-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BGALh5Ju5AAwBuGlDjKdQihocdHqQDNDb5AK8hpYNQ7MgjG2Ubj0eM7n+5WkgTuF yevbls5Tf1Ej9meuvcBaCA== 0001029869-97-000391.txt : 19970329 0001029869-97-000391.hdr.sgml : 19970329 ACCESSION NUMBER: 0001029869-97-000391 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 97567592 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 DEF 14A 1 HRP FORM DEF 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the registrant [x] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive proxy statement [ ] Definitive additional materials [ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 HEALTH AND RETIREMENT PROPERTIES TRUST (Name of Registrant as Specified in its Charter) ----------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (1) Title of each class of securities to which transaction applies: ----------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ----------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how its was determined): ----------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ----------------------------------------------------------------------- (5) Total fee paid: ----------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials: [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement, or the form or schedule and the date of its filing. (1) Amount Previously Paid: ----------------------------------------------- (2) Form, Schedule or Registration Statement No.: --------------------------- (3) Filing Party: ----------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------ HEALTH AND RETIREMENT PROPERTIES TRUST 400 Centre Street Newton, Massachusetts 02158 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1997 To the Shareholders of Health and Retirement Properties Trust Notice is hereby given that the Annual Meeting of Shareholders of Health and Retirement Properties Trust (the "Company") will be held at 10:00 A.M. on Tuesday, May 13, 1997, at State Street Bank and Trust Company, 225 Franklin Street, 33rd Floor, Boston, Massachusetts, for the following purposes: 1. To elect two Trustees in Group II of the Company's Board of Trustees. 2. To consider and act upon such other matters as may properly come before the meeting. The Board of Trustees has fixed the close of business on March 21, 1997 as the record date for determination of the shareholders entitled to notice of and to vote at the meeting. By Order of the Board of Trustees, David J. Hegarty, Secretary March 31, 1997 WHETHER OR NOT YOU EXPECT TO BE AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENVELOPE ENCLOSED HEREWITH. HEALTH AND RETIREMENT PROPERTIES TRUST 400 Centre Street Newton, Massachusetts 02158 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS To Be Held on Tuesday, May 13, 1997 ----------- INTRODUCTION A Notice of the Annual Meeting of Shareholders of the Company (the "Meeting") is set forth on the preceding page and there is enclosed herewith a form of proxy solicited by the Board of Trustees of the Company. The cost of this solicitation will be borne by the Company. In addition to solicitation by mail, the Trustees and officers of the Company may solicit proxies personally or by telephone or telegram. This proxy statement is being first sent to shareholders on or about March 31, 1997, together with a copy of the Annual Report to Shareholders for the year ended December 31, 1996 (including audited financial statements of the Company). Only shareholders of record as of the close of business on March 21, 1997 (the "Record Date") are entitled to notice of and to vote at the Meeting and/or any adjournment thereof. The outstanding stock of the Company on the Record Date entitled to vote consisted of 94,838,259 Common Shares of Beneficial Interest, $.01 par value per share (the "Common Shares"). The holders of the outstanding Common Shares are entitled to one vote per Common Share. All Common Shares represented by valid proxies received by the Company prior to the Meeting will be counted for purposes of determining the presence of a quorum and will be voted as specified in the proxy. If no specification is made by the shareholder, the Common Shares will be voted FOR the proposal set forth below. If a broker indicates on a proxy that it does not have discretionary authority as to certain Common Shares to vote on the proposal, those Common Shares will not be counted as voting in favor of the proposal. A shareholder giving a proxy has the power to revoke it any time prior to its exercise by delivering to the Secretary of the Company a written revocation or a duly executed proxy bearing a later date, or by attending the Meeting and voting his or her Common Shares in person. Adoption of the proposal presented in this Proxy Statement does not give rise to appraisal rights or other dissenter's rights under Maryland law. Item 1. Election of Trustees in Group II of the Board of Trustees The number of Trustees of the Company currently is fixed at five and the Board of Trustees currently is divided into three groups with two Trustees in Group I, two Trustees in Group II and one Trustee in Group III. Trustees in each Group are elected to three-year terms. The business of the Company is conducted under the general direction of the Board of Trustees as provided by the Amended and Restated Declaration of Trust, as amended (the "Declaration of Trust"), and the Amended and Restated By-Laws of the Company and the laws of the State of Maryland, the state of the Company's organization on October 9, 1986. Three of the Trustees, Bruce M. Gans, M.D., the Rev. Justinian Manning, C.P. and Ralph J. Watts are the Company's "Independent Trustees;" that is, Trustees who are not otherwise affiliated with the Company, HRPT Advisors, Inc., a Delaware corporation which is the Company's investment advisor ("Advisors"), or any other person or entity that holds in excess of 8.5% of the issued and outstanding Common Shares of the Company. The Independent Trustees also comprise the Company's Audit Committee. The Audit Committee meets with the Company's independent auditors to discuss the procedures for conducting, and the results of, audits of the Company's financial records, and recommends to the Board of Trustees the hiring or retention of independent auditors. The Company does not have a Compensation Committee or a Nominating Committee. During 1996, the Board of Trustees held seven meetings. During 1996, each Trustee attended 75% or more of the total number of meetings of the Board and any Committee of which he was a member. The Audit Committee held three meetings during 1996. Each Independent Trustee receives an annual fee of $20,000 for services as a Trustee, plus $500 for each meeting of the Board or Board committee attended by such Trustee. The Chairperson of the Audit Committee receives an additional $2,000 annually; such position rotates annually among the Independent Trustees. Each Independent Trustee also receives annual 500 Common Share grants under the Company's 1992 Incentive Share Award Plan. The Company reimburses all Trustees for travel expenses incurred in connection with their duties as Trustees of the Company. The Company has also agreed to pay any Independent Trustee who brings a property to the attention of the Company a fee equal to one percent of any investment made by the Company in the property. No fees have been earned to date by any Independent Trustee with respect to any investments by the Company. The present Trustees in Group II are the Rev. Justinian Manning and Gerard M. Martin. If re-elected, the Rev. Manning and Mr. Martin will hold office until the Company's 2000 Annual Meeting of Shareholders. To be elected, each nominee for Trustee of the Company must receive the vote of a majority of the Shares issued and outstanding. It is the intention of the persons authorized by the enclosed proxy to nominate and elect the Rev. Manning and Mr. Martin as the Group II Trustees. Advisors, which has voting control over 3,859,822 Common Shares (approximately 4.1%) of Common Shares outstanding and entitled to vote) intends to vote in favor of the election of the Rev. Manning and Mr. Martin as the Group II Trustees. The Rev. Manning's and Mr. Martin's principal occupations for the past five years and their ages as of the Record Date are as follows: REV. JUSTINIAN MANNING, C.P. Age: 70 The Reverend Justinian Manning, C.P., has been, since September 1990, the pastor of St. Gabriel's parish in Brighton, Massachusetts. He is also on the Board of Directors of Charlesview, a low and moderate income housing program, and St. Elizabeth's Hospital Foundation. He is past Treasurer and a former Director of St. Paul's Benevolent, Educational and Missionary Institute, a New Jersey corporation, which oversees foundations in Massachusetts, Connecticut, New York, Pennsylvania, Maryland and Florida and the Institute's Overseas Missions. He was formerly on the Board of Directors of St. Paul's Monastery Manor, in Pittsburgh, Pennsylvania, a congregate housing facility. He belongs to the Provincial Council of the Passionist Provincialate and is the former Director of Consolidation for the Community. The Reverend Manning has been a Trustee of the Company since its organization in 1986 and was re-elected as a Group II Trustee at the 1994 Annual Meeting of Shareholders. GERARD M. MARTIN Age: 62 Mr. Martin is a Managing Trustee of the Company. Mr. Martin is a private investor in real estate and has been a Trustee of HRP since its organization in 1986. From 1985 until the merger of Greenery Rehabilitation Group, Inc. ("Greenery") into Horizon Healthcare Corporation (now known as Horizon/CMS Healthcare Corporation) ("HHC") in February 1994, he served as the Chief Executive Officer and Chairman of the Board of Directors of Greenery. Mr. Martin served as a Director of HHC until his resignation in July 1996. Mr. Martin has been active in the health care and real estate industries for more than 25 years as a manager, developer and builder. Mr. Martin and his wife are the sole shareholders of Regional Home Care, Inc., a corporation providing respiratory therapy services and supplies to clients in New England. Mr. Martin is also a Director and 50% shareholder of each of Advisors, Connecticut Subacute Corporation ("CSC") and Connecticut Subacute Corporation II ("CSCII"), a Director and 33-1/3% shareholder of each of Vermont Subacute Corpo- 2 ration ("VSC") and New Hampshire Subacute Corporation ("NHSC") and a Managing Trustee of Hospitality Properties Trust ("HPT"). Mr. Martin was re-elected as a Group II Trustee at the 1994 Annual Meeting of Shareholders. In addition to the Rev. Manning and Mr. Martin, the following persons currently serve on the Board of Trustees or serve as executive officers of the Company. Their principal occupations for the last five years and their ages as of the Record Date, are as follows: BRUCE M. GANS, M.D. Age: 50 Dr. Gans is President of the Rehabilitation Institute of Michigan, a specialty hospital affiliated with Wayne State University School of Medicine, a position he has held since 1989. Dr. Gans is also a Professor and Chairman of the Department of Physical Medicine and Rehabilitation at Wayne State University and a Senior Vice President of the Detroit Medical Center. Dr. Gans has been a Group I Trustee since his election in October 1995 to a vacant seat on the Board. His term will expire at the 1999 Annual Meeting of Shareholders. BARRY M. PORTNOY Age: 51 Barry M. Portnoy has been a partner in the law firm of Sullivan & Worcester LLP, counsel to the Company, since 1978, and a Trustee of the Company since its organization in 1986. Mr. Portnoy served as a Director of HHC until his resignation in July 1996. Mr. Portnoy is a Director and 50% shareholder of Advisors, CSC and CSCII, a Director and 33-1/3% shareholder of each of VSC and NHSC and a Managing Trustee of HPT. Mr. Portnoy was re-elected as a Group I Trustee at the 1996 Annual Meeting of Shareholders. His term will expire at the 1999 Annual Meeting of Shareholders. RALPH J. WATTS Age: 50 Mr. Watts is President and CEO of Cardiovascular Ventures, Inc., a privately held company which develops, owns and operates outpatient cardiac catheterization laboratories and is engaged in physician practice management. Prior to assuming this position in 1992, Mr. Watts was President and CEO of Ramsay Health Care, Inc., a publicly owned company which owned and operated 18 hospitals in 13 states and had approximately 2,000 employees. Mr. Watts has served on the Board as a Group III Trustee since October 1995 when he was elected to fill a vacancy on the Board of Directors. His term will expire at the 1998 Annual Meeting of Shareholders. DAVID J. HEGARTY Age: 40 David J. Hegarty, a certified public accountant, joined the Company in July 1987 as Treasurer, became Executive Vice President in July 1993 and became the President and Chief Operating Officer of the Company in April 1995. Mr. Hegarty has also been the Secretary of the Company since 1987. In April 1995, he also became a Director and the President and Chief Operating Officer of Advisors. From January 1984 to July 1987, Mr. Hegarty was an audit manager with Ernst & Young LLP, the Company's independent auditors. AJAY SAINI Age: 37 In April 1995, Ajay Saini, a certified public accountant, became the Treasurer of the Company and in August 1995 also become Chief Financial Officer. He has been Vice President and Chief Accounting Officer of Advisors since July 1993, and prior to that he served as Controller of Advisors since June 1990. In April 1995, he became Treasurer of Advisors. Prior to joining Advisors, Mr. Saini was a senior accountant at Ernst & Young LLP, the Company's independent auditors. There are no family relationships among any Trustees and current executive officers of the Company. However, Adam D. Portnoy, who served as Vice President of the Company prior to his resignation in January 1997, is the son of Barry M. Portnoy. Executive officers serve at the will of the Board of Trustees. 3 OTHER INFORMATION Compensation of Executive Officers The Company does not have any employees; services which otherwise would be provided by employees are performed by Advisors. Payments by the Company to Advisors are described in "Certain Relationships and Related Transactions". The following table provides summary compensation information for certain employees of Advisors who performed the duties of executive officers for the Company during 1996: SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long-Term Compensation --------------------------------------- ----------------------------------------------------------- Restricted Securities Other Stock Underlying All Other Name and Principal Position Year Salary Bonus Compensation Awards(2) Options/SARs LTIP Payouts Compensation ------------------------------ ------ -------- ---------------------- ------------ --------------- --------------- ------------- David J. Hegarty 1996 None None None $51,750 None None None President & Chief Operating 1995 None None None $46,125 None None None Officer (chief executive 1994 None None None $44,250 None None None officer) Adam D. Portnoy 1996 None None None $25,875 None None None Vice President(3) Ajay Saini, Treasurer 1996 None None None $34,500 None None None Treasurer & Chief Financial 1995 None None None $30,750 None None None Officer 1994 None None None $22,125 None None None
(1) Except with respect to incentive share award, the Company has not paid and has no current plans to pay compensation to its executive officers. Advisors, which conducts the day-to-day operations of the Company, compensated Messrs. Hegarty, Saini and Portnoy in connection with their services to Advisors and to the Company. (2) All incentive share awards have been granted pursuant to the Company's 1992 Incentive Share Award Plan and, except as described below in Note 3, provide that one third of each annual incentive share award vests immediately upon grant and one third vests on each of the first and second anniversaries of the grant. In the event any executive officer who has been granted an incentive share award ceases to perform the duties of an executive officer of the Company during the vesting period of such award, that executive officer will only be entitled to receive the number of Common Shares which have vested up to the date of his departure. At December 31, 1996, Messrs. Hegarty, Saini and Portnoy held 14,000, 6,000 and 1,500 Common Shares granted under annual incentive share awards, respectively, having a value of $269,500, $115,500 and $28,875 respectively, based upon a $19-1/4 per share closing price for the Common Shares as reported on the New York Stock Exchange on December 31, 1996. Common Shares are entitled to dividends as declared by the Company. The dollar amounts shown represent the number of restricted Common Shares which have vested or continue to be subject to vesting multiplied by the closing price for the Common Shares on the New York Stock Exchange on the date of grant. (3) Mr. Adam Portnoy, the son of Barry M. Portnoy, served as Vice President during a portion of 1996 until January of 1997. The 1,500 Common Shares held by him under the Plan became fully vested in 1997. 4 Performance Graph--Comparison of Cumulative Total Return The graph below shows, for the years indicated, the Company's cumulative total shareholder return on its Common Shares (assuming a $100 investment on December 31, 1991) as compared with (a) the Standard & Poor's 500 Index and (b) the National Association of Real Estate Investment Trust, Inc.'s index of all tax-qualified real estate investment trusts listed on the New York Stock Exchange, the American Stock Exchange and the NASDAQ/National Market System (NAREIT). The comparison assumes all dividends are reinvested and, in the case of HRP, that the reinvestment occurred on the dividend payment date. [LINE CHART] S&P 500 HRP NAREIT INDEX 1991 100 100 100 1992 95 112 108 1993 124 133 118 1994 123 134 120 1995 164 159 165 1996 210 215 203 [/LINE CHART] Compensation Committee Interlocks and Insider Participation The Company does not have a standing Compensation Committee; rather, a committee comprised of the Company's Independent Trustees (Dr. Gans, the Rev. Manning and Mr. Watts) makes recommendations for grants of Common Shares under the Company's 1992 Incentive Share Award Plan (the "Plan"), and such recommendations are acted upon by the full Board of Trustees (Dr. Gans, the Rev. Manning and Messrs. Watts, Martin and Portnoy). Barry M. Portnoy, a member of the Board of Trustees, is a partner in the firm of Sullivan & Worcester LLP, counsel to the Company. Executive Compensation Report Health and Retirement Properties Trust (the "Company") developed and implemented its 1992 Incentive Share Award Plan (the "Plan") in May 1992 in recognition of the following circumstances. First, the Company's Common Shares are primarily a yield vehicle for shareholders and do not appreciate in value in the same manner as other equity securities. Therefore, a conventional stock option plan would not provide appropriate incentives for the Company's management. Second, because the executive officers of the Company are employees of Advisors and not of the Company, and receive their salary compensation from Advisors, the Trustees wished to establish a vehicle which would, among other things, (a) foster a continuing identity of interest between management of the Company and its shareholders, and (b) recognize that the Company's executive officers perform certain duties on behalf of the Company, primarily with regard to shareholder relations and investor communications, which fall outside of the services covered by the investment advisory contract between the Company and Advisors (the "Advisory Agreement"). In granting incentive share awards, the Trustees consider factors such as the amount and terms of restricted Common Shares previously granted to executive officers and the amount of time spent and complexity of the duties performed by executive officers on behalf of the Company, speaking at Company conferences, road shows and making additional presentations, interfacing with analysts and preparing and distributing shareholder reports, materials, statements and other information. The Trustees may impose vesting restrictions or other conditions on the granted Common Shares, which may further promote continuity of management. In 1996, David J. Hegarty, President and Chief Operating Officer of the Company, received a grant of 3,000 Common Shares under the Plan, 1,000 Common Shares of which vested immediately upon grant and 1,000 of which will vest on each of the first and second anniversaries of the date of grant. In 1996, Mr. Saini, then Treasurer of the Company, received 5 a grant of 2,000 Common Shares under the Plan, 667 of which vested immediately upon grant; 667 of which will vest on the first anniversary of the grant and 666 of which will vest on the second anniversary thereof. In 1996, Adam D. Portnoy received a grant of 1,500 Common Shares under the Plan, 500 Common Shares of which vested immediately upon grant. Mr. Portnoy resigned his position with the Company in January of 1997, and the Board of Trustees voted to accelerate fully the vesting of Mr. Portnoy's Common Shares. The determination of the number of Common Shares granted to Messrs. Hegarty, Saini and Portnoy and the acceleration of the vesting schedule for Mr. Portnoy's Common Shares were not specifically based on an estimate of the Company's performance, but instead was based on the relationship of the fair market value of the Common Shares so granted, on the number of Common Shares previously granted to each such individual, and on the Board's opinion as to the value of the "outside" services to the Company, as discussed above, performed by each of Messrs. Hegarty, Saini and Portnoy during the year. BOARD OF TRUSTEES Bruce M. Gans, M.D. Rev. Justinian Manning, C.P. Gerard M. Martin Barry M. Portnoy Ralph J. Watts 6 Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information with respect to the beneficial ownership of the Shares by each beneficial owner known to the Company to hold more than 5% of the Shares, each Trustee, and all officers and Trustees of the Company as a group, as of the Record Date. The address of each of the Trustees and current officers of the Company is c/o Health and Retirement Properties Trust, 400 Centre Street, Newton, Massachusetts 02158.
Common Shares Beneficially Name Owned Percentage ---- ------------ ---------- Bruce M. Gans 500 * David J. Hegarty(1) 14,000 * Rev. Justinian Manning, C.P 2,500 * Gerard M. Martin(2) 3,859,822 4.1% Adam D. Portnoy(3) 1,500 * Barry M. Portnoy(2) 3,859,822 4.1% Ajay Saini(4) 6,515 * Ralph J. Watts 550 * All executive officers and Trustees as a group (8 persons)(1)(2)(3)(4) 3,885,387 4.1%
- ---------------- * Less than 1% of the Company's outstanding Shares. (1) Includes 3,000 Common Shares awarded under the 1992 Incentive Share Awarded Plan which have not yet vested. (2) Advisors, which is wholly owned by Messrs. Martin and Portnoy, owns 1,082,056 Common Shares directly and, solely in its capacity as voting trustee of a voting trust agreement, exercises voting control over 1,000,000 Common Shares owned by AMS Properties, Inc. ("AMSP") and pledged to the Company to secure the obligations of GranCare, Inc., AMSP and GCI Healthcare Centers, Inc. to the Company. Advisors also exercises voting control as proxy over 1,777,766 Common Shares owned by Berlin C.C., Inc., St. Johnsbury C.C., Inc., Rochester C.C., Inc., Springfield C.C., Inc., Bennington C.C., Inc., Burlington, C.C., Inc., The L.P. Corporation and American Health Care, Inc. Neither Mr. Martin nor Mr. Portnoy owns any Common Shares directly. (3) Mr. Adam Portnoy's address is 56 Kissling Street, San Francisco, CA 94103. (4) Includes 1,833 Common Shares awarded under the 1992 Incentive Share Award Plan which have not yet vested, 500 Common Shares in Mr. Saini's IRA account and approximately 15 Common Shares held by Mr. Saini's minor daughter. Certain Relationships and Related Transactions Messrs. Martin and Barry Portnoy are principal shareholders of Connecticut Subacute Corporation ("CSC"), Connecticut Subacute Corporation II ("CSCII"), New Hampshire Subacute Corporation ("NHSC") and Vermont Subacute Corporation ("VSC") (collectively the "Subacute Entities") and served as Directors of Horizon/CMS Healthcare Corporation ("HHC") until their resignation in July of 1996. The Subacute Entities and HHC are mortgagors or lessees of the Company. The Company has extended a $4 million line of credit to CSC until June 30, 1998. At December 31, 1996, there was $2.4 million outstanding under this agreement. The lease and mortgage transactions with HHC and the Subacute Entities are based on market terms and are generally similar to the Company's lease and mortgage agreements with unaffiliated companies. The former president of the Company is the president of the Subacute Entities. Rent and interest paid to the Company by the Subacute Entities was $13 million in 1996. The Company has an agreement with Advisors whereby Advisors provides investment and administrative services to the Company. Advisors is owned by Messrs. Martin and Barry Portnoy. The Advisory Agreement provides 7 for an annual advisory fee equal to 0.70% of the Company's Average Invested Capital, as defined in the Advisory Agreement, up to $250 million, and 0.50% of Average Invested Capital equal to or exceeding $250 million; and an annual incentive fee, currently calculated on the basis of increases in the Company's operating cash flow above threshold amounts (15% of cash flow above the threshold amount of $1.47/Share in 1996). All incentive fees which may be earned by the Advisor will be paid in Common Shares. Advisors' fee will be waived to the extent necessary to limit the Company's total annual operating expenses to the greater of (i) 2% of Average Invested Capital or (ii) 25% of the Company's Net Income determined as set forth in the Advisory Agreement. The aggregate advisory fees paid to Advisors for fiscal year 1996 were $5.3 million, of which approximately $592,272 was attributable to investments in the Subacute Entities. The incentive fee award for fiscal year 1996 was $609,618, representing 32,846 Common Shares, having a market value at December 31, 1996 of $632,286. During 1996, Advisors received $1.5 million in dividends on its owned Common Shares. Advisors is the general partner of M&P Partners Limited Partnership ("M&P"), a partnership which is owned by Advisors and Messrs. Martin and Barry Portnoy and which provides management services for the Company's multi- tenant buildings. The Company paid $355,000 in management fees to M&P in 1996. Management fees paid to M&P are based on a percentage of revenues derived from the multi-tenant buildings under its management. Messrs. Martin and Portnoy each has material interests in the transactions between the Company and each of the Subacute Entities, Advisors and M&P. To the extent that the terms of the Company's investments in properties owned or leased by the Subacute Entities have been negotiated among related parties, they have not been determined on an arm's-length basis. Investment terms, however, have been based upon independent appraisals of the properties, where available, but the Company has historically placed a greater emphasis on what it believes to be more determinative factors such as cash flow available for rent and debt service. In addition, in some cases these negotiations have been with the representatives of the underwriters of the Company's public offerings. All existing business relationships between the Company, on the one hand, and HHC, Advisors, M&P, the Subacute Entities and/or their affiliates, on the other hand, have been approved by, and, unless and until any such company no longer has relationships with the Company or its affiliates which are the same or similar to those described above, all such future relationships will be submitted for approval by, majority vote of the Independent Trustees. Mr. Portnoy is a partner in the firm of Sullivan & Worcester LLP, counsel to the Company and to HPT, Advisors, M&P, the Subacute Entities and affiliates of each of the foregoing. Certain Litigation. As previously disclosed, in early 1995 the Company commenced an action in a Florida state court to collect on a secured indemnity agreement from a former tenant and mortgagor, together with certain related parties (collectively, the "Former Tenant"). In May 1995 the Former Tenant filed a counterclaim and third-party complaint against the Company and others including Messrs. Martin and Barry Portnoy, Advisors and Sullivan & Worcester, seeking, among other things, to set aside the indemnity agreement and to recover substantial damages. After a Massachusetts state court ordered the dispute to arbitration and a Florida court stayed further proceedings pending arbitration, the Former Tenant brought a separate action against the Company in the Federal District Court in Massachusetts and realleged many of the same allegations made in the counterclaims and third-party complaints previously brought by them in response to the Company's original action, and adding allegations of violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and violations of RICO. In September 1996, the Federal Court in Massachusetts ordered the case brought by the Former Tenant dismissed and all disputes between the Former Tenant and the Company referred to arbitration. The arbitration is proceeding. As the Company has previously disclosed, certain related cases have also been filed. The amounts of damages claimed by the Former Tenant and creditors or assignees of the Former Tenant are material. The Company is pursuing its indemnity claims against the Former Tenant and is defending the claims of the Former Tenant in the arbitration proceedings. The Company intends to defend itself in related actions brought and which may be brought, to attempt to consolidate these cases in the pending arbitration proceeding or otherwise to pursue such claims and rights which it may have. The outcome of these pending claims and proceedings cannot be predicted. The Declaration of Trust provides that Trustees, officers, employees and agents of the Company shall be indemnified by the Company against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims asserted 8 against them by reason of their status, provided that such claims were not the result of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Were Messrs. Martin and Portnoy to be held liable in the proceedings described above, they may therefore have a claim for indemnification from the Company. COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Trustees and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership of securities with the Securities and Exchange Commission and the New York Stock Exchange. Executive officers, Trustees and greater than 10% shareholders are required to furnish the Company with copies of all forms they file pursuant to Section 16(a). Based solely on review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that, during the 1996 fiscal year, all filing requirements applicable to its executive officers, Trustees and greater than 10% shareholders were complied with, except that Mr. Watts reported on his 1996 Annual Statement of Changes in Beneficial Interest a de minimis purchase of Common Shares which should have been reported on his 1995 Annual Statement of Changes in Beneficial Interest. AUDITORS The Company is not required to submit the selection of its auditor to a vote of shareholders. The Company's independent auditor since its organization in 1986 has been Ernst & Young LLP or its predecessors. A representative of Ernst & Young LLP is expected to be present at the Meeting, with the opportunity to make a statement if desired, and is expected to be available to respond to appropriate questions from shareholders who are present at the Meeting. SHAREHOLDER PROPOSALS The Company's 1998 Annual Meeting is presently expected to be held on or about May 12, 1998. Proposals of shareholders intended to be presented at the 1998 Annual Meeting and nominations for Trustee must be received not later than March 4, 1998, and not earlier than January 13, 1998 for inclusion in the Company's proxy statement and proxy for that meeting. OTHER MATTERS As of this time, the Board of Trustees knows of no other matters to be brought before the Meeting. However, if other matters properly come before the Meeting or any adjournment thereof, and if discretionary authority to vote with respect thereto has been conferred by the enclosed proxy, the persons named in the proxy will vote the proxy in accordance with their best judgment as to such matters. By Order of the Board of Trustees David J. Hegarty, Secretary Newton, Massachusetts March 31, 1997 9 [FRONT] HEALTH AND RETIREMENT PROPERTIES TRUST 400 Centre Street, Newton, Massachusetts 02158 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES The undersigned hereby appoints GERARD M. MARTIN, BARRY M. PORTNOY, and DAVID J. HEGARTY, and each of them, as Proxies of the undersigned, each with the power to appoint his substitute, and hereby authorizes a majority of them, or any one if only one be present, to represent and to vote, as designated below, all the Common Shares of Beneficial Interest of Health and Retirement Properties Trust held of record by the undersigned or with respect to which the undersigned is entitled to vote or act, at the Annual Meeting of Shareholders to be held on May 13, 1997 or any adjournment or postponement thereof. This proxy when properly executed will be voted in the manner directed here by the undersigned shareholders. If no direction is made, this proxy will be voted FOR Proposal 1. PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE. NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. Address Change/Comments: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [REVERSE] [X] PLEASE MARK VOTES AS IN THIS EXAMPLE 1.) Election of Trustees in Group II: For Against For All Except [ ] [ ] [ ] Justinian Manning and Gerard M. Martin If you do not wish your shares voted "For" a particular nominee, mark the "For All Except" box and strike a line through the nominee(s) name. Your shares will be voted for the remaining nominee(s). 2.) In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. Mark box at right if comments or address changes are noted on the reverse side of this card. [ ] Please be sure to sign and date this Proxy. DATE: ________________ RECORD DATE SHARES: - --------------------------------- --------------------------------- Shareholder Sign Here Co-owner Sign Here -----END PRIVACY-ENHANCED MESSAGE-----