilities. As of June 30, 2002, long-term care facilities, which include
nursing homes and assisted living facilities, comprised approximately 93% of our
investment portfolio. Founded in 1970, we were the first real estate investment
trust to invest exclusively in health care facilities.
As of June 30, 2002, we had approximately $1.4 billion of net real estate
investments, including credit enhancements, in 229 facilities located in 34
states and managed by 41 different operators. At that date, the portfolio
included 157 assisted living facilities, 65 skilled nursing facilities and seven
specialty care facilities.
S-6
We seek to increase funds from operations and enhance shareholder value
through relationship investing with public and emerging health care chains. The
primary components of this strategy are set forth below.
Relationship Investing. We establish relationships with emerging health
care companies and provide financing throughout their growth cycles. We target
companies with experienced management teams, substantial insider ownership
interests, venture capital backing and significant growth potential.
By maintaining close ties to health care operators, we are able to provide
value added services and monitor our investments on an ongoing basis.
Investments are designed to support the operator's business plan. Our investment
programs typically include a two- to three-year, multi-facility financing
commitment with common terms and maturities, and periodic review of the
program's continued efficacy. Economic terms typically include annual rate
increases and fair market value based purchase options in operating leases.
By maintaining relationships within the health care venture capital
community, we identify potential new investment opportunities. In turn, because
of our experience, knowledge and contacts within various sectors of the health
care industry, we are able to assist venture capital firms in identifying new
portfolio company investment opportunities.
Portfolio Management. Portfolio strength is derived from diversity by
operator, health care sector and geographic location. We emphasize long-term
investment structures that result in a predictable asset base with corresponding
recurring income and funds from operations. Generally, operating leases extend
for 10 to 15 years and mortgage loans provide five to seven years of prepayment
protection. At June 30, 2002, the average life of our portfolio was nine years,
with 86% of our annualized revenue derived from investments that mature after
the year 2006.
In addition, we believe that our portfolio has been strengthened by our
ability to identify early trends in the health care sector and to seek the best
risk-reward allocation within the long-term care sector. In 1991, we initiated a
review and analysis of the assisted living industry and made our first
investment in this sector in 1992. We allocated most of our investment dollars
to the assisted living sector in the eight year period 1993 through 2000 due to
the favorable risk-reward relationship in that sector and a concern that
revenues in the skilled nursing sector were not sustainable. In 1998, Congress
changed the Medicare reimbursement system converting it from a cost-based to a
capitation system with significant reduction in reimbursement amounts. These
changes created many difficulties in the skilled nursing sector in the period
1998 through 2000, especially for larger, highly leveraged public companies that
had a dependency on ancillary revenues. Our decision to reallocate away from
skilled nursing facility investments to assisted living drove the percentage of
skilled nursing investments in our portfolio from 69% in 1992 to 32% at June 30,
2002, and the percentage of assisted living investments from 18% in 1992 to 61%
at June 30, 2002. By overweighting assisted living investments, we avoided most
of the difficulties of the nursing home sector; however, our challenge then was
to "season" the assisted living component of our portfolio. This process
involved overseeing the construction and fill-up of new state of the art,
purpose built, prototypical facilities.
The seasoning of the assisted living portfolio was substantially complete
by June 30, 2002, as only 10% of our year-to-date revenues were derived from
facilities still in fill-up. At June 30, 2002, we had overseen the stabilization
of 133 facilities with an investment balance of approximately $646 million.
Assuming the continuing successful seasoning anticipated by December 31, 2002,
the number of facilities stabilized is anticipated to reach 140 with a total
investment amount of $716 million. This investment focus has produced a modern,
state of the art real estate portfolio with an average facility age of
approximately five years.
S-7
Due to the restoration of portions of the Medicare reimbursement system by
Congress and the successful repositioning of many of the skilled nursing
operators, we have reevaluated our investment weightings and are now seeking
both seasoned skilled nursing and assisted living facility investments operated
by experienced health care operators with a strong operating history and
culture.
Depth of Management. Our management team is comprised of six individuals
with 105 years of experience in health care and real estate finance. George L.
Chapman has been a member of senior management for over ten years and in 1996
became our Chairman and Chief Executive Officer. Mr. Chapman and the management
team have successfully implemented our investment strategy of emphasizing
relationship financings with established and emerging health care operators.
THE PORTFOLIO
The following table reflects our portfolio as of June 30, 2002:
NUMBER
PERCENTAGE NUMBER OF INVESTMENT NUMBER NUMBER
TYPE OF INVESTMENTS(1) OF OF BEDS/ PER BED/ OF OF
FACILITY (IN THOUSANDS) PORTFOLIO FACILITIES UNITS UNIT(2) OPERATORS(3) STATES(3)
-------- -------------- ---------- ---------- ------- ---------- ------------ ---------
Assisted Living
Facilities.............. $ 875,071 61% 157 10,513 $83,460 26 31
Skilled Nursing
Facilities.............. 452,805 32% 65 8,989 50,235 16 16
Specialty Care
Facilities.............. 96,477 7% 7 1,283 75,196 4 3
---------- --- --- ------
Totals.................. $1,424,353 100% 229 20,785
========== === === ======
------------
(1) Investments include real estate investments (before the impact of the
allowance for losses on loans receivable) and credit enhancements, which
amounted to $1,413,493,000 and $10,860,000, respectively.
(2) Investment Per Bed/Unit was computed by using the total investment amount of
$1,425,452,000 which includes gross real estate investments, unfunded
commitments for which initial funding has commenced, and credit enhancements
which total $1,413,493,000, $10,860,000 and $1,099,000, respectively.
(3) Overall, we have investments in properties located in 34 states, managed by
41 different operators.
In determining whether to invest in a facility, we place primary emphasis
on the experience of the operator, the feasibility of the project, the financial
strength of the borrower or lessee, the amount of security available to support
the financing and the amount of capital that is being committed to the project
by the borrower or lessee. In addition, we consider a variety of other factors,
including the site's suitability, facility appraisal and environmental reports
and the existence of certificate of need procedures or other barriers that limit
the entry of competing facilities into the community.
We regularly monitor our investments through a variety of methods depending
on the operator and type of facility. These procedures include the receipt and
review of facility and guarantor financial statements, periodic site visits,
property reviews and conferences with operators. Such reviews of operators and
facilities generally encompass licensure and regulatory compliance materials and
reports, contemplated building improvements and other material developments.
Investments are typically structured using operating leases or mortgage
loans which are normally secured by guarantees and/or letters of credit. In
addition, multi-property investments are typically cross-collateralized and/or
cross-defaulted. We typically invest up to 90% of the appraised value of the
property.
S-8
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated. The ratio of earnings to fixed charges was computed by
dividing earnings by our fixed charges. For purposes of calculating these
ratios, "earnings" include income from continuing operations before
extraordinary item, excluding the equity earnings in a less than 50% owned
subsidiary, plus fixed charges and reduced by capitalized interest. "Fixed
Charges" consists of interest on all indebtedness and the amortization of loan
expenses.
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated ratio of earnings to fixed charges...... 3.40 3.05 2.83 2.66 2.72 2.70 2.55
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
$ million. The proceeds will be used to invest in health care property
investments. Pending such use, the proceeds will be used primarily to repay
borrowings under our unsecured revolving lines of credit arrangements, which had
an outstanding balance of $96 million at August 27, 2002, and the balance will
be invested in short-term income producing investments.
RECENT DEVELOPMENTS
Effective August 23, 2002, the Company and its subsidiaries entered into an
Amended and Restated Loan Agreement for a $175 million unsecured revolving
credit facility. See "Description of Other Indebtedness -- Credit Facilities."
S-9
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2002, and
as adjusted to give effect to the sale of the Notes and the application of the
estimated proceeds.
JUNE 30, 2002
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Debt:
Borrowings under unsecured line of credit
arrangements(1)........................................ $ 99,000 $ --
Borrowings under secured line of credit arrangements...... 64,000
Senior Notes Due 2004..................................... 40,000 40,000
Senior Notes Due 2006..................................... 50,000 50,000
Senior Notes Due 2007..................................... 175,000 175,000
Senior Notes Due 2008..................................... 100,000 100,000
Senior Notes Due 20 ................................... --
Other long-term obligations............................... 48,033 48,033
---------- ---------
Total Debt.................................................. 576,033
Shareholders' equity:
Preferred Stock, $1.00 par value; Authorized -- 10,000,000
shares
Series B Cumulative Redeemable Preferred
Stock -- 3,000,000 shares issued and outstanding...... 75,000 75,000
Series C Cumulative Convertible Preferred
Stock -- 2,400,000 shares issued and outstanding...... 60,000 60,000
Common Stock, $1.00 par value; Authorized -- 75,000,000
shares; Issued and outstanding -- 38,116,000(2)........ 38,116 38,116
Capital in excess of par value............................ 743,875 743,875
Cumulative net income..................................... 545,557 545,557
Cumulative dividends...................................... (586,669) (586,669)
Accumulated other comprehensive loss...................... (558) (558)
Unamortized restricted stock.............................. (4,164) (4,164)
---------- ---------
Total shareholders' equity.................................. 871,157 871,157
---------- ---------
Total capitalization........................................ $1,447,190 $
========== =========
------------
(1) Approximately $96 million was outstanding under our revolving lines of
credit arrangements at August 27, 2002.
(2) Excludes: (i) 1,878,567 shares of common stock reserved for issuance that
relate to outstanding options under our 1985 Incentive Stock Option Plan and
the 1995 Stock Incentive Plan; (ii) 263,333 shares of common stock reserved
for issuance that relate to outstanding options under our Stock Incentive
Plan for Non-Employee Directors; and (iii) 592,974 shares of common stock
reserved for issuance under our dividend reinvestment plan.
S-10
SELECTED FINANCIAL INFORMATION
The following selected financial data for the five years ended December 31,
2001 are derived from our audited consolidated financial statements. The
financial data for the six month periods ended June 30, 2002 and June 30, 2001
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which we consider necessary for a fair presentation of the financial position
and the results of operation for these periods. Operating results for the six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 2002. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information appearing in our 2001 Annual Report on Form 10-K
and incorporated by reference herein.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------ -----------------------
1997 1998 1999 2000 2001 2001 2002
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Revenues................................ $ 73,133 $ 97,817 $ 129,132 $ 136,779 $ 133,695 $ 65,232 $ 77,984
Expenses:
Interest expense....................... 15,317 17,984 26,870 34,579 31,987 16,072 20,009
Provision for depreciation............. 5,246 10,213 17,844 22,665 30,186 13,757 18,300
General and administrative and other
expenses(1).......................... 6,178 7,399 8,868 9,570 10,853 5,149 6,203
Impairment of assets.................... -- -- -- -- -- -- 550
Loss on investments.................... -- -- -- 2,000 -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses.......................... 26,741 35,596 53,582 68,814 73,026 34,978 45,062
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations before
extraordinary item..................... 46,392 62,221 75,550 67,965 60,669 30,254 32,922
Discontinued operations................. 86 88 88 91 93 72 201
Extraordinary item -- loss on
extinguishment of debt................. -- -- -- -- (213) -- (403)
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income.............................. 46,478 62,309 75,638 68,056 60,549 30,326 32,720
Preferred Stock dividends............... -- 4,160 12,814 13,490 13,505 6,752 6,718
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders........................... $ 46,478 $ 58,149 $ 62,824 $ 54,566 $ 47,044 $ 23,574 $ 26,002
======== ========== ========== ========== ========== ========== ==========
PER SHARE:
Income from continuing operations
available to common shareholders before
extraordinary item:
Basic.................................. $ 2.15 $ 2.27 $ 2.23 $ 1.92 $ 1.54 $ 0.82 $ 0.77
Diluted................................ 2.12 2.24 2.21 1.90 1.52 0.81 0.75
Dividends paid per share of Common
Stock.................................. 2.11 2.19 2.27 2.335 2.34 1.17 1.17
BALANCE SHEET DATA:
Real estate investments, net............ $716,193 $1,047,511 $1,241,722 $1,121,419 $1,213,564 $1,107,535 $1,406,132
Total assets............................ 734,327 1,073,424 1,271,171 1,156,904 1,269,843 1,152,752 1,466,304
Total debt.............................. 249,070 418,979 538,842 439,752 491,216 371,318 576,033
Total liabilities....................... 264,403 439,665 564,175 458,297 511,973 387,306 595,147
Total shareholders' equity.............. 469,924 633,759 706,996 698,607 757,870 765,447 871,189
OTHER DATA:
Average number of shares outstanding:
Basic.................................. 21,594 25,579 28,128 28,418 30,534 28,802 34,196
Diluted................................ 21,929 25,954 28,384 28,643 31,027 29,137 34,954
Cash available for distribution(2)...... $ 56,856 $ 72,650 $ 89,694 $ 87,262 $ 87,005 $ 40,807 $ 48,847
Consolidated ratio of earnings to fixed
charges (unaudited)(3)................. 3.40 3.05 2.83 2.66 2.72 2.70 2.55
------------
(1) General and administrative and other expenses include loan expense,
provision for loan losses and other operating expenses.
(2) Cash available for distribution is defined as net cash provided from
operating activities, but does not consider the effects of changes in
operating assets and liabilities such as other receivables and accrued
expenses. We use cash available for distribution in evaluating investments
and our operating performance. Cash available for distribution does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles, is not necessarily indicative of
cash available to fund cash needs, and should not be considered as an
alternative to net income as an indicator of our operating performance or as
an alternative to cash flow as a measure of liquidity.
(3) For purposes of calculating our unaudited ratio of fixed charges for the
periods indicated, "Earnings" include income from continuing operations
before extraordinary item, excluding the equity earnings in a less than 50%
owned subsidiary, plus fixed charges and reduced by capitalized interest.
"Fixed charges" consist of interest on all indebtedness and the amortization
of loan expenses.
S-11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, our net real estate investments totaled $1,406,132,000
which included 157 assisted living facilities, 65 skilled nursing facilities and
seven specialty care facilities. Depending upon the availability and cost of
external capital, we anticipate making additional investments in health care
related facilities. New investments are funded from temporary borrowings under
our line of credit arrangements, internally generated cash and the proceeds
derived from asset sales. Permanent financing for future investments, which
replaces funds drawn under the line of credit arrangements, is expected to be
provided through a combination of private and public offerings of debt and
equity securities and the assumption of secured debt. We believe our liquidity
and various sources of available capital are sufficient to fund operations, meet
debt service and dividend requirements and finance future investments.
In February, 2002, we issued 906,125 shares of common stock, $1 par value,
at a price of $27.59 per share, which generated net proceeds of $23,657,000.
In May, 2002, we issued 3,450,000 shares of common stock, $1 par value, at
a price of $28.00 per share, which generated net proceeds of $91,669,000.
During the quarter ended June 30, 2002, the holder of our Series C
Convertible Preferred Stock converted 600,000 shares into 585,000 shares of
common stock.
As of June 30, 2002, we had a total outstanding debt balance of
$576,033,000 and shareholders' equity of $871,157,000 which represents a debt to
equity ratio of .66 to 1.0, and a debt to total capitalization ratio of .40 to
1.0.
As of June 30, 2002, we had an unsecured revolving line of credit expiring
March 31, 2003 in the amount of $150,000,000 bearing interest at the lender's
prime rate or LIBOR plus 1.5%. In addition, we had an unsecured revolving line
of credit in the amount of $25,000,000 bearing interest at the lender's prime
rate which expires May 31, 2003. Also, at June 30, 2002, we had secured line of
credit arrangements totaling $64,000,000. At June 30, 2002, we had $99,000,000
in borrowings under the unsecured line of credit arrangements and $64,000,000
outstanding on the secured line of credit arrangements.
As of June 30, 2002, we had an effective shelf registration on file with
the Securities and Exchange Commission under which we may issue up to
$560,574,000 of securities including debt securities, common and preferred stock
and warrants. Depending upon market conditions, we anticipate issuing securities
under such shelf registration to invest in additional health care facilities and
to repay borrowings under our line of credit arrangements.
S-12
RESULTS OF OPERATIONS JUNE 30, 2002 VS. JUNE 30, 2001
Revenues were comprised of the following:
THREE MONTHS YEAR TO DATE
ENDED THROUGH
JUNE 30, CHANGE JUNE 30, CHANGE
----------------- ------------ ----------------- --------------
2002 2001 $ % 2002 2001 $ %
------- ------- ------ --- ------- ------- ------- ----
(000'S)
Rental income..................... $32,782 $23,819 $8,963 38% $62,784 $46,384 $16,400 35%
Interest income................... 7,107 7,842 (735) (9)% 13,894 16,787 (2,893) (17)%
Commitment fees and other income.. 749 1,037 (288) (28)% 1,306 1,927 (621) (32)%
Prepayment fees................... -- -- -- --% -- 134 (134) (100)%
------- ------- ------ --- ------- ------- ------- ----
Total..................... $40,638 $32,698 $7,940 24% $77,984 $65,232 $12,752 20%
======= ======= ====== === ======= ======= ======= ====
For the three and six months ended June 30, 2002, we generated increased
rental income as a result of the acquisition of properties for which we receive
rent. This offset a reduction in interest income due to the repayment of
mortgage loans. Commitment fees and other income decreased primarily as a result
of the completion of construction projects.
Expenses were comprised of the following:
THREE MONTHS YEAR TO DATE
ENDED THROUGH
JUNE 30, CHANGE JUNE 30, CHANGE
----------------- ------------ ----------------- -------------
2002 2001 $ % 2002 2001 $ %
------- ------- ------ --- ------- ------- ------- ---
(000'S)
Interest expense................... $10,278 $ 7,968 $2,310 29% $20,009 $16,072 $ 3,937 24%
Loan expense....................... 580 389 191 49% 1,157 764 393 51%
Provision for depreciation......... 9,634 6,982 2,652 38% 18,300 13,757 4,543 33%
Provision for losses............... 250 250 -- --% 500 500 -- --%
Impairment of assets............... 550 -- 550 100% 550 -- 550 100%
General and admin. expenses........ 2,285 2,034 251 12% 4,546 3,885 661 17%
------- ------- ------ --- ------- ------- ------- ---
Total............................ $23,577 $17,623 $5,954 34% $45,062 $34,978 $10,084 29%
======= ======= ====== === ======= ======= ======= ===
The increase in interest expense for both the three month and year-to-date
periods was primarily due to the issuance of $175 million in unsecured senior
notes in August, 2001. This was offset by lower average borrowings on our lines
of credit and lower interest rates. In addition, there was a reduction in the
amount of capitalized interest offsetting interest expense. We capitalize
certain interest costs associated with funds used to finance the construction of
properties owned directly by us. The amount capitalized is based upon the
borrowings outstanding during the construction period using the rate of interest
which approximates our cost of financing. Capitalized interest for the three-
month and year-to-date periods totaled $0 and $0, respectively as compared with
$205,000 and $539,000 for the same periods in 2001.
The provision for depreciation increased over the comparable periods in
2001 primarily as a result of additional investments in properties owned
directly by us.
General and administrative expenses as a percentage of revenues for the
three-month and year-to-date periods were 5.63% and 5.83% as compared with 6.21%
and 5.95% for the same periods in 2001.
S-13
Other Items:
THREE MONTHS YEAR TO DATE
ENDED THROUGH
JUNE 30, CHANGE JUNE 30, CHANGE
--------------- ------------ --------------- ------------
2002 2001 $ % 2002 2001 $ %
------ ------ ----- ---- ------ ------ ----- ----
(000'S)
Discontinued operations................. $ 173 $ 48 $ 125 260% $ 201 $ 72 $ 129 179%
Loss on extinguishment of debt.......... (403) -- (403) (100%) (403) -- (403) (100%)
Preferred dividends..................... 3,341 3,376 (35) (1%) 6,718 6,752 (34) (1%)
------ ------ ----- ---- ------ ------ ----- ----
Total................................. $3,111 $3,424 $(313) (9%) $6,516 $6,824 $(308) (5%)
====== ====== ===== ==== ====== ====== ===== ====
During the second quarter of 2002, we sold properties with carrying values
of $1,866,000 for a gain of $145,000. In addition, this property generated
$56,000 of income after deducting depreciation and interest expense from rental
income for the six months ended June 30, 2002.
In April, 2002, we purchased $35,000,000 of unsecured senior notes that
were due in 2003. We recorded a charge of $403,000 in connection with this early
extinguishment.
As a result of the various factors mentioned above, net income available to
common shareholders for the three-month and year-to-date periods was
$13,490,000, or $0.37 per diluted share, and $26,002,000, or $0.74 per diluted
share, respectively, as compared with $11,747,000, or $0.40 per diluted share,
and $23,574,000 or $0.81 per diluted share for the comparable periods in 2001.
RESULTS OF OPERATIONS DECEMBER 31, 2001 VS. DECEMBER 31, 2000
Revenues were comprised of the following:
YEAR ENDED CHANGE
----------------------------- --------------
DEC. 31, 2001 DEC. 31, 2000 $ %
------------- ------------- ------- ----
(IN THOUSANDS)
Rental income........................ $ 98,988 $ 88,312 $10,676 12%
Interest income...................... 31,294 41,064 (9,770) (24%)
Commitment fees and other income..... 3,848 5,837 (1,989) (34%)
Prepayment fees...................... 990 57 933 1637%
-------- -------- ------- ----
Totals............................. $135,120 $135,270 $ (150) 0%
======== ======== ======= ====
We generated increased rental income as a result of the completion of real
property construction projects for which we began receiving rent and the
purchase of properties previously financed by us. This offsets a reduction in
interest income due to the repayment of mortgage loans and the purchase of
properties previously financed by us.
Expenses were comprised of the following:
YEAR ENDED CHANGE
----------------------------- -------------
DEC. 31, 2001 DEC. 31, 2000 $ %
------------- ------------- ------- ---
(IN THOUSANDS)
Interest expense....................... $32,028 $34,622 $(2,594) (7%)
Provision for depreciation............. 30,227 22,706 7,521 33%
Loss on investment..................... -- 2,000 (2,000) 100%
General and admin. expenses............ 8,078 7,405 673 9%
Loan expense........................... 1,775 1,165 610 52%
Provision for losses................... 1,000 1,000 0 0%
------- ------- ------- ---
Totals............................... $73,108 $68,898 $ 4,210 6%
======= ======= ======= ===
S-14
The decrease in interest expense from 2000 to 2001 was primarily due to
lower average borrowings during the year, offset by a reduction in the amount of
capitalized interest offsetting interest expense.
We capitalize certain interest costs associated with funds used to finance
the construction of properties owned directly by us. The amount capitalized is
based upon the borrowings outstanding during the construction period using the
rate of interest which approximates our cost of financing. Our interest expense
is reduced by the amount capitalized. Capitalized interest for the year ended
December 31, 2001, totaled $841,000, as compared with $3,079,000 for the same
period in 2000.
The provision for depreciation increased as a result of additional
investment in properties owned directly by us.
In 2000, we restructured our investments with Summerville Health Care. As
part of the restructuring agreement, Summerville agreed to permit us to re-lease
10 of its 11 facilities to new operators and repaid substantially all of our
subdebt investment. As part of Summerville's recapitalization, our $2 million
non-yielding preferred stock investment was substantially diluted. Accordingly,
we wrote off our investment in 2000, resulting in a $2 million charge.
Other items:
YEAR ENDED CHANGE
----------------------------- ------------
DEC. 31, 2001 DEC. 31, 2000 $ %
------------- ------------- ------ ---
(IN THOUSANDS)
Gain on sales of properties............. $(1,250) $1,684 $ (434) (26%)
Loss on extinguishment of debt.......... (213) -- (213) n/a
Preferred dividends..................... 13,505 13,490 15 0%
As a result of the various factors mentioned above, net income available to
common shareholders was $47,044,000, or $1.52 per diluted share, for 2001 as
compared with $54,566,000, or $1.91 per diluted share, for 2000.
RESULTS OF OPERATIONS DECEMBER 31, 2000 VS. DECEMBER 31, 1999
Revenues were comprised of the following:
YEAR ENDED CHANGE
----------------------------- -------------
DEC. 31, 2000 DEC. 31, 1999 $ %
------------- ------------- ------- ---
(IN THOUSANDS)
Rental income......................... $ 88,312 $ 72,000 $15,612 21%
Interest income....................... 41,064 48,076 (7,012) (15%)
Commitment fees and other income...... 5,837 6,263 (426) (7%)
Prepayment fees....................... 57 1,565 (1,508) (96%)
-------- -------- ------- ---
Totals.............................. $135,270 $127,604 $ 6,666 0%
======== ======== ======= ===
We generated increased rental income as a result of the completion of real
property construction projects for which we began receiving rent and the
purchase of properties previously financed by us. This offsets a reduction in
interest income due to the repayment of mortgage loans and the purchase of
properties previously financed by us.
S-15
Expenses were comprised of the following:
YEAR ENDED CHANGE
----------------------------- -------------
DEC. 31, 2000 DEC. 31, 1999 $ %
------------- ------------- ------- ---
(IN THOUSANDS)
Interest expense....................... $34,622 $26,916 $ 7,706 29%
Provision for depreciation............. 22,706 17,885 4,821 27%
Loss on investment..................... 2,000 -- 2,000 n/a
General and admin. expenses............ 7,405 7,359 46 1%
Loan expense........................... 1,165 909 256 28%
Provision for losses................... 1,000 600 400 67%
------- ------- ------- ---
Totals............................... $68,898 $53,669 $15,229 28%
======= ======= ======= ===
The increase in interest expense from 1999 to 2000 was due to higher
average interest rates on our line of credit and secured debt and a reduction in
the amount of capitalized interest offsetting interest expense.
We capitalize certain interest costs associated with funds used to finance
the construction of properties owned directly by us. The amount capitalized is
based upon the borrowings outstanding during the construction period using the
rate of interest which approximates our cost of financing. Our interest expense
is reduced by the amount capitalized. Capitalized interest for the year ended
December 31, 2000, totaled $3,079,000, as compared with $8,578,000 for the same
period in 1999.
The provision for depreciation increased as a result of additional
investment in properties owned directly by us.
In 2000, we restructured our investments with Summerville Health Care. As
part of the restructuring agreement, Summerville agreed to permit us to re-lease
10 of its 11 facilities to new operators and repaid substantially all of our
subdebt investment. As part of Summerville's recapitalization, our $2 million
non-yielding preferred stock investment was substantially diluted. Accordingly,
we wrote off our investment in 2000, resulting in a $2 million charge.
Other items:
YEAR ENDED CHANGE
----------------------------- ----------
DEC. 31, 2000 DEC. 31, 1999 $ %
------------- ------------- ---- ---
(IN THOUSANDS)
Gain on sales of properties.............. $ 1,684 $ 703 $981 140%
Preferred dividends...................... 13,490 12,814 676 5%
As a result of the various factors mentioned above, net income available to
common shareholders was $54,566,000, or $1.91 per diluted share, for 2000 as
compared with $62,824,000, or $2.21 per diluted share, for 1999.
ACCOUNTING POLICIES
Management reviews the adequacy of the allowance for loan losses on a
quarterly basis. We make mortgage loans and sometimes provide working capital
and subdebt loans to operators of health care facilities in our portfolio. When
reviewing the ultimate collectibility of these loans, management uses moderate
assumptions of operating performance to determine the operator's ability to
repay the obligation. As facts and circumstances change, management takes these
into account to determine if the allowance for loan losses is adequate.
Management reviews our real estate portfolio on a quarterly basis to
determine if there are any indicators of impairment. If indicators of impairment
exist, management determines, using moderate assumptions and the information
available at that time, if the projected undiscounted
S-16
cash flows exceed the net book value of the property. If the projected
undiscounted cash flows do not exceed the net book value, the property is
written down to fair market value.
During the quarter ended June 30, 2002, it was determined that the
projected cash flows from a parcel of land did not exceed its net book value and
a charge of $550,000 was recorded to reduce the property to its fair market
value.
IMPACT OF INFLATION
During the past three years, inflation has not significantly affected our
earnings because of the moderate inflation rate. Additionally, our earnings are
primarily long-term investments with fixed interest rates. These investments are
mainly financed with a combination of equity, senior notes and borrowings under
the revolving lines of credit. During inflationary periods, which generally are
accompanied by rising interest rates, our ability to grow may be adversely
affected because the yield on new investments may increase at a slower rate than
new borrowing costs. Presuming the current inflation rate remains moderate and
long-term interest rates do not increase significantly, we believe that
inflation will not impact the availability of equity and debt financing.
S-17
MANAGEMENT AND DIRECTORS
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our Executive
Officers and Directors:
EXECUTIVE OFFICERS
NAME AGE OFFICE
---- --- ------
George L. Chapman................. 55 Chairman of the Board and Chief Executive Officer
Raymond W. Braun.................. 44 President and Chief Financial Officer
Erin C. Ibele..................... 40 Vice President and Corporate Secretary
Charles J. Herman................. 37 Vice President, Operations
Michael A. Crabtree............... 45 Treasurer
BOARD OF DIRECTORS
NAME AGE POSITION
---- --- --------
William C. Ballard, Jr. .......... 61 Of Counsel, Greenebaum, Doll & McDonald PLLC and Director,
Mid-America Bancorp., Healthcare Recoveries, Inc. and
UnitedHealth Group
Pier C. Borra..................... 62 Chairman, President and Chief Executive Officer of CORA
Health Services, Inc., Lima, Ohio, and former Chairman,
President and Chief Executive Officer of Arbor Health Care
Company, Lima, Ohio
George L. Chapman................. 55 Chairman of the Board and Chief Executive Officer
Jeffrey H. Donahue................ 56 Former Executive Vice President and Chief Financial
Officer of The Rouse Company, Columbia, Maryland
Peter J. Grua..................... 48 Principal and President of HLM Management Company, Inc.,
Boston, Massachusetts
Sharon M. Oster................... 54 Professor of Economics, Entrepreneurship and Management,
Yale University School of Management and Director of the
Aristotle Corporation and Transpro, Inc.
Bruce G. Thompson................. 72 President and Director of First Toledo Corporation,
Toledo, Ohio
R. Scott Trumbull................. 53 Executive Vice President International Operations &
Corporate Development of Owens-Illinois, Inc. and Director
of Franklin Electric Company, Inc.
Richard A. Unverferth............. 78 Chairman of Unverferth Manufacturing, Inc. and Chairman of
the Board of H.C.F. Inc., Kalida, Ohio
S-18
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes supplements,
and to the extent inconsistent therewith, replaces the description of the
general terms and provisions of the Debt Securities set forth in the prospectus,
to which reference is hereby made. The following summary is qualified in its
entirety by reference to the Indenture referred to in the prospectus, and the
Supplemental Indenture. Capitalized terms not otherwise defined herein shall
have the meanings given them in the prospectus. In this section, unless
specifically noted otherwise, the terms "we," "us," and "our" refer only to
Health Care REIT, Inc., and not its subsidiaries.
GENERAL
The Notes will be issued as a separate series of debt securities under a
first supplemental indenture, dated as of September , 2002 (the "Supplemental
Indenture"), between us and Fifth Third Bank (the "Trustee"). The Notes
initially will be limited in aggregate principal amount to $150 million. This
series may be reopened and we may from time to time issue additional notes of
the same series. The Notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and integral multiples thereof. The Notes
will be evidenced by a global note in book-entry form, except under the limited
circumstances described under "-- Book-Entry System" below. The Notes will not
be listed on any national securities exchange or traded on the Nasdaq system.
The Notes will mature on , 20 (unless earlier redeemed). The Notes
will bear interest from , 2002 at the rate per annum shown on the
front cover of this prospectus supplement payable semi-annually on 15 and
15 of each year, commencing 15, 200 , to the persons in whose
names the Notes are registered at the close of business on the 1 or 1,
as the case may be, next preceding such interest payment date.
The Notes will be senior unsecured obligations of ours and will rank
equally with each other and with all of our other unsecured and senior
indebtedness outstanding from time to time. The Notes will not be guaranteed by
our subsidiaries. The Notes will be effectively subordinated to our secured
indebtedness and to all liabilities of our subsidiaries, including certain
amounts due under certain Credit Facilities. See "-- Description of Other
Indebtedness" below. Accordingly, such prior indebtedness and liabilities will
have to be satisfied in full before you will be able to realize any value from
our encumbered or indirectly held properties. As of June 30, 2002, our
subsidiaries owned approximately 38% of the assets reflected in our consolidated
balance sheets and the liabilities of our subsidiaries were approximately $142
million (for which we were also liable). We and our subsidiaries may also incur
additional indebtedness, including secured indebtedness, subject to the
provisions described below under "-- Certain Covenants."
CERTAIN COVENANTS
The Notes will not be secured by a mortgage, pledge or other lien. We will
covenant in the Supplemental Indenture not to pledge or otherwise subject to any
lien, any of our property or assets or those of our subsidiaries unless the
Notes are secured by such pledge or lien equally and ratably with all other
obligations secured thereby so long as such other obligations shall be so
secured; provided, however, that such covenant will not apply to liens securing
obligations which do not in the aggregate at any one time outstanding exceed 15%
of the Consolidated Net Tangible Assets (as defined below) of us and our
consolidated subsidiaries. In addition, this covenant will not apply to:
(a) Pledges or deposits by us or our subsidiaries under workers'
compensation laws, unemployment insurance laws, social security laws, or
similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness (as defined
below) of us or our subsidiaries), or leases to which we or any of our
subsidiaries is a party, or deposits to secure public or statutory
obligations of ours or
S-19
our subsidiaries or deposits of cash or United States Government Bonds to
secure surety, appeal, performance or other similar bonds to which we or
any of our subsidiaries is a party, or deposits as security for contested
taxes or import duties or for the payment of rent;
(b) Liens imposed by law, such as carriers', warehousemen's,
materialmen's and mechanics' liens, or Liens arising out of judgments or
awards against us or any of our subsidiaries which we or such subsidiary at
the time shall be currently prosecuting an appeal or proceeding for review;
(c) Liens for taxes not yet subject to penalties for non-payment and
Liens for taxes the payment of which is being contested in good faith and
by appropriate proceedings;
(d) Minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of, others for rights of way, highways and
railroad crossings, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use
of real properties;
(e) Liens incidental to the conduct of our business or that of any of
our subsidiaries or to the ownership of our or their respective properties
that were not incurred in connection with Indebtedness of ours or such
subsidiary's, all of which Liens referred to in this clause (e) do not in
the aggregate materially impair the value of the properties to which they
relate or materially impair their use in the operation of the business
taken as a whole of us and our subsidiaries, and as to all of the foregoing
referenced in clauses (a) through (e), only to the extent arising and
continuing in the ordinary course of business;
(f) Purchase money Liens on property acquired or held by us or our
subsidiaries in the ordinary course of business, securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the
cost of such property; provided, that (i) any such Lien attaches
concurrently with or within 20 days after the acquisition thereof, (ii)
such Lien attaches solely to the property so acquired in such transaction,
(iii) the principal amount of the Indebtedness secured thereby does not
exceed 100% of the cost of such property, and (vi) the aggregate amount of
all such Indebtedness on a consolidated basis for us and our subsidiaries
shall not at any time exceed $1,000,000;
(g) Liens existing on our balance sheet as of December 31, 2001; and
(h) Any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to
in the foregoing clauses (a) through (g) inclusive; provided, however, that
the amount of any and all obligations and Indebtedness secured thereby
shall not exceed the amount thereof so secured immediately prior to the
time of such extension, renewal or replacement and that such extension,
renewal or replacement shall be limited to all or a part of the property
which secured the Lien so extended, renewed or replaced (plus improvements
on such property).
We will also covenant in the Supplemental Indenture that we will not
create, assume, incur, or otherwise become liable in respect of, any Senior Debt
(as defined below) unless the aggregate outstanding principal amount of our
Senior Debt will not, at the time of such creation, assumption or incurrence and
after giving effect thereto and to any concurrent transactions, exceed the
greater of (i) 150% of our Capital Base (as defined below) or (ii) 225% of our
Tangible Net Worth (as defined below).
Finally, we will covenant in the Supplemental Indenture that we will have
or maintain, on a consolidated basis, as of the last day of each fiscal quarter,
Interest Coverage (as defined below) of not less than 150%.
S-20
For purposes of the foregoing covenants, the defined terms have the
following meanings:
"Capital Base" -- means, at any date, the sum of Tangible Net Worth and
Subordinated Debt.
"Capital Lease" -- means at any time any lease of property, real or
personal, which, in accordance with generally accepted accounting principles,
would at such time be required to be capitalized on a balance sheet of the
lessee.
"Capitalized Lease Obligations" -- means as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a Capital Lease on a balance
sheet of such Person under GAAP.
"Consolidated Net Tangible Assets" -- means the aggregate amount of assets
(less applicable reserves and other properly deductible items) less (i) all
current liabilities and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expenses and other like tangibles of ours and our
consolidated subsidiaries, all as set forth on our most recent consolidated
balance sheet prepared in accordance with GAAP.
"EBITDA" -- means for any period, with respect to us and our subsidiaries
on a consolidated basis, determined in accordance with GAAP, the sum of net
income (or net loss) for such period plus, the sum of all amounts treated as
expenses for: (a) interest, (b) depreciation, (c) amortization, and (d) all
accrued taxes on or measured by income to the extent included in the
determination of such net income (or net loss); provided, however, that net
income (or net loss) shall be computed without giving effect to extraordinary
losses or gains.
"Indebtedness" -- means with respect to any Person, all: (a) liabilities or
obligations, direct and contingent, which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person at the date as of which Indebtedness is to be
determined, including, without limitation, contingent liabilities that in
accordance with such principles, would be set forth in a specific Dollar amount
on the liability side of such balance sheet, and Capitalized Lease Obligations
of such Person; (b) liabilities or obligations of others for which such Person
is directly or indirectly liable, by way of guaranty (whether by direct
guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to
purchase or advance or keep in funds or other agreement having the effect of a
guaranty) or otherwise; (c) liabilities or obligations secured by Liens on any
assets of such Person, whether or not such liabilities or obligations shall have
been assumed by it; and (d) liabilities or obligations of such Person, direct or
contingent, with respect to letters of credit issued for the account of such
Person and bankers acceptances created for such Person.
"Interest Coverage" -- means as at the last day of any fiscal quarter, the
quotient, expressed as a percentage (which may be in excess of 100%), determined
by dividing EBITDA by Interest Expense; all of the foregoing calculated by
reference to the immediately preceding four (4) fiscal quarters of ending on
such date of determination.
"Interest Expense" -- means for any period, on a combined basis, the sum of
all interest paid or payable (excluding unamortized debt issuance costs) on all
items of Indebtedness outstanding at any time during such period.
"Liabilities" -- means, at any date, the items shown as liabilities on our
consolidated balance sheet except any item of deferred income, including capital
gains,
"Lien" -- means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, claim or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention agreement,
any lease in the nature of any of the foregoing, and the filing of or agreement
to give any financing statement under the Uniform Commercial Code of any
jurisdiction.
S-21
"Person" -- means any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization, government
or any political subdivision thereof.
"Senior Debt" -- means all Indebtedness other than Subordinated Debt.
"Subordinated Debt" -- means any unsecured Indebtedness which is issued or
assumed pursuant to, or evidenced by, an indenture or other instrument which
contains provisions for the subordination of such other Indebtedness (to which
appropriate reference shall be made in the instruments evidencing such other
Indebtedness if not contained therein) to the Notes (and, at our option, if so
provided, to other Indebtedness of ours, either generally or as specifically
designated).
"Tangible Net Worth" -- means the sum of capital surplus, earned surplus
and capital stock, minus deferred charges with GAAP consistently applied.
DEFEASANCE AND COVENANT DEFEASANCE
The Notes are subject to defeasance and covenant defeasance, as described
in the Indenture and the Supplemental Indenture. Specifically, we, at our option
(a) will be discharged from any and all obligations in respect of the Notes
(except for certain obligations to register the transfer or exchange of the
Notes, to replace destroyed, stolen, lost or mutilated Notes, and to maintain an
office or agency in respect of the Notes and hold moneys for payment in trust)
or (b) will be released from our obligations to comply with the Covenants that
are specified under "Certain Covenants" above with respect to the Notes, and the
occurrence of an Event of Default described below under "-- Events of Default"
shall no longer be an Event of Default if, in either case, we irrevocably
deposit with the Trustee, in trust, money or U.S. Government obligations that
through payment of interest thereon and principal thereof in accordance with
their terms will provide money in an amount sufficient to pay all of the
principal of (and premium, if any) and any interest on the Notes on the dates
such payments are due (which may include one or more redemption dates designated
by us) in accordance with the terms of such Notes.
Such a trust may only be established if, among other things, (a) no Event
of Default or event which with the giving of notice or lapse of time, or both,
would become an Event of Default under the Indenture shall have occurred and be
continuing on the date of such deposit, and (b) we shall have delivered an
Opinion of Counsel to the effect that the holders of the Notes of such series
will not recognize gain or loss for United States Federal income tax purposes as
a result of such deposit or defeasance and will be subject to United States
Federal income tax in the same manner as if such defeasance had not occurred. In
the event we omit to comply with our remaining obligations under the Indenture
after a defeasance of the Indenture with respect to the Notes and the Notes are
declared due and payable because of the occurrence of any undefeased Event of
Default, the amount of money and U.S. Government obligations on deposit with the
Trustee may be insufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, we will remain
liable in respect of such payments.
SINKING FUND
The Notes are not entitled to any sinking fund payments.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at our option, in whole or from time
to time in part, at a redemption price equal to the sum of (i) the principal
amount of the Notes (or portion thereof) being redeemed plus accrued interest
thereon to the redemption date and (ii) the Make-Whole Amount (as defined
below), if any, with respect to the Notes (or portion thereof) (the "Redemption
Price").
S-22
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
the Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to be
redeemed.
We will notify the Trustee at least 30 days prior to giving notice of
redemption (or such shorter period as is satisfactory to the Trustee) of the
aggregate principal amount of such Notes to be redeemed and their redemption
date. If less than all of the Notes are to be redeemed at our option, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
Notes to be redeemed in whole or in part.
As used herein:
"Make-Whole Amount" -- means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"Reinvestment Rate" -- means 0.25% plus the arithmetic mean of the yields
under the respective heading "Week Ending" published in the most recent
Statistical Release under the caption "Treasury Constant Maturities" for the
maturity (rounded to the nearest month) corresponding to the remaining life to
maturity, as of the payment date of the principal being redeemed or paid. If no
maturity exactly corresponds to such maturity, yields for the two published
maturities most closely corresponding to such maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate shall
be interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the purpose
of calculating the Reinvestment Rate, the most recent Statistical Release
published prior to the date of determination of the Make-Whole Amount shall be
used.
"Statistical Release" -- means that statistical release designated
"H.15(519)" or any successor publication that is published weekly by the Federal
Reserve System and that establishes yields on actively traded United States
government securities adjusted to constant maturities, or, if such statistical
release is not published at the time of any determination under the Indenture,
then such other reasonably comparable index that shall be designated by us.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of one or more fully registered global
securities ("Global Securities") that will be deposited with, or on behalf of
The Depository Trust Company ("DTC"), and registered in the name of DTC's
nominee, Cede & Co. Except under the circumstance described below, the Notes
will not be issuable in definitive form. Unless and until
S-23
it is exchanged in whole or in part for the individual Notes represented
thereby, a Global Security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any nominee of DTC to a successor depository or any nominee of such
successor. See "Description of Debt Securities -- Book-Entry System" in the
prospectus for a complete discussion of the book-entry system.
DTC has advised us of the following information regarding DTC: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act of 1934.
DTC holds and provides asset servicing for over 2 million issues of U.S.
and non-U.S. equity issues, corporate and municipal debt issues, and money
market instruments from over 85 countries that DTC's participants ("Direct
Participants") deposit with DTC. DTC also facilitates the post-trade settlement
among Direct Participants of sales and other securities transactions in
deposited securities, through electronic computerized book-entry transfers and
pledges between Direct Participants' accounts. This eliminates the need for
physical movement of securities certificates. Direct Participants include both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is a wholly-owned
subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in
turn, is owned by a number of Direct Participants of DTC and members of the
National Securities Clearing Corporation, Government Securities Clearing
Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation
(NSCC, GSCC, MBSCC, and EMCC are also subsidiaries of DTCC), as well as by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies, and clearing corporations that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating:
AAA. The DTC rules applicable to its Participants are on file with the
Securities and Exchange Commission.
Purchases of Global Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Global
Securities on DTC's records. The ownership interest of each actual purchaser of
each Global Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interests in the Global Securities are to be accomplished
by entries made on the books of Direct and Indirect Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Global Securities, except in the event
that use of the book-entry system for the Global Securities is discontinued.
To facilitate subsequent transfers, all Global Securities deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co., or such other nominee as may be requested by an authorized
representative of DTC. The deposit of Global Securities with DTC and their
registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual Beneficial Owners of the Global Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Global Securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
S-24
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote
with respect to the Global Securities unless authorized by a Direct Participant
in accordance with DTC's procedures. Under its usual procedures, DTC mails an
Omnibus Proxy to us as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Global Securities are credited on the record date (identified
in a listing attached to the Omnibus Proxy). Principal and interest payments on
the Global Securities will be made to Cede & Co., or such other nominee as may
be requested by an authorized representative of DTC. DTC's practice is to credit
Direct Participants' accounts, upon DTC's receipt of funds and corresponding
detail information from us or the Trustee, on payable date in accordance with
their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, the Trustee or us, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. (or such other nominee as requested by an
authorized representative of DTC) is our responsibility or that of the Trustee,
disbursement of such payments to Direct Participants shall be the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Global Securities at any time by giving reasonable notice to us
or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Global Security certificates are required
to be printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, Global
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by us in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
EVENTS OF DEFAULT
In addition to the events of default in the Indenture described in the
prospectus, the following will constitute events of default under the
Supplemental Indenture:
- We do not pay the principal or any premium on the Notes at their maturity
date.
S-25
- We default under any of our other indebtedness in an aggregate principal
amount exceeding $10,000,000 after the expiration of any applicable grace
period, which default results in the acceleration of the maturity of such
indebtedness. Such default is not an event of default if the other
indebtedness is discharged, or the acceleration is rescinded or annulled,
within a period of 10 days after we receive notice specifying the default
and requiring that we discharge the other indebtedness or cause the
acceleration to be rescinded or annulled. Either the trustee or the
holders of more than 50% in principal amount of the Notes may send the
notice.
- The entry by a court of competent jurisdiction of one or more judgments,
orders or decrees against us or any of our subsidiaries in an aggregate
amount (excluding amounts fully covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged,
unstayed and unsatisfied in an aggregate amount (excluding amounts fully
covered by insurance) in excess of $10,000,000 for a period of 30
consecutive days.
S-26
DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITIES
We have a $175 million unsecured revolving credit facility (the "Credit
Facility") with KeyBank National Association as Administrative Agent, Deutsche
Bank Securities Inc., as Syndication Agent, and the seven lenders signatory
thereto, which matures on August 22, 2005 and bears annual fees of 15 to 50
basis points. The Credit Facility provides for interest on outstanding
borrowings at either LIBOR plus a margin of 85 to 150 basis points or a base
rate. The margins on LIBOR or prime rate borrowings and the annual fees are
dependent upon various conditions, including our debt rating and the level of
borrowings outstanding. At August 27, 2002, we were able to borrow at either
LIBOR plus 130 basis points or the base rate.
The Credit Facility contains customary affirmative and restrictive
covenants that, among other things, limit us and our subsidiaries with respect
to indebtedness, liabilities, liens, dividends, loans, investments, purchases
and fundamental changes to the corporate structure or line of business. We also
are required to maintain a minimum tangible net worth of $700 million plus 100%
of net issuance proceeds received by us in connection with equity issuances, an
interest coverage ratio of not less than 250%, a leverage ratio of not more than
1.20 to 1.00, and a ratio of unencumbered assets to unsecured indebtedness of
not less than 2.10 to 1.00, all as defined in the Credit Facility.
The Credit Facility contains customary events of default, including, among
other things, and subject to applicable grace periods, other indebtedness
payment defaults, material misrepresentations, covenant defaults, certain
bankruptcy events and judgment defaults. Health Care REIT, Inc. and each of our
subsidiaries are co-borrowers under the Credit Facility.
We also have an unsecured revolving line of credit in the amount of
$25,000,000 bearing interest at the lender's prime rate expiring May 31, 2003
and a secured line of credit of $60,000,000, which bears interest at the
lender's prime rate, or LIBOR plus 200 basis points, but in either case not less
than 7.00%. This line of credit expires on February 24, 2004. Health Care REIT,
Inc. and each of our subsidiaries are co-borrowers under the secured line of
credit.
SENIOR NOTES
In August 2001, we completed the sale of $175 million of Senior Unsecured
Notes due 2007. The notes have a weighted average interest rate of 7.50%.
In March 1999, we completed the sale of $50 million of Senior Unsecured
Notes due 2006. The notes have a weighted average interest rate of 8.17%.
In March 1998, we completed the sale of $100 million of Senior Unsecured
Notes due 2008. The notes have a weighted average interest rate of 7.625%.
In April 1997, we completed the sale of $80 million of Senior Unsecured
Notes. Of those which are still outstanding, we priced $40 million of the notes
due 2004. The notes have a weighted average interest rate of 8.09%.
TAXATION
GENERAL
Since our inception, we have elected to be taxed as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended. We believe that we were organized and have operated in
such a manner as to qualify for taxation as a REIT under the Code, and we intend
to continue to operate in such a manner, but no assurance can be given that we
will operate in a manner so as to qualify or remain qualified.
S-27
If we meet the requirements to be taxed as a REIT, we will not generally be
subject to federal income tax on taxable income and gains that are currently
distributed to our shareholders. Any undistributed taxable income or gain,
however, will be taxed to us at regular corporate rates. In addition, we may be
subject to special taxes on net income derived from certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business by us and on certain income
derived from foreclosure properties.
If we were to fail to qualify as a REIT for any taxable year, and certain
relief provisions did not apply, we would be subject to federal income tax
(including the alternative minimum tax) on our taxable income at regular
corporate rates and would not receive a deduction for dividends paid to our
shareholders. Failure to qualify as a REIT could result in our significantly
reducing our distributions and incurring substantial indebtedness, or
liquidating substantial investments in order to pay the resulting taxes.
The preceding is only a summary of the complex federal income tax rules
governing the taxation of us. Moreover, in order to qualify to be taxed as a
REIT, we must elect to be taxed as a REIT and satisfy a variety of complex tests
relating to the ownership of our shares and our income, assets and
distributions. A more detailed discussion of the federal income taxation of us
and our shareholders is provided in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.
TAX CONSIDERATIONS IF NOTES ARE ISSUED AT DISCOUNT
The Notes may be subject to special tax rules applicable to debt
instruments issued at a discount. These "original issue discount rules," or "OID
rules," require that holders of certain debt instruments issued at a discount
impute interest income equal to the amount of the discount (in addition to any
stated and otherwise reportable interest income). A debt instrument, such as the
Notes offered under this prospectus supplement, has original issue discount if
its stated redemption price at maturity exceeds its issue price. A debt
instrument's stated redemption price at maturity is the sum of all payments
provided by the debt instrument other than qualified stated interest payments.
Qualified stated interest is the stated interest that is unconditionally payable
in cash or in property (other than debt instruments of the issuer) at least
annually at a single fixed rate. A debt instrument's issue price is the first
price at which a substantial portion of the debt instruments is sold for money.
Special rules also apply to debt instruments with variable interest rates and
debt instruments that provide one or more contingent payments. If the Notes
offered by this prospectus supplement are issued with original issue discount,
the original issue discount must be taken into account by the holders of the
Notes as income over the term of the Notes. However, if the original issue
discount with respect to any debt instrument, including any original issue
discount associated with these Notes, is less than one-quarter of 1% (.0025) of
the stated redemption price at maturity multiplied by the number of complete
years to maturity, the original issue discount is treated as zero.
YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF YOUR ACQUISITION, OWNERSHIP AND SALE OF THE NOTES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
S-28
UNDERWRITING
Subject to the terms and conditions contained in underwriting agreement,
each underwriter named below has severally agreed to purchase, and we have
agreed to sell to such underwriter, the principal amount of Notes set forth
opposite the name of such underwriter.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Deutsche Bank Securities Inc. .............................. $
UBS Warburg LLC ............................................ $
------------
Total..................................................... $
============
The underwriting agreement provides that the obligations of the several
underwriters to purchase the Notes included in this offering are subject to
certain conditions precedent and that the underwriters are obligated to purchase
all the Notes if they purchase any of the Notes.
The underwriters have advised us that they propose initially to offer the
Notes directly to the public at the public offering price set forth on the cover
page of this prospectus supplement and to certain dealers at the public offering
price less a concession not in excess of % of the principal amount of the
Notes. The underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of the Notes to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed.
The following shows the underwriting discounts and commissions to be paid
to the underwriters by us in connection with this offering (expressed as a
percentage of the principal amount of the Notes).
PAID BY HEALTH CARE
REIT
-------------------
Per Note.................................................... %
Total..................................................... $
The underwriters may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under the Securities Exchange Act of
1934. Rule 104 permits stabilizing bids to purchase the underlying security so
long as bids do not exceed a specified maximum. Syndicate covering transactions
involve purchase of Notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing and syndicate
covering transactions may cause the price of the Notes to be higher than it
would otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
The Notes are a new issue of securities with no established trading market.
We do not intend to apply for listing of the Notes on a national securities
exchange. We have been advised by the underwriters that they intend to make a
market in the Notes, but the underwriters are not obligated to do so and may
discontinue market-making at any time without notice. We can provide no
assurances as to the liquidity of, or any trading market for, the Notes.
We estimate that our total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
Certain of the underwriters or their predecessors have, from time to time,
provided investment banking and other financial advisory services to us, for
which they have received customary fees.
S-29
LEGAL MATTERS
The validity of the Notes offered by this prospectus supplement, as well as
certain legal matters relating to us, will be passed upon for us by Shumaker,
Loop & Kendrick, LLP, Toledo, Ohio. Certain legal matters related to the
offering will be passed upon for the underwriters by Calfee, Halter & Griswold
LLP, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of Health Care REIT, Inc. appearing
in Health Care REIT, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 2001, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
S-30
PROSPECTUS
$677,344,400
HEALTH CARE REIT, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
We may periodically offer and sell, in one or more offerings:
- debt securities
- shares or fractional shares of preferred stock
- shares of common stock
- warrants to purchase debt securities, preferred stock, or common stock
We will offer these securities at an aggregate initial public offering price
of up to $677,344,400, on terms we will determine at the time of offering. We
may offer our debt securities and preferred stock, common stock and warrants
separately or together, in separate classes or series, in amounts, at prices and
on terms we will describe in one or more supplements to this Prospectus. Each
Prospectus Supplement will include, where applicable:
- In the case of debt securities:
- specific designation
- aggregate principal amount
- denomination
- maturity
- priority
- interest rate
- time of interest
- terms of redemption at our option or repayment at your option or for
sinking fund payments
- terms for conversion into or exchange for other securities we offer
- initial public offering price
- In the case of preferred stock:
- series designation
- number of shares
- dividend
- liquidation preference
- redemption
- conversion
- voting and other rights
- initial public offering price
- In the case of common stock:
- number of shares
- initial public offering price
- In the case of warrants:
- number
- terms
- designation and number of securities issuable upon their exercise
- exercise price
- any listing of the warrants or the underlying securities on a
securities exchange
- any other terms in connection with the offering, sale, and exercise
- In the case of all securities offered:
- whether such securities will be offered separately or together with
other securities
In addition, such specific terms may include limitations on direct or
beneficial ownership and restrictions on transfer of the securities, in each
case as may be appropriate to preserve our status as a real estate investment
trust for federal income tax purposes. The applicable Prospectus Supplement will
also contain information about certain federal income tax considerations
relating to, and any listing on a securities exchange of, these securities.
We may offer these securities directly, through agents we designate
periodically, or to or through underwriters or dealers. If designated agents or
underwriters are involved in the sale of any of the securities, we will disclose
in the prospectus supplement their names, any applicable purchase price, fee,
compensation arrangement between or among them, and our net proceeds from such
sale. See "Plan of Distribution." No securities may be sold without the delivery
of the applicable Prospectus Supplement describing the securities and the method
and terms of their offering.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 21, 2001.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS....................................... 3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS........ 3
WHERE YOU CAN FIND ADDITIONAL INFORMATION................... 4
DOCUMENTS INCORPORATED BY REFERENCE......................... 4
ABOUT OUR COMPANY........................................... 5
RISK FACTORS................................................ 6
HOW WE INTEND TO USE THE PROCEEDS........................... 6
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............... 6
GENERAL DESCRIPTION OF THE OFFERED SECURITIES............... 6
DESCRIPTION OF DEBT SECURITIES.............................. 7
General................................................ 7
Denominations, Interest, Registration and Transfer..... 9
Merger, Consolidation or Sale of Assets................ 9
Certain Covenants...................................... 10
Events of Default and Related Matters.................. 10
Modification of an Indenture........................... 11
Discharge, Defeasance and Covenant Defeasance.......... 12
Subordination.......................................... 13
Guarantees............................................. 13
Global Securities...................................... 13
DESCRIPTION OF OUR COMMON STOCK............................. 14
General................................................ 14
Share Purchase Rights.................................. 14
DESCRIPTION OF OUR PREFERRED STOCK.......................... 15
General................................................ 15
Rank................................................... 16
Distributions.......................................... 17
Redemption............................................. 17
Liquidation Preference................................. 18
Voting Rights.......................................... 18
Conversion Rights...................................... 19
Our Exchange Rights.................................... 19
DESCRIPTION OF WARRANTS..................................... 19
General................................................ 19
Exercise of Securities Warrants........................ 20
Amendments and Supplements to Securities Warrant
Agreement............................................. 21
Common Stock Warrant Adjustments....................... 21
RESTRICTIONS ON TRANSFER OF SECURITIES...................... 22
DESCRIPTION OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS................................. 22
Anti-Takeover Provisions............................... 22
Limitations On Transactions Involving Us and Our
Shareholders.......................................... 23
REIT QUALIFICATION.......................................... 24
PLAN OF DISTRIBUTION........................................ 24
LEGAL OPINIONS.............................................. 26
EXPERTS..................................................... 26
2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the SEC
using a "shelf" registration process. Under this shelf process, we may sell any
combination of the securities described in this prospectus from time to time in
one or more offerings up to a total amount of proceeds of $677,344,400. This
prospectus provides you only with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
containing specific information about the terms of that offering. The prospectus
supplement may also add to, update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement
together with additional information described under the heading "Where You Can
Find Additional Information" and "Documents Incorporated By Reference."
You should rely only on the information contained and incorporated by
reference in this prospectus. Neither we nor the underwriters have authorized
any other person to provide you with different or inconsistent information from
that contained in this prospectus and the applicable prospectus supplement. If
anyone provides you with different or inconsistent information, you should not
rely on it. You should assume that the information in this prospectus and the
applicable prospectus supplement, as well as information we previously filed
with the SEC and incorporated by reference, is accurate only as of the date on
the front cover of this prospectus and the applicable prospectus supplement. Our
business, financial condition, results of operations and prospects may have
changed since those dates.
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "the Company," "we," "us," "our" and similar
references mean Health Care REIT, Inc. and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made and incorporated by reference statements in this document that
constitute "forward-looking statements" as that term is defined in the federal
securities laws. These forward-looking statements concern:
- the possible expansion of our portfolio;
- the performance of our operators and properties;
- our ability to obtain new viable tenants for properties which we take
back from financially troubled tenants, if any;
- our ability to make distributions;
- our policies and plans regarding investments, financings and other
matters;
- our tax status as a real estate investment trust;
- our ability to appropriately balance the use of debt and equity; and
- our ability to access capital markets or other sources of funds.
When we use words such as "believes," "expects," "anticipates," "estimates"
or similar expressions, we are making forward-looking statements.
Forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Our expected results may not be achieved, and actual
results may differ materially from our expectations. This may be a result of
various factors, including:
- the status of the economy;
- the status of capital markets, including prevailing interest rates;
- compliance with and changes to regulations and payment policies within
the health care industry;
- changes in financing terms;
3
- competition within the health care and senior housing industries; and
- changes in federal, state and local legislation.
Other important factors are identified in our Annual Report on Form 10-K,
which is incorporated into this prospectus, including factors identified under
the headings "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We assume no obligation to update or
revise any forward-looking statements or to update the reasons why actual
results could differ from those projected in any forward-looking statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form S-3 we have
filed with the SEC covering the securities that may be offered under this
prospectus. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about the securities.
Additionally, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy the
registration statement and any reports, statements or other information on file
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of those documents upon payment of a duplicating
fee to the SEC. You may also review a copy of the registration statement at the
SEC's regional offices in Chicago, Illinois and New York, New York. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. You can review our SEC filings and the registration statement
by accessing the SEC's Internet site at http://www.sec.gov.
You can also inspect our reports, proxy statements and other information
about us at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This prospectus does not contain all the information set forth in the
registration statement. We have omitted certain parts consistent with SEC rules.
For further information, please see the registration statement.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means:
- we consider incorporated documents to be part of the prospectus;
- we may disclose important information to you by referring you to those
documents; and
- information we subsequently file with the SEC will automatically update
and supersede the information in this prospectus.
This prospectus incorporates by reference the following documents:
- Annual Report on Form 10-K for the year ended December 31, 2000.
- Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2001.
- Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2001.
- Current Reports on Form 8-K filed with the SEC on June 15, 2001 and
August 9, 2001.
- Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2001.
- The description of our common stock as set forth in our registration
statement filed under the Exchange Act on Form 8-A on June 17, 1985,
including any amendment or report for the purpose of updating such
description.
4
- The description of the rights to purchase our Series A junior
participating preferred stock, par value $1.00 per share, associated with
our common stock, as set forth in our registration statement filed under
the Exchange Act on Form 8-A on August 3, 1994, including any amendment
or report for the purpose of updating such description.
- All subsequent documents filed by us under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934 after the date of this prospectus and
before the termination of the offering.
This prospectus summarizes material provisions of contracts and other
documents to which we refer. Since this prospectus may not contain all the
information that you may find important, you should review the full text of
those documents. Upon request, we will provide each person receiving this
prospectus a free copy, without exhibits, of any or all documents incorporated
by reference into this prospectus. You may direct such requests to:
Erin C. Ibele, Vice President and Corporate Secretary
Health Care REIT, Inc.
One SeaGate
Suite 1500
Toledo, Ohio 43604
(419) 247-2800
ABOUT OUR COMPANY
Health Care REIT, Inc. is a self-administered real estate investment trust
that invests in health care facilities, primarily skilled nursing facilities and
assisted living facilities. Founded in 1970, we were the first real estate
investment trust to invest exclusively in health care facilities. As of
September 30, 2001, our investment portfolio included 147 assisted living
facilities, 48 skilled nursing facilities and seven specialty care facilities,
comprising $1.1 billion in real estate investments.
We seek to increase funds from operations and enhance shareholder value
through relationship investing with public and emerging health care chains. The
primary components of our strategy include:
- Relationship Investing. We establish relationships with emerging health
care companies and seek to provide financing throughout their growth
cycles. We target companies with experienced management teams,
substantial insider ownership interests, venture capital backing and
significant growth potential.
- Portfolio Management. We derive portfolio strength from diversity by
operator, health care sector and geographic location. We emphasize
long-term investment structures that result in a predictable asset base
with corresponding recurring income and funds from operations. Generally,
our operating leases extend for ten to 15 years and our mortgage loans
provide five to seven years of prepayment protection. At September 30,
2001, the average life of our portfolio was nine years, with 88% of our
annualized revenue derived from investments that mature after the year
2004.
- Depth of Management. Our management team includes six individuals with a
total of approximately 99 years of experience in health care and real
estate finance.
Our objective is to enable you to participate in health care investments
that produce income and preserve principal. Since our inception, we have paid
122 consecutive quarterly dividends.
Our executive offices are located at One SeaGate, Suite 1500, Toledo, Ohio,
43604, and the telephone number is (419) 247-2800.
5
RISK FACTORS
Certain of the securities to be offered hereby may involve a high degree of
risk. Such risks will be set forth in the prospectus supplement relating to such
offered securities.
HOW WE INTEND TO USE THE PROCEEDS
Unless otherwise described in a prospectus supplement, we intend to use the
net proceeds from the sale of any securities under this prospectus for general
business purposes, which may include acquisition of and investment in additional
properties and the repayment of borrowings under our credit facility or other
debt. Until the proceeds from a sale of securities by us are applied to their
intended purposes, they will be invested in short-term investments, including
repurchase agreements, some or all of which may not be investment grade.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends for the periods
indicated. The ratio of earnings to fixed charges was computed by dividing
earnings by our fixed charges. The ratio of earnings to combined fixed charges
and preferred stock dividends was computed by dividing earnings by our combined
fixed charges and preferred stock dividends. For purposes of calculating these
ratios, "earnings" consist of pre-tax net income before extraordinary item,
excluding the equity earnings in a less than 50% owned subsidiary, plus fixed
charges reduced by the amount of capitalized interest. "Fixed charges" means the
sum of interest expensed and capitalized, amortized premiums, discounts and
capitalized expenses related to indebtedness.
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------------------
2001 2000 2000 1999 1998 1997 1996
----- ----- ---- ---- ---- ---- ----
Consolidated ratio of earnings to
fixed charges (unaudited)........... 2.81 2.69 2.66 2.83 3.05 3.40 2.93
Consolidated ratio of earnings to
combined fixed charges and preferred
stock dividends (unaudited)......... 2.02 2.01 1.98 2.10 2.63 3.40 2.93
We issued 3,000,000 shares of 8 7/8% Series B Cumulative Redeemable
Preferred Stock in May 1998, and 3,000,000 shares of Series C Cumulative
Convertible Preferred Stock in January 1999.
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
We may offer under this prospectus one or more of the following categories
of our securities:
- debt securities, in one or more series;
- shares of our preferred stock, par value $1.00 per share, in one or more
series;
- shares of our common stock, par value $1.00 per share;
- common stock warrants;
- preferred stock warrants;
- debt securities warrants; and
- any combination of the foregoing, either individually or as units.
6
The terms of any specific offering of securities, including the terms of
any units offered, will be set forth in a prospectus supplement relating to such
offering. Our amended certificate of incorporation authorizes us to issue
75,000,000 shares of common stock and 10,000,000 shares of preferred stock. Of
our preferred stock:
- 13,000 shares have been designated as Junior Participating Preferred
Stock, Series A,
- 3,450,000 shares have been designated as 8 7/8% Series B Cumulative
Redeemable Preferred Stock, and
- 3,000,000 shares have been designated as Series C Cumulative Convertible
Preferred Stock.
As of October 25, 2001, we had issued 32,595,721 shares of common stock,
3,000,000 shares of 8 7/8% Series B preferred stock and 3,000,000 shares of
Series C preferred stock.
Our common stock is listed on the New York Stock Exchange under the symbol
"HCN." We intend to apply to list any additional shares of common stock which
are issued and sold hereunder. We may apply to list any additional series of
preferred stock which are offered and sold hereunder, as described in the
prospectus supplement relating to such preferred stock.
DESCRIPTION OF DEBT SECURITIES
The debt securities sold under this prospectus will be our direct
obligations, which may be secured or unsecured, and which may be senior or
subordinated indebtedness. The debt securities may be guaranteed on a secured or
unsecured, senior or subordinated basis, by one or more of our subsidiaries. The
debt securities will be issued under one or more indentures between us and a
specified trustee. Any indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended. The statements made in this prospectus
relating to any indentures and the debt securities to be issued under the
indentures are summaries of certain anticipated provisions of the indentures and
are not complete.
The following is a summary of the material terms of our debt securities.
Because it is a summary, it does not contain all of the information that may be
important to you. If you want more information, you should read the forms of
indentures which we have filed as exhibits to the registration statement of
which this prospectus is part. We will file any final indentures and
supplemental indentures if we issue debt securities. See "Where You Can Find
Additional Information." This summary is also subject to and qualified by
reference to the descriptions of the particular terms of your securities
described in the applicable prospectus supplement.
GENERAL
We may issue debt securities that rank "senior," "senior subordinated" or
"junior subordinated." The debt securities that we refer to as "senior" will be
our direct obligations and will rank equally and ratably in right of payment
with our other indebtedness not subordinated. We may issue debt securities that
will be subordinated in right of payment to the prior payment in full of senior
debt, as defined in the applicable prospectus supplement, and may rank equally
and ratably with the other senior subordinated indebtedness. We refer to these
as "senior subordinated" securities. We may also issue debt securities that may
be subordinated in right of payment to the senior subordinated securities. These
would be "junior subordinated" securities. We have filed with the registration
statement of which this prospectus is part three separate forms of indenture,
one for the senior securities, one for the senior subordinated and one for the
junior subordinated securities. We refer to senior subordinated and junior
subordinated securities as "subordinated."
We may issue the debt securities without limit as to aggregate principal
amount, in one or more series, in each case as we establish in one or more
supplemental indentures. We need not issue all debt securities of one series at
the same time. Unless we otherwise provide, we may reopen a series, without the
consent of the holders of the series, for issuances of additional securities of
that series.
7
We anticipate that any indenture will provide that we may, but need not,
designate more than one trustee under an indenture, each with respect to one or
more series of debt securities. Any trustee under any indenture may resign or be
removed with respect to one or more series of debt securities, and we may
appoint a successor trustee to act with respect to that series. The applicable
prospectus supplement will describe the specific terms relating to the series of
debt securities we will offer, including, where applicable, the following:
- the title and series designation and whether they are senior securities,
senior subordinated securities or subordinated securities;
- the aggregate principal amount of the securities;
- the percentage of the principal amount at which we will issue the debt
securities and, if other than the principal amount of the debt
securities, the portion of the principal amount of the debt securities
payable upon maturity of the debt securities;
- if convertible, the securities into which they are convertible, the
initial conversion price, the conversion period and any other terms
governing such conversion;
- the stated maturity date;
- any fixed or variable interest rate or rates per annum;
- the place where principal, premium, if any, and interest will be payable
and where the debt securities can be surrendered for transfer, exchange
or conversion;
- the date from which interest may accrue and any interest payment dates;
- any sinking fund requirements;
- any provisions for redemption, including the redemption price and any
remarketing arrangements;
- whether the securities are denominated or payable in United States
dollars or a foreign currency or units of two or more foreign currencies;
- the events of default and covenants of such securities, to the extent
different from or in addition to those described in this prospectus;
- whether we will issue the debt securities in certificated or book-entry
form;
- whether the debt securities will be in registered or bearer form and, if
in registered form, the denominations if other than in even multiples of
$1,000 and, if in bearer form, the denominations and terms and conditions
relating thereto;
- whether we will issue any of the debt securities in permanent global form
and, if so, the terms and conditions, if any, upon which interests in the
global security may be exchanged, in whole or in part, for the individual
debt securities represented by the global security;
- the applicability, if any, of the defeasance and covenant defeasance
provisions described in this prospectus or any prospectus supplement;
- whether we will pay additional amounts on the securities in respect of
any tax, assessment or governmental charge and, if so, whether we will
have the option to redeem the debt securities instead of making this
payment;
- the subordination provisions, if any, relating to the debt securities;
- if the debt securities are to be issued upon the exercise of debt
warrants, the time, manner and place for them to be authenticated and
delivered;
- whether any of our subsidiaries will be bound by the terms of the
indenture, in particular any restrictive covenants;
8
- the provisions relating to any security provided for the debt securities;
and
- the provisions relating to any guarantee of the debt securities.
We may issue debt securities at less than the principal amount payable at
maturity. We refer to these securities as "original issue discount" securities.
If material or applicable, we will describe in the applicable prospectus
supplement special U.S. federal income tax, accounting and other considerations
applicable to original issue discount securities.
Except as may be described in any prospectus supplement, an indenture will
not contain any other provisions that would limit our ability to incur
indebtedness or that would afford holders of the debt securities protection in
the event of a highly leveraged or similar transaction involving us or in the
event of a change of control. You should review carefully the applicable
prospectus supplement for information with respect to events of default and
covenants applicable to the securities being offered.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, we will
issue the debt securities of any series that are registered securities in
denominations that are even multiples of $1,000, other than global securities,
which may be of any denomination.
Unless otherwise specified in the applicable prospectus supplement, we will
pay the interest, principal and any premium at the corporate trust office of the
trustee. At our option, however, we may make payment of interest by check mailed
to the address of the person entitled to the payment as it appears in the
applicable register or by wire transfer of funds to that person at an account
maintained within the United States.
If we do not punctually pay or otherwise provide for interest on any
interest payment date, the defaulted interest will be paid either:
- to the person in whose name the debt security is registered at the close
of business on a special record date the trustee will fix; or
- in any other lawful manner, all as the applicable indenture describes.
You may have your debt securities divided into more debt securities of
smaller denominations or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed. We call
this an "exchange." You may exchange or transfer debt securities at the office
of the applicable trustee. The trustee acts as our agent for registering debt
securities in the names of holders and transferring debt securities. We may
change this appointment to another entity or perform it ourselves.
The entity performing the role of maintaining the list of registered
holders is called the "registrar." It will also perform transfers. You will not
be required to pay a service charge to transfer or exchange debt securities, but
you may be required to pay for any tax or other governmental charge associated
with the exchange or transfer. The security registrar will make the transfer or
exchange only if it is satisfied with your proof of ownership.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Under any indenture, we are generally permitted to consolidate or merge
with another company. We are also permitted to sell substantially all of our
assets to another company, or to buy substantially all of the assets of another
company. However, we may not take any of these actions unless the following
conditions are met:
- if we merge out of existence or sell our assets, the other company must
be an entity organized under the laws of one of the states of the United
States or the District of Columbia or under United States federal law and
must agree to be legally responsible for our debt securities; and
9
- immediately after the merger, sale of assets or other transaction, we may
not be in default on the debt securities. A default for this purpose
would include any event that would be an event of default if the
requirements for giving us default notice or our default having to exist
for a specific period of time were disregarded.
CERTAIN COVENANTS
Existence. Except as permitted as described above under " -- Merger,
Consolidation or Sale of Assets," we will agree to do all things necessary to
preserve and keep our existence, rights and franchises, provided that it is in
our best interests for the conduct of business.
Provisions of Financial Information. Whether or not we remain required to
do so under the Exchange Act, to the extent permitted by law, we will agree to
file all annual, quarterly and other reports and financial statements with the
SEC and an indenture trustee on or before the applicable SEC filing dates as if
we were required to do so.
Additional Covenants. Any additional or different covenants or
modifications to the foregoing covenants with respect to any series of debt
securities will be described in the applicable prospectus supplement.
EVENTS OF DEFAULT AND RELATED MATTERS
Events of Default. The term "event of default" for any series of debt
securities means any of the following:
- We do not pay the principal or any premium on a debt security of that
series within 30 days after its maturity date.
- We do not pay interest on a debt security of that series within 30 days
after its due date.
- We do not deposit any sinking fund payment for that series within 30 days
after its due date.
- We remain in breach of any other term of the applicable indenture (other
than a term added to the indenture solely for the benefit of another
series) for 60 days after we receive a notice of default stating we are
in breach. Either the trustee or holders of more than 50% in principal
amount of debt securities of the affected series may send the notice.
- We default under any of our other indebtedness in specified amounts after
the expiration of any applicable grace period, which default results in
the acceleration of the maturity of such indebtedness. Such default is
not an event of default if the other indebtedness is discharged, or the
acceleration is rescinded or annulled, within a period of 10 days after
we receive notice specifying the default and requiring that we discharge
the other indebtedness or cause the acceleration to be rescinded or
annulled. Either the trustee or the holders of more than 50% in principal
amount of debt securities of the affected series may send the notice.
- We or one of our "significant subsidiaries," if any, files for bankruptcy
or certain other events in bankruptcy, insolvency or reorganization
occur. The term "significant subsidiary" means each of our significant
subsidiaries, if any, as defined in Regulation S-X under the Securities
Act.
- Any other event of default described in the applicable prospectus
supplement occurs.
Remedies if an Event of Default Occurs. If an event of default has
occurred and has not been cured, the trustee or the holders of at least a
majority in principal amount of the debt securities of the affected series may
declare the entire principal amount of all the debt securities of that series to
be due and immediately payable. If an event of default occurs because of certain
events in bankruptcy, insolvency or reorganization, the principal amount of all
the debt securities of that series will be automatically accelerated, without
any action by the trustee or any holder. At any time after the trustee or the
holders have accelerated any series of debt securities, but before a judgment or
decree for payment of the money due has been obtained, the holders of at least a
majority in principal amount of
10
the debt securities of the affected series may, under certain circumstances,
rescind and annul such acceleration.
The trustee will be required to give notice to the holders of debt
securities within 90 days after a default under the applicable indenture unless
the default has been cured or waived. The trustee may withhold notice to the
holders of any series of debt securities of any default with respect to that
series, except a default in the payment of the principal of or interest on any
debt security of that series, if specified responsible officers of the trustee
in good faith determine that withholding the notice is in the interest of the
holders.
Except in cases of default, where the trustee has some special duties, the
trustee is not required to take any action under the applicable indenture at the
request of any holders unless the holders offer the trustee reasonable
protection from expenses and liability. We refer to this as an "indemnity." If
reasonable indemnity is provided, the holders of a majority in principal amount
of the outstanding securities of the relevant series may direct the time, method
and place of conducting any lawsuit or other formal legal action seeking any
remedy available to the trustee. These majority holders may also direct the
trustee in performing any other action under the applicable indenture, subject
to certain limitations.
Before you bypass the trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
- you must give the trustee written notice that an event of default has
occurred and remains uncured;
- the holders of at least a majority in principal amount of all outstanding
securities of the relevant series must make a written request that the
trustee take action because of the default, and must offer reasonable
indemnity to the trustee against the cost and other liabilities of taking
that action; and
- the trustee must have not taken action for 60 days after receipt of the
notice and offer of indemnity.
However, you are entitled at any time to bring a lawsuit for the payment of
money due on your security after its due date.
Every year we will furnish to the trustee a written statement by certain of
our officers certifying that to their knowledge we are in compliance with the
applicable indenture and the debt securities, or else specifying any default.
MODIFICATION OF AN INDENTURE
There are three types of changes we can make to the indentures and the debt
securities:
Changes Requiring Your Approval. First, there are changes we cannot make
to your debt securities without your specific approval. The following is a list
of those types of changes:
- change the stated maturity of the principal or interest on a debt
security;
- reduce any amounts due on a debt security;
- reduce the amount of principal payable upon acceleration of the maturity
of a debt security following a default;
- change the currency of payment on a debt security;
- impair your right to sue for payment;
- modify the subordination provisions, if any, in a manner that is adverse
to you;
11
- reduce the percentage of holders of debt securities whose consent is
needed to modify or amend an indenture or to waive compliance with
certain provisions of an indenture;
- reduce the percentage of holders of debt securities whose consent is
needed to waive past defaults or change certain provisions of the
indenture relating to waivers of default;
- waive a default or event of default in the payment of principal of or
premium, if any, or interest on the debt securities; or
- modify any of the foregoing provisions.
Changes Requiring a Majority Vote. The second type of change to an
indenture and the debt securities is the kind that requires a vote in favor by
holders of debt securities owning a majority of the principal amount of the
particular series affected. Most changes fall into this category, except for
clarifying changes and certain other changes that would not materially adversely
affect holders of the debt securities. We require the same vote to obtain a
waiver of a past default. However, we cannot obtain a waiver of a payment
default or any other aspect of an indenture or the debt securities listed in the
first category described above under "-- Changes Requiring Your Approval" unless
we obtain your individual consent to the waiver.
Changes Not Requiring Approval. The third type of change does not require
any vote by holders of debt securities. This type is limited to clarifications
and certain other changes that would not materially adversely affect holders of
the debt securities.
Further Details Concerning Voting. Debt securities are not considered
outstanding, and therefore the holders thereof are not eligible to vote if we
have deposited or set aside in trust for you money for their payment or
redemption or if we or one of our affiliates own them. The holders of debt
securities are also not eligible to vote if they have been fully defeased as
described immediately below under " -- Discharge, Defeasance and Covenant
Defeasance -- Full Defeasance." For original issue discount securities, we will
use the principal amount that would be due and payable on the voting date if the
maturity of the debt securities were accelerated to that date because of a
default.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Discharge. We may discharge some obligations to holders of any series of
debt securities that either have become due and payable or will become due and
payable within one year, or scheduled for redemption within one year, by
irrevocably depositing with the trustee, in trust, funds in the applicable
currency in an amount sufficient to pay the debt securities, including any
premium and interest.
Full Defeasance. We can, under particular circumstances, effect a full
defeasance of your series of debt securities. By this we mean we can legally
release ourselves from any payment or other obligations on the debt securities
if, among other things, we put in place the arrangements described below to
repay you and deliver certain certificates and opinions to the trustee:
- we must deposit in trust for your benefit and the benefit of all other
direct holders of the debt securities a combination of money or U.S.
government agency notes or bonds or, in some circumstances, depositary
receipts representing these notes or bonds, that will generate enough
cash to make interest, principal and any other payments on the debt
securities on their various due dates;
- the current federal tax law must be changed or an IRS ruling must be
issued permitting the above deposit without causing you to be taxed on
the debt securities any differently than if we did not make the deposit
and just repaid the debt securities ourselves. Under current federal
income tax law, the deposit and our legal release from the debt
securities would be treated as though we took back your debt securities
and gave you your share of the cash and notes or bonds deposited in
trust. In that event, you could recognize gain or loss on the debt
securities you give back to us; and
12
- we must deliver to the trustee a legal opinion confirming the tax law
change described above.
If we did accomplish full defeasance, you would have to rely solely on the
trust deposit for repayment on the debt securities. You could not look to us for
repayment in the unlikely event of any shortfall. Conversely, the trust deposit
would most likely be protected from claims of our lenders and other creditors if
we ever became bankrupt or insolvent. You would also be released from any
subordination provisions.
Covenant Defeasance. Under current federal income tax law, we can make the
same type of deposit described above and be released from some of the
restrictive covenants in the debt securities. This is called "covenant
defeasance." In that event, you would lose the protection of those restrictive
covenants but would gain the protection of having money and securities set aside
in trust to repay the securities and you would be released from any
subordination provisions.
If we accomplish covenant defeasance, the following provisions of an
indenture and the debt securities would no longer apply:
- any covenants applicable to the series of debt securities and described
in the applicable prospectus supplement;
- any subordination provisions; and
- certain events of default relating to breach of covenants and
acceleration of the maturity of other debt set forth in any prospectus
supplement.
If we accomplish covenant defeasance, you can still look to us for
repayment of the debt securities if a shortfall in the trust deposit occurred.
If one of the remaining events of default occurs, for example, our bankruptcy,
and the debt securities become immediately due and payable, there may be a
shortfall. Depending on the event causing the default, you may not be able to
obtain payment of the shortfall.
SUBORDINATION
We will describe in the applicable prospectus supplement the terms and
conditions, if any, upon which any series of senior subordinated securities or
subordinated securities is subordinated to debt securities of another series or
to our other indebtedness. The terms will include a description of:
- the indebtedness ranking senior to the debt securities being offered;
- the restrictions, if any, on payments to the holders of the debt
securities being offered while a default with respect to the senior
indebtedness is continuing;
- the restrictions, if any, on payments to the holders of the debt
securities being offered following an event of default; and
- provisions requiring holders of the debt securities being offered to
remit some payments to holders of senior indebtedness.
GUARANTEES
Our payment obligations under any series of our debt securities may be
guaranteed by some or all of our subsidiaries. The guarantees may be secured or
unsecured and may be senior or subordinated obligations. The guarantors will be
identified and the terms of the guarantees will be described in the applicable
prospectus supplement.
GLOBAL SECURITIES
If so set forth in the applicable prospectus supplement, we may issue the
debt securities of a series in whole or in part in the form of one or more
global securities that will be deposited with a depositary identified in the
prospectus supplement. We may issue global securities in either registered or
bearer
13
form and in either temporary or permanent form. The specific terms of the
depositary arrangement with respect to any series of debt securities will be
described in the prospectus supplement.
DESCRIPTION OF OUR COMMON STOCK
The following is a summary of certain provisions of our amended certificate
of incorporation and by-laws, which documents set forth certain terms of our
common stock. Because this summary is not complete, you should refer to such
documents for complete information. Copies of our certificate of incorporation
and by-laws, as amended, are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part.
GENERAL
Common stock holders are entitled to receive dividends when declared by the
Board of Directors and after payment of, or provision for, full cumulative
dividends on and any required redemptions of shares of preferred stock then
outstanding. Common stock holders have one vote per share, and there are no
cumulative voting rights. If we are voluntarily or involuntarily liquidated or
dissolved, common stock holders are to share ratably in our distributable assets
remaining after the satisfaction of all of our debts and liabilities and the
preferred stock holders' prior preferential rights. Common stock holders do not
have preemptive rights. The common stock will be, when issued, fully paid and
nonassessable. The common stock is subject to restrictions on transfer under
certain circumstances described under "Restrictions on Transfer of Securities"
below. The transfer agent for our common stock is Mellon Investor Services,
L.L.C.
Each outstanding share of our common stock is accompanied by a right to
purchase one one-thousandth of a share of our junior participation preferred
stock, Series A, at the price of $48, subject to certain anti-dilution
adjustments. We have designated and reserved 13,000 shares of our preferred
stock as such Class A preferred stock for issuance upon exercise of the rights.
The existence of such rights could have the effect of delaying, deterring or
preventing a change in our control. The purchase rights and the Class A
preferred stock are more fully discussed below under the caption "Share Purchase
Rights." For a description of other provisions of our amended certificate of
incorporation and by-laws that could have the effect of delaying, deterring or
preventing a change in our control, please see "Description of Certain
Provisions of Our Certificate of Incorporation and By-Laws" below.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of our preferred stock which are outstanding or which we
may designate and issue in the future. See "Description of Our Preferred Stock"
below.
SHARE PURCHASE RIGHTS
On July 19, 1994, our board of directors adopted a shareholder rights plan,
commonly referred to as a "poison pill," which authorized the issuance of one
preferred share purchase right for each outstanding share of common stock. Under
certain conditions, each right may be exercised to purchase one one-thousandth
of a share of our Junior Participating Preferred Stock, Series A, for $48,
subject to certain anti-dilution adjustments. The number of rights outstanding
and Series A preferred stock issuable upon exercise, as well as the Series A
preferred stock purchase price, are subject to customary antidilution
adjustments.
The rights are evidenced by the certificates for shares of common stock,
and in general are not transferable apart from the common stock or exercisable
until after a party has acquired beneficial ownership of, or made a tender offer
for 15% or more of our outstanding common stock, or the occurrence of other
events as specified in a rights agreement between us and Mellon Investor
Services, L.L.C., as rights agent. Under certain conditions as specified in the
rights agreement, including but not limited to, the acquisition by a party of
15% or more of our outstanding common stock, or the
14
acquisition of us in a merger or other business combination, each holder of a
right (other than an acquiring person, whose rights will be void) will receive
upon its exercise and payment of the exercise price that number of shares of our
common stock, or the common stock of the other party, as applicable, having a
market value of two times the exercise price of the right.
The rights expire on August 5, 2004, and until they are exercised, their
holder will have no rights as a shareholder. At our option, the rights may be
redeemed in whole at a price of $.01 per right any time prior to becoming
exercisable. In general, we may also exchange the rights at a ratio of one share
of common stock per right after becoming exercisable but prior to any party
acquiring 50% or more of the outstanding shares of common stock.
Series A preferred stock issuable upon exercise of the rights will not be
redeemable. Each share of Series A preferred stock will have 1,000 votes and
will be entitled to:
- a minimum preferential quarterly dividend payment equal to the greater of
$25.00 per share or 1,000 times the amount of the dividends per share
paid on the common stock;
- a liquidation preference in an amount equal to the greater of $100 or
1,000 times the amount per share paid on the common stock; and
- a payment in connection with a business combination in which shares of
common stock are exchanged equal to 1,000 times the amount per share paid
on the common stock.
The purchase rights have an anti-takeover effect that is intended to
discourage coercive or unfair takeover tactics and to encourage any potential
acquirer to negotiate a fair price for all of our shareholders. The purchase
rights may cause substantial dilution to any party that may attempt to acquire
us on terms not approved by our board of directors. However, the purchase rights
are structured in a way so as not to interfere with any negotiated merger or
other business combination.
DESCRIPTION OF OUR PREFERRED STOCK
The following is a summary description of the material terms of our shares
of preferred stock. Because it is a summary, it does not contain all of the
information that may be important to you. If you want more information, you
should read our amended certificate of incorporation and by-laws, copies of
which have been filed with the SEC. See "Where You Can Find Additional
Information." This summary is also subject to and qualified by reference to the
description of the particular terms of your securities described in the
applicable prospectus supplement.
GENERAL
Our board of directors will determine the designations, preferences,
limitations and relative rights of our authorized and unissued preferred shares.
These may include:
- the distinctive designation of each series and the number of shares that
will constitute the series;
- the voting rights, if any, of shares of the series;
- the distribution rate on the shares of the series, any restriction,
limitation or condition upon the payment of the distribution, whether
distributions will be cumulative, and the dates on which distributions
are payable;
- the prices at which, and the terms and conditions on which, the shares of
the series may be redeemed, if the shares are redeemable;
- the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of the series;
- any preferential amount payable upon shares of the series upon our
liquidation or the distribution of our assets;
15
- if the shares are convertible, the price or rates of conversion at which,
and the terms and conditions on which, the shares of the series may be
converted into other securities; and
- whether the series can be exchanged, at our option, into debt securities,
and the terms and conditions of any permitted exchange.
The issuance of preferred shares, or the issuance of rights to purchase
preferred shares, could discourage an unsolicited acquisition proposal. In
addition, the rights of holders of common shares will be subject to, and may be
adversely affected by, the rights of holders of any preferred shares that we may
issue in the future.
The following describes some general terms and provisions of the preferred
shares to which a prospectus supplement may relate. The statements below
describing the preferred shares are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of our amended
certificate of incorporation, including any applicable certificate of
designation, and our by-laws.
The prospectus supplement will describe the specific terms as to each
issuance of preferred shares, including:
- the description of the preferred shares;
- the number of the preferred shares offered;
- the voting rights, if any, of the holders of the preferred shares;
- the offering price of the preferred shares;
- the distribution rate, when distributions will be paid, or the method of
determining the distribution rate if it is based on a formula or not
otherwise fixed;
- the date from which distributions on the preferred shares shall
accumulate;
- the provisions for any auctioning or remarketing, if any, of the
preferred shares;
- the provision, if any, for redemption or a sinking fund;
- the liquidation preference per share;
- any listing of the preferred shares on a securities exchange;
- whether the preferred shares will be convertible and, if so, the security
into which they are convertible and the terms and conditions of
conversion, including the conversion price or the manner of determining
it;
- a discussion of federal income tax considerations;
- the relative ranking and preferences of the preferred shares as to
distribution and liquidation rights;
- any limitations on issuance of any preferred shares ranking senior to or
on a parity with the series of preferred shares being offered as to
distribution and liquidation rights;
- any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
real estate investment trust; and
- any other specific terms, preferences, rights, limitations or
restrictions of the preferred shares.
RANK
Unless our board of directors otherwise determines and we so specify in the
applicable prospectus supplement, we expect that the preferred shares will, with
respect to distribution rights and rights upon liquidation or dissolution, rank
senior to all our common shares.
16
DISTRIBUTIONS
Holders of preferred shares of each series will be entitled to receive cash
and/or share distributions at the rates and on the dates shown in the applicable
prospectus supplement. Even though the preferred shares may specify a fixed rate
of distribution, our board of directors must authorize and declare those
distributions and they may be paid only out of assets legally available for
payment. We will pay each distribution to holders of record as they appear on
our share transfer books on the record dates fixed by our board of directors.
Distributions on any series of preferred shares may be cumulative or
noncumulative, as provided in the applicable prospectus supplement. We refer to
each particular series, for ease of reference, as the applicable series.
Cumulative distributions will be cumulative from and after the date shown in the
applicable prospectus supplement. If our board of directors fails to authorize a
distribution on any applicable series that is noncumulative, the holders will
have no right to receive, and we will have no obligation to pay, a distribution
in respect of the applicable distribution period, whether or not distributions
on that series are declared payable in the future. If the applicable series is
entitled to a cumulative distribution, we may not declare, or pay or set aside
for payment, any full distributions on any other series of preferred shares
ranking, as to distributions, on a parity with or junior to the applicable
series, unless we declare, and either pay or set aside for payment, full
cumulative distributions on the applicable series for all past distribution
periods and the then current distribution period. If the applicable series does
not have a cumulative distribution, we must declare, and pay or set aside for
payment, full distributions for the then current distribution period only. When
distributions are not paid, or set aside for payment, in full upon any
applicable series and the shares of any other series ranking on a parity as to
distributions with the applicable series, we must declare, and pay or set aside
for payment, all distributions upon the applicable series and any other parity
series proportionately, in accordance with accrued and unpaid distributions of
the several series. For these purposes, accrued and unpaid distributions do not
include unpaid distribution periods on noncumulative preferred shares. No
interest will be payable in respect of any distribution payment that may be in
arrears.
Except as provided in the immediately preceding paragraph, unless we
declare, and pay or set aside for payment, full cumulative distributions,
including for the then current period, on any cumulative applicable series, we
may not declare, or pay or set aside for payment, any distributions upon common
shares or any other equity securities ranking junior to or on a parity with the
applicable series as to distributions or upon liquidation. The foregoing
restriction does not apply to distributions paid in common shares or other
equity securities ranking junior to the applicable series as to distributions
and upon liquidation. If the applicable series is noncumulative, we need only
declare, and pay or set aside for payment, the distribution for the then current
period, before declaring distributions on common shares or junior or parity
securities. In addition, under the circumstances that we could not declare a
distribution, we may not redeem, purchase or otherwise acquire for any
consideration any common shares or other parity or junior equity securities,
except upon conversion into or exchange for common shares or other junior equity
securities. We may, however, make purchases and redemptions otherwise prohibited
pursuant to certain redemptions or pro rata offers to purchase the outstanding
shares of the applicable series and any other parity series of preferred shares.
We will credit any distribution payment made on an applicable series first
against the earliest accrued but unpaid distribution due with respect to the
series.
REDEMPTION
We may have the right or may be required to redeem one or more series of
preferred shares, as a whole or in part, in each case upon the terms, if any,
and at the times and at the redemption prices shown in the applicable prospectus
supplement.
If a series of preferred shares is subject to mandatory redemption, we will
specify in the applicable prospectus supplement the number of shares we are
required to redeem, when those redemptions start, the redemption price, and any
other terms and conditions affecting the redemption. The
17
redemption price will include all accrued and unpaid distributions, except in
the case of noncumulative preferred shares. The redemption price may be payable
in cash or other property, as specified in the applicable prospectus supplement.
If the redemption price for preferred shares of any series is payable only from
the net proceeds of our issuance of shares of capital stock, the terms of the
preferred shares may provide that, if no shares of such capital stock shall have
been issued or to the extent the net proceeds from any issuance are insufficient
to pay in full the aggregate redemption price then due, the preferred shares
will automatically and mandatorily be converted into shares of the applicable
capital stock pursuant to conversion provisions specified in the applicable
prospectus supplement.
LIQUIDATION PREFERENCE
The applicable prospectus supplement will show the liquidation preference
of the applicable series. Upon our voluntary or involuntary liquidation, before
any distribution may be made to the holders of our common shares or any other
shares of beneficial interest ranking junior in the distribution of assets upon
any liquidation to the applicable series, the holders of that series will be
entitled to receive, out of our assets legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference, plus an amount equal to all distributions accrued and unpaid. In the
case of a noncumulative applicable series, accrued and unpaid distributions
include only the then current distribution period. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred shares will have no right or claim to any of our remaining assets.
If liquidating distributions shall have been made in full to all holders of
preferred shares, our remaining assets will be distributed among the holders of
any other shares of beneficial interest ranking junior to the preferred shares
upon liquidation, according to their rights and preferences and in each case
according to their number of shares.
If, upon any voluntary or involuntary liquidation, our available assets are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of that series and the corresponding amounts payable on all
shares of beneficial interest ranking on a parity in the distribution of assets
with that series, then the holders of that series and all other equally ranking
shares of beneficial interest shall share ratably in the distribution in
proportion to the full liquidating distributions to which they would otherwise
be entitled. For these purposes, our consolidation or merger with or into any
other corporation or other entity, or the sale, lease or conveyance of all or
substantially all of our property or business, will not be a liquidation.
VOTING RIGHTS
Holders of the preferred shares will not have any voting rights, except as
described below or as otherwise from time to time required by law or as
specified in the applicable prospectus supplement.
Unless otherwise provided for in an applicable series, so long as any
preferred shares are outstanding, we may not, without the affirmative vote or
consent of a majority of the shares of each series of preferred shares
outstanding at that time:
- authorize, create or increase the authorized or issued amount of any
class or series of shares of beneficial interest ranking senior to that
series of preferred shares with respect to distribution and liquidation
rights;
- reclassify any authorized shares of beneficial interest into a series of
shares of beneficial interest ranking senior to that series of preferred
shares with respect to distribution and liquidation rights;
- create, authorize or issue any security or obligation convertible into or
evidencing the right to purchase any shares of beneficial interest
ranking senior to that series of preferred shares with respect to
distribution and liquidation rights; and
- amend, alter or repeal the provisions of our certificate of incorporation
relating to that series of preferred shares that materially and adversely
affects the series of preferred shares.
18
The authorization, creation or increase of the authorized or issued amount
of any class or series of shares of capital stock ranking on parity or junior to
a series of preferred shares with respect to distribution and liquidation rights
will not be deemed to materially and adversely affect that series.
CONVERSION RIGHTS
We will describe in the applicable prospectus supplement the terms and
conditions, if any, upon which you may, or we may require you to, convert shares
of any series of preferred shares into common shares or any other class or
series of shares of capital stock. The terms will include the number of common
shares or other capital stock into which the preferred shares are convertible,
the conversion price or manner of determining it, the conversion period,
provisions as to whether conversion will be at the option of the holders of the
series or at our option, the events requiring an adjustment of the conversion
price, and provisions affecting conversion upon the redemption of shares of the
series.
OUR EXCHANGE RIGHTS
We will describe in the applicable prospectus supplement the terms and
conditions, if any, upon which we can require you to exchange shares of any
series of preferred shares for debt securities. If an exchange is required, you
will receive debt securities with a principal amount equal to the liquidation
preference of the applicable series of preferred shares. The other terms and
provisions of the debt securities will not be materially less favorable to you
than those of the series of preferred shares being exchanged.
DESCRIPTION OF WARRANTS
The terms of any warrants offered by any prospectus supplement will be as
described in such prospectus supplement, and as provided herein to the extent
not modified in the prospectus supplement. We may issue warrants for the
purchase of common stock, preferred stock or debt securities. Warrants may be
issued independently or together with common stock, preferred stock or debt
securities offered by any prospectus supplement and may be attached to or
separate from such common stock, preferred stock, or debt securities. Each
series of warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent, all as
set forth in the prospectus supplement relating to the particular issue of
offered warrants. The warrant agent will act solely as our agent in connection
with the warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants.
The following summaries of certain provisions of the warrant agreement and
warrants do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the warrant agreement and
the warrants relating to each series of warrants which will be filed with the
SEC and incorporated by reference as an exhibit to the registration statement of
which this prospectus is a part at or prior to the time of the issuance of such
series of warrants.
GENERAL
In the case of warrants for the purchase of common stock or preferred
stock, the applicable prospectus supplement will describe the terms of such
warrants, including the following where applicable:
- the offering price;
- the aggregate number of shares purchasable upon exercise of such
warrants, the exercise price, and in the case of warrants for preferred
stock the designation, aggregate number and terms of the series of
preferred stock purchasable upon exercise of such warrants;
19
- the designation and terms of any series of preferred stock with which
such warrants are being offered and the number of such warrants being
offered with such preferred stock;
- the date, if any, on and after which such warrants and the related series
of preferred stock or common stock will be transferable separately;
- the date on which the right to exercise such warrants shall commence and
the expiration date;
- any special United States Federal income tax consequences; and
- any other terms of such warrants.
If warrants for the purchase of debt securities are offered, the applicable
prospectus supplement will describe the terms of such warrants, including the
following where applicable:
- the offering price;
- the denominations and terms of the series of debt securities purchasable
upon exercise of such warrants;
- the designation and terms of any series of debt securities, with which
such warrants are being offered with each such debt securities;
- the date, if any, on and after which such warrants and the related series
of debt securities will be transferable separately;
- the principal amount of the series of debt securities purchasable upon
exercise of each such warrant and the price at which such principal
amount of debt securities of such series may be purchased upon such
exercise;
- the date on which the right shall expire;
- whether the warrants will be issued in registered or bearer form;
- any special United States Federal income tax consequences;
- the terms, if any, on which we may accelerate the date by which the
warrants must be exercised; and
- any other terms of such warrants.
Warrant certificates may be exchanged for new warrant certificates of
different denominations, may be presented for registration of transfer if in
registered form, and may be exercised at the corporate trust office of the
warrant agent or any other office indicated in the applicable prospectus
supplement.
Prior to the exercise of any warrant to purchase debt securities, holders
of such warrants will not have any of the rights of holders of the debt
securities purchasable upon such exercise, including the right to receive
payments of principal or premium, if any, or interest, if any, on such debt
securities or to enforce covenants in the applicable indenture.
Prior to the exercise of any warrants to purchase common stock or preferred
stock, holders of such warrants will not have any rights of holders of such
common stock or preferred stock, including the right to receive payments of
dividends, if any, on such common stock or preferred stock, or to exercise any
applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each warrant will entitle the holder to purchase a number of shares of
common stock, preferred stock or such principal amount of debt securities, as
the case may be, at such exercise price as shall in each case be set forth in,
or calculable from, the prospectus supplement relating to the offered warrants.
After the close of business on the expiration date of the warrant or such later
date to which such expiration date may be extended by us, unexercised warrants
will become void. Warrants may be
20
exercised by delivering to the warrant agent payment as provided in the
applicable prospectus supplement of the amount required to purchase the common
stock, preferred stock or debt securities, as the case may be, purchasable upon
such exercise together with certain information set forth on the reverse side of
the warrant certificate. Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within 5
business days, of the warrant certificate evidencing such warrants. Upon receipt
of such payment and the warrant certificate properly completed and duly executed
at the corporate trust office of the warrant agent or any other office indicated
in the applicable prospectus supplement, we will, as soon as practicable, issue
and deliver the common stock, preferred stock or debt securities, as the case
may be, purchasable upon such exercise. If fewer than all of the warrants
represented by such warrant certificate are exercised, a new warrant certificate
will be issued for the remaining amount of warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENT
The warrant agreements may be amended or supplemented without the consent
of the holders of the warrants issued thereunder to effect changes that are not
inconsistent with the provisions of the warrants and that do not adversely
affect the interests of the holders of the warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable prospectus supplement, the
exercise price of, and the number of shares of common stock covered by a common
stock warrant are subject to adjustment in certain events, including
- payment of a dividend on the common stock payable in capital stock and
stock splits, combinations or reclassifications of the common stock,
- issuance to all holders of common stock of rights or warrants to
subscribe for or purchase shares of common stock at less than their
current market price, as defined in the warrant agreement for such series
of common stock warrants, and
- certain distributions of evidences of indebtedness or assets, including
cash dividends or distributions paid out of consolidated earnings or
retained earnings or dividends payable in common stock, or of
subscription rights and warrants, excluding those referred to above.
No adjustment in the exercise price of, and the number of shares of common
stock covered by a common stock warrant will be made for regular quarterly or
other periods of recurring cash dividends or distributions or for cash dividends
or distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect.
Except as stated above, the exercise price of, and the number of shares of
common stock covered by, a common stock warrant will not be adjusted for the
issuance of common stock or any securities convertible into or exchangeable for
common stock, or carrying the right or option to purchase or otherwise acquire
the foregoing in exchange for cash, other property or services. In the event of
any:
- consolidation or merger of us with or into any entity, other than a
consolidation or a merger that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of common
stock,
- sale, transfer, lease or conveyance of all or substantially all of our
assets or
- reclassification, capital reorganization or change of the common stock,
other than solely a change in par value or from par value to no par
value,
then any holder of a common stock warrant will be entitled, on or after the
occurrence of any such event, to receive on exercise of such common stock
warrant the kind and amount of shares of stock or other securities, cash or
other property that the holder would have received had such holder exercised
such
21
holder's common stock warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the common stock warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such common
stock warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were common stock.
RESTRICTIONS ON TRANSFER OF SECURITIES
For us to qualify as a real estate investment trust, not more than 50% in
value of our outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals at any time during the last half of our taxable year.
In order to ensure that this requirement is satisfied, under our by-laws we have
the power to refuse to transfer shares of our common stock, or any security
convertible into or exercisable for shares of our common stock, to any person
whose acquisition of such shares or other securities would result in the direct
or indirect beneficial ownership of more than 9.8% in value of our outstanding
common stock. If any shares or other securities in excess of this limit are
issued or transferred to any person, such issuance or transfer shall be valid
only with respect to such amount of shares or securities as does not exceed this
limit, and such issuance or transfer will be void with respect to the excess.
If this provision of our by-laws is determined to be invalid by virtue of
any legal decision, statute, rule or regulation, then the transferee of the
shares or other securities will be deemed to have acted as our agent in
acquiring the shares or other securities that are in excess of the limit, and
will be deemed to hold such excess shares or securities on our behalf. As the
equivalent of treasury securities for such purposes, the excess securities will
not be entitled to any voting rights, will not be considered to be outstanding
for quorum or voting purposes, and will not be entitled to receive dividends,
interest or any other distribution with respect to such securities. Any person
who receives dividends, interest or any other distribution in respect of the
excess securities will hold the same as our agent and for the transferee of the
excess securities following a permitted transfer.
In addition, under our by-laws we may refuse to transfer any shares,
passing either by voluntary transfer, by operation of law, or under the last
will and testament of any shareholder, if such transfer would or might, in the
opinion of our board of directors or counsel, disqualify us as a real estate
investment trust.
DESCRIPTION OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS
ANTI-TAKEOVER PROVISIONS
Our amended certificate of incorporation and by-laws contain provisions
that may have the effect of discouraging persons from acquiring large blocks of
our stock or delaying or preventing a change in our control. The material
provisions that may have such an effect are:
- Classification of our board of directors into three classes with the term
of only one class expiring each year.
- A provision permitting our board of directors to make, amend or repeal
our by-laws.
- Authorization for our board of directors to issue preferred stock in
series and to fix the rights and preferences of the series, including,
among other things, whether and to what extent the shares of any series
will have voting rights and the extent of the preferences of the shares
of any series with respect to dividends and other matters (see
"Description of Our Preferred Stock" above).
- A prohibition on shareholders taking action by written consent in lieu of
a meeting.
- Advance notice procedures with respect to nominations of directors by
shareholders.
22
- The grant only to our board of directors of the right to call special
meetings of shareholders.
- Limitations on the number of shares of our capital stock that may be
beneficially owned, directly or indirectly, by any one shareholder (see
"Restrictions on Transfer of Securities" above).
- Limitations on transactions that involve us and any shareholder who
beneficially owns 5% or more of our common stock (see "Limitations on
Transactions Involving Us and Our Shareholders" below).
- A provision permitting amendment of certain of the provisions listed
above only by an affirmative vote of the holders of at least
three-quarters of all of the outstanding shares of our voting stock,
voting together as a single class.
LIMITATIONS ON TRANSACTIONS INVOLVING US AND OUR SHAREHOLDERS
Under our by-laws, in addition to any vote otherwise required by law, our
certificate of incorporation or our by-laws, the following transactions will
require the affirmative vote of the holders of at least seventy-five percent of
the voting power of our then outstanding shares of capital stock entitled to
vote generally in the election of directors, voting together as a single class:
- Our merger or consolidation with or into
- any shareholder that owns 5% or more of our voting stock; or
- any other corporation or entity which is, or after such merger or
consolidation would be, an affiliate of a shareholder that owns 5% or
more of our voting stock.
- Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of substantially all of our assets, in one transaction or a
series of transactions, to or with any shareholder that owns 5% or more
of our voting stock or an affiliate of any such shareholder.
- Any reclassification of our securities, including any reverse stock
split, or recapitalization or any other transaction that has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of our equity securities that is directly
or indirectly owned by any shareholder that owns 5% or more of our voting
stock or any affiliate of such a shareholder, whether or not the
transaction involves a such a shareholder.
- The adoption of any plan or proposal for our liquidation or dissolution
proposed by or on behalf of an shareholder that owns 5% or more of our
voting stock or any affiliate of such a shareholder.
These provisions will not apply to any of the transactions described above
if:
- we are at the time of the consummation of the transaction, and at all
times throughout the preceding twelve months have been, directly or
indirectly, the beneficial owner of a majority of each class of the
outstanding equity securities of the 5% shareholder that is a party to
the transaction; or
- the transaction has been approved by a majority of the members of our
board of directors who, at the time such approval is given, were not
affiliates or nominees of the 5% shareholder and were either members of
our board of directors prior to the time that the 5% shareholder became a
5% shareholder, or were successors of such directors on the
recommendation of a majority of such directors then on the board of
directors; or
- both of the following conditions have been met:
- the aggregate amount of the cash and the fair market value, as
determined in good faith by our board of directors, of the
consideration other than cash to be received per share by holders of
our voting stock in such transaction shall be at least equal to the
highest per share price paid by the 5% shareholder for any shares of
voting stock acquired by it:
23
- within the two-year period immediately prior to the first public
announcement of the proposal of the transaction, or
- in the transaction in which it became a 5% shareholder, whichever is
higher; and
- the consideration to be received by holders of a particular class of
outstanding voting stock shall be in cash or in the same form as the 5%
shareholder previously paid for shares of such voting stock. If the 5%
shareholder paid for shares of any class of voting stock with varying
forms of consideration, the form of consideration to be paid by the 5%
shareholder for such class of voting stock shall be either cash or the
form used to acquire the largest number of shares of such class of voting
stock previously acquired by the shareholder.
The foregoing summary of certain provisions of our amended certificate of
incorporation and by-laws does not purport to be complete or to give effect to
provisions of statutory or common law. The foregoing summary is subject to, and
qualified in its entirety by reference to, the provisions of applicable law and
our amended certificate of incorporation and by-laws, copies of which are
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part.
REIT QUALIFICATION
Generally, for each taxable year during which we qualify as a real estate
investment trust, we will not be taxed on the portion of our taxable income,
including capital gains, that we distribute to shareholders. Any undistributed
income or gains will be taxed at regular corporate tax rates. We will be subject
to tax at the highest corporate rate on our net income from foreclosure
property, regardless of the amount of our distributions. The highest corporate
tax rate is currently 35%. Should we fail to qualify as a real estate investment
trust, we might incur debt and have to liquidate investments to pay the
resulting higher taxes.
PLAN OF DISTRIBUTION
We may sell the securities:
- through underwriters or dealers;
- through agents;
- directly to purchasers; or
- through a combination of any of these methods of sale.
Any underwriter or agent involved in the offer and sale of the securities
will be named in the applicable prospectus supplement. Direct sales to investors
or our shareholders may be accomplished through subscription offerings or
through shareholder purchase rights distributed to shareholders. In connection
with subscription offerings or the distribution of shareholder purchase rights
to shareholders, if all of the underlying securities are not subscribed for, we
may sell any unsubscribed securities to third parties directly or through
underwriters or agents. In addition, whether or not all of the underlying
securities are subscribed for, we may concurrently offer additional securities
to third parties directly or through underwriters or agents. If securities are
to be sold through shareholder purchase rights, the shareholder purchase rights
will be distributed as a dividend to the shareholders for which they will pay no
separate consideration. The prospectus supplement with respect to the offer of
securities under shareholder purchase rights will set forth the relevant terms
of the shareholder purchase rights, including:
- whether common stock, preferred stock or equity stock, or warrants for
those securities will be offered under the shareholder purchase rights;
- the number of those securities or warrants that will be offered under the
shareholder purchase rights;
24
- the period during which and the price at which the shareholder purchase
rights will be exercisable;
- the number of shareholder purchase rights then outstanding;
- any provisions for changes to or adjustments in the exercise price of the
shareholder purchase rights, and
- any other material terms of the shareholder purchase rights.
Underwriters may offer and sell the securities at:
- fixed prices, which may be changed;
- prices related to the prevailing market prices at the time of sale; or
- negotiated prices.
We also may, from time to time, authorize underwriters acting as our agents
to offer and sell the securities upon the terms and conditions as are set forth
in the applicable prospectus supplement. In connection with the sale of
securities, underwriters may be deemed to have received compensation from us in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of securities for whom they may act as agent.
Underwriters may sell securities to or through dealers, and these dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters or commissions from the purchasers for whom they may act as
agent, or both. The applicable prospectus supplement will disclose:
- any underwriting compensation we pay to underwriters or agents in
connection with the offering of securities and
- any discounts, concessions or commissions allowed by underwriters to
participating dealers.
Under the Securities Act, underwriters, dealers and agents participating in
the distribution of the securities may be deemed to be underwriters and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions. We may agree to indemnify underwriters, dealers and agents against
civil liabilities, including liabilities under the Securities Act and to make
contribution to them in connection with those liabilities.
If indicated in the applicable prospectus supplement, we may also offer and
sell securities through a firm that will remarket the securities. These firms
may act as principals for their own account or as our agents. These firms may be
deemed to be underwriters in connection with the securities being remarketed. We
may agree to indemnify these firms against liabilities, including liabilities
under the Securities Act.
If indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by institutions to purchase
securities at the offering price set forth in that prospectus supplement under
delayed delivery contracts providing for payment and delivery on the dates
stated in the prospectus supplement. Each contract will be for an amount not
less than, and the aggregate principal amount of securities sold under contracts
will be not less nor more than, the respective amounts stated in the applicable
prospectus supplement. Institutions with whom contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to our approval. Contracts will
not be subject to any conditions except:
- the purchase by an institution of the securities covered by its contracts
will not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which the institution is subject,
and
25
- if the securities are being sold to underwriters, we will have sold to
them the total principal amount of the securities less the principal
amount of the securities covered by contracts.
Agents and underwriters will have no responsibility in respect of the
delivery or performance of contracts.
Some of the underwriters and their affiliates may engage in transactions
with or perform services for us in the ordinary course of business.
LEGAL OPINIONS
The validity of the securities offered will be passed upon by Shumaker,
Loop & Kendrick, LLP, Toledo, Ohio.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedules are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
26
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus supplement and the accompanying prospectus. We are offering to sell,
and seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information appearing in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference is accurate only as of their respective dates. Our business, financial
condition, results of operations and prospectus may have changed since then.
------------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary................... S-2
Risk Factors.................................... S-5
Cautionary Statement Concerning Forward-Looking
Statements.................................... S-6
The Company..................................... S-6
Ratio of Earnings to Fixed Charges.............. S-9
Use of Proceeds................................. S-9
Recent Developments............................. S-9
Capitalization.................................. S-10
Selected Financial Information.................. S-11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... S-12
Management and Directors........................ S-18
Description of the Notes........................ S-19
Description of Other Indebtedness............... S-27
Taxation........................................ S-27
Underwriting.................................... S-29
Legal Matters................................... S-30
Experts......................................... S-30
PROSPECTUS
About this Prospectus........................... 3
Cautionary Note Regarding Forward-Looking
Statements.................................... 3
Where You Can Find Additional Information....... 4
Documents Incorporated by Reference............. 4
About Our Company............................... 5
Risk Factors.................................... 6
How We Intend to Use the Proceeds............... 6
Ratios Of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock
Dividends..................................... 6
General Description of the Offered Securities... 6
Description of Debt Securities.................. 7
Description of Our Common Stock................. 14
Description of Our Preferred Stock.............. 15
Description of Warrants......................... 19
Restrictions on Transfer of Securities.......... 22
Description of Certain Provisions of Our
Certificate of Incorporation and By-Laws...... 22
REIT Qualification.............................. 24
Plan of Distribution............................ 24
Legal Opinions.................................. 26
Experts......................................... 26
HEALTH CARE REIT LOGO
$150,000,000
% NOTES DUE , 20
DEUTSCHE BANK SECURITIES
UBS WARBURG
PROSPECTUS SUPPLEMENT
SEPTEMBER , 2002