1
Filed Pursuant to Rule 424B5
Registration No. 333-01843
PROSPECTUS SUPPLEMENT
- ----------------------------------
(TO PROSPECTUS DATED MAY 30, 1996)
$100,000,000
[MEDITRUST LOGO]
REMARKETED RESET NOTES DUE AUGUST 15, 2002
------------------------
Meditrust (the "Company" or "Meditrust") is hereby offering (the
"Offering") $100,000,000 aggregate principal amount of Remarketed Reset Notes
due August 15, 2002 (the "Notes"). The Company is a real estate investment trust
(a "REIT") which invests primarily in retirement communities, assisted living
centers, long-term care facilities and other income producing health care
related real estate and in office buildings leased to various agencies of the
United States Government.
During the period commencing August 12, 1997 and ending August 15, 1998
(the "Initial Spread Period"), the interest rate on the Notes will be reset
quarterly, and will equal LIBOR plus the applicable Spread. The Spread during
the Initial Spread Period is .45%. After the Initial Spread Period, the
character and duration of the interest rate on the Notes will be agreed to by
the Company and the Remarketing Underwriter on each applicable Duration/Mode
Determination Date and the Spread will be agreed to by the Company and the
Remarketing Underwriter on the corresponding Spread Determination Date. Interest
on the Notes during each Subsequent Spread Period shall be payable, as
applicable, either (i) at a floating interest rate (such Notes being in the
"Floating Rate Mode", and such interest rate being a "Floating Rate") or (ii) at
a fixed interest rate (such Notes being in the "Fixed Rate Mode" and such
interest rate being a "Fixed Rate"), in each case as determined by the
Remarketing Underwriter and the Company in accordance with a Remarketing
Agreement between the Remarketing Underwriter and the Company (the "Remarketing
Agreement").
(continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Notes will be sold to the public at varying prices to be determined by
the Underwriter at the time of each sale. The net proceeds to the Company,
before deducting expenses payable by the Company (estimated to be $300,000),
will be 99.6% of the principal amount of the Notes sold and the aggregate net
proceeds will be $99,600,000. For further information with respect to the plan
of distribution and any discounts, commissions or profits on resales of Notes
that may be deemed underwriting discounts or commissions, see "Underwriting."
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if issued by the Company and delivered to and accepted by the Underwriter,
subject to approval of certain legal matters by counsel for the Underwriter and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Global Note will be made in book-entry form
through the facilities of DTC in New York, New York on or about August 12, 1997.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus Supplement is August 7, 1997.
2
(continued from previous page)
After the Initial Spread Period, the Spread applicable to each Subsequent
Spread Period will be determined on each subsequent Spread Determination Date
which precedes the beginning of the corresponding Subsequent Spread Period,
pursuant to agreement between the Company and the Remarketing Underwriter
(except as otherwise provided below), and the interest rate mode used for each
Subsequent Spread Period may be a Floating Rate Mode or a Fixed Rate Mode, at
the discretion of the Company and the Remarketing Underwriter. If the Company
and the Remarketing Underwriter are unable to agree on the Spread, (1) the
Subsequent Spread Period will be one year, (2) the Notes will be reset to the
Floating Rate Mode, (3) the Spread for such Subsequent Spread Period will be the
Alternate Spread and (4) the Notes will be redeemable at the option of the
Company, in whole or in part, upon at least five Business Days' notice given by
no later than the fifth Business Day after the relevant Spread Determination
Date, at a redemption price equal to 100% of the principal amount thereof,
together with accrued interest to the redemption date, except that the Notes may
not be redeemed prior to the Tender Date, or later than the last day of such
one-year Subsequent Spread Period. During the Initial Spread Period, interest on
the Notes will be payable quarterly in arrears on each November 15, 1997,
February 15, 1998, May 15, 1998 and August 15, 1998 (or, if not a Business Day,
on the next succeeding Business Day except as described herein). After the
Initial Spread Period, (i) if the Notes are in the Floating Rate Mode, interest
on the Notes will be payable, unless otherwise specified on the applicable
Duration/Mode Determination Date, quarterly in arrears on each February 15, May
15, August 15, and November 15, during the applicable Subsequent Spread Period,
or (ii) if the Notes are in the Fixed Rate Mode, interest on the Notes will be
payable, unless otherwise specified on the applicable Duration/Mode
Determination Date, semiannually in arrears on each February and August during
the applicable Subsequent Spread Period. "Interest Payment Dates" as used herein
shall mean any date interest is paid on the Notes. See "Description of the
Notes."
The Notes are not redeemable prior to August 15, 1998. Thereafter, the
Notes may be redeemable, at the option of the Company, on such date and on those
Interest Payment Dates that are specified as redemption dates by the Company on
the applicable Duration/Mode Determination Date, in whole or in part, upon
notice thereof given at any time during the 45 calendar day period ending on the
tenth calendar day prior to the redemption date (provided that notice of any
partial redemption must be given to the Noteholders at least 15 calendar days
prior to the redemption date), in accordance with the redemption type selected
on the Duration/Mode Determination Date. Unless previously redeemed, the Notes
will mature on August 15, 2002. See "Description of the Notes -- Redemption of
the Notes."
The Notes will be represented by a single Global Note registered in the
name of The Depository Trust Company ("DTC") or its nominee. Beneficial interest
in the Global Note will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as described
herein, Notes in definitive form will not be issued.
If the Company and the Remarketing Underwriter agree on the Spread with
respect to any Subsequent Spread Period, each Note may be tendered to the
Remarketing Underwriter for purchase from the tendering Noteholder at 100% of
its principal amount and for remarketing by the Remarketing Underwriter on the
date immediately following the end of each Subsequent Spread Period (the "Tender
Date"). In the case of the Initial Spread Period, the Notes may be tendered on
August 15, 1998. Notice of a beneficial owner's election to tender to the
Remarketing Underwriter must be received by the Remarketing Underwriter during
the five calendar day period ending at 12:00 noon, New York City time, on the
fifth calendar day following the relevant Spread Determination Date. The
obligation of the Remarketing Underwriter to purchase tendered Notes from the
tendering Noteholders will be subject to certain conditions and termination
events customary in the Company's public offerings. If the Remarketing
Underwriter does not purchase all tendered notes on the relevant Tender Date,
(1) all Tender Notices relating thereto will be null and void, (2) none of the
Notes for which such Tender Notices shall have been given will be purchased by
the Remarketing Underwriter on such Tender Date, (3) the Subsequent Spread
Period will be one year which Subsequent Spread Period shall be deemed to have
commenced upon the applicable Commencement Date, (4) the Notes will be reset to
the Floating Rate Mode, (5) the Spread for such Subsequent Spread Period will be
the Alternate Spread and (6) the Notes will be redeemable at the option of the
Company, in whole or in part, upon at least 10 Business Days' notice given by no
later than the fifth Business Day following the relevant Tender Date, on the
date set
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forth in such notice, which shall be no later than the last day of such
Subsequent Spread Period, at a redemption price equal to 100% of the principal
amount thereof, together with accrued interest to the redemption date. No
beneficial owner of any Note shall have any rights or claims against the Company
or the Remarketing Underwriter as a result of the Remarketing Underwriter not
purchasing such Notes, except as provided in clause (5) of the preceding
sentence. See "Description of the Notes -- Tender at Option of Beneficial
Owners."
THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY. SUCH TRANSACTIONS MAY
INCLUDE STABILIZING TRANSACTIONS AND THE PURCHASE OF NOTES TO COVER SYNDICATE
SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING"
HEREIN.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED.
PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF PRESENTLY UNANTICIPATED EVENTS.
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Map of U.S. showing number of facility locations of
Meditrust properties in each State.
Bar chart showing growth in Real Estate investments
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere or incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus dated May 30, 1996 (the "Prospectus").
References in this Prospectus Supplement to the "Company" or "Meditrust" shall
be deemed to mean Meditrust and those entities owned or controlled by it on a
consolidated basis unless the context indicates otherwise.
THE COMPANY
Meditrust, founded in 1985, is the largest health care real estate
investment trust in the United States, based on gross real estate investments of
approximately $2.4 billion as of March 31, 1997. Presently, the Company is also
one of the nation's largest real estate investment trusts in terms of market
value of common equity. The market value of the Company's common shares of
beneficial interest, which are traded on the New York Stock Exchange under the
ticker symbol "MT", is approximately $2.3 billion (based on a closing share
price of $37.25 on March 31, 1997).
The Company invests in high quality facilities that are managed by
experienced operators and achieves diversity in its property portfolio by sector
of the health care industry, geographic location, operator and form of
investment. As of March 31, 1997, the Company had investments in 431 facilities,
consisting of 276 nursing homes, 102 assisted and retirement living facilities,
26 rehabilitation hospitals, 20 medical office buildings, six alcohol and
substance abuse and psychiatric hospitals and one acute care hospital campus.
Included in the 431 facilities are 48 properties under construction that are
expected to be completed during the next 12 to 18 months. The properties are
located in 38 states and are operated by 37 different health care companies. Of
the 37 different operators, 16 are publicly traded companies and constitute
approximately 49% of the Company's gross real estate investments.
The Company's real estate investments are either owned by the Company or
secured by a mortgage lien. As of March 31, 1997, permanent mortgage loans
constituted 46%, sale/leaseback transactions constituted 44% and development
financing constituted 10% of the Company's portfolio as measured by gross real
estate investment.
RECENT DEVELOPMENTS
During the first quarter of 1997, the Company committed $146 million to new
real estate investments and funded $115 million in new and open commitments. Of
the $115 million, $34 million consisted of sale/leaseback financing funded for
six assisted living facilities; permanent mortgage financing of $18 million was
provided for a retirement living facility, a nursing home and six assisted
living facilities; $2 million was provided for additions to facilities already
in the portfolio; $22 million funded the development of three nursing homes,
four assisted living facilities and two medical office buildings; and the
remaining $39 million was funded for ongoing construction already in the
portfolio.
As of April 13, 1997, the Company and its wholly-owned subsidiary entered
into an Agreement and Plan of Merger pursuant to the terms of which the Company
and its subsidiary will be merged with Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company. See "Recent Developments."
THE OFFERING
All capitalized terms used herein and not defined herein have the meanings
provided in "Description of the Notes." For a more complete description of the
terms of the Notes specified in the following summary, see "Description of the
Notes" herein and "Description of Debt Securities" in the accompanying
Prospectus.
Securities Offered......... $100,000,000 aggregate principal amount of
Remarketed Reset Notes due August 15, 2002.
Maturity................... The Notes will mature on August 15, 2002, unless
previously redeemed.
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Interest Payment Dates..... During the Initial Spread Period, interest on the
Notes will be payable quarterly in arrears on
November 15, 1997, February 15, 1998, May 15, 1998
and August 15, 1998. During the Initial Spread
Period, the interest rate on the Notes will be
reset quarterly. After the Initial Spread Period,
interest on the Notes will be payable in arrears
(i) on each February 15, May 15, August 15 and
November 15 during the Subsequent Spread Period in
the case of Notes in the Floating Rate Mode or (ii)
on each February 15 and August 15 during the
Subsequent Spread Period in the case of Notes in
the Fixed Rate Mode, in either case unless
otherwise specified by the Company and the
Remarketing Underwriter on the applicable
Duration/Mode Determination Date in connection with
the establishment of each Subsequent Spread Period.
See "Description of the Notes."
Ranking.................... The Notes will be unsecured obligations of the
Company and will rank equally with the Company's
other unsecured and unsubordinated indebtedness.
Redemption................. The Notes may not be redeemed by the Company prior
to August 15, 1998. On that date and on any
redemption date agreed to by the Company and the
Remarketing Underwriter, as selected on each
Duration/Mode Determination Date, the Notes may be
redeemed at the option of the Company, as described
herein. The Notes also may be redeemed at the
option of the Company under certain circumstances,
as described herein. See "Description of the
Notes -- Tender at Option of Beneficial Owners" and
"-- Redemption of the Notes."
Use of Proceeds............ To repay outstanding indebtedness of the Company
and for general business purposes, including
investments in additional health care facilities
and in The Santa Anita Companies. See "Use of
Proceeds" and "Recent Developments."
Covenants.................. The Company will not pledge or otherwise subject to
any lien any assets of the Company or its
subsidiaries unless the Notes are secured by such
pledge or lien equally and ratably with all other
obligations secured thereby so long as such
obligations shall be so secured; provided, however,
that such limitation will not apply to liens
securing obligations which do not in the aggregate
at any one time outstanding exceed 10% of
Consolidated Net Tangible Assets of the Company and
its consolidated subsidiaries and will also not
apply to certain other liens specified in the
Indenture. The Company will not incur any (a)
Senior Debt unless the aggregate outstanding
principal amount of Senior Debt will not, at the
time of such incurrence, exceed the greater of (i)
150% of Capital Base or (ii) 225% of Tangible Net
Worth and (b) Non-Recourse Debt unless the
aggregate outstanding principal amount of Senior
Debt and Non-Recourse Debt will not, at the time of
such incurrence, exceed 225% of Capital Base. For a
more complete description of the terms of and
definitions used in the foregoing limitations, see
"Description of the Notes -- Covenants."
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SELECTED FINANCIAL INFORMATION
The following table presents selected financial information with respect to
the Company for the five years ended December 31, 1996 and for the three-month
periods ended March 31, 1997 and March 31, 1996. This financial information
(with the exception of "Funds from operations" and "Ratio of EBITDA to fixed
charges") has been derived from audited financial statements included in the
Company's Annual Reports on Form 10-K for the fiscal years ended December 31,
1992 through 1996 and from the unaudited financial statements included in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
which documents are incorporated by reference into the accompanying Prospectus,
and should be read in conjunction with those financial statements and the
accompanying footnotes.
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Revenues.................................... $67,965 $59,327 $254,024 $209,369 $172,993 $150,375 $132,394
Expenses:
Interest expense.......................... 18,115 16,105 64,216 64,163 67,479 62,193 58,159
Depreciation and amortization............. 6,476 5,424 23,207 18,176 17,171 16,277 14,032
General and administrative expenses....... 2,321 2,265 8,625 7,058 7,883 8,269 8,845
-------- -------- -------- -------- -------- -------- --------
Total expenses.............................. 26,912 23,794 96,048 89,397 92,533 86,739 81,036
-------- -------- -------- -------- -------- -------- --------
Net income before extraordinary item........ 41,053 35,533 157,976 119,972 80,460 63,636 51,358
Loss of prepayment of debt.................. -- -- -- 33,454 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.................................. $41,053 $35,533 $157,976 $ 86,518 $ 80,460 $ 63,636 $ 51,358
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Funds from operations(1).................... $47,025 $40,470 $179,244 $136,554 $ 95,670 $ 78,184 $ 63,608
Cash flow from operating activities
available for distribution(2)............. $48,381 $41,710 $184,052 $141,550 $100,513 $ 84,831 $ 67,942
Ratio of EBITDA to fixed charges(3)(4)...... 3.6x 3.5x 3.8x 2.6x 2.5x 2.3x 2.1x
PER SHARE:
Net income before extraordinary item........ $ 0.67 $ 0.64 $ 2.66 $ 2.52 $ 2.28 $ 2.03 $ 1.95
Loss on prepayment of debt.................. -- -- -- 0.70 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.................................. $ 0.67 $ 0.64 $ 2.66 $ 1.82 $ 2.28 $ 2.03 $ 1.95
======== ======== ======== ======== ======== ======== ========
Distributions paid.......................... $ 0.71 $ 0.69 $ 2.78 $ 2.70 $ 2.62 $ 2.54 $ 2.46
Book value.................................. $ 22.54 $ 22.52 $ 22.57 $ 20.75 $ 19.44 $ 17.84 $ 16.12
Shares of beneficial interest (weighted
average).................................. 61,442 55,153 59,458 47,563 35,314 31,310 26,360
DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Real estate investments, net.................. $2,293,086 $2,188,078 $1,777,798 $1,484,229 $1,214,308 $1,021,630
Total assets.................................. $2,386,371 $2,316,875 $1,891,852 $1,595,130 $1,310,401 $1,094,941
Indebtedness, net:
Notes and bank notes payable................ $ 605,263 $ 518,904 $ 414,522 $ 454,005 $ 366,530 $ 377,256
Convertible debentures...................... 278,591 280,813 295,209 231,277 199,822 93,356
Bonds and mortgages payable................. 58,795 59,043 52,560 80,470 91,893 135,973
Total....................................... $ 942,649 $ 858,760 $ 762,291 $ 765,752 $ 658,245 $ 606,585
Total liabilities............................. $ 999,961 $ 931,934 $ 830,097 $ 824,983 $ 724,606 $ 663,458
Total shareholders' equity.................... $1,386,410 $1,384,941 $1,061,755 $ 770,147 $ 585,795 $ 431,483
OTHER DATA:
Ratio of Total Debt/Total Assets.............. 39.5% 37.1% 40.3% 48.0% 50.2% 55.4%
Ratio of Secured Debt/Total Assets............ 2.5% 2.5% 2.8% 5.0% 7.0% 12.4%
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(1) In accordance with a resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represent net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, significant non-recurring
items, and after adjustments for unconsolidated partnerships, joint ventures
and corporations. Funds from operations should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles, as an indicator of operating,
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investing or financing activities or as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness.
(2) Consists of net income plus depreciation, amortization of debt issuance
costs, provision for losses, loss on prepayment of debt, partnership
distributions in excess of income and deferred income received in cash net
of amortization of deferred income and less gain on sale of real estate and
mortgage prepayments.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA does not represent cash generated from operating
activities as defined by generally accepted accounting principles and,
therefore, should not be considered as an alternative to net income, as
defined by generally accepted accounting principles, as the primary
indicator of operating performance or to cash flow as a measure of
liquidity, nor does it indicate that cash flow is sufficient to fund all
cash requirements.
(4) Fixed charges consist of interest expense and the amortization of debt
issuance costs.
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The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing in the
accompanying Prospectus or incorporated therein by reference.
BUSINESS AND PROPERTIES
THE COMPANY
Meditrust (the "Company"), a self-administered real estate investment trust
organized on August 6, 1985, invests primarily in the health care industry in
locations throughout the United States and, through investments in other
entities, similar facilities outside of the United States. The Company invests
in high quality facilities that are managed by experienced operators and
achieves diversity in its property portfolio by sector of the health care
industry, geographic location, operator and form of investment. The Company's
investments take the form of permanent mortgage loans, sale/leaseback
transactions and development projects. Generally, the Company enters into
development projects where, upon completion of the facility, the Company's
development funding is to be replaced by either a permanent mortgage loan or a
sale/leaseback transaction with the Company.
The Company's net increase in gross real estate investments totaled
$431,158,000 during 1996 as a result of the Company entering into sale/leaseback
transactions and making permanent mortgage loans and providing development
financing. Total gross investments were $2,286,160,000 at December 31, 1996 and
$2,397,140,000 at March 31, 1997.
DIVERSIFIED PORTFOLIO
As of March 31, 1997, the Company had investments in 431 facilities,
consisting of 276 nursing home facilities, 102 assisted and retirement living
facilities, 26 rehabilitation hospitals, 20 medical office buildings, six
alcohol and substance abuse and psychiatric facilities and one acute care
hospital campus. Included in the 431 facilities are 48 properties under
construction that are expected to be completed during the next 12 to 18 months.
The properties are located in 38 states and are operated by 37 different health
care companies. Of the 37 different operators, 16 are owned by or are
publicly-traded companies (i.e., Sun Healthcare Group, Inc., Emeritus
Corporation, Horizon/CMS Healthcare Corporation, Harborside Healthcare
Corporation, OrNda Health Corp., Columbia/HCA Healthcare Corporation, Integrated
Health Services, Inc., Alternative Living Services, Inc., HealthSouth
Rehabilitation Corporation, The Multicare Companies, Inc., Assisted Living
Concepts, Inc., Mariner Health Group, Inc., Sterling House Corporation,
Karrington HealthCare Inc., Genesis Healthcare Ventures, Inc., and Youth
Services International, Inc.) and constitute approximately 49% of the Company's
real estate investments.
The following charts set forth information regarding investment types
within the Company's portfolio and diversification by operator.
[Investment Diversification and Investment by Operator Pie Charts as of March
31, 1997]
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The following table sets forth certain information with respect to the
Company's real estate portfolio as of March 31, 1997:
INVESTED % OF # OF
(IN THOUSANDS) PORTFOLIO PROPERTIES
-------------- --------- ----------
PORTFOLIO BY OPERATOR
Life Care Centers of America.............................. $ 529,589 22.1% 93
Sun Healthcare Group, Inc. (*)............................ 378,931 15.8 38
Emeritus Corporation (*).................................. 159,977 6.7 29
Horizon/CMS (*)........................................... 129,477 5.4 11
Springwood Associates..................................... 123,186 5.1 69
Health Asset Realty Trust................................. 107,357 4.5 18
Harborside (*)............................................ 102,571 4.3 18
Tenet/Columbia/Dasco (*).................................. 100,407 4.2 17
OrNda (*)................................................. 65,650 2.7 1
Integrated Health Services, Inc. (*)...................... 50,973 2.1 10
Alternative Living Services (*)........................... 50,896 2.1 18
HealthSouth Rehab (*)..................................... 33,689 1.4 3
Multicare (*)............................................. 29,619 1.2 7
Sterling House Corporation (*)............................ 23,140 1.0 11
Assisted Living Concepts (*).............................. 16,979 0.7 9
Mariner Health Group, Inc. (*)............................ 16,753 0.7 2
Karrington Health, Inc. (*)............................... 13,148 0.6 4
Genesis Healthcare Ventures, Inc. (*)..................... 6,543 0.3 1
Youth Services International (*).......................... 4,689 0.2 1
Other Non-Public Operators................................ 453,566 18.9 71
---------- ----- ---
$2,397,140 100.0% 431
========== ===== ===
(*) Denotes publicly held companies which total 49% of the
portfolio.
PORTFOLIO BY INVESTMENT TYPE
Mortgage.................................................. $1,095,008 45.7% 243
Sale/Leaseback............................................ 1,052,491 43.9 140
Development............................................... 249,641 10.4 48
---------- ----- ---
$2,397,140 100.0% 431
========== ===== ===
PORTFOLIO BY FACILITY TYPE
Long-Term Care............................................ $1,517,930 63.3% 276
Retirement and Assisted Living............................ 387,956 16.2 102
Rehabilitation Hospitals.................................. 278,521 11.6 26
Medical Office Buildings.................................. 108,420 4.5 20
Acute-Care Hospital Campus................................ 65,650 2.8 1
Psychiatric, Alcohol and Substance Abuse.................. 38,663 1.6 6
---------- ----- ---
$2,397,140 100.0% 431
========== ===== ===
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The following chart sets forth certain information regarding the Company's
properties on a state by state basis, as of March 31, 1997.
NO. OF INVESTMENTS(1) % OF
PORTFOLIO BY STATE PROPERTIES (IN THOUSANDS) TOTAL
---------- --------------- ------
Alabama................................................... 1 $ 7,759 0.32%
Arizona................................................... 9 119,956 5.00
Arkansas.................................................. 7 23,561 .98
California................................................ 16 120,700 5.04
Colorado.................................................. 16 75,309 3.14
Connecticut............................................... 16 117,704 4.91
Florida................................................... 42 305,015 12.73
Georgia................................................... 1 2,508 .11
Idaho..................................................... 6 34,374 1.43
Illinois.................................................. 26 47,919 2.00
Indiana................................................... 16 65,052 2.71
Kansas.................................................... 9 34,095 1.42
Kentucky.................................................. 2 24,975 1.04
Louisiana................................................. 3 30,670 1.28
Massachusetts............................................. 38 353,505 14.75
Maryland.................................................. 1 18,188 .76
Michigan.................................................. 11 52,414 2.19
Missouri.................................................. 19 81,352 3.39
Mississippi............................................... 1 3,470 .14
North Carolina............................................ 2 7,455 .31
Nebraska.................................................. 3 12,061 .50
New Hampshire............................................. 7 46,650 1.95
New Jersey................................................ 11 102,264 4.27
New Mexico................................................ 1 4,556 .19
Nevada.................................................... 4 25,864 1.08
New York.................................................. 8 77,844 3.25
Ohio...................................................... 11 57,954 2.42
Oklahoma.................................................. 2 3,759 .16
Pennsylvania.............................................. 11 51,349 2.14
Rhode Island.............................................. 2 15,115 .63
South Carolina............................................ 2 14,008 .58
Tennessee................................................. 12 69,279 2.89
Texas..................................................... 72 226,881 9.46
Utah...................................................... 3 19,134 .80
Washington................................................ 14 72,584 3.03
West Virginia............................................. 7 29,619 1.24
Wisconsin................................................. 17 27,892 1.16
Wyoming................................................... 2 14,346 .60
--- ----------- ------
Total Portfolio................................. 431 $ 2,397,140 100.00%
=== =========== ======
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(1) Represents the purchase price or mortgage amount at March 31, 1997 for
operating facilities and the funded construction loan amount for facilities
under construction. In cases where mortgage debt encumbers multiple
properties, proportional allocation of such mortgage investment is based
upon third-party appraisals of the encumbered properties.
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HEALTHCARE PROPERTY TRENDS
The population of the United States is aging. According to information from
the U.S. Census Bureau, the segment of the U.S. population age 65 and over is
increasing and is expected to increase sharply through the year 2020. The
Company believes that the demand for services provided at retirement
communities, assisted living centers and nursing homes should increase as the
population ages. Currently proposed federal legislation seeks to limit the
amount of growth in government expenditures for Medicare and Medicaid. These
limitations, if enacted, may adversely affect the profitability of health care
operating companies and might, in certain circumstances, affect their ability to
pay rent or service debt. These government funding limitations will likely also
make it less profitable to construct new health care facilities and thus may
increase the value of existing facilities. The Company believes that the net
effect of these demographic and legislative changes will be to make it less
profitable to provide services and facilities for government funded patients and
more profitable to provide services and facilities for non-government supported
patients. The Company intends to respond to these changes in three ways: (i) by
focusing new investments in properties that are not directly dependent upon a
high percentage of Medicaid or Medicare revenues, including retirement housing,
assisted living facilities, medical office buildings and nursing homes with a
high percentage of private pay revenues; (ii) by encouraging and making funding
available to the operators of the Company's properties to improve these
properties in order to attract a greater amount of non-government revenues and
(iii) whenever possible, by making new investments in additional properties
leased to well capitalized operators.
INVESTMENT PROFILE
The Company invests in income-producing health care related facilities
which may include long-term care facilities, rehabilitation hospitals,
retirement and assisted living facilities, medical office buildings, alcohol and
substance abuse treatment facilities, psychiatric hospitals, and other health
care related facilities.
LONG-TERM CARE FACILITIES. The long-term care facilities offer
restorative, rehabilitative and custodial nursing care for patients not
requiring the more extensive and sophisticated treatment available at acute care
hospitals. The facilities are designed to provide custodial care and to
supplement hospital care and many have transfer agreements with one or more
acute care hospitals.
ASSISTED LIVING FACILITIES. The assisted living facilities provide a
combination of housing, supportive services, personalized assistance and health
care designed to respond to individual needs for daily living and instrumental
activities. Support services are generally available 24 hours a day to meet
scheduled and unscheduled needs.
RETIREMENT LIVING FACILITIES. The retirement living facilities offer
specially designed residential units for active and ambulatory elderly residents
and provide various ancillary services. They may contain nursing facilities to
provide a continuum of care. The retirement living facilities offer their
residents an opportunity for an independent lifestyle with a range of social and
health services.
REHABILITATION HOSPITALS. The rehabilitation hospitals provide treatment
to restore physical, psycho-social, educational, vocational and economic
usefulness and independence to disabled persons. Rehabilitation concentrates on
physical disabilities and impairments and utilizes a coordinated
multidisciplinary team approach to help patients attain measurable goals.
MEDICAL OFFICE BUILDINGS. Medical office building facilities contain
individual physician, physician group and other health care provider offices for
the administration and treatment of patients, usually in close proximity to the
general service acute care hospital to which the physicians are affiliated. The
types of services provided in a medical office building may include outpatient
therapy, clinics, examination facilities and the provision of other medical
services in a non-hospital setting.
ACUTE CARE HOSPITALS. Acute care hospitals provide services that include,
among others, general surgery, internal medicine, obstetrics, emergency room
care, radiology, diagnostic services, coronary care, pediatric services and
psychiatric services. On an outpatient basis, the services include, among
others, same day surgery, diagnostic radiology (e.g. magnetic resonance imaging,
CT scanning, X-ray), rehabilitative therapy, clinical laboratory services,
pharmaceutical services and psychiatric services.
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ALCOHOL AND SUBSTANCE ABUSE TREATMENT FACILITIES. These facilities provide
inpatient treatment for alcohol and substance abuse, including medical
evaluation, detoxification and rehabilitation. Specialized programs offer
treatment for adults, adolescents, families and chronic abusers.
PSYCHIATRIC HOSPITALS. The psychiatric hospitals offer comprehensive,
multidisciplinary adult, adolescent and substance abuse psychiatric programs.
Patients are evaluated upon admission and an individualized treatment plan is
developed. Elements of the treatment plan include individual, group and family
therapy, activity therapy, educational programs and career and vocational
planning.
OTHER INVESTMENTS. The Company also invests in other entities which invest
in similar facilities outside the United States. These investments are made
primarily for the production of income. Because the Company invests in health
care related facilities, the Company is not in a position to fully diversify its
investment portfolio to include assets selected to reduce the risks associated
with investment in improved real estate in a single industry. The Company
intends to continue to diversify its portfolio by broadening its geographic
base, providing financing to more operators, diversifying the type of health
care facilities in its portfolio and diversifying the types of financing methods
provided.
On July 25, 1996, the Company invested approximately $13,509,000 in
exchange for 7,936,000 shares of common stock, representing a 19.99% interest in
Nursing Home Properties Plc ("NHP"), a property investment group which
specializes in the financing, through sale/leaseback transactions, of nursing
homes located in the United Kingdom. The Company does not have the right to vote
more than 9.99% of the shares of NHP. As of December 31, 1996, NHP had invested
or committed to invest approximately $163,000,000 in 52 nursing homes, totaling
2,923 beds. As of March 31, 1997 the market value of this investment was
$14,877,000.
INVESTMENT CRITERIA
In evaluating potential investments, the Company considers such factors as:
(1) the current and anticipated cash flow and its adequacy to meet operational
needs and other obligations and to provide a competitive market return on equity
to the Company's shareholders; (2) the geographic area, type of property and
demographic profile; (3) the location, construction quality, condition and
design of the property; (4) the potential for capital appreciation, if any; (5)
the growth and regulatory environment of the communities in which the properties
are located; (6) occupancy and demand for similar health care facilities in the
same or nearby communities; (7) an adequate mix of private and
government-sponsored patients; (8) potential alternative uses of the facilities;
and (9) prospects of liquidity through financing or refinancing.
Management reviews and verifies market research for all potential
investments on behalf of the Company. Management also reviews the value of the
property, the interest rates and debt service coverage requirements of any debt
to be assumed and the anticipated sources of repayment for such debt.
The Company's Declaration of Trust places no limitations on the percentage
of the Company's total assets that may be invested in any one property or joint
venture or on the nature or identity of the operators of such properties. The
independent Trustees of the Company, however, may establish such limitations as
they deem appropriate.
From time to time, the Company enters into senior debt transactions. The
Company has no current plans to underwrite securities of other issuers. The
Company has authority to offer its shares of beneficial interest (the "Shares")
in exchange for investments which conform to its standards and to repurchase or
otherwise acquire its Shares or other securities. The Company has no present
plans to invest in the securities of others for the purpose of exercising
control, although the Company owns interests in partnerships which own health
care facilities and a property investment group in the United Kingdom which
invests in health care facilities. The Company makes loans on such terms as the
Trustees may approve.
The Company's real estate investments are either owned by the Company or
secured by a mortgage lien. As of March 31, 1997, permanent mortgage loans
constituted 46%, sale/leaseback transactions constituted 44% and development
financing constituted 10% of the Company's portfolio as measured by gross real
estate investments. The leases and mortgages provide for rental or interest
rates which generally range from
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approximately 9% to 13% per annum of the acquisition price or mortgage amount.
The leases and mortgages generally provide for an initial term of 10 years, with
the leases having one or more five-year renewal options. The leases and
mortgages also provide for additional rent or interest which are generally
either based upon a percentage of increased revenues over specific base period
revenues of the related properties or a fixed rent or interest escalation
provision.
In addition to ownership of leased properties and mortgage liens on
mortgaged properties, certain of the Company's leases and mortgages contain
additional security features. Generally, with respect to investments originated
by the Company, each obligation to the Company of a tenant or mortgagor (other
than the U.S. Government) is subject to cross default provisions with respect to
all other obligations of that tenant or mortgagor to the Company and any
collateral pledged by the tenant or mortgagor to the Company constitutes
collateral for all obligations of that operator. Certain tenants/mortgagors have
pledged additional collateral or provided corporate guarantees, security
deposits and, in some cases, personal guarantees.
Each of the Company's leases is a triple net lease requiring the lessee to
pay rent and certain additional charges incurred in the operation of the
facility. The lessees are required to repair, rebuild and maintain the
properties. Consequently, triple net leases reduce potential cash flow
volatility resulting from higher operating expenses.
In addition, the Company usually obtains guarantees from the parent
corporation, if any, of the operator or affiliates or individual principals of
the operator. Many obligations are backed by letters of credit or pledges of
certificates of deposit which cover from three to 12 months of lease or mortgage
payments. In addition, the Company's permanent and development mortgage loans
and leases generally are cross-defaulted or where appropriate
cross-collateralized with other mortgage and development loans, leases or other
agreements between the Company and the same operator or any affiliated
operators. With respect to development investments and loans, the Company
generally requires guaranteed maximum price construction contracts, performance
completion bonds or guarantees. The Company enters into a development investment
or loan when the Company will also be the permanent owner or mortgage lender.
In making its investment decisions, the Company reviews, among other
criteria, the operational viability of the facility, the experience and
competency of the operator and the financial strength of the guarantor.
REINVESTMENT OF SALES PROCEEDS
In the event the Company sells or otherwise disposes of any of its
properties, the independent Trustees will determine whether and to what extent
the Company will acquire additional properties or distribute the proceeds to the
shareholders.
SHORT-TERM INVESTMENTS
The Company invests its cash in certain short-term investments during
interim periods between the receipt of revenues and distributions to
shareholders. Cash not invested in facilities may be invested in
interest-bearing bank accounts, certificates of deposit, short-term money-market
securities, short-term United States government securities, mortgage-backed
securities guaranteed by the Government National Mortgage Association, mortgages
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration, mortgage loans, mortgage loan participations, and certain other
similar investment. The Company's ability to make certain of these investments
may be limited by the Company's borrowing agreements and by tax considerations.
The Company's return on these short-term investments may be more or less than
its return on real estate investments.
BORROWING POLICIES
The Company may incur additional indebtedness when, in the opinion of the
Trustees, it is advisable. For short-term purposes, the Company may, from time
to time, negotiate lines of credit, arrange for other short-term borrowings from
banks or others or issue commercial paper. As of the date of this Prospectus
Supplement, the Company had unsecured revolving bank lines of credit in the
aggregate amount of $280
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million bearing interest at the lenders' respective prime rate or LIBOR plus
.875% per annum, unsecured short-term borrowings expiring September 27, 1997 in
the aggregate amount of $50 million bearing interest at the lender's prime rate
or LIBOR plus 1% per annum and an unsecured short-term credit facility expiring
December 31, 1997 totaling $35 million bearing interest at the lender's prime
rate or LIBOR plus 1% per annum. As of the date of this Prospectus Supplement,
$326 million was outstanding and $39 million was available for borrowing under
the Company's credit facilities. The Company may also arrange for long-term
borrowing from banks, insurance companies, public offerings or private
placements to institutional investors. Under the Company's Declaration of Trust
and under documents pertaining to certain existing indebtedness, the Company is
subject to various restrictions with respect to borrowings. See "--Prohibited
Investments and Activities."
In addition, the Company may incur mortgage indebtedness on real estate
which it has acquired through purchase, foreclosure or otherwise. When terms are
deemed favorable, the Company may invest in properties subject to existing loans
or mortgages. The Company also may obtain financing for unleveraged properties
in which it has invested or may refinance properties acquired on a leveraged
basis. There is no limitation on the number or amount of mortgages which may be
placed on any one property, but overall restrictions on mortgage indebtedness
are provided under documents pertaining to certain existing indebtedness.
PROHIBITED INVESTMENTS AND ACTIVITIES
The Declaration of Trust prohibits the Company from engaging in any
investment practices that would disqualify the Company as a real estate
investment trust under the provisions of the Internal Revenue Code of 1986, as
amended.
From time to time, the Company enters into transactions with related
parties. The Company will not, without the prior approval of a majority of
Trustees, including a majority of the independent Trustees of the Company,
acquire from or sell to any Trustee, director, officer or employee of the
Company, or any affiliate thereof, any of the assets or other property of the
Company. As of March 31, 1997, the Company had total commitments of $265
million, of which $188 million was funded, to companies in which Abraham D.
Gosman, the Company's Chairman and Chief Executive Officer, owns a controlling
equity interest. The Company expects to enter into additional transactions with
related parties in the future. All of the terms and conditions of such
transactions are subject to approval by the independent Trustees of the Company.
The Board of Trustees believes that the terms of the transactions which the
Company has entered into with related parties are not less favorable to the
Company than those prevailing at the time for comparable transactions with
unrelated persons.
In addition to prohibitions and restrictions imposed by the Declaration of
Trust, there are and may be, from time to time, additional restrictions imposed
by debt instruments or other agreements entered into by the Company.
PROPERTY MANAGEMENT
The Company has implemented a thorough facility and operator monitoring
program of its investments, including financial and operational reviews as well
as physical plant inspections on an annual basis. The Company's proactive
approach to monitoring its portfolio has contributed to write-offs of its real
estate investments of less than 1% for the past 12 years. However, there can be
no assurance that these results will continue in the future.
OTHER INFORMATION
The Company was organized to qualify, and intends to continue to operate,
as a real estate investment trust in accordance with Federal tax laws and
regulations. So long as the Company so complies, with limited exceptions, the
Company will not be taxed under Federal income tax laws on that portion of its
taxable income that it distributes to its shareholders. The Company has
distributed, and intends to continue to distribute, substantially all of its
real estate investment trust taxable income to shareholders.
The Declaration of Trust may not be changed by the Trustees without
shareholder approval except in limited circumstances to comply with federal and
state law. All other policies set forth herein may be changed by the Trustees
without shareholder approval.
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The Company is a self-administered real estate investment trust, with its
principal executive offices at 197 First Avenue, Needham Heights, Massachusetts
02194. Its telephone number is (617) 433-6000.
FINANCING POLICY
The Company considers equity offerings when, in the Company's judgment,
doing so will improve the Company's capital structure, while not materially
adversely affecting the market value of its Shares or impeding the Company's
ability to increase regularly its per share dividend rate. In addition to the
use of equity, the Company utilizes short term and long term borrowings to
finance investments and to pay operating expenses. The Company's unsecured
senior indebtedness has been rated "investment grade" (one of the four highest
quality ratings) by Standard & Poor's Ratings Services (BBB-), Moody's Investors
Services, Inc. (Baa3) and Duff & Phelps (BBB). On June 30, 1997, the Company's
debt-to-book capitalization was 44%. After completion of the Offering and the
application of the proceeds thereof, the Company's pro forma debt-to-book
capitalization will be approximately 47%. As of June 30, 1997 approximately $281
million of the Company's total debt outstanding is represented by subordinated
convertible debentures, convertible into Shares at amounts ranging from $27.00
to $37.125 per Share. Upon conversion of these debentures and completion of this
Offering, the Company's pro forma debt-to-book capitalization would be
approximately 36%. There can be no assurance that any debentures will be
converted or that equity or debt capital will be available in the future on
reasonable terms to fund the Company's operations or growth.
The following table matches, as of March 31, 1997, the Company's debt
maturity with its portfolio maturity for the period indicated.
(DOLLARS IN THOUSANDS)
DEBT PORTFOLIO
MATURITY BY YEAR MATURITY MATURITY
- ---------------- -------- ---------
1997............................................. $ 657 0.08% $ 3,182 0.13%
1998............................................. 108,481 12.93 70,173 2.93
1999............................................. 31,939 3.81 110,633 4.62
2000............................................. 174,073 20.74 78,642 3.28
2001............................................. 177,130 21.11 115,777 4.83
2002............................................. 91,076 10.85 25,031 1.04
2003............................................. 205,390 24.47 161,013 6.72
2004............................................. 329,436 13.74
2005............................................. 16,046 1.91 632,591 26.39
2006............................................. 20,048 2.39 409,215 17.07
2007............................................. 188,147 7.85
2008............................................. 89,247 3.72
2009............................................. 44,615 1.86
2010............................................. 88,250 3.68
2011............................................. 22,206 0.93
2012............................................. 28,982 1.21
2013............................................. 2,820 0.34
2015............................................. 4,553 0.54
2026............................................. 55 0.01
2033............................................. 6,884 0.82
-------- ----- ---------- -----
Total............................................ $839,152 100% $2,397,140 100%
======== ===== ========== =====
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RECENT DEVELOPMENTS
REAL ESTATE INVESTMENTS
During the first three months of 1997, the Company committed $146 million
to new real estate investments and funded $115 million against new and open
commitments. Of the $115 million, $34 million consisted of sale/leaseback
financing funded for six assisted living facilities; permanent mortgage
financing of $18 million was provided for a retirement living facility, a
nursing home and six assisted living facilities; $2 million was provided for
additions to facilities already in the portfolio; $22 million funded the
development of three nursing homes, four assisted living facilities and two
medical office buildings; and the remaining $39 million was funded for ongoing
construction already in the portfolio.
SANTA ANITA TRANSACTION
THE TRANSACTION. As of April 13, 1997, the Company and its wholly-owned
subsidiary, Meditrust Acquisition Company (together, "Meditrust") entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company (together,
"Santa Anita" or "The Santa Anita Companies"). When the transaction is
consummated, Meditrust will be merged into Santa Anita, and shareholders of
Meditrust will receive 1.2016 paired common shares of Santa Anita for each share
of Meditrust they own in a tax-free exchange of shares. Based on the closing
price of the shares of beneficial interest of the Company on April 11, 1997 of
$37.25 per share, the transaction will have an initial value to the shareholders
of Santa Anita of approximately $383 million, or $31.00 per paired common share.
Upon completion of the transaction, the surviving corporations will be called
Meditrust Corporation and Meditrust Operating Company (the "Surviving
Corporations").
A subsidiary of the Company has agreed to buy approximately 1.2 million
paired common shares of Santa Anita either from Santa Anita at $31.00 per paired
common share or in the open market. In addition, Santa Anita has agreed to sell
to one or more independent parties designated by the Company approximately 2.2
million newly issued paired common shares less the number of shares that the
Company purchases from Santa Anita at a price of $31.00 per paired common share.
As of March 31, 1997, there were approximately 61.5 million shares of beneficial
interest of the Company outstanding and there were approximately 11.5 million
paired shares of common stock and approximately 867,000 paired shares of
preferred stock of Santa Anita outstanding.
The Merger Agreement also provides that, if requested by Santa Anita, the
Company will make available to Santa Anita $100 million (less up to
approximately $38 million of the purchase price of the paired common shares
acquired by the Company or an independent party from Santa Anita) to be used by
Santa Anita for a cash election by its shareholders at a price of $31.00 per
paired common share.
The transaction, which has been approved unanimously by the Board of
Trustees of the Company and the Boards of Directors of Santa Anita, is subject
to regulatory approvals and approvals of the shareholders of both Meditrust and
Santa Anita. The transaction is expected to close in the fall of 1997.
BUSINESS STRATEGY. If the transaction is consummated, the paired share
structure of the Surviving Corporations will enable them to derive the benefits
of being a REIT as well as an operating company. The primary business objective
of the Surviving Corporations will be to maximize the long-term total return to
their shareholders. This objective is predicated on the following two factors:
- Positive Spread Investment. Management will seek to maximize shareholder
value through positive spread investment opportunities which provide an
accretive cash flow return. Through their paired share structure, the
Surviving Corporations will be able to acquire operating companies and
assets thereby reducing "leakage." Meditrust will bring its sound capital
structure to the paired share structure to facilitate the acquisition of
growth oriented companies.
- Quality of Management. The Surviving Corporations will seek to employ a
strong management team for each line of business which is acquired,
properly incentivizing each such team and providing them with appropriate
financial and capital resources.
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Management of the Surviving Corporations will seek to continue to increase
shareholder value by operating the core businesses of the former Meditrust and
The Santa Anita Companies in a manner consistent with maximizing funds from
operations, and by actively pursuing acquisition opportunities that will best
utilize the benefits of the paired share structure. The Surviving Corporations
will seek to participate in joint ventures and partnerships to facilitate such
acquisitions. Such joint venture partners and acquisition candidates may include
companies in which Abraham D. Gosman, Chief Executive Officer and director,
and/or other directors of the Surviving Corporations have an interest, but any
such acquisitions or joint ventures would be subject to the approval of the
disinterested directors of the Surviving Corporations.
The key elements of this strategy are the following:
- Continue to expand core sale leaseback and mortgage financing
portfolio. The Company's portfolio consists of over $2.4 billion in
health care investments, making it the largest health care REIT in the
country. The Company's growth and profitability have historically been
driven by its ability to make investments in additional properties. The
Surviving Corporations will be committed to further expanding and
diversifying the Company's existing portfolio of investments.
- Make strategic acquisitions of operating companies in the health care
sector. After the transaction is completed, the paired share structure
will allow the Company to act as an owner of real estate assets and
Meditrust Operating Company to act as an operator of businesses with real
estate assets, thereby providing shareholders with the benefits of real
estate ownership through a REIT and the economic growth associated with a
fully integrated operating company. The paired share structure should
also facilitate the purchase of international health care related real
estate assets, as many of such assets are currently affiliated with
operating companies.
- Make acquisitions outside the health care sector. The Surviving
Corporations intend to explore a range of other strategic acquisitions
outside the health care industry in order to capitalize on the inherent
value of the paired share structure through diversified active and
passive investments. Management of the Surviving Corporations intends
to seek to consummate such acquisitions which may benefit from the
paired share structure.
- Maximize the value of the Santa Anita horse racing and real estate
assets. The Surviving Corporations anticipate continuing The Santa Anita
Companies' commitment to high quality horse racing and maintaining its
industry leadership in the horse racing industry. The Surviving
Corporations also will seek to maximize the value of the approximately 85
acres of the underutilized land at Santa Anita Park.
There is no assurance that the Surviving Corporations will be able to meet
any or all of these objectives.
RISK FACTORS RELATING TO THE SANTA ANITA TRANSACTION:
Tax Risks; Dependence on Qualifications as a REIT. If the Santa Anita
transaction is consummated, Meditrust Corporation intends to continue to qualify
as a REIT for federal income tax purposes. In order to qualify as a REIT, a
company must comply with highly technical and complex tax provisions. The
complexity of these provisions is greater in the case of a REIT that owns real
estate and leases it to a corporation with which its stock is paired. In 1983,
Congress passed legislation which would ordinarily prevent a corporation from
qualifying as a REIT if its stock is paired with the stock of a corporation
whose activities are inconsistent with REIT status, such as Meditrust Operating
Company. This disqualification does not apply to a paired REIT if the REIT and
its paired operating company were paired on June 30, 1983. Santa Anita was
paired on June 30, 1983. There are, however, no judicial or administrative
authorities interpreting this "grandfathering" rule in the context of a merger
or otherwise. There is also no guarantee that new legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the effect of the pairing Agreement.
If Meditrust Corporation fails to qualify as a REIT, it would be required to pay
federal income tax on its taxable income at corporate rates. Unless permitted by
relief under certain statutory provisions, Meditrust Corporation also would not
be allowed to re-elect REIT status for the following four taxable years. This
would reduce the net earnings of Meditrust Corporation available for
distribution to shareholders because of the additional tax liability to
Meditrust Corporation for the year or years involved. Meditrust Corporation
might be required to borrow funds or to sell certain of its investments to
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pay the tax due on any distributions made. The failure to qualify as a REIT
would also constitute a default under certain debt obligations of Meditrust
Corporation.
Dilutive Effect of the Merger; Dependence on Acquisitions. As a result of
the amount being paid to acquire Santa Anita, the transaction has a dilutive
effect on the Company's net income per share on a pro forma basis for 1996 and
the three months ended March 31, 1997 and may have a dilutive effect on net
income per share in future periods. See "Summary Combined Historical and Pro
Forma Financial Data." In addition, management believes that the transaction
initially will cause the Surviving Corporations' funds from operations per share
not to grow as fast in the periods following the transaction as might be
expected without the transaction. The Surviving Corporations will try to
minimize this potential effect by making strategic acquisitions which benefit
from the use of the paired share structure. There is no assurance, however, that
the Surviving Corporations will be able to identify and acquire at appropriate
prices businesses that meet their goals or that any such acquired businesses
will perform in a manner that will allow the Surviving Corporations to increase
the rate of growth in funds from operations. Furthermore, because of the paired
share arrangement, the Surviving Corporations will face certain limitations in
structuring potential acquisitions, especially acquisitions that will be
tax-free for the owners of the acquired properties. These limitations could
prevent some acquisitions and in other cases, increase the acquisition costs.
The longer it takes to make acquisitions and the greater the costs of making
acquisitions, the less likely it will be that the Surviving Corporations will
meet their anticipated growth in funds from operations.
Effect of Certain Acquisitions on Existing Operations; Reliance on Outside
Management. If the Surviving Corporations acquire new businesses, and if those
new businesses compete with the existing businesses of operators in Meditrust
Corporation's portfolio, those existing operators may reduce the amount of new
business that they do with Meditrust Corporation. In order to acquire businesses
outside the health care or horse racing sectors, the Surviving Corporations will
need to hire and retain experienced management to run those businesses. There is
no assurance that the Surviving Corporations will be able to hire and retain
experienced management for such businesses. If the Surviving Corporations cannot
hire qualified management for such businesses, they might not acquire such
businesses, which may lengthen the time it takes to make acquisitions and
increase its funds from operations per share. In addition, if the Surviving
Corporations cannot hire and retain qualified management for these businesses,
these businesses might not be successful once acquired.
Substantial Expenses and Payments if the Merger Fails to
Occur. Consummation of the Santa Anita transaction is subject to a number of
conditions, some of which are beyond the control of the Company's management.
Consequently, there can be no assurance that the transaction will be
consummated. If the transaction is not completed, the Company will have incurred
substantial expenses in connection therewith. The Company must pay Santa Anita a
fee of $4 million under certain circumstances if the shareholders of Meditrust
fail to approve the transaction.
ADDITIONAL UNSECURED DEBT
Simultaneously with this Offering, the Company and a subsidiary of the
Company are also issuing, in separate transactions, an aggregate of $310 million
of additional long term unsecured debt. The sale of the Notes offered hereby is
not contingent on the closings of the sale of the $310 million of long term
unsecured debt.
USE OF PROCEEDS
The Company intends to use a portion of the net proceeds from the sale of
the Notes offered hereby, estimated to be $99,300,000, and from the issuance of
additional long-term unsecured debt, for the repayment of indebtedness which
totaled $326 million as of the date of this Prospectus Supplement. The proceeds
of such indebtedness were used for investments in health care facilities. Such
indebtedness bears interest at the lenders' respective prime rate or LIBOR plus
.875% or LIBOR plus 1% per annum and matures on or before September 27, 1997 or
September 23, 1999, as the case may be. The remainder of the net proceeds from
the
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Offering will be used for general business purposes, including investments in
additional health care facilities and in Santa Anita. See "Recent Developments."
RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ------------
Ratio............................. 1.88 2.02 2.19 2.35 3.46 3.27
For the purpose of calculating the ratio of earnings to fixed charges for
the years ended December 31, 1992, 1993, 1994, 1995 and 1996 and the three-month
period ended March 31, 1997, net income has been added to interest expense and
that sum has been divided by such interest expense. To date, the Company has not
issued preferred shares of beneficial interest; therefore, the ratios of
earnings to fixed charges and preferred stock dividend requirements are the same
as the ratios of earnings to fixed charges set forth above.
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MANAGEMENT AND BOARD OF TRUSTEES
The Company's officers have significant experience in the health care
field, and a majority of them have been part of the Company's management team
for over nine years. The officers and trustees of the Company are:
MANAGEMENT
NAME AGE TITLE
- --------------------------------- --- ------------------------------------------------------
Abraham D. Gosman................ 68 Chief Executive Officer
David F. Benson.................. 48 President and Treasurer
Michael F. Bushee................ 40 Chief Operating Officer
Michael S. Benjamin.............. 39 Senior Vice President, Secretary and Corporate Counsel
Laurie T. Gerber................. 39 Chief Financial Officer
Stephen C. Mecke................. 34 Vice President
Debora A. Pfaff.................. 34 Vice President
Stephen H. Press................. 60 Vice President
John G. Demeritt................. 37 Controller
BOARD OF TRUSTEES
NAME AGE EMPLOYMENT
- --------------------------------- --- ------------------------------------------------------
Abraham D. Gosman................ 68 Chairman and Chief Executive Officer, Meditrust
David F. Benson.................. 48 President and Treasurer, Meditrust
Edward W. Brooke................. 77 Former Partner, O'Connor & Hannan, Washington, DC
Philip L. Lowe................... 79 Principal, Philip L. Lowe and Associates, Boston, MA
Thomas J. Magovern............... 55 Regional Vice President, Real Estate Asset Management,
Summit Bank, Hackensack, NJ
Gerald Tsai, Jr.................. 68 Chairman, President and Chief Executive Officer, Delta
Life Corporation, Memphis, TN
Frederick W. Zuckerman........... 62 General Partner in the investment banking firm of
Zuckerman, Firstenberg and Associates LLC; Director of
eight public companies; business consultant and
retired officer of Chrysler Corporation, RJR Nabisco
and International Business Machines Corporation
Abraham D. Gosman has been the Chairman of the Company since its
organization in 1985 and became Chief Executive Officer in February 1991. Mr.
Gosman is also the Chairman of the Board, Chief Executive Officer and President
of PhyMatrix Corp., a publicly traded physician practice management company
which renders managerial and administrative services to a variety of specialized
medical care and treatment providers. Additionally, Mr. Gosman is Chairman of
the Board of CareMatrix Corporation, a publicly traded company which provides a
full range of quality senior residential services in assisted living settings.
Mr. Gosman was the Chief Executive Officer of The Mediplex Group, Inc.
("Mediplex"), an operator and developer of health care facilities, from its
inception in 1983 until 1988 and from 1990 until June 1994, when Mediplex was
acquired by Sun Healthcare Group, Inc. Mr. Gosman has been in the health care
and development business for more than 30 years.
David F. Benson has been a Trustee of the Company since 1991. Mr. Benson
has been President of the Company since September 1991 and Treasurer since
October 1996. Mr. Benson also served as Treasurer of the Company from January
1986 to May 1992. He was Treasurer of Mediplex from January 1986 through June
1987. He was previously associated with Coopers & Lybrand L.L.P., independent
accountants, from
S-21
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1979 to 1985. Mr. Benson is a trustee of Mid-Atlantic Realty Trust and a member
of the Board of Directors of Harborside Healthcare Corporation and Nursing Home
Properties, Plc.
Edward W. Brooke has been a Trustee of the Company since 1985. Mr. Brooke
was a partner of O'Connor & Hannan, a Washington, D.C. law firm, from 1979 until
January 1997. From 1979 until October 1990 he was Of Counsel to Csaplar & Bok, a
Boston law firm. He was United States Senator from Massachusetts from January
1967 to January 1979 and the Massachusetts Attorney General from 1963 to 1967.
Philip L. Lowe has been a Trustee of the Company since 1987. Mr. Lowe has
been a principal of Philip L. Lowe and Associates, a consulting firm, and its
predecessors for more than five years and until March 1997 had been a director
of Analog Devices, Inc. for 17 years.
Thomas J. Magovern has been a Trustee of the Company since 1985. Mr.
Magovern has been a Regional Vice President, Real Estate Asset Management of
Summit Bank (successor to United Jersey Bank), a New Jersey banking institution,
since November 1995. He was a principal of Nationwide Financial Corp., a real
estate consulting firm from September 1993 to October 1995. Mr. Magovern was
Executive Vice President of Northeast Savings, F.A. from January 1991 until
February 1993. Prior to that time he had been Senior Vice President of City
Savings Bank, F.S.B. from April 1989 until January 1991 and a Vice President of
that bank for more than five years.
Gerald Tsai, Jr. has been a Trustee of the Company since 1992. Mr. Tsai has
been the Chairman, Chief Executive Officer and President of Delta Life
Corporation, an annuity company, since February 1993. Mr. Tsai retired in 1991
as Chairman of the Executive Committee of the Board of Directors of Primerica
Corporation, a diversified financial services company, which position he held
since December 1988. From January 1987 to December 1988, Mr. Tsai was Chairman,
and from April 1986 to December 1988, he was Chief Executive Officer of
Primerica Corporation. He is a director of Rite Aid Corporation, Sequa
Corporation, Triarc Companies, Inc., Proffitt's, Inc. and Zenith National
Insurance Corp. Mr. Tsai is also a Trustee of Boston University and New York
University Medical Center.
Frederick W. Zuckerman has been a Trustee of the Company since 1990. Mr.
Zuckerman has been a general partner in the merchant banking and financial
advisory firm of Zuckerman, Firstenberg & Associates LLC, since January 1995. He
was Vice President and Treasurer of International Business Machines Corporation,
an information technology corporation, from September 1993 to January 1995. He
was Senior Vice President and Treasurer of RJR Nabisco, Inc. a consumer food and
tobacco producer, from February 1991 to September 1993. Mr. Zuckerman was Vice
President and Treasurer of Chrysler Corporation, a motor vehicle manufacturer,
from December 1981 until September 1990. Mr. Zuckerman is a director of The
Singapore Fund, The Turner Corporation, The Japan Equity Fund, NVR, Inc.,
Olympic Financial Ltd., Caere Corp. and Designer Holdings, Inc.
Michael F. Bushee has been Chief Operating Officer of the Company since
September 1994. He was Senior Vice President of Operations of the Company from
November 1993 through August 1994, Vice President from December 1989 to October
1993, Director of Development from January 1988 to December 1989 and has been
associated with the Company since April 1987. He was previously associated with
The Stop & Shop Companies, Inc., a retailer of food products and general
merchandise, for three years and Wolf & Company, P.C., independent accountants,
for four years. He is also a Director of Sterling House Corporation, an
assisted-living provider, traded on the American Stock Exchange and member of
the Board of Directors of Assisted Living Federation of America.
Michael S. Benjamin has been Senior Vice President, Secretary and General
Counsel of the Company since October 1993. He was Vice President, Secretary and
General Counsel from May 1992 to October 1993, Secretary and General Counsel
from December 1990 to May 1992 and Assistant Counsel to the Company from
November 1989 to December 1990. His previous association was with the law firm
of Brown, Rudnick, Freed & Gesmer, from 1983 to 1989.
Laurie T. Gerber has been Chief Financial Officer of the Company since
December 1996. Prior to that, she was associated with Coopers & Lybrand, L.L.P.
in various capacities, including Partner, from 1982 to
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1996. During her career at the firm, clients serviced included publicly traded
real estate investment trusts, public utility companies and investment
companies.
Stephen C. Mecke has been Vice President of Development since October 1995
and has been the Company's Director of Development since June 1992. He was
previously the manager of underwriting at Continental Realty Credit Inc., a
commercial mortgage company, from October 1988 to June 1992.
Debora A. Pfaff has been Vice President of Operations since October 1995
and has been the Company's Director of Operations since September 1992. She was
previously a Senior Manager with KPMG Peat Marwick where she worked from 1985 to
1992.
Stephen H. Press has been Vice President of Acquisitions of the Company
since October 1993 and previously held this position with the Company from June
1987 to December 1990. He was Vice President of Development and Regulatory
Affairs for Integrated Health Services, Inc., a medical services company, from
April 1991 to October 1993.
John G. Demeritt has been Controller of the Company since October 1995.
Prior to that, he was Corporate Controller of CMG Information Services, Inc., an
information service provider, from 1994 to 1995. He was Vice President of
Finance and Treasurer of Salem Sportswear Corporation, a manufacturer and
marketer of licensed sports apparel, from June 1991 to November 1993. He was
Controller of Scitex America Corporation, a manufacturer and distributor of
electronic prepress equipment, from August 1986 to June 1991, and was previously
associated with Laventhol & Horwath, independent accountants, from 1983 to 1986.
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24
SELECTED FINANCIAL INFORMATION
The following table presents selected financial information with respect to
the Company for the five years ended December 31, 1996 and for the three-month
periods ended March 31, 1997 and March 31, 1996. This financial information
(with the exception of "Funds from operations" and "Ratio of EBITDA to fixed
charges") has been derived from audited financial statements included in the
Company's Annual Reports on Form 10-K for the fiscal years ended December 31,
1992 through 1996 and from the unaudited financial statements included in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
which documents are incorporated by reference into the accompanying Prospectus,
and should be read in conjunction with those financial statements and the
accompanying footnotes.
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Revenues.................................... $67,965 $59,327 $254,024 $209,369 $172,993 $150,375 $132,394
Expenses:
Interest expense.......................... 18,115 16,105 64,216 64,163 67,479 62,193 58,159
Depreciation and amortization............. 6,476 5,424 23,207 18,176 17,171 16,277 14,032
General and administrative expenses....... 2,321 2,265 8,625 7,058 7,883 8,269 8,845
------- ------- -------- -------- -------- -------- --------
Total expenses.............................. 26,912 23,794 96,048 89,397 92,533 86,739 81,036
------- ------- -------- -------- -------- -------- --------
Net income before extraordinary item........ 41,053 35,533 157,976 119,972 80,460 63,636 51,358
Loss of prepayment of debt.................. -- -- -- 33,454 -- -- --
------- ------- -------- -------- -------- -------- --------
Net income.................................. $41,053 $35,533 $157,976 $ 86,518 $ 80,460 $ 63,636 $ 51,358
======= ======= ======== ======== ======== ======== ========
OTHER DATA:
Funds from operations(1).................... $47,025 $40,470 $179,244 $136,554 $ 95,670 $ 78,184 $ 63,608
Cash flow from operating activities
available for distribution(2)............. $48,381 $41,710 $184,052 $141,550 $100,513 $ 84,831 $ 67,942
Ratio of EBITDA to fixed charges(3)(4)...... 3.6x 3.5x 3.8x 2.6x 2.5x 2.3x 2.1x
PER SHARE:
Net income before extraordinary item........ $ 0.67 $ 0.64 $ 2.66 $ 2.52 $ 2.28 $ 2.03 $ 1.95
Loss on prepayment of debt.................. -- -- -- 0.70 -- -- --
------- ------- -------- -------- -------- -------- --------
Net income.................................. $ 0.67 $ 0.64 $ 2.66 $ 1.82 $ 2.28 $ 2.03 $ 1.95
======= ======= ======== ======== ======== ======== ========
Distributions paid.......................... $ 0.71 $ 0.69 $ 2.78 $ 2.70 $ 2.62 $ 2.54 $ 2.46
Book value.................................. $ 22.54 $ 22.52 $ 22.57 $ 20.75 $ 19.44 $ 17.84 $ 16.12
Shares of beneficial interest (weighted
average).................................. 61,442 55,153 59,458 47,563 35,314 31,310 26,360
DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Real estate investments, net.................. $2,293,086 $2,188,078 $1,777,798 $1,484,229 $1,214,308 $1,021,630
Total assets.................................. $2,386,371 $2,316,875 $1,891,852 $1,595,130 $1,310,401 $1,094,941
Indebtedness, net:
Notes and bank notes payable................ $ 605,263 $ 518,904 $ 414,522 $ 454,005 $ 366,530 $ 377,256
Convertible debentures...................... 278,591 280,813 295,209 231,277 199,822 93,356
Bonds and mortgages payable................. 58,795 59,043 52,560 80,470 91,893 135,973
Total....................................... $ 942,649 $ 858,760 $ 762,291 $ 765,752 $ 658,245 $ 606,585
Total liabilities............................. $ 999,961 $ 931,934 $ 830,097 $ 824,983 $ 724,606 $ 663,458
Total shareholders' equity.................... $1,386,410 $1,384,941 $1,061,755 $ 770,147 $ 585,795 $ 431,483
OTHER DATA:
Ratio of Total Debt/Total Assets.............. 39.5% 37.1% 40.3% 48.0% 50.2% 55.4%
Ratio of Secured Debt/Total Assets............ 2.5% 2.5% 2.8% 5.0% 7.0% 12.4%
- ---------------
(1) In accordance with a resolution adopted by the Board of Governors of NAREIT,
funds from operations represent net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, significant non-recurring
items, and after adjustments for unconsolidated partnerships, joint ventures
and corporations. Funds from operations should not be considered as an
alternative to net income or other measurements under
S-24
25
generally accepted accounting principles, as an indicator of operating,
investing or financing activities or as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness.
(2) Consists of net income plus depreciation, amortization of debt issuance
costs, provision for losses, loss on prepayment of debt, partnership
distributions in excess of income and deferred income received in cash net
of amortization of deferred income and less gain on sale of real estate and
mortgage prepayments.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA does not represent cash generated from operating
activities as defined by generally accepted accounting principles and,
therefore, should not be considered as an alternative to net income, as
defined by generally accepted accounting principles, as the primary
indicator of operating performance or to cash flow as a measure of
liquidity, nor does it indicate that cash flow is sufficient to fund all
cash requirements.
(4) Fixed charges consist of interest expense and the amortization of debt
issuance costs.
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26
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of March 31, 1997, (ii) as adjusted to reflect the sale of the
Notes offered hereby, the issuance of $310 million of additional long-term
unsecured debt and the application of the net proceeds therefrom, and (iii) as
further adjusted to reflect the Santa Anita transaction as if such transaction
had occurred as of March 31, 1997. See "Use of Proceeds" and "Recent
Developments." The capitalization table should be read in conjunction with the
Company's financial statements and related notes incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus.
MARCH 31, 1997 (UNAUDITED)
-------------------------------------------------------------
AS ADJUSTED
FOR SANTA ANITA
AS ADJUSTED(1) TRANSACTIONS,
FOR SALE OF NOTES SALE OF NOTES
ACTUAL(1) AND ADDITIONAL DEBT AND ADDITIONAL DEBT(1)
---------- ------------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Indebtedness and other liabilities:
Bank notes payable, net(2).............. $ 110,291 $ 0 $ 7,938
Notes payable, net...................... 494,972 900,972 921,281
7.000% Convertible debentures, net(3)... 6,705 6,705 6,705
6.875% Convertible debentures, net(4)... 85,515 85,515 85,515
9.000% Convertible debentures, net(5)... 3,811 3,811 3,811
7.500% Convertible debentures, net(6)... 88,985 88,985 88,985
8.540% Convertible notes, net(7)........ 42,622 42,622 42,622
8.560% Convertible notes, net(8)........ 50,953 50,953 50,953
Bonds and mortgages payable, net........ 58,795 58,795 58,795
Deferred income......................... 9,918 9,918 12,419
Accrued expenses and other
liabilities.......................... 47,394 47,394 162,437
Shareholders' equity:
Shares issued and outstanding net of
distributions in excess of net
income(9)............................ 1,386,410 1,386,410 1,769,663
---------- ---------- ----------
Total capitalization............ $2,386,371 $ 2,682,080 $3,211,124
========== ========== ==========
- ---------------
(1) All indebtedness is shown net of underwriting fees and other costs of
issuance. The sale of the Notes offered hereby is not contingent on the
closings of the sale of $310 million of long term unsecured debt.
(2) As of the date of this Prospectus Supplement, the Company had outstanding
bank borrowings in the aggregate principal amount of $326 million. See "Use
of Proceeds."
(3) Due March 1, 1998; $30.625 per share conversion price.
(4) Due November 1, 1998; $37.125 per share conversion price.
(5) Due January 1, 2002; $27.00 per share conversion price.
(6) Due March 1, 2001; $36.18 per share conversion price.
(7) Due July 1, 2000; $32.625 per share conversion price.
(8) Due July 1, 2002; $32.625 per share conversion price.
(9) With regard to the "Actual" and "As Adjusted for Sale of Notes and
Additional Debt" columns, there are an unlimited number of shares of
beneficial interest without par value authorized and 61,514,108 shares
issued and outstanding. Assuming 100% conversion of the Company's
convertible debt outstanding, there would have been 69,598,314 shares
issued and outstanding. For the "As Adjusted for Santa Anita Transaction,
Sale of Notes and Additional Debt" column, there are 300,000,000 shares
$.10 par value common stock authorized and 86,278,000 shares issued and
outstanding on a pro forma basis.
S-26
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SELECTED HISTORICAL FINANCIAL DATA
THE SANTA ANITA COMPANIES
The following table represents selected combined financial information with
respect to The Santa Anita Companies for the five years ended December 31, 1996
and for the three-month periods ended March 31, 1997 and March 31, 1996. This
financial information has been derived from audited financial statements
included in The Santa Anita Companies' Annual Report on Form 10-K for the fiscal
years ended December 31, 1992 through December 31, 1996 and the unaudited
financial statements included in The Santa Anita Companies' Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997. The Santa Anita Companies are
subject to the informational requirements of the Securities and Exchange Act of
1934, as amended, (the "Exchange Act") and therefore file annual, quarterly and
special reports with the Securities and Exchange Commission (the "Commission").
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1997 1996* 1996 1995* 1994* 1993* 1992*
------- ------- -------- -------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Total revenues.................................... $37,810 $40,786 $ 77,225 $ 81,206 $81,449 $95,011 $94,177
Costs and expenses................................ 36,177 32,779 76,685 106,838 79,424 97,912 87,851
------- ------- -------- -------- ------- ------- -------
Income (loss) before income taxes................. 1,633 8,007 540 (25,632) 2,025 (2,901) 6,326
Income tax benefit................................ -- -- -- 2,000 -- 2,523 158
------- ------- -------- -------- ------- ------- -------
Income (loss) before extraordinary gain........... 1,633 8,007 540 (23,632) 2,025 (378) 6,484
Extraordinary gain on early retirement of debt.... -- -- -- 4,050 -- -- --
------- ------- -------- -------- ------- ------- -------
Net income (loss)................................. 1,633 8,007 540 (19,582) 2,025 (378) 6,484
Preferred stock dividends(1)...................... 2,183 -- 12,420 -- -- -- --
------- ------- -------- -------- ------- ------- -------
Net income (loss) applicable to common shares..... $ (550) $ 8,007 $(11,880) $(19,582) $ 2,025 $ (378) $ 6,484
======= ======= ======== ======== ======= ======= =======
PER SHARE:
Net income (loss) per common share:
Before extraordinary gain..................... $ (.05) $ .71 $ (1.05) $ (2.11) $ .18 $ (.03) $ .58
Extraordinary gain............................ -- -- -- .36 -- -- --
------- ------- -------- -------- ------- ------- -------
$ (.05) $ .71 $ (1.05) $ (1.75) $ .18 $ (.03) $ .58
======= ======= ======== ======== ======= ======= =======
Dividends paid per common share................... $ .20 $ .20 $ .80 $ .80 $ 1.08 $ 1.36 $ 1.36
Dividends declared per common share............... $ .20 $ .20 $ .80 $ .80 $ .94 $ 1.36 $ 1.36
Book value........................................ $ 1.08 $ 3.49 $ 1.29 $ 2.83 $ 5.36 $ 6.11 $ 7.51
Weighted average common shares outstanding........ 11,480 11,271 11,317 11,214 11,143 11,141 11,141
DECEMBER 31,
MARCH 31, -------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets(2)(3)(4)............................ $ 107,952 $93,481 $114,876 $142,121 $257,239 $248,043
Loans payable(2)(4).............................. $ 28,247 $25,824 $ 51,074 $ 50,375 $153,131 $133,217
Shareholders' equity(3).......................... $ 12,383 $14,789 $ 31,901 $ 59,720 $ 60,088 $ 83,619
- ---------------
* The three months ended March 31, 1996 and the fiscal years 1995 and prior
have been restated to reflect an impairment in value of an unconsolidated
joint venture investment (Joppa Associates) in 1991 instead of 1995, and
increase The Santa Anita Companies' share of the joint venture losses from
33 1/3% to 50% for all periods presented since it was probable that one of
the partners would not bear its share of losses. (See Note 2 to the
financial statements in The Santa Anita Companies' Annual Report on Form
10-K/A for the year ended December 31, 1996 (the "Santa Anita Form 10-K").
(1) See Note 16 to the financial statements in the Santa Anita Form 10-K.
(2) The decrease in total assets, loans payable and shareholders' equity in 1996
compared with 1995 was due primarily to the sale of four neighborhood
shopping centers and two office buildings and to the sale of the investments
in Pacific Gulf Properties Inc. (see Note 3 to the financial statements in
the Santa Anita Form 10-K).
(3) The decrease in total assets and shareholders' equity in 1995 compared with
1994 was due primarily to the nonrecurring charge of $30,300,000 in 1995
relating to Santa Anita Realty Enterprises, Inc.'s ("Realty") plan to
dispose of its non-core real estate assets (see Note 3 to the financial
statements in the Santa Anita Form 10-K).
(4) The decrease in total assets and loans payable in 1994 compared with 1993
was due primarily to the sale of Realty's multifamily and industrial
properties in 1994 (see Note 8 to the financial statements in the Santa
Anita Form 10-K).
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SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth historical and pro forma financial
information for the Company and The Santa Anita Companies and the combined
Meditrust Corporation and Meditrust Operating Company and should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of the Company and The Santa Anita
Companies.
PRO FORMA(1)
MEDITRUST CORPORATION
HISTORICAL HISTORICAL AND MEDITRUST
THE SANTA ANITA COMPANIES MEDITRUST OPERATING COMPANY
--------------------------- --------------------------- ---------------------------
THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1996 1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Total revenue........................ $ 77,225 $ 37,810 $254,024 $ 67,965 $331,249 $ 105,775
Total expenses....................... 76,685 36,177 96,048 26,912 175,893 62,800
-------- -------- -------- ---------- -------- ----------
Net income........................... 540 1,633 157,976 41,053 155,356 42,975
Preferred stock dividends............ 12,420 2,183 -- -- -- --
-------- -------- -------- ---------- -------- ----------
Net income (loss) applicable to
common shares...................... $ (11,880) $ (550) $157,976 $ 41,053 $155,356 $ 42,975
======== ======== ======== ========== ======== ==========
PER SHARE:
Net income (loss).................... $ (1.05) $ (.05) $ 2.66 $ .67 $ 1.86 $ .50
OTHER DATA:
Funds from operations(2)............. $ 14,244 $ 9,036 $179,245 $ 47,025 $190,793 $ 55,700
Cash provided from operating
activities......................... $ 11,977 $ 17,116 $188,551 $ 31,956 $189,699 $ 52,108
Weighted average common shares
outstanding........................ 11,317 11,480 59,458 61,442 83,629 86,176
MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997
------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Real estate investments, net......... $ 39,779 $2,293,086 $2,546,397
Total assets......................... $107,952 $2,386,371 $2,915,415
Indebtedness, net:
Notes and bank notes payable....... $ 7,938 $ 605,263 $ 613,201
Convertible debentures............. -- 278,591 278,591
Bonds and mortgages payable........ 20,309 58,795 79,104
Total.............................. $ 28,247 $ 942,649 $ 970,896
Total liabilities.................... $ 70,791 $ 999,961 $1,145,752
Series A redeemable preferred
stock.............................. $ 24,778 -- --
Total shareholders' equity........... $ 12,383 $1,386,410 $1,769,663
Total shares outstanding............. 11,496 61,514 86,278
OTHER DATA:
Ratio of Total Debt/Total Assets..... 26.2% 39.5% 33.3%
Ratio of Secured Debt/Total Assets... 18.8% 2.5% 2.7%
- ---------------
(1) The pro forma information does not purport to represent what Meditrust
Corporation's and Meditrust Operating Company's results of operations would
have been for the fiscal year ended December 31, 1996 if the merger had in
fact occurred on January 1, 1996 or what Meditrust Corporation's or
Meditrust Operating Company's financial position or results of operations
would have been for or as of the quarter ended March 31, 1997, if the merger
had in fact occurred on or prior to January 1, 1997. Such pro forma
information should not be used or relied upon to project Meditrust
Corporation's and Meditrust Operating Company's financial position for any
future periods or to project Meditrust Corporation's and Meditrust Operating
Company's results of operations for any future periods.
(2) In accordance with a resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represent net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, significant non-recurring
items, and
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after adjustments for unconsolidated partnerships, joint ventures and
corporations. Pro forma financial information also includes certain
adjustments to funds from operations for real estate related goodwill
amortization ($5,330 and $1,332 on a pro forma basis for Meditrust
Corporation and Meditrust Operating Company combined for the year ended
December 31, 1996 and three months ended March 31, 1997, respectively).
Funds from operations should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles,
as an indicator of operating, investing or financing activities or as a
measure of liquidity. Funds from operations does not reflect working capital
changes, cash expenditures for capital improvements or principal payments on
indebtedness.
The following is a reconciliation of funds from operations to cash provided
by operating activities.
PRO FORMA(1)
MEDITRUST CORPORATION
HISTORICAL HISTORICAL AND MEDITRUST
THE SANTA ANITA COMPANIES MEDITRUST OPERATING COMPANY
---------------------------- --------------------------- ---------------------------
THREE MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED MARCH YEAR ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, 31, DECEMBER 31, MARCH 31,
1996 1997 1996 1997 1996 1997
------------ ------------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Funds from operations.......... $ 14,244 $ 9,036 $179,245 $ 47,025 $190,793 $ 55,700
Other non-real estate
depreciation and
amortization................. 1,767 1,031 2,601 706 3,601 1,253
Shares issued for
compensation................. 524 15 2,039 608 2,563 623
Other items, net............... (3,790) (1,100) 167 42 (7,258) (5,468)
Changes in working capital..... (768) 8,134 4,499 (16,425) -- --
-------- ------- -------- -------- -------- --------
Cash provided by operating
activities................... $ 11,977 $17,116 $188,551 $ 31,956 $189,699 $ 52,108
======== ======= ======== ======== ======== ========
- ---------------
(1) Pro forma cash provided by operating activities represents pro forma net
income plus depreciation and amortization and non-cash compensation costs,
less the effect of the non-cash portion of equity in earnings (loss) of
unconsolidated joint ventures. The pro forma amounts do not include
adjustments from changes in working capital resulting from changes in
current assets and current liabilities.
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DESCRIPTION OF THE NOTES
The Notes constitute a separate series of securities (which are more fully
described in the accompanying Prospectus) to be issued pursuant to an indenture,
dated as of July 26, 1995 (as supplemented, the "Indenture") between the Company
and State Street Bank and Trust Company, as trustee (the "Trustee"). The terms
of the Notes include those provisions contained in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following description of the particular
terms of the Notes offered hereby (referred to herein as the "Notes" and in the
Prospectus as the "Debt Securities") 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 description reference is
hereby made. The following summary is qualified in its entirety by reference to
the Indenture referred to in the Prospectus and to the Notes to be issued
thereunder and to the Remarketing Agreement and the Remarketing Underwriting
Agreement (the forms of which will be filed, pursuant to a Current Report on
Form 8-K, as exhibits to the Registration Statement of which the Prospectus
forms a part). Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Prospectus or the Indenture, as the case may
be.
GENERAL
The Notes will be limited to $100,000,000 in aggregate principal amount and
will mature on August 15, 2002. The Notes will be direct, unsecured obligations
of the Company and will rank equally with each other and with all other
unsecured and unsubordinated indebtedness of the Company from time to time.
Subject to certain limitations set forth in the Indenture, the Indenture will
permit the Company to incur additional secured and unsecured indebtedness. See
"-- Covenants" below.
The Notes will be issued only in fully registered, book-entry form. See
"-- Book-Entry System" below.
The Notes will not be subject to a sinking fund.
Reference is made to the section entitled "-- Covenants" herein for a
description of the covenants applicable to the Notes. Compliance with such
covenants with respect to the Notes generally may not be waived by the Trustee
unless the Holders of at least a majority in principal amount of all outstanding
Notes of such series consent to such waiver.
Except as described herein under "-- Covenants" and under "Consolidation,
Merger, Sale or Conveyance" in the accompanying Prospectus, the Indenture does
not contain any other provisions that would limit the ability of the Company to
incur indebtedness or that would afford Holders of the Notes protection in the
event of (i) a highly leveraged or similar transaction involving the Company,
(ii) a change of control, or (iii) a reorganization, restructuring, merger or
similar transaction involving the Company that may adversely affect the Holders
of the Notes. In addition, subject to the limitations set forth under
"Consolidation, Merger, Sale or Conveyance" in the accompanying Prospectus, the
Company may, in the future, enter into certain transactions such as the sale of
all or substantially all of its assets or the merger or consolidation of the
Company that would increase the amount of the Company's indebtedness or
substantially reduce or eliminate the Company's assets, which may have an
adverse effect on the Company's ability to service its indebtedness, including
the Notes.
The Company and its management have no present intention of engaging in a
highly leveraged or similar transaction involving the Company.
FLOATING RATE MODE
During the period commencing August 12, 1997 and ending August 15, 1998
(the "Initial Spread Period"), interest on the Notes will be payable quarterly
in arrears, on November 15, 1997, February 15, 1998, May 15, 1998 and August 15,
1998 (or, if not a Business Day (as defined below), on the next succeeding
Business Day (except as described below)), to the persons in whose names the
Notes are registered at the close of business on the applicable record date (in
the case of both Notes in the Floating Rate Mode or Fixed Rate Mode the 15th
calendar day, whether or not a Business Day, next preceding the applicable
Interest
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Payment Date) next preceding such Interest Payment Date. During the Initial
Spread Period and any Subsequent Spread Period during which the Notes are in the
Floating Rate Mode, the interest rate on the Notes will be reset quarterly and
the Notes will bear interest at a per annum rate (computed on the basis of the
actual number of days elapsed over a 360-day year) equal to LIBOR (as defined
below) for the applicable Quarterly Period (as defined below), plus the
applicable Spread (as defined below). Interest on the Notes will accrue from and
including each Interest Payment Date (or in the case of the Initial Quarterly
Period, August 12, 1997) to but excluding the next succeeding Interest Payment
Date or maturity date, as the case may be. The Initial Quarterly Period will be
the period from and including August 12, 1997 to but excluding the first
Interest Payment Date (November 15, 1997) (the "Initial Quarterly Period").
Thereafter, each Quarterly Period during the Initial Spread Period or any
Subsequent Spread Period (as defined below) (each, a "Quarterly Period") will be
from and including the most recent Interest Payment Date to which interest has
been paid but excluding the next Interest Payment Date; the first day of a
Quarterly Period is referred to herein as an "Interest Reset Date."
The Spread applicable during the Initial Spread Period will be .45% (the
"Initial Spread"), and the interest rate mode used for the Initial Spread Period
will be the Floating Rate Mode. Thus, the interest rate per annum during the
Initial Quarterly Period will be equal to LIBOR, determined as of August 8,
1997, plus .45%. The interest rate per annum for each succeeding Quarterly
Period during the Initial Spread Period will equal LIBOR for such Quarterly
Period plus the Initial Spread. Thereafter, the Spread will be determined in the
manner described below for each subsequent Spread period (a "Subsequent Spread
Period"), which will be one or more periods of at least six months and not more
than four years (or any integral multiple of six months therein), designated by
the Company, commencing on a February 15 or August 15 (or as otherwise specified
by the Company and the Remarketing Underwriter on the applicable Duration/Mode
Determination Date in connection with the establishment of each Subsequent
Spread Period), as applicable (the "Commencement Date"), through and including
August 15, 2002 (no Subsequent Spread Period may end after August 15, 2002). The
first Commencement Date will be August 15, 1998.
If any Interest Payment Date (other than at maturity), redemption date,
Interest Reset Date, Duration/Mode Determination Date (as defined below), Spread
Determination Date (as defined below), Commencement Date or Tender Date (as
defined below) would otherwise be a day that is not a Business Day, such
Interest Payment Date, redemption date, Interest Reset Date, Duration/Mode
Determination Date, Spread Determination Date, Commencement Date or Tender Date
will be postponed to the next succeeding day that is a Business Day, except that
if such Business Day is in the next succeeding calendar month, such Interest
Payment Date, redemption date, Interest Reset Date, Commencement Date or Tender
Date shall be the next preceding Business Day.
LIBOR applicable for a Quarterly Period will be determined by the Rate
Agent (as defined under "Tender at Option of Beneficial Owners" below) as of the
second London Business Day (as defined below) preceding each Interest Reset Date
(the "LIBOR Determination Date") in accordance with the following provisions:
(i) LIBOR will be determined on the basis of the offered rates for
three-month deposits in U.S. Dollars of not less than U.S. $1,000,000,
commencing on the second London Business Day immediately following such
LIBOR Determination Date, which appears on Telerate Page 3750 (as defined
below) as of approximately 11:00 a.m., London time, on such LIBOR
Determination Date. "Telerate Page 3750" means the display designated on
page "3750" on the Telerate Service (or such other page as may replace the
3750 page on that service or such other service or services as may be
nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. Dollar deposits). If no rate
appears on Telerate Page 3750, LIBOR for such LIBOR Determination Date will
be determined in accordance with the provisions of paragraph (ii) below.
(ii) With respect to a LIBOR Determination Date on which no rate
appears on Telerate Page 3750 as of approximately 11:00 a.m., London time,
on such LIBOR Determination Date, the Rate Agent shall request the
principal London offices of each of four major reference banks in the
London interbank market selected by the Rate Agent to provide the Rate
Agent with a quotation of the rate at which three-
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month deposits in U.S. Dollars, commencing on the second London Business
Day immediately following such LIBOR Determination Date, are offered by it
to prime banks in the London interbank market as of approximately 11:00
a.m., London time, on such LIBOR Determination Date and in a principal
amount equal to an amount of not less than U.S. $1,000,000 that is
representative for a single transaction in such market at such time. If at
least two such quotations are provided, LIBOR for such LIBOR Determination
Date will be the arithmetic mean of such quotations as calculated by the
Rate Agent. If fewer than two quotations are provided, LIBOR for such LIBOR
Determination Date will be the arithmetic mean of the rates quoted as of
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date by three major banks in The City of New York selected by the Rate
Agent (after consultation with the Company) for loans in U.S. Dollars to
leading European banks, having a three-month maturity commencing on the
second London Business Day immediately following such LIBOR Determination
Date and in a principal amount equal to an amount of not less than U.S.
$1,000,000 that is representative for a single transaction in such market
at such time; provided, however, that if the banks selected as aforesaid by
the Rate Agent are not quoting as mentioned in this sentence, LIBOR for
such LIBOR Determination Date will be LIBOR determined with respect to the
immediately preceding LIBOR Determination Date, or in the case of the first
LIBOR Determination Date, LIBOR for the Initial Quarterly Period.
FIXED RATE MODE
If the Notes are to be reset to the Fixed Rate Mode, as agreed to by the
Company and the Remarketing Underwriter on a Duration/Mode Determination Date,
then the applicable Fixed Rate for the corresponding Subsequent Spread Period
will be determined as of the sixth calendar day following the Spread
Determination Date (provided that such date is a Business Day; otherwise, as of
the next Business Day thereafter) (the "Fixed Rate Determination Date")
(provided, however, that in the case where the Notice Date also falls on the
Fixed Rate Determination Date, the Fixed Rate Determination Date will be the
following Business Day thereafter), in accordance with the following provisions:
the Fixed Rate will be a per annum rate and will be determined as of 12:00 noon
on such Fixed Rate Determination Date by adding the applicable Spread (as agreed
to by the Company and the Remarketing Underwriter on the preceding Spread
Determination Date) to the yield to maturity (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the applicable United States Treasury security, selected by the Rate
Agent after consultation with the Remarketing Underwriter, as having a maturity
comparable to the duration selected for the following Subsequent Spread Period,
which would be used in accordance with customary financial practice in pricing
new issues of corporate debt securities of comparable maturity to the duration
selected for the following Subsequent Spread Period.
Interest in the Fixed Rate Mode will be computed on the basis of a 360-day
year of twelve 30-day months. Such interest will be payable semiannually in
arrears on the Interest Payment Dates (February 15 and August 15, unless
otherwise specified by the Company and the Remarketing Underwriter on the
applicable Duration/Mode Determination Date) at the applicable Fixed Rate, as
determined by the Company and the Remarketing Underwriter on the Fixed Rate
Determination Date, beginning on the Commencement Date and for the duration of
the relevant Subsequent Spread Period. Interest on the Notes will accrue from
and including each Interest Payment Date to but excluding the next succeeding
Interest Payment Date or maturity date, as the case may be. See "-- Additional
Terms of the Notes" for other provisions applicable to Notes in the Fixed Rate
Mode.
If any Interest Payment Date or any redemption date in the Fixed Rate Mode
falls on a day that is not a Business Day (in either case, other than any
Interest Payment Date or redemption date that falls on a Commencement Date, in
which case such date will be postponed to the next day that is a Business Day),
the related payment of principal and interest will be made on the next
succeeding Business Day as if it were made on the date such payment was due, and
no interest will accrue on the amounts so payable for the period from and after
such dates.
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ADDITIONAL TERMS OF THE NOTES
The Spread that will be applicable during each Subsequent Spread Period
will be the percentage (a) recommended by the Remarketing Underwriter (as
defined under "Tender at Option of Beneficial Owners" below) so as to result in
a rate that, in the opinion of the Remarketing Underwriter, will enable tendered
Notes to be remarketed by the Remarketing Underwriter at 100% of the principal
amount thereof, as described under "-- Tender at Option of Beneficial Owners"
below, and (b) agreed to by the Company. The interest rate mode during each
Subsequent Spread Period shall be either the Floating Rate Mode or the Fixed
Rate Mode, as determined by the Company and the Remarketing Underwriter.
If the maturity date for the Notes falls on a day that is not a Business
Day, the related payment of principal and interest will be made on the next
succeeding Business Day as if it were made on the date such payment was due, and
no interest will accrue on the amounts so payable for the period from and after
such dates.
Unless notice of redemption of the Notes as a whole has been given, the
duration, redemption dates, redemption type (i.e., par, premium or make-whole),
redemption prices (if applicable), Commencement Date, Interest Payment Dates and
interest rate mode (i.e., Fixed Rate Mode or Floating Rate Mode) (and any other
relevant terms) for each Subsequent Spread Period will be established by 3:00
p.m., New York City time, on the 15th calendar day prior to the Commencement
Date of each Subsequent Spread Period (the "Duration/Mode Determination Date").
In addition, the Spread for each Subsequent Spread Period will be established by
3:00 p.m., New York City time, on the tenth calendar day prior to the
Commencement Date of such Subsequent Spread Period (the "Spread Determination
Date"). The Company will request not later than seven nor more than 15 calendar
days prior to any Spread Determination Date, that DTC notify its Participants of
such Spread Determination Date and of the procedures that must be followed if
any beneficial owner of a Note wishes to tender such Note as described under
"-- Tender at Option of Beneficial Owners" below. The term "Business Day" means
any day other than a Saturday or Sunday or a day on which banking institutions
in The City of New York are required or authorized to close and, in the case of
Notes in the Floating Rate Mode, that is also a London Business Day. The term
"London Business Day" means any day on which dealings in deposits in U.S.
Dollars are transacted in the London interbank market.
In the event that the Company and the Remarketing Underwriter do not agree
on the Spread for any Subsequent Spread Period, then (1) the Subsequent Spread
Period will be one year, (2) the Notes will be reset to the Floating Rate Mode,
(3) the Spread for such Subsequent Spread Period will be the Alternate Spread
and (4) the Notes will be redeemable at the option of the Company in whole or in
part, upon at least five Business Days' notice given by no later than the fifth
Business Day after the Spread Determination Date in the manner described under
"-- Redemption of the Notes" below, at a redemption price equal to 100% of the
principal amount thereof, together with accrued interest to the redemption date,
except that Notes may not be redeemed prior to the Tender Date or later than the
last day of such one-year Subsequent Spread Period. The Alternate Spread will be
the percentage equal to LIBOR (determined as described above) for the Quarterly
Period beginning on the Commencement Date for such Subsequent Spread Period.
Unless notice of redemption of the Notes as a whole has been given, the
Company will cause a notice to be published on the New York Business Day (as
defined below) following the Spread Determination Date for each Subsequent
Spread Period in the manner described below, specifying (1) the duration of such
Subsequent Spread Period, (2) the mode (i.e., Fixed Rate Mode or Floating Rate
Mode), (3) the Commencement Date, (4) any redemption dates, (5) any redemption
type (i.e., par, premium or make-whole), (6) any redemption prices, (7) the
Spread for such Subsequent Spread Period, (8) the identity of the Remarketing
Underwriter, if applicable, and (9) any other relevant provisions. Such notice
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York which is expected to be The Wall
Street Journal. The term "New York Business Day" means any day other than a
Saturday or Sunday or a day on which banking institutions in The City of New
York are required or authorized to close.
All percentages resulting from any calculation of any interest rate for the
Notes will be rounded, if necessary, to the nearest one hundred thousandth of a
percentage point, with five one millionths of a
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percentage point rounded upward and all dollar amounts will be rounded to the
nearest cent, with one-half cent being rounded upward.
TENDER AT OPTION OF BENEFICIAL OWNERS
In the event the Company and the Remarketing Underwriter agree on the
Spread on the Spread Determination Date with respect to any Subsequent Spread
Period, the Company and the Remarketing Underwriter will enter into a
Remarketing Underwriting Agreement (the "Remarketing Underwriting Agreement") on
such Spread Determination Date, under which the Remarketing Underwriter will
agree, subject to the terms and conditions set forth therein, to purchase from
tendering Noteholders on the date immediately following the end of a Subsequent
Spread Period (the "Tender Date") all Notes with respect to which the
Remarketing Underwriter receives a Tender Notice as described below at 100% of
the principal amount thereof (the "Purchase Price"). In such event (except as
otherwise provided in the next succeeding paragraph), each beneficial owner of a
Note may, at such owner's option, upon giving notice as provided below (the
"Tender Notice"), tender such Note for purchase by the Remarketing Underwriter
on the Tender Date at the Purchase Price. The Purchase Price will be paid by the
Remarketing Underwriter in accordance with the standard procedures of DTC, which
currently provide for payments in same-day funds. Interest accrued on the Notes
with respect to the preceding interest period will be paid in the manner
described under "-- Book-Entry System" below and "-- Additional Terms of the
Notes" above. If such beneficial owner has an account at the Remarketing
Underwriter and tenders such Note through such account, such beneficial owner
will not be required to pay any fee or commission to the Remarketing
Underwriter. If such Note is tendered through a broker, dealer, commercial bank,
trust company or other institution, other than the Remarketing Underwriter, such
holder may be required to pay fees or commissions to such other institution. It
is currently anticipated that Notes so purchased by the Remarketing Underwriter
will be remarketed by it.
The Tender Notice must be received by the Remarketing Underwriter during
the period commencing on the calendar day following the Spread Determination
Date (or, if not a Business Day, on the next succeeding Business Day) and ending
at 12:00 p.m., New York City time, on the fifth calendar day following the
Spread Determination Date (or, if not a Business Day, on the next succeeding
Business Day) (the "Notice Date"). In order to ensure that a Tender Notice is
received on a particular day, the beneficial owner of Notes must direct his
broker or other designated Participant or Indirect Participant to give such
Tender Notice before the broker's cut-off time for accepting instructions for
that day. Different firms may have different cut-off times for accepting
instructions from their customers. Accordingly, beneficial owners should consult
the brokers or other Participants or Indirect Participants through which they
own their interests in the Notes for the cut-off times for such brokers, other
Participants or Indirect Participants. See "-- Book-Entry System" below. Except
as otherwise provided below, a Tender Notice shall be irrevocable. If a Tender
Notice is not received for any reason by the Remarketing Underwriter with
respect to any Note by 5:00 p.m., New York City time, on the Notice Date, the
beneficial owner of such Note shall be deemed to have elected not to tender such
Note for purchase by the Remarketing Underwriter.
The obligation of the Remarketing Underwriter to purchase Notes from
tendering Noteholders will be subject to several conditions precedent set forth
in the Remarketing Underwriting Agreement that are customary in the Company's
public offerings, including a condition that no material adverse change in the
condition of the Company and its subsidiaries, taken as a whole, shall have
occurred since the Spread Determination Date. In addition, the Remarketing
Underwriting Agreement will provide for the termination thereof by the
Remarketing Underwriter upon the occurrence of certain events that are also
customary in the Company's public securities offerings. In the event that, due
to such events with respect to any Subsequent Spread Period, the Remarketing
Underwriter does not purchase on the relevant Tender Date all of the Notes for
which a Tender Notice shall have been given, (1) all such Tender Notices will be
null and void, (2) none of the Notes for which such Tender Notices shall have
been given will be purchased by the Remarketing Underwriter on such Tender Date,
(3) the Subsequent Spread Period will be one year, which Subsequent Spread
Period shall be deemed to have commenced upon the applicable Commencement Date,
(4) the Notes will be reset to the Floating Rate Mode, (5) the Spread for such
Subsequent Spread Period will be the Alternate Spread and (6) the Notes will be
redeemable at the option of the Company, in whole or in part,
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upon at least 10 Business Days' notice given by no later than the fifth Business
Day following the relevant Tender Date in the manner described under
"-- Redemption of the Notes" below on the date set forth in such notice, which
shall be no later than the last day of such one-year Subsequent Spread Period,
at a redemption price equal to 100% of the principal amount thereof, together
with accrued interest to the redemption date.
No beneficial owner of any Note shall have any rights or claims under the
Remarketing Underwriting Agreement or against the Company or the Remarketing
Underwriter as a result of the Remarketing Underwriter's not purchasing such
Notes, except as provided in clause (5) of the last sentence of the preceding
paragraph. The Company will have no obligation under any circumstance to
repurchase any Notes, except in the case of Notes called for redemption as
described below.
If the Remarketing Underwriter does not purchase all Notes tendered for
purchase on any Tender Date, it will promptly notify the Company and the
Trustee. As soon as practicable after receipt of such notice, the Company will
cause a notice to be given to holders of Notes specifying (1) the one-year
duration of the Subsequent Spread Period, (2) that the Notes will be reset to
the Floating Rate Mode, (3) the Spread for such Subsequent Spread Period (which
shall be the Alternate Spread) and (4) LIBOR for the initial Quarterly Period of
such Subsequent Spread Period.
The term "Remarketing Underwriter" means the nationally recognized
broker-dealer selected by the Company to act as Remarketing Underwriter. The
term "Rate Agent" means the entity selected by the Company as its agent to
determine (i) LIBOR and the interest rate on the Notes for any Quarterly Period
and/or (ii) the yield to maturity on the applicable United States Treasury
security that is used in connection with the determination of the applicable
Fixed Rate, and the ensuing applicable Fixed Rate. Pursuant to the Remarketing
Agreement, Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to act
as Remarketing Underwriter and State Street Bank and Trust Company has agreed to
act as Rate Agent. The Company, in its sole discretion, may change the
Remarketing Underwriter and the Rate Agent for any Subsequent Spread Period at
any time on or prior to 3:00 p.m., New York City time, on the Duration/Mode
Determination Date relating thereto.
Each of the Rate Agent and the Remarketing Underwriter, in its individual
or any other capacity, may buy, sell, hold and deal in any of the Notes. Either
of such parties may exercise any vote or join in any action which any beneficial
owner of Notes may be entitled to exercise or take with like effect as if it did
not act in any capacity under the Remarketing Agreement. Either of such parties,
in its individual capacity, either as principal or agent, may also engage in or
have an interest in any financial or other transaction with the Company as
freely as if it did not act in any capacity under the Remarketing Agreement.
REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to August 15, 1998. On that date, and
on those Interest Payment Dates specified as redemption dates by the Company on
the Duration/Mode Determination Date in connection with any Subsequent Spread
Period, the Notes may be redeemed, at the option of the Company, in whole or in
part, upon notice thereof given at any time during the 45-calendar-day period
ending on the tenth calendar day prior to the redemption date (provided that
notice of any partial redemption must be given at least 15 calendar days prior
to the redemption date), in accordance with the redemption type selected on the
Duration/Mode Determination Date. In the event that less than all of the
outstanding Notes are to be redeemed, the Notes to be redeemed shall be selected
by such method as the Company shall deem fair and appropriate. So long as the
Global Note is held by DTC, the Company will give notice to DTC, whose nominee
is the record holder of all of the Notes, and DTC will determine the principal
amount to be redeemed from the account of each Participant. A Participant may
determine to redeem from some beneficial owners (which may include a Participant
holding Notes for its own account) without redeeming from the accounts of other
beneficial owners. The Notes are also subject to redemption as provided under
"-- Tender at Option of Beneficial Owners" above. Such notice will be given by
publication in a daily newspaper in the English language of general circulation
in The City of New York which is expected to be The Wall Street Journal.
The redemption type to be chosen by the Company and the Remarketing
Underwriter on the Duration/Mode Determination Date may be one of the following
as defined herein: (i) Par Redemption;
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(ii) Premium Redemption; or (iii) Make-Whole Redemption. "Par Redemption" means
redemption at a redemption price equal to 100% of the principal amount thereof,
plus accrued interest thereon, if any, to the redemption date. "Premium
Redemption" means redemption at a redemption price or prices greater than 100%
of the principal amount thereof, plus accrued interest thereon, if any, to the
redemption date, as determined on the Duration/Mode Determination Date.
"Make-Whole Redemption" means redemption at a redemption price equal to the sum
of (i) the principal amount of the Notes being redeemed plus accrued interest
thereon, if any, to the redemption date and (ii) the Make-Whole Amount (as
defined below), if any, with respect to such Notes.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, 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 such dollar if such redemption or accelerated
payment had not been made, determined by discounting, on a semiannual 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 .25% plus the yield on treasury securities at
constant maturity under the heading "Week Ending" published in the 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 purposes 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 the statistical release designated "H. 15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which 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 which shall be designated by the Rate Agent,
after consultation with the Company.
COVENANTS
The Notes will not be secured by mortgage, pledge or other lien. The
Company will covenant in the Indenture not to pledge or otherwise subject to any
lien any property or assets of the Company or its subsidiaries unless the Notes
are secured by such pledge or lien equally and ratably with all other
obligations secured thereby so long as such 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 10%
of Consolidated Net Tangible Assets (as defined below) of the Company and its
consolidated subsidiaries and in addition will not apply to:
(1) Any lien or charge on any property, tangible or intangible, real
or personal, existing at the time of acquisition or construction of such
property (including acquisition through merger or consolidation) or given
to secure the payment of all or any part of the purchase or construction
price thereof or to secure any indebtedness incurred prior to, at the time
of, or within one year after, the acquisition or completion of construction
thereof for the purpose of financing all or any part of the purchase or
construction price thereof;
(2) Any liens securing the performance of any contract or undertaking
of the Company not directly or indirectly in connection with the borrowing
of money, obtaining of advances or credit or the securing of debts, if made
and continuing in the ordinary course of business;
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(3) Any lien in favor of the United States or any state thereof or the
District of Columbia, or any agency, department or other instrumentality
thereof, to secure progress, advance or other payments pursuant to any
contract or provision of any statute;
(4) Mechanics', materialmen's, carriers', or other like liens arising
in the ordinary course of business (including construction of facilities)
in respect of obligations which are not due or which are being contested in
good faith;
(5) Any lien arising by reason of deposits with, or the giving of any
form of security to, any governmental agency or any body created or
approved by law or governmental regulations, which is required by law or
governmental regulation as a condition to the transaction of any business,
or the exercise of any privilege, franchise or license;
(6) Any liens for taxes, assessments or governmental charges or levies
not yet delinquent, or liens for taxes, assessments or governmental charges
or levies already delinquent but the validity of which is being contested
in good faith;
(7) Liens (including judgment liens) arising in connection with legal
proceedings so long as such proceedings are being contested in good faith
and in the case of judgment liens, execution thereof is stayed;
(8) Liens relating to secured indebtedness of the Company outstanding
as of June 30, 1996; and
(9) 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 (1) to (8) 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 charge or lien so extended, renewed or replaced (plus improvements on
such property).
"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 intangibles of the Company
and its consolidated subsidiaries, all as set forth on the most recent balance
sheet of the Company and its consolidated subsidiaries prepared in accordance
with generally accepted accounting principles.
The Company also covenants in the Indenture that it will not create,
assume, incur or otherwise become liable in respect of, any
(a) Senior Debt (as defined below) unless the aggregate outstanding
principal amount of Senior Debt of the Company 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 Capital
Base (as defined below), or (ii) 225% of Tangible Net Worth (as defined
below); and
(b) Non-Recourse Debt (as defined below) unless the aggregate
outstanding principal amount of Senior Debt and Non-Recourse Debt of the
Company will not, at the time of such creation, assumption or incurrence
and after giving effect thereto and to any concurrent transactions, exceed
225% of Capital Base.
For the purposes of this limitation as to borrowing money, "Senior Debt"
means all Debt other than Non-Recourse Debt and Subordinated Debt; "Debt", with
respect to any Person, means (i) its indebtedness, secured or unsecured, for
borrowed money; (ii) Liabilities secured by any existing Lien on property owned
by such Person; (iii) Capital Lease Obligations, and the present value of all
payments due under any arrangement for retention of title (discounted at a rate
per annum equal to the average interest borne by all outstanding Debt Securities
determined on a weighted average basis and compounded semi-annually) if such
arrangement is in substance an installment purchase or an arrangement for the
retention of title for security purposes; and (iv) guarantees of obligations of
the character specified in the foregoing clauses (i), (ii) and (iii), to the
full extent of the liability of the guarantor (discounted to present value, as
provided in the foregoing clause (iii), in the case of guarantees of title
retention arrangements); "Capital Lease" means at any time any lease of
property, real or personal, which, in accordance with generally accepted
accounting
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principles, would at such time be required to be capitalized on a balance sheet
of the lessee; "Capital Lease Obligation" means at any time the amount of the
liability in respect of a Capital Lease which, in accordance with generally
accepted accounting principles, would at such time be required to be capitalized
on a balance sheet of the lessee; "Person" means an individual, partnership,
corporation, joint venture, association, joint stock company, trust, limited
liability company, unincorporated organization, or a government or agency or
political subdivision thereof; "Non-Recourse Debt" with respect to any Person,
means any Debt secured by, and only by, property on or with respect to which
such Debt is incurred where the rights and remedies of the holder of such Debt
in the event of default do not extend to assets other than the property
constituting security therefor; "Subordinated Debt" means any unsecured Debt of
the Company which is issued or assumed pursuant to, or evidenced by, an
indenture or other instrument which contains provisions for the subordination of
such Debt (to which appropriate reference shall be made in the instruments
evidencing such Debt if not contained therein) to the Debt Securities (and, at
the option of the Company, if so provided, to other Debt of the Company, either
generally or as specifically designated); "Capital Base" means, at any date, the
sum of Tangible Net Worth and Subordinated Debt; "Tangible Net Worth" means, at
any date, the net book value (after deducting related depreciation,
obsolescence, amortization, valuation, and other proper reserves) of the
Tangible Assets of the Company at such date, minus the amount of its Liabilities
at such date; "Lien" means any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and all other title exceptions and encumbrances affecting Property;
"Tangible Assets" means all assets of the Company (including assets held subject
to Capital Leases and other arrangements described in the last sentence of the
definition of "Lien") except: (i) deferred assets, other than prepaid insurance,
prepaid taxes and deposits; (ii) patents, copyrights, trademarks, trade names,
franchises, goodwill, experimental expense and other similar intangibles; and
(iii) unamortized debt discount and expenses; and "Liabilities" means, at any
date, the items shown as liabilities on the balance sheet of the Company, except
any items of deferred income, including capital gains.
DEFEASANCE
The Indenture provides that the Company will be discharged from any and all
obligations with respect to the Notes (except for the obligations to register
the transfer or exchange of the Notes, to replace temporary or mutilated,
destroyed, lost or stolen Notes, to maintain an office or agency in respect of
the Notes and to hold moneys for payment in trust) upon the irrevocable deposit
by the Company with the Trustee, in trust, of an amount, in cash or U.S.
Government Obligations (as defined below), or both, which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of and
premium (if any) and interest on the Notes on the scheduled due dates therefor.
"U.S. Government Obligations" means direct, non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
timely payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
BOOK-ENTRY SYSTEM
The following are summaries of certain rules and operating procedures of
DTC that affect the payment of principal and interest and transfers of interests
in the Global Security. Upon issuance, the Notes will be issued only in the form
of a Global Security which will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC. Unless and until it is
exchanged in whole or in part for Notes in definitive form under the limited
circumstances described below, the Global Security may not be transferred except
as a whole (i) by DTC to a nominee of DTC, (ii) by a nominee of DTC to DTC or
another nominee of DTC, or (iii) by DTC or any such nominee to a successor of
DTC or a nominee of such successor.
Ownership of beneficial interests in the Global Security will be limited to
persons that have accounts with DTC for the Global Security ("Participants") or
persons that may hold interests through Participants. Upon the issuance of the
Global Security, DTC will credit, on its book-entry registration and transfer
system, the
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Participants' accounts with the respective principal amounts of the Notes
represented by the Global Security beneficially owned by such Participants.
Ownership of beneficial interests in the Global Security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of persons holding through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer, or pledge
beneficial interests in the Global Security.
So long as DTC or its nominee is the registered owner of the Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the Global Security for all purposes
under the Indenture. Except as set forth below, owners of beneficial interests
in the Global Security will not be entitled to have the interests represented by
the Global Security registered in their names, will not receive or be entitled
to receive physical delivery of the Notes in definitive form, and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in the Global Security must rely on the
procedures of DTC and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights of a holder under the Indenture. The Company understands that under
existing industry practices, if the Company requests any action of holders or if
an owner of a beneficial interest in the Global Security desires to give or take
any action that a holder is entitled to give or take under the Indenture, DTC
would authorize the Participants holding the relevant beneficial interests to
give or take such action, and such Participants would authorize beneficial
owners owning through such Participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal and interest payments on interests represented by the Global
Security will be made to DTC or its nominee, as the case may be, as the
registered owner of the Global Security. None of the Company, the Trustee, or
any other agent of the Company or agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising, or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC, upon receipt of any payment of principal or
interest in respect of the Global Security, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Security as shown on the records
of DTC. The Company also expects that payments by Participants to owners of
beneficial interests in the Global Security held through such Participants will
be governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of such
Participants.
If DTC is at any time unwilling or unable to continue as depository for the
Notes and the Company fails to appoint a successor depository registered as a
clearing agency under the Exchange Act, within 90 days, the Company will issue
the Notes in definitive form in exchange for the Global Security. Any Notes
issued in definitive form in exchange for the Global Security will be registered
in such name or names, and will be issued in denominations of $1,000 and such
integral multiples thereof, as DTC shall instruct the Trustee. It is expected
that such instructions will be based upon directions received by DTC from
Participants with respect to ownership of beneficial interests in the Global
Security.
DTC has advised the Company of the following information regarding DTC: DTC
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a "banking organization" within the meaning of the Banking Law of
the State of New York, 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. DTC was created to hold securities of its Participants and to
facilitate the clearance and settlement of transactions among its Participants
in such securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC's Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations, some of
which (and/or their representatives) own DTC. Access to DTC book-entry system is
also available to others,
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such as banks, brokers, dealers, and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
herein) in immediately available funds. All payments of principal and interest
in respect of the Notes will be made by the Company 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.
INFORMATION REGARDING THE TRUSTEE
The Trustee under the Indenture will be State Street Bank and Trust
Company. The Trustee is the administrative agent under one of the Company's
revolving credit facilities and the trustee with respect to substantially all of
the Company's publicly issued debt securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (prospectively or retroactively) or possible differing
interpretations. The following discussion deals only with Notes held as capital
assets and does not purport to deal with persons in special tax situations, such
as financial institutions, banks, insurance companies, regulated investment
companies, dealers in securities or currencies, persons holding Notes as a hedge
against currency risks or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source, (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust, or (v) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term "non-
U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
The Company's Treasurer may be contacted at its principal office to make
available to holders of the Notes upon their request the information required to
comply with applicable provisions of the Contingent Payment Regulations (as
defined below).
U.S. HOLDERS
Payments of Interest. The Notes should constitute variable rate debt
instruments ("VRDI") and the interest payments received should be considered
"qualified stated interest". Based on this treatment, the interest received will
be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or received (in accordance with the U.S. Holder's regular
method of tax accounting).
Disposition of a Note. Based on the forgoing treatment, upon the sale,
exchange or retirement of a Note, a U.S. Holder generally will recognize taxable
gain or loss in an amount equal to the difference, if any,
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between the amount realized upon the sale, exchange or retirement (other than
amounts representing accrued and unpaid interest which will be taxable as
interest income) and such U.S. Holder's adjusted tax basis in its Note. A U.S.
Holder's adjusted tax basis in a Note is generally equal to such U.S. Holder's
initial investment in such Note. Any gain or loss realized by a U.S. Holder upon
the sale, exchange or retirement of a Note generally will be long-term or
short-term capital gain or loss, depending upon whether the U.S. Holder has held
the Note for more than one year.
Other Possible Treatment of the Notes. While the Company intends to treat
the Notes as VRDIs, there is the possibility that the Internal Revenue Service
("IRS") will not agree with this treatment, and it is possible that the IRS
could seek to treat the Notes as contingent payment debt instruments under the
Internal Revenue Code of 1986, as amended (the "Code").
In the event the Notes were treated as contingent payment debt instruments,
each U.S. holder would be required to report income on the Notes in accordance
with certain Treasury Regulations governing contingent payment debt instruments
(the "Contingent Payment Regulations"). A projected yield to maturity of the
Notes would be calculated by the Company based upon the Company's current
borrowing costs for comparable debt instruments of the Company, along with a
projected payment schedule based on this projected yield. A U.S. Holder would be
required to include in income as ordinary interest an amount equal to the sum of
the daily portions of interest on the Notes that would be deemed to accrue at
this projected yield to maturity for each day during the U.S. Holder's taxable
year on which the U.S. Holder holds the Notes. The amount of interest that would
be deemed to accrue in any accrual period would equal the product of this
projected yield to maturity (properly adjusted for the length of the accrual
period) and the Notes' adjusted issue price (as defined below) at the beginning
of the accrual period. The daily portions of interest would be determined by
allocating to each day in the accrual period the ratable portion of the interest
that would be deemed to accrue during the accrual period. In general, for these
purposes, a Note's adjusted issue price would equal the Note's issue price
increased by the interest previously accrued on the Note, and reduced by all
payments made on the Note. For the taxable year of the interest payment, the
U.S. Holder's ordinary interest income is generally adjusted, upward or
downward, as the case may be, for the difference between the amount of interest
actually paid on the Notes to the U.S. Holder and the amount of ordinary
interest income previously accrued into income by the U.S. Holder under the
projected payment schedule with respect to such interest payment.
Under the Contingent Payment Regulations, upon the sale or exchange of a
Note (including a sale pursuant to a tender to the Remarketing Underwriter), a
U.S. Holder would be required to recognize taxable income or loss in an amount
equal to the difference, if any, between the amount realized by the U.S. Holder
upon such sale or exchange and the U.S. Holder's adjusted tax basis in the Note
as of the date of disposition. A U.S. Holder's adjusted tax basis in a Note
generally would equal such U.S. Holder's initial investment in the Note
increased by any interest previously included in income with respect to the Note
by the U.S. Holder, and decreased by any payments received by the U.S. Holder.
Any such taxable income generally would be treated as ordinary income. Any such
taxable loss generally would be treated (i) first as an offset to any interest
otherwise includible in income by the U.S. Holder with respect to the Note for
the taxable year in which the sale or exchange occurs to the extent of the
amount of such includible interest, and (ii) then as an ordinary loss to the
extent of the U.S. Holder's total interest inclusions on the Note in previous
taxable years. Any remaining loss in excess of the amounts described in (i) and
(ii) above generally would be treated as long-term or short-term capital loss
(depending upon the U.S. Holder's holding period for the Note). All amounts
includible in income by a U.S. Holder as ordinary interest pursuant to the
Contingent Payment Regulations would be treated as original issue discount.
Gain or Income Received by a Foreign Corporation. A foreign corporation
whose income or gain in respect of a Note is effectively connected with the
conduct of a United States trade or business, in addition to being subject to
regular U.S. income tax, may be subject to a branch profits tax equal to 30% of
its "effectively connected earnings and profits" within the meaning of the Code,
for the taxable year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable tax treaty (as modified by the branch profits tax
rules).
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NON-U.S. HOLDERS
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on payments of principal, premium, if any, or interest on a Note,
or on any gain upon disposition or retirement of a Note, if (i) such non-U.S.
Holder does not own 10% or more of the shares of beneficial interest of the
Company and (ii) the last United States payor in the chain of payment (the
"Withholding Agent") has received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
signed by the beneficial owners of the Note under penalties of perjury
certifying that such owner is not a U.S. Holder and providing the name and
address of the beneficial owner. The statement may be made on an IRS Form W-8 or
a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However, in
such case, the signed statement must be accompanied by a copy of the IRS Form
W-8 or the substitute form provided by the beneficial owner to the organization
or institution. Interest received or gain recognized by a non-U.S. Holder which
does not qualify for exemption from taxation will be subject to United States
Federal income tax and withholding tax at a rate of 30% unless reduced or
eliminated by applicable tax treaty. The Treasury Department is considering
implementation of further certification requirements aimed at determining
whether the issuer of a debt obligation is related to holders thereof.
On April 22, 1996, the IRS issued proposed Treasury regulations that would
revise the procedures for securing an exemption from the 30% United States
Federal withholding tax (the "Proposed Regulations"). If adopted in final form,
the Proposed Regulations generally would apply to payments made after December
31, 1997.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns directly or indirectly 10% or more of the shares of
beneficial interest of the Company or, at the time of such individual's death,
payments in respect of the Notes would have been effectively connected with the
conduct by such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States income tax at a rate of 31% may apply
to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note by (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions set forth in the Purchase Agreement,
to purchase the Notes from the Company at a price equal to 99.6% of the
principal amount thereof.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Notes from time to time for sale in negotiated transactions or
otherwise, at prices determined at the time of sale. The Underwriter may effect
such transactions by selling Notes to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and any purchasers of Notes for whom they may
act as agent. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Notes may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Notes by them may be deemed to be underwriting compensation.
The Notes are a new issue of securities with no established trading market.
The Company does not intend to apply for listing of the Notes on a national
securities exchange. The Company has been advised by the Underwriter that it
intends to make a market in the Notes as permitted by applicable laws and
regulations, but it is not obligated to do so and may discontinue market making
at any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriter to bid for and purchase the Notes. As
an exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Notes. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Notes.
If the Underwriter creates a short position in the Notes in connection with
the offering, i.e., if it sells more of the Notes than are set forth on the
cover page of this Prospectus Supplement, the Underwriter may reduce that short
position by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Company nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments the Underwriter may be
required to make in respect thereof.
In the ordinary course of their respective businesses, the Underwriter and
its affiliates have engaged, and may in the future engage, in investment banking
transactions with the Company.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for the
Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts and for the
Underwriter by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company included in the
Company's Current Report on Form 8-K dated January 31, 1997, have been audited
by Coopers & Lybrand, L.L.P., independent accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
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consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting.
------------------------
THE RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED AUGUST 6,
1985, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE SECRETARY OF STATE OF THE COMMONWEALTH OF
MASSACHUSETTS, PROVIDES THAT THE NAME "MEDITRUST" REFERS TO THE TRUSTEES UNDER
THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY,
AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY
SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY
OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE
COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
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PROSPECTUS
[MEDITRUST LOGO]
COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST,
DEBT SECURITIES AND/OR SECURITIES WARRANTS
------------------------
Meditrust, a Massachusetts business trust (together with its subsidiaries
unless the context otherwise requires, the "Company"), is a real estate
investment trust under the Internal Revenue Code of 1986, as amended, which may
offer from time to time, in one or more series, its debt securities (the "Debt
Securities"), warrants to purchase Debt Securities (the "Debt Securities
Warrants"), common shares of beneficial interest, without par value (the "Common
Shares"), preferred shares of beneficial interest (the "Preferred Shares" and
together with the Common Shares, the "Shares") and warrants to purchase Shares
(the "Share Warrants"). The Debt Securities Warrants and the Share Warrants are
collectively referred to herein as the "Securities Warrants." The Debt
Securities, Shares and Securities Warrants are collectively referred to herein
as the "Securities." The Securities will have an aggregate offering price of
$500,000,000 and will be offered in amounts, at prices and on terms to be
determined at the time of offering.
In the case of Debt Securities, the specific title, the aggregate principal
amount, the offering price, the maturity, the rate and time of payment of any
interest, any redemption or sinking fund provisions, any conversion provisions
and any other specific term of the Debt Securities will be set forth in an
accompanying supplement to this Prospectus (the "Prospectus Supplement"). In the
case of Shares, the specific number of Shares and offering price will be set
forth in an accompanying Prospectus Supplement. In the case of Preferred Shares,
the specific designation, any dividend, liquidation, redemption, conversion,
voting and other rights, the offering price and any other specific term of the
Preferred Shares will be set forth in an accompanying Prospectus Supplement. In
the case of Securities Warrants, the duration, offering price, exercise price
and detachability, if applicable, will be set forth in an accompanying
Prospectus Supplement. The Prospectus Supplement will also disclose whether the
Securities will be listed on a national securities exchange and if they are not
to be listed, the possible effects thereof on their marketability.
The Securities may be sold: (i) directly by the Company; (ii) through
underwriting syndicates represented by one or more managing underwriters, or by
one or more underwriters without a syndicate; and (iii) through agents
designated from time to time. The names of any underwriters or agents of the
Company involved in the sale of the Securities in respect of which this
Prospectus is being delivered and any applicable commissions or discounts will
be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." The net proceeds to the Company from such sale also will be set
forth in the Prospectus Supplement.
The Company's shares are traded on the New York Stock Exchange under the
symbol "MT." On May 28, 1996, the closing sale price of the Shares on the New
York Stock Exchange was $33.375.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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 MAY 30, 1996.
46
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024 of the offices of
the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the principal offices of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed
rates. Reports, proxy materials and other information concerning the Company can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, Room 1102, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus and any accompanying Prospectus Supplement do not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained upon payment of a fee prescribed by the Commission, or may
be examined free of charge at the principal office of the Commission in
Washington, D.C.
Statements made in this Prospectus and any accompanying Prospectus
Supplement as to the contents of any contract or other document referred to are
not necessarily complete, and reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus its (i)
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as
amended by the Company's Form 10-K/A dated March 5, 1996, (ii) Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1996 and (iii) Current
Report on Form 8-K dated January 29, 1996, which shall be deemed to be a part
hereof.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of the Securities offered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in a subsequently filed
document, as the case may be, which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
(without exhibits) of any or all documents incorporated by reference into this
Prospectus. Requests for such copies should be directed to Lisa P. McAlister,
Chief Financial Officer and Treasurer, Meditrust, 197 First Avenue, Needham
Heights, Massachusetts 02194, telephone (617) 433-6000.
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THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED AUGUST 6, 1985, AS
AMENDED (THE "DECLARATION"), A COPY OF WHICH IS DULY FILED IN THE OFFICE OF THE
SECRETARY OF STATE OF THE COMMONWEALTH OF MASSACHUSETTS, PROVIDES THAT THE NAME
"MEDITRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY; AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO
THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.
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THE COMPANY
Meditrust, established in 1985, is the largest dedicated health care real
estate investment trust in the United States based on its gross real estate
investments of over $2 billion as of March 31, 1996. The Company invests in high
quality health care facilities managed by experienced operators and attempts to
achieve diversity in its property portfolio by sector of the health care
industry, geographic location, operator and form of investment.
As of March 31, 1996, the Company had investments in 333 facilities,
consisting of 261 long-term care facilities, 24 rehabilitation hospitals, 22
retirement and assisted living facilities, 15 medical office buildings, ten
alcohol and substance abuse and psychiatric facilities and one acute care
hospital campus. Included in the 333 facilities are 19 properties under
construction that are expected to be completed during the next three to 12
months. The properties are located in 35 states and are operated by 33 health
care companies. Of the 33 different operators, 13 are publicly-traded companies
(i.e., Sun Healthcare Group, Inc., Horizon/CMS Healthcare Corporation, Geriatric
and Medical Centers, Inc., OrNda Healthcorp., Integrated Health Services, Inc.,
Emeritus Corporation, Tenet HealthCare Corporation, Columbia/HCA Healthcare
Corporation, HealthSouth Rehabilitation Corporation, The Multicare Companies,
Inc., Mariner Health Group, Inc., Youth Services International, Inc. and
Sterling House Corporation), and constitute approximately 45% of the Company's
real estate investments.
The Company's real estate investments are either owned by the Company or
secured by a mortgage lien. As of March 31, 1996, permanent mortgage loans
constituted 50%, sale/leaseback transactions constituted 43% and development
mortgage financing constituted 7% of the Company's portfolio as measured by
gross real estate investments. The leases and mortgages provide for rental or
interest rates which generally range from approximately 9% to 13% per annum of
the acquisition price or mortgage amount. The leases and mortgages generally
provide for an initial term of 10 years, with the leases having one or more
five-year renewal options. The leases and mortgages also provide for additional
rent and interest which are generally either based upon a percentage of
increased revenues over specific base period revenues of the related properties
or a fixed rent or interest escalation provision.
In addition, the Company usually obtains guarantees from the parent
corporation, if any, of the operator or affiliates or individual principals of
the operator. Many obligations are backed by letters of credit or pledges of
certificates of deposit which cover from three to 12 months of lease or mortgage
payments. In addition, the Company's permanent and development mortgage loans
and leases generally are cross-defaulted or where appropriate
cross-collateralized with other mortgage and development loans, leases or other
agreements between the Company and the same operator or any affiliated
operators. With respect to development mortgage loans, the Company generally
requires guaranteed maximum price construction contracts, performance completion
bonds or guarantees. The Company enters into a development mortgage loan when
the Company will also be the permanent owner or mortgage lender.
In making its investment decisions, the Company reviews, among other
criteria, the operational viability of the facility, the experience and
competency of the operator and the financial strength of the guarantor. From
time to time, the Company enters into transactions with related parties. As of
March 31, 1996, the Company had total commitments of $167 million, $97 million
of which was funded, to companies in which Abraham D. Gosman, the Company's
Chairman and Chief Executive Officer, owns an equity interest. The Company
expects to enter into additional transactions with related parties in the
future. All of the terms and conditions of such transactions are subject to
approval by the independent Trustees of the Company. The Board of Trustees
believes that the terms of the transactions which the Company has entered into
with related parties are not less favorable to the Company than those prevailing
at the time for comparable transactions with unrelated persons.
The Company was organized to qualify, and intends to continue to operate,
as a real estate investment trust in accordance with Federal tax laws and
regulations. So long as the Company so complies, with limited exceptions, the
Company will not be taxed under Federal income tax laws on that portion of its
taxable income that it distributes to its shareholders. The Company has
distributed, and intends to continue to distribute,
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substantially all of its real estate investment trust taxable income to
shareholders. See "Federal Income Tax Considerations."
In order to meet its ongoing capital requirements for additional
investments, the Company may raise additional capital through a variety of
sources, including the sale of Shares and debt securities and drawings against
its revolving bank lines of credit.
The Company is a self-administered real estate investment trust, with its
principal executive offices at 197 First Avenue, Needham Heights, Massachusetts
02194. Its telephone number is (617) 433-6000.
HEALTH CARE REFORM AND REGULATION
Many of the operators with which the Company does business rely on
government reimbursement, primarily Medicare and Medicaid, for a significant
portion of their operating revenues. During the 1994 session of the United
States Congress, there was active consideration of various proposals for
national health care reform, including the administration's proposal to cap
national health care spending and the future growth of Medicare and Medicaid
funding. No such legislation was passed during the 1994 session of Congress.
Other recent proposals include replacement of the current Medicaid program with
block grants to the states and other limitations on Medicaid spending. Some of
these proposals, if enacted, could have an impact on operators doing business
with the Company. It is not possible to predict whether and when health care
reform legislation will be passed by Congress and, if passed, what features such
legislation will contain or the effect it may have on the nursing home, assisted
living or rehabilitation care industries, the reimbursements levels available to
health care providers or on the health care industry in general.
From time to time, Medicaid, Medicare and other governmental payors have
reviewed the billing practices of many health care facilities operators
including certain of the operators with which the Company does business. It is
unclear what impact such reviews may have on these operators. The Company does
not believe, however, that any adverse findings against these operators would
materially affect the Company's financial position.
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
-------------------------------- THREE MONTHS ENDED
1991 1992 1993 1994 1995 MARCH 31, 1996
---- ---- ---- ---- ---- ------------------
Ratio.................................. l.60 1.88 2.02 2.19 2.35 3.21
For the purpose of calculating the ratio of earnings to fixed charges for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995, and the
three-month period ended March 31, 1996, net income has been added to interest
expense and that sum has been divided by such interest expense. To date, the
Company has not issued Preferred Shares; therefore, the ratios of earnings to
fixed charges and preferred stock dividend requirements are the same as the
ratios of earnings to fixed charges set forth above.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement which accompanies
this Prospectus, the net proceeds from the sale of the Securities offered from
time to time hereby will be used for general business purposes, including the
repayment of bank lines of credit, if any, outstanding, and investments in
health care facilities. As of May 29, 1996, there were no loans outstanding
under the Company's bank lines of credit. Any drawings under the Company's bank
lines of credit will mature on or before June 30, 1997 and bear interest at the
lenders' respective prime rates or the London Interbank Offering Rate plus 1.00%
per annum. Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, direct obligations issued or guaranteed by the United States,
certificates of deposit or accounts, or investment grade commercial paper,
consistent with the Company's qualification as a real estate investment trust,
the Company's Restated Declaration of Trust (the "Declaration"), and the
Company's agreements with its lenders.
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DESCRIPTION OF SHARES
There is no limit on the number of Shares the Company is authorized to
issue. Shares may be issued by the Board of Trustees without any vote of the
shareholders. The Shares are without par value. On the date hereof, the
outstanding Shares are of one class. The following description is qualified in
all respects by reference to the Declaration and the By-laws of the Company,
copies of which are incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part.
Redemption. For the Company to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the "Code"), in any taxable
year, not more than 50% of its outstanding Shares may be owned by five or fewer
individuals and Shares must be owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year. In order to meet these requirements, the Trustees have the power
to redeem or prohibit the transfer of a sufficient number of Shares selected in
a manner deemed appropriate to maintain or bring the ownership of the Shares
into conformity with such requirements. In connection with the foregoing, if the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of at least 9.9% or more of the Shares has or may become
concentrated in the hands of one beneficial owner, the Trustees shall have the
power (i) by lot or other means deemed equitable by them to call for the
purchase from any shareholder of the Company of a number of Shares sufficient,
in the opinion of the Trustees, to maintain or bring the direct or indirect
ownership of Shares of such owner to a level of no more than 9.9% of the
outstanding Shares, and (ii) to refuse to transfer or issue Shares to any person
whose acquisition of such Shares would cause a beneficial holder to hold in
excess of 9.9% of the outstanding Shares. Further, any transfer of Shares that
would create a beneficial owner of more than 9.9% of the outstanding Shares
shall be deemed void and the intended transferee shall be deemed never to have
had an interest therein. The purchase price for any Shares so redeemed shall be
equal to the fair market value of the Shares reflected in the closing sales
price for the Shares, if then listed on a national securities exchange, or the
average of the closing sales price for the Shares if then listed on more than
one national securities exchange, or if the Shares are not then listed on a
national securities exchange, the latest bid quotation for the Shares if then
traded over-the-counter, on the last business day immediately preceding the day
on which notices of such acquisition are sent by the Company. From and after the
date fixed for purchase by the Trustees, the holder of any Shares so called for
purchase shall cease to be entitled to distributions, voting rights and other
benefits with respect to such Shares, except the right to payment of the
purchase price for the Shares.
The foregoing provisions may have the effect of discouraging unilateral
tender offers or other takeover proposals which certain shareholders might deem
in their interest or in which they might receive a substantial premium. The
provisions could also have the effect of insulating current management against
the possibility of removal and could, by possibly reducing temporary
fluctuations in market price caused by accumulations of Shares, deprive
shareholders of opportunities to sell at a temporarily higher market price.
Additional Provisions. The Declaration provides that annual meetings of
shareholders are to be held within six months after the end of each fiscal year
and special meetings of the shareholders may be called by the President of the
Company, a majority of the Trustees or a majority of the Independent Trustees
(defined in the Declaration) and shall be called upon the written request of the
holders of 10% or more of the outstanding Shares.
Whenever any action is to be taken by the shareholders, it shall, except as
otherwise clearly indicated in the Declaration, be authorized by holders of a
majority of the Shares then outstanding and entitled to vote thereon. See
"Preferred Shares." Notwithstanding the foregoing, at all elections of Trustees,
voting by shareholders shall be conducted under the non-cumulative method and
the election of Trustees shall be by the affirmative vote of the holders of
Shares representing a plurality of the Shares then outstanding which are present
in person or by proxy at a meeting in which a quorum is present.
Whenever shareholders are required or permitted to take any action (unless
a vote at a meeting is specifically required, as with respect to termination or
amendment of the Declaration), such action may be taken without a meeting by
written consents setting forth the action so taken, signed by the holders of a
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majority (or such higher percentage as may be specified) of the outstanding
Shares that would be entitled to vote thereon at a meeting.
Except with respect to matters on which a shareholders' vote is
specifically required by the Declaration, no action taken by the shareholders at
any meeting shall in any way bind the Trustees.
The Shares have no preemptive or appraisal rights.
The Declaration provides that shareholders of the Company shall not be
subject to any liability for the acts or obligations of the Company and that, as
far as is practicable, each written agreement of the Company is to contain a
provision to that effect. No personal liability will attach to the shareholders
for claims under any contract containing such a provision in writing where
adequate notice is given of such provision, except possibly in a few
jurisdictions. With respect to all types of claims in such jurisdictions and
with respect to tort claims, contract claims where the shareholder liability is
not disavowed as described above, claims for taxes and certain statutory
liabilities in other jurisdictions, a shareholder may be held personally liable
to the extent claims are not satisfied by the Company. However, the Declaration
provides that, upon payment of any such liability, the shareholder will be
entitled to reimbursement from the general assets of the Company. The Trustees
intend to conduct the operations of the Company, with the advice of counsel, in
such a way as to avoid, as far as is practicable, the ultimate liability of the
shareholders of the Company. For example, almost all of the real estate and all
of the mortgages included in the assets of the Company are held by corporate
subsidiaries. The Trustees do not intend to provide insurance covering such
risks to shareholders.
COMMON SHARES
General. All Common Shares participate equally in dividends and in net
assets available for distribution to holders of Common Shares on liquidation or
termination of the Company, have one vote per Common Share on all matters
submitted to a vote of the shareholders and do not have cumulative voting rights
in the election of Trustees. The Common Shares offered hereby will be validly
issued, fully paid and nonassessable by the Company upon issuance. The Common
Shares have no conversion, exchange or sinking fund rights.
Transfer Agent and Registrar. Fleet National Bank, Providence, Rhode
Island, acts as transfer agent and registrar of the Common Shares.
PREFERRED SHARES
General. Under the Declaration, the Company has authority to issue an
unlimited number of Preferred Shares. No Preferred Shares were outstanding as of
May 29, 1996. Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees of the Company. Prior to issuance
of shares of each series, the Board of Trustees is required by the Declaration
to fix for each series, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, of such series of
Preferred Shares. The Preferred Shares will, when issued, be fully paid and
nonassessable and will have no preemptive rights. The Board of Trustees could
authorize the issuance of Preferred Shares with terms and conditions that could
have the effect of discouraging a takeover or other transaction that holders of
Shares might believe to be in their best interests or in which holders of some,
or a majority, of the Shares might receive a premium for their Shares over the
then market price of such Shares.
Terms. The following description of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares to which any
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 the Declaration and any applicable
amendment to the Declaration designating the terms of a series of Preferred
Shares (a "Designating Amendment").
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Reference is made to the Prospectus Supplement relating to any Preferred
Shares offered thereby for the specific terms of such securities, including:
(1) The title of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per Share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(12) The relative ranking and preference of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolutions or winding
up of the affairs of the Company; and
(14) Any limitations, in addition to those imposed on Shares generally
under the Declaration, on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
Rank. Unless otherwise specified in the Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
Common Shares of the Company, and to all equity securities ranking junior to
such Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. The term "equity
securities" does not include convertible Debt Securities.
Dividends. Holders of the Preferred Shares of each series will be entitled
to receive, when, as and if declared by the Board of Trustees of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the Board of Trustees of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend
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in respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
Unless otherwise provided in the applicable Prospectus Supplement, if
Preferred Shares of any series are outstanding, no dividends will be declared or
paid or set apart for payment on any other equity securities of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per Preferred Share of such series and
such other series of Preferred Shares shall in all cases bear to each other the
same ratio that accrued dividends per Preferred Share of such series (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such Preferred Shares do not have a cumulative dividend) and
such other series of Preferred Shares bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph and unless
otherwise indicated in the applicable Prospectus Supplement, unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative dividends
on the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Shares or other equity securities ranking
junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment nor shall any
other distribution be declared or made upon the Shares, or any other equity
securities ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation, nor shall any Shares or any other
equity securities of the Company ranking junior to or on a parity with the
Preferred Shares of such series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any such securities)
by the Company (except by conversion into or exchange for other equity
securities of the Company ranking junior to the Preferred Shares of such series
as to dividends and upon liquidation).
Redemption. If so provided in the applicable Prospectus Supplement, the
Preferred Shares will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. 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 the issuance of equity securities of the Company, the terms of such
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Preferred Shares may provide that, if no such equity securities 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, such Preferred Shares shall
automatically and mandatorily be converted into the applicable equity securities
of the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing and unless otherwise provided in the
applicable Prospectus Supplement, unless (i) if a series of Preferred Shares has
a cumulative dividend, full cumulative dividends on all shares of such series of
Preferred Shares shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if a
series of Preferred Shares does not have a cumulative dividend, full dividends
on all Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares
shall be redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Shares of such
series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of such
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, the Company
shall not purchase or otherwise acquire directly or indirectly any Preferred
Shares of such series (except by conversion into or exchange for equity
securities of the Company ranking junior to the Preferred Shares of such series
as to dividends and upon liquidation); provided, however, that the foregoing
shall not prevent the purchase or acquisition of Preferred Shares of such series
to preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series.
Liquidation Preference. Unless otherwise provided in the applicable
Prospectus Supplement, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Shares or any
other class or series of equity securities of the Company ranking junior to the
Preferred Shares in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Shares
shall be entitled to receive out of assets of the Company legally available for
distribution to stockholders liquidating distributions in the amount of the
liquidation preference per share, if any, set forth in the applicable Prospectus
Supplement, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). 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 the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding Preferred
Shares and the corresponding amounts payable on all shares of other classes or
series of equity securities of the Company ranking on a parity with the
Preferred Shares in the distribution of assets, then the holders of the
Preferred Shares and all other such classes or series of equity securities shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of equity securities ranking junior
to the Preferred Shares upon liquidation, dissolution or winding up, according
to their respective rights and preferences and in each case according to their
respective number of shares.
Voting Rights. Holders of the Preferred Shares will have such voting
rights, if any, as indicated in the applicable Prospectus Supplement, or as from
time to time required by law.
Conversion Rights. The terms and conditions, if any, upon which any series
of Preferred Shares is convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Shares into which the Preferred Shares are convertible, the conversion
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price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Shares or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
series of Preferred Shares.
Transfer Agent. The transfer agent and registrar for the Preferred Shares
will be set forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The Prospectus Supplement will describe certain terms of any Debt
Securities offered hereby, including (i) the title of such Debt Securities; (ii)
any limit on the aggregate principal amount of such Debt Securities and their
purchase price; (iii) the date or dates on which such Debt Securities will
mature; (iv) the rate or rates per annum (or manner in which interest is to be
determined) at which such Debt Securities will bear interest, if any, and the
date from which such interest, if any, will accrue; (v) the dates on which such
interest, if any, on such Debt Securities will be payable and the regular record
dates for such interest payment dates; (vi) any mandatory or optional sinking
fund or analogous provisions; (vii) additional provisions, if any, for the
defeasance of such Debt Securities; (viii) the date, if any, after which and the
price or prices at which such Debt Securities may, pursuant to any optional or
mandatory redemption or repayment provisions, be redeemed and the other detailed
terms and provisions of any such optional or mandatory redemption or repayment
provisions; (ix) whether such Debt Securities are to be issued in whole or in
part in registered form represented by one or more registered global securities
(a "Registered Global Security") and, if so, the identity of the depository for
such Registered Global Security or Securities; (x) certain applicable United
States Federal income tax consequences; (xi) any provisions relating to security
for payments due under such Debt Securities; (xii) any provisions relating to
the conversion or exchange of such Debt Securities into or for Shares or Debt
Securities of another series; (xiii) any provisions relating to the ranking of
such Debt Securities in right of payment as compared to other obligations of the
Company; (xiv) the denominations in which such Debt Securities are authorized to
be issued; (xv) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; (xvi) whether such
debt Securities are to be issued pursuant to an indenture of trust; and (xvii)
any other specific term of such Debt Securities, including any additional events
of default or covenants provided for with respect to such Debt Securities, and
any terms that may be required by or advisable under applicable laws or
regulations.
The Debt Securities may be issued in one or more series under an Indenture
to be executed by the Company and a trustee (the "Trustee"), a form of which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part (the "Indenture"). The terms of the Debt Securities may include those
stated in the Indenture and those made a part of the Indenture (before any
supplements) by reference to the Trust Indenture Act of 1939, as amended.
The following is a summary of certain provisions of the Indenture and does
not purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the Indenture, including the definitions of certain terms
therein to which reference is hereby made, for a complete statement of such
provisions. Wherever particular provisions or sections of the Indenture or terms
defined therein are referred to herein, such provisions or definitions are
incorporated herein by reference.
General. The Indenture does not limit the aggregate principal amount of
Debt Securities that may be issued thereunder and provides that Debt Securities
may be issued from time to time in one or more series.
Conversion Rights. The terms, if any, on which Debt Securities of any
series may be converted into Shares or Debt Securities of another series will be
set forth in the Prospectus Supplement relating thereto. To protect the
Company's status as a real estate investment trust ("REIT"), the holders of Debt
Securities of any series ("Holders") may not convert any Debt Security, and such
Debt Security shall not be convertible by any Holder, if as a result of such
conversion any person would then be deemed to beneficially own, directly or
indirectly, 9.9% or more of the then outstanding Shares.
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The conversion price will be subject to adjustment under certain
conditions, including (i) the payment of dividends (and other distributions) in
Shares on any class of shares of the Company; (ii) subdivisions, combinations
and reclassifications of Shares; (iii) the issuance to all or substantially all
holders of Shares of rights or warrants entitling them to subscribe for or
purchase Shares at a price per Share (or having a conversion price per Share)
less than the then current market price; and (iv) distributions to all or
substantially all holders of Shares or shares of any other class, or evidences
of indebtedness or assets (including securities, but excluding those rights,
warrants, dividends and distributions referred to above and dividends and
distributions not prohibited under the terms of the Indenture) of the Company,
subject to the limitation that all adjustments by reason of any of the foregoing
would not be made until they result in a cumulative change in the conversion
price of at least 1%. In the event the Company shall effect any capital
reorganization or reclassification of its Shares or shall consolidate or merge
with or into any trust or corporation (other than a consolidation or merger in
which the Company is the surviving entity) or shall sell or transfer
substantially all its assets to any other trust or corporation, the Holders
shall, if entitled to convert such Debt Securities at any time after such
transaction, receive upon conversion thereof, in lieu of each Share into which
the Debt Securities of such series would have been convertible prior to such
transaction, the same kind and amount of stock and other securities, cash or
property as shall have been issuable or distributable in connection with such
transaction with respect to each Share.
A conversion price adjustment made according to the provisions of the Debt
Securities of any series (or the absence of provision for such an adjustment)
might result in a constructive distribution to the Holders of Debt Securities of
such series or holders of Shares that would be subject to taxation as a
dividend. The Company may, at its option, make such reductions in the conversion
price, in addition to those set forth above, as the Board of Trustees of the
Company deems advisable to avoid or diminish any income tax to holders of Shares
resulting from any dividend or distribution of Shares (or rights to acquire
Shares) or from any event treated as such for income tax purposes or for any
other reason. The Board of Trustees will also have the power to resolve any
ambiguity or correct any error in the provisions relating to the adjustment of
the conversion price of the Debt Securities of such series and its actions in so
doing shall be final and conclusive.
Fractional Shares will not be issued upon conversion, but, in lieu thereof,
the Company will pay a cash adjustment based upon market price.
The Holders of Debt Securities of any series at the close of business on an
interest payment record date shall be entitled to receive the interest payable
on such Debt Securities on the corresponding interest payment date
notwithstanding the conversion thereof. However, Debt Securities surrendered for
conversion during the period from the close of business on any record date for
the payment of interest to the opening of business on the corresponding interest
payment date must be accompanied by payment of an amount equal to the interest
payable on such interest payment date. Holders of Debt Securities of any series
who convert Debt Securities of such series on an interest payment date will
receive the interest payable by the Company on such date and need not include
payment in the amount of such interest upon surrender of such Debt Securities
for conversion. Except as aforesaid, no payment or adjustment is to be made on
conversion for interest accrued on the Debt Securities of any series or for
dividends on Shares.
Optional Redemption. The Debt Securities of any series that are
convertible into Shares will be subject to redemption, in whole or from time to
time in part, at any time for certain reasons intended to protect the Company's
status as a REIT at the option of the Company on at least 30 days' prior notice
by mail at a redemption price equal to 100% of the principal amount, plus
interest accrued to the date of redemption. Except as otherwise set forth in the
accompanying Prospectus Supplement, the Company may exercise its redemption
powers solely with respect to the securities of the security holder or holders
which pose a threat to the Company's REIT status and only to the extent deemed
necessary by the Company's Board of Trustees to preserve such status. (See
"Redemption" under "Description of Shares".)
Dividends, Distributions and Acquisitions of Shares of Beneficial
Interest. The Indenture provides that the Company will not (i) declare or pay
any dividend or make any distribution on its Shares or to holders of its Shares
(other than dividends or distributions payable in its Shares or other than as
the Company determines is necessary to maintain its status as a REIT) or (ii)
purchase, redeem or otherwise acquire or retire for value
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any of its Shares or permit any subsidiary to do so, if at the time of such
action an Event of Default (as defined in the Indenture) has occurred and is
continuing or would exist immediately after giving effect to such action.
Additional Covenants. Any additional covenants of the Company with respect
to a series of the Debt Securities will be set forth in the Prospectus
Supplement relative thereto.
Modification of the Indenture. Under the Indenture, with certain
exceptions, the rights and obligations of the Company with respect to any series
of Debt Securities and the rights of Holders of such series may only be modified
by the Company and the Trustee with the consent of the Holders of at least a
majority in principal amount of the outstanding Debt Securities of such series.
However, without the consent of each Holder of any Debt Securities affected, an
amendment, waiver or supplement may not (i) reduce the principal of, or rate of
interest on, any Debt Securities; (ii) change the stated maturity date of the
principal of, or any installment of interest on, any Debt Securities; (iii)
waive a default in the payment of the principal amount of, or the interest on,
or any premium payable on redemption of, any Debt Securities; (iv) change the
currency for payment of the principal of, or premium or interest on, any Debt
Securities; (v) impair the right to institute suit for the enforcement of any
such payment when due; (vi) adversely affect any right to convert any Debt
Securities; (vii) reduce the amount of outstanding Debt Securities necessary to
consent to an amendment, supplement or waiver provided for in the Indenture; or
(viii) modify any provisions of the Indenture relating to the modification and
amendment of the Indenture or waivers of past defaults, except as otherwise
specified.
Events of Default, Notice and Waiver. Except as otherwise set forth in the
accompanying Prospectus Supplement, the following is a summary of certain
provisions of the Indenture relating to events of default, notice and waiver.
The following are Events of Default under the Indenture with respect to any
series of Debt Securities: (i) default in the payment of interest on the Debt
Securities of such series when due and payable, which continues for 30 days;
(ii) default in the payment of principal of (and premium, if any) on the Debt
Securities when due, at maturity, upon redemption or otherwise, which continues
for five Business Days; (iii) failure to perform any other covenant of the
Company contained in the Indenture or the Debt Securities of such series which
continues for 60 days after written notice as provided in the Indenture; (iv)
default under any bond, debenture or other Indebtedness (as defined in the
Indenture) of the Company or any subsidiary if (a) either (x) such event of
default results from the failure to pay any such Indebtedness at maturity or (y)
as a result of such event of default, the maturity of such Indebtedness has been
accelerated prior to its expressed maturity and such acceleration shall not be
rescinded or annulled or the accelerated amount paid within ten days after
notice to the Company of such acceleration, or such Indebtedness having been
discharged, and (b) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal or interest thereon, or the maturity of which has been so accelerated,
aggregates $10,000,000 or more; (v) certain events of bankruptcy, insolvency or
reorganization relating to the Company; and (vi) any other Event of Default
provided with respect to the Debt Securities of that series.
If an Event of Default occurs and is continuing with respect to the Debt
Securities of any series, either the Trustee or the Holders of a majority in
aggregate principal amount of the outstanding Debt Securities of such series may
declare the Debt Securities due and payable immediately.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any Default or Event of Default with respect to the Debt
Securities of any series, give to the Holders of Debt Securities notice of all
uncured Defaults and Events of Default known to it, but the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such Holders, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any of the Debt Securities of such series.
The Indenture provides that the Holders of a majority in aggregate
principal amount of the Debt Securities of any series then outstanding may
direct the time, method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Debt Securities of such series. The right of a
Holder to institute a proceeding with respect to the Indenture is subject to
certain conditions precedent including notice and indemnity to the Trustee, but
the
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Holder has an absolute right to receipt of principal of (and premium, if any)
and interest on such Holder's Debt Securities on or after the respective due
dates expressed in the Debt Securities, and to institute suit for the
enforcement of any such payments.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series then outstanding may on behalf of the Holders of all
Debt Securities of such series waive certain past defaults, except a default in
payment of the principal of (or premium, if any) or interest on any Debt
Securities of such series or in respect of certain provisions of the Indenture
which cannot be modified or amended without the consent of the Holder of each
outstanding Debt Securities of such series affected thereby.
The Company will be required to furnish to the Trustee annually a statement
of certain officers of the Company stating whether or not they know of any
Default or Events of Default (as defined in the Indenture) and, if they have
knowledge of a Default or Event of Default, a description of the efforts to
remedy the same.
Consolidation, Merger, Sale or Conveyance. The Indenture provides that the
Company may merge or consolidate with, or sell or convey all or substantially
all of its assets to, any other trust or corporation, provided that (i) either
the Company shall be the continuing entity, or the successor entity (if other
than the Company) shall be an entity organized and existing under the laws of
the United States or a state thereof or the District of Columbia (although it
may, in turn, be owned by a foreign entity) and such entity shall expressly
assume by supplemental indenture all of the obligations of the Company under the
Debt Securities of any series and the Indenture, (ii) immediately after giving
effect to such transactions no Default or Event of Default shall have occurred
and be continuing, and (iii) the Company shall have delivered to the Trustee an
Officers' Certificate and opinion of counsel, stating that the transaction and
supplemental indenture comply with the Indenture. The Indenture does not contain
any provision requiring the Company to repurchase the Debt Securities of any
series at the option of the Holders thereof in the event of a leveraged buyout,
recapitalization or similar restructuring of the Company, even though the
Company's creditworthiness and the market value of the Debt Securities may
decline significantly as a result of such transaction. The Indenture does not
protect Holders of the Debt Securities of any series against any decline in
credit quality, whether resulting from any such transaction or from any other
cause.
Global Securities. The Debt Securities of a series may be issued in whole
or in part in global form (the "Global Securities"). The Global Securities will
be deposited with a depository (the "Depository"), or with a nominee for a
Depository, identified in the Prospectus Supplement. In such case, one or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive form, a Global Security may not be transferred except
as a whole by the Depository for such Global Security to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by such Depository or any such nominee to a
successor for such Depository or a nominee of such successor.
The specific material terms of the depository arrangement with respect to
any portion of a series of Debt Securities to be represented by a Global
Security will be described in the Prospectus Supplement. The Company anticipates
that the following provisions will apply to all depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security will credit, on its book entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of persons that have accounts with such Depository
("participants"). The accounts to be credited shall be designated by any
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through records maintained
by the Depository for such Global Security (with respect to interests of
participants) or by participants or persons that hold through participants (with
respect to interests of persons other than participants). So long as the
Depository for a Global Security, or its nominee, is the registered owner of
such Global Security, such Depository or such nominee as the case may be, will
be considered the sole owner or Holder of the Debt
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Securities represented by such Global Security for all purposes under the
Indenture; provided, however, that for purposes of obtaining any consents or
directions required to be given by the Holders of the Debt Securities, the
Company, the Trustee and its agents will treat a person as the holder of such
principal amount of Debt Securities as specified in a written statement of the
Depository.
Principal, premium, if any, and interest payments, if any, on Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to such Depository or its nominee, as the
case may be, as the registered owner of such Global Security. None of the
Company, the Trustee or any Paying Agent for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that the Depository for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal, premium, if any,
or interest will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depository. The
Company also expects that payments by participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names," and will be the
responsibility of such participants.
If the Depository for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as Depository and a successor
Depository is not appointed by the Company within 90 days, the Company will
issue each Debt Security in definitive form to the beneficial owners thereof in
exchange for such Global Security. In addition, the Company may at any time and
in its sole discretion determine not to have any of the Debt Securities of a
series represented by one or more Global Securities and, in such event, will
issue Debt Securities of such series in definitive form in exchange for all of
the Global Security or Securities representing such Debt Securities.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in Debt Securities represented by
Global Securities.
Governing Law. The Indenture and the Debt Securities will be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities or Shares. Securities Warrants may be issued independently or
together with Debt Securities or Shares offered by any Prospectus Supplement and
may be attached to or separate from such Debt Securities or Shares. Each series
of Securities Warrants will be issued under a separate warrant agreement (a
"Securities Warrant Agreement") to be entered into between the Company and a
bank or trust company, as Securities Warrant agent, all as set forth in the
Prospectus Supplement relating to the particular issue of offered Securities
Warrants. The Securities Warrant agent will act solely as an agent of the
Company in connection with the Securities Warrant certificates relating to the
Securities Warrants and will not assume any obligation or relationship of agency
or trust for or with any holders of Securities Warrant certificates or
beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreement and Securities 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 Securities Warrant Agreement and the
Securities Warrant certificates relating to each series of Security Warrants
which will be filed with the Commission 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 Security Warrants.
If Debt Securities Warrants are offered, the applicable Prospectus
Supplement will describe the terms of such Securities Warrants, including the
following where applicable: (i) the offering price, (ii) the denominations and
terms of the series of Debt Securities purchasable upon exercise of such
Securities Warrants,
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(iii) the designation and terms of any series of Debt Securities with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with each such Debt Security, (iv) the date, if any, on and after
which such Securities Warrants and the related series of Debt Securities will be
transferable separately, (v) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Securities Warrant and the
price at which such principal amount of Debt Securities of such series may be
purchased upon such exercise, (vi) the date on which the right to exercise such
Securities Warrants shall commence and the date (the "Expiration Date") on which
such right shall expire, (vii) whether the Securities Warrants will be issued in
registered or bearer form, (viii) any special United States Federal income tax
consequences, (ix) the terms, if any, on which the Company may accelerate the
Expiration Date and (x) any other terms of such Securities Warrants.
In the case of Share Warrants, the applicable Prospectus Supplement will
describe the terms of such Securities Warrants, including the following where
applicable: (i) the offering price, (ii) the aggregate number of Shares
purchasable upon exercise of such Securities Warrants and the exercise price,
(iii) the designation and terms of the Shares purchasable upon exercise of such
Securities Warrants, (iv) the designation and terms of the Securities with which
such Securities Warrants are being offered, if any, and the number of such
Securities Warrants being offered with each such Security, (v) the date, if any,
on and after which such Securities Warrants and the related series of Debt
Securities or Shares will be transferable separately, (vi) the date on which the
right to exercise such Securities Warrants shall commence and the Expiration
Date, (vii) any special United States Federal income tax consequences and (viii)
any other terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Debt
Securities Warrants, holders of such Securities 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 of, 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 Share Warrants, holders of
such Securities Warrants will not have any rights of holders of such Shares,
including the right to receive payments of dividends, if any, on such Shares, or
to exercise any applicable right to vote.
Certain Risk Considerations. Any Securities Warrants issued by the Company
will involve a certain degree of risk, including risks arising from the
fluctuations in the price of the underlying securities and general risks
applicable to the stock market (or markets) on which the underlying securities
are traded.
Prospective purchasers of the Securities Warrants should recognize that the
Securities Warrants may expire worthless and, thus, purchasers should be
prepared to sustain a total loss of the purchase price of their Securities
Warrants. This risk reflects the nature of a Securities Warrant as an asset
which, other factors held constant, tends to decline in value over time and
which may, depending on the price of the underlying securities, become worthless
when it expires. The trading price of a Securities Warrant at any time is
expected to increase as the price, or, if applicable, dividend rate on the
underlying securities increases. Conversely, the trading price of a Securities
Warrant is expected to decrease as the time remaining to expiration of the
Securities Warrant decreases and as the price or, if applicable, dividend rate
on the underlying securities, decreases. Assuming all other factors are held
constant, the more a Securities Warrant is "out of the money" (i.e., the more
the exercise price exceeds the price of the underlying securities and the
shorter its remaining term to expiration), the greater the risk that a purchaser
of the Securities Warrant will lose all or part of his or her investment. If the
price of the underlying securities does not rise before the Securities Warrant
expires to an extent sufficient to cover a purchaser's cost of the Securities
Warrant, the purchaser will lose all or part of his or her investment in such
Securities Warrant upon expiration.
In addition, prospective purchasers of the Securities Warrants should be
experienced with respect to options and option transactions and understand the
risks associated with options and should reach an investment decision only after
careful consideration, with their financial advisers, of the suitability of the
Securities Warrants in light of their particular financial circumstances and the
information discussed herein
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and, if applicable, the Prospectus Supplement. Before purchasing, exercising or
selling any Securities Warrants, prospective purchasers and holders of
Securities Warrants should carefully consider, among other things, (i) the
trading price of the Securities Warrants, (ii) the price of the underlying
securities at such time, (iii) the time remaining to expiration and (iv) any
related transaction costs. Some of the factors referred to above are in turn
influenced by various political, economic and other factors that can affect the
trading prices of the underlying securities and should be carefully considered
prior to making any investment decisions.
Purchasers of the Securities Warrants should further consider that the
initial offering price of the Securities Warrants may be in excess of the price
that a purchaser of options might pay for a comparable option in a private, less
liquid transaction. In addition it is not possible to predict the price at which
the Securities Warrants will trade in the secondary market or whether any such
market will be liquid. The Company may, but is not obligated to, file an
application to list any Securities Warrants issued on a United States national
securities exchange. To the extent that any Securities Warrants are exercised,
the number of Securities Warrants outstanding will decrease, which may result in
a lessening of the liquidity of the Securities Warrants. Finally, the Securities
Warrants will constitute direct, unconditional and unsecured obligations of the
Company and as such will be subject to any changes in the perceived
creditworthiness of the Company.
Exercise of Securities Warrants. Each Securities Warrant will entitle the
holder thereof to purchase such principal amount of Debt Securities or number of
Shares, 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
Securities Warrants. After the close of business on the Expiration Date (or such
later date to which such Expiration Date may be extended by the Company),
unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant agent payment as provided in the applicable Prospectus Supplement of the
amount required to purchase the Debt Securities or Shares, as the case may be,
purchasable upon such exercise together with certain information set forth on
the reverse side of the Securities Warrant certificate. Securities Warrants will
be deemed to have been exercised upon receipt of payment of the exercise price,
subject to the receipt within five Business Days of the Securities Warrant
certificate evidencing such Securities Warrants. Upon receipt of such payment
and the Securities Warrant certificate properly completed and duly executed at
the corporate trust office of the Securities Warrant agent or any other office
indicated in the applicable Prospectus Supplement, the Company will, as soon as
practicable, issue and deliver the Debt Securities or Shares, as the case may
be, purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
Amendments and Supplements to Securities Warrant Agreement. The Securities
Warrant Agreements may be amended or supplemented without the consent of the
holders of the Securities Warrants issued thereunder, to effect changes that are
not inconsistent with the provisions of the Securities Warrants and that do not
adversely affect the interest of the holders of the Securities Warrants.
Share Warrant Adjustments. Unless otherwise indicated in the applicable
Prospectus Supplement, the exercise price of and the number of Shares covered by
a Share Warrant are subject to adjustment in certain events, including (i)
payment of a dividend on the Shares payable in Shares and Share splits,
combinations or reclassification of Shares, (ii) issuance to all holders of
Shares of rights or warrants to subscribe for or purchase Shares at less than
their current market price (as defined in the Securities Warrant Agreement for
such series of Share Warrants) and (iii) certain distributions of evidences of
indebtedness or assets (including securities but excluding cash, dividends or
distributions paid out of consolidated earnings or retained earnings or
dividends payable in Shares or of subscription rights and warrants excluding
those referred to above).
No adjustments in the exercise price of and the number of Shares covered by
a Share Warrant will be made for regular quarterly or other periodic or
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 covered by a Share Warrant will not
be adjusted for the issuance of Shares or any securities convertible into or
exchangeable for Shares or carrying the right or option to purchase or otherwise
acquire the foregoing in exchange for cash, other property or services.
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In the event of any (i) consolidation or merger of the Company with or into
any entity (other than consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Shares),
(ii) sale, transfer, lease or conveyance of all or substantially all of the
assets of the Company or (iii) reclassification, capital reorganization or
change of the Shares (other than solely a change in par value), then any holder
of a Share Warrant will be entitled, on or after the occurrence of any such
event, to receive on exercise of such Share Warrant the kind and amount of
Shares or other securities, cash or other property (or any combination thereof)
that the holder would have received had such holder exercised such holder's
Share Warrant immediately prior to the occurrence of such event. If the
consideration to be received upon exercise of the Share Warrant following any
such event consists of common stock (or its equivalent) of the surviving entity,
then from and after the occurrence of such event, the exercise price of such
Share 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 Shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations that may be relevant to a prospective holder of Securities. This
summary is for information purposes only and is not tax advice. No ruling
letters from the Internal Revenue Service ("IRS") have been or will be requested
by the Company on any tax issue connected with this Prospectus. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), as
currently in effect, applicable Treasury Regulations thereunder and judicial and
administrative interpretations thereof, all of which are subject to change,
including changes that may be retroactive. No assurances can be given that the
IRS will not challenge the propriety of one or more of the tax positions
described herein or that such a challenge would not be successful.
The tax treatment of a holder of any of the Securities will vary depending
upon the terms of the specific securities acquired by such holder, as well as
such holder's particular situation. The discussion below addresses in particular
material federal income tax considerations to holders of Shares. Any material
federal income tax considerations relevant to holders of Securities other than
Shares will be provided in the applicable Prospectus Supplement relating
thereto. This summary does not purport to deal with all aspects of taxation that
may be relevant to particular holders of Shares or other Securities in light of
their personal investment or tax circumstances. Except as specifically provided,
the discussion below does not address foreign, state or local tax consequences,
nor does it specifically address the tax consequences to taxpayers subject to
special treatment under the federal income tax laws (including dealers in
securities, foreign persons, life insurance companies, tax-exempt organizations,
financial institutions, and taxpayers subject to the alternative minimum tax).
The discussion below assumes that the Shares are and will be held as capital
assets within the meaning of Section 1221 of the Code.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General
The sections of the Code regarding REIT status are highly technical and
complex. The following sets forth the material aspects of the sections that
govern the federal income tax treatment of a REIT. This summary is qualified in
its entirety by the applicable Code provisions, rules and regulations
promulgated thereunder, and administrative and judicial interpretations thereof.
Nutter, McClennen & Fish, LLP has acted as tax counsel to the Company in
connection with this Prospectus and the Company's election to be taxed as a REIT
and has rendered an opinion to the Company as of May 29, 1996 to the effect that
the Company has been organized in conformity with the requirements for
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qualification as a REIT, and its proposed method of operation is consistent with
meeting the requirements for qualification and taxation as a REIT under the
Code. Nutter, McClennen & Fish, LLP undertakes no obligation to update this
opinion subsequent to such date. It must be emphasized that this opinion is
based on various assumptions and upon the factual representations and legal
conclusions of the Company as set forth in the Certificate of certain officers
of the Company attached to the opinion. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet (through actual
annual operating results, distribution levels and diversity of stock ownership)
the various qualification tests imposed under the Code discussed below, the
results of which have not been and will not be reviewed by Nutter, McClennen &
Fish, LLP. Accordingly, no assurance can be given that the actual results of the
Company's operations in any particular taxable year will satisfy such
requirements. See "Failure to Qualify."
If the Company qualifies for taxation as a real estate investment trust and
distributes to its shareholders at least 95% of its "real estate investment
taxable income," it generally will not be subject to federal corporate income
taxes on the amount distributed. However, a real estate investment trust is
subject to special taxes on the net income derived from "prohibited
transactions," on nonqualified income when it fails certain income tests, on the
net income from foreclosure properties and on undistributed capital gains. In
addition, under certain circumstances, the Company may be subject to a minimum
tax on its items of tax preference and a 4% excise tax on certain amounts of
undistributed income.
Requirements for Qualification
Section 856(a) of the Code defines a real estate investment trust as a
corporation, trust or association (1) which is managed by one or more trustees;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for Sections 856 through 860 of the Code, as a domestic corporation; (4)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) not more than 50% in value of the outstanding shares of
which is owned, directly or indirectly (after the application of certain
attribution rules) by five or fewer individuals at any time during the last half
of the Company's taxable year; and (7) which meets certain other tests,
described below. Section 856(b) of the Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
It is the expectation of the Company that it will have at least 100
shareholders during the requisite period for each of its taxable years.
Furthermore, the Board of Trustees of the Company has the power under the
Company's Declaration of Trust to prohibit any transfer of the Company's Shares
and to redeem Shares that have been transferred pursuant to any transfer that in
the opinion of the Trustees would jeopardize the status of the Company as a real
estate investment trust. Nevertheless, there can be no assurance that the
Company will continue to meet this requirement, and, if the Company has fewer
than 100 shareholders during the requisite period, condition (5) described above
will not be satisfied, and the Company will not qualify as a real estate
investment trust during such taxable year. See "Failure to Qualify."
To qualify as a REIT for a taxable year under the Code, the Company must
elect or previously have elected to be so treated and must meet other
requirements, certain of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature of the Company's assets,
and the distribution of its income to shareholders. The Company also must take
certain actions specified in regulations under the Code to attempt to ascertain
the true owners of its Shares and must maintain records of such ownership.
The Company has elected to be and intends to remain qualified as a REIT
under Sections 856 through 860 of the Code. Qualification of the Company as a
REIT will depend upon its continued ability to meet, through actual annual
operating results, the various qualification tests imposed under the Code and
discussed below. No assurance can be given that the actual results of the
Company's operations will satisfy such requirements. In particular, the various
qualification tests imposed under the Code may not be met if the loans made by
the Company are not fully secured by mortgages on real property or interests in
real property, or if
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the Company's leases for facilities (the "Leases") are not true leases for
federal income tax purposes, or if any of the partnerships in which the Company
is a partner is treated for tax purposes as an association taxable as a
corporation. See "Income Tests," Federal Income Tax Treatment of Leases and
"Other Tax Consequences".
Income Tests
There are three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from certain sales of property
held primarily for sale to customers in the ordinary course of the Company's
business ("dealer sales")) must be derived directly or indirectly from
investments relating to real property (including "rents from real property") or
mortgages on real property, or must be "qualified temporary investment income."
Second, at least 95% of the Company's gross income (excluding gross income from
dealer sales) must be derived from such real property investments, dividends,
interest, certain payments under interest rate swap and cap agreements and gain
from the sale or disposition of stock, securities or real property or from any
combination of the foregoing. Third, gain from the sale or other disposition of
stock or securities (including certain interest rate swap and cap agreements)
held for less than one year, gain from dealer sales (other than foreclosure
property) and gain on the sale or other disposition of real property interests
held for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross
income.
The Company may temporarily invest a portion of the net proceeds from the
sale of Securities in short-term investments. Although the Company will make
every effort to ensure that its income generated by these investments will be of
a type which satisfies the 75% and 95% gross income tests, there can be no
assurance in this regard. Moreover, the Company may realize capital gain upon
sale or exchange of such assets held for less than one year, and any such
short-term capital gain will be subject to the limitations imposed by the 30%
gross income test.
In order to qualify as "rents from real property," the amount of rent
received may be based on receipts or sales, but must not be determined from the
income or profits of any person, unless such person is a tenant all of whose
income would qualify as "rents from real property" if such amounts were received
by the real estate investment trust. The Code provides also that rents will not
qualify as "rents from real property" in satisfying the gross income tests if
the real estate investment trust, or an owner of 10% or more of the real estate
investment trust, also owns 10% or more of the tenant. In addition, the Company
must not manage the property or furnish or render services to the tenants of
such property, except through an independent contractor from whom the Company
derives no income. However, there is an exception to this rule which permits a
real estate investment trust to perform certain customary tenant services of the
sort which a tax-exempt organization could perform without being considered in
receipt of "unrelated taxable business income." Finally, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." If any rent payments do not qualify as rents from real property for
the purposes of Section 856 of the Code, it will be more difficult for the
Company to meet the 95% or 75% gross income tests and qualify as a real estate
investment trust.
Interest income received by the Company with respect to its loans will be
qualifying income for purposes of the 75% test only to the extent the interest
is attributable to obligations secured by interests in real property. Interest
is deemed attributable to obligations secured by real property only to the
extent the value of the real property securing such loan equals or exceeds the
amount of the loan. The Company believes that the value of the real property
securing its loans is such that interest on such loans will not cause the
Company to fail the 75% gross income test. However, there is no assurance that
the IRS will not assert a contrary position respecting the value of the real
property securing the Company's loans with the result that the Company may fail
to meet the 75% gross income test in a taxable year. See "Failure to Qualify."
Moreover, interest which is based on receipts or sales of the debtor may
constitute qualifying income for purposes of the 75% test, but interest based on
income or profits of the debtor will generally not constitute qualifying income.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a real estate
investment trust for such year if its failure to meet such tests was due
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to reasonable cause and not due to willful neglect, it attaches a schedule of
the sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. If these relief provisions apply, a 100%
tax is imposed upon the greater of the amount by which the Company failed the
75% gross income test or the 95% gross income test less an amount which
generally reflects the expenses attributable to earning the non-qualified
income.
Asset Tests
At the close of each quarter of the Company's taxable year, it must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must consist of real estate assets
(including real estate assets held by any "qualified REIT subsidiary" of the
Company and its allocable share of real estate assets held by joint ventures or
partnerships in which the Company participates), cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those includible in the 75% asset class.
Finally, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities. Shares in a "qualified REIT subsidiary"
of the Company are excluded from the foregoing computation. A "qualified REIT
subsidiary" of the Company is any corporation 100% of the stock of which is held
by the Company at all times during the corporation's existence. The Company's
management believes that each of the Company's subsidiaries meets the
requirements for classification as a "qualified REIT subsidiary."
Where a failure to satisfy the 25% asset test results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of such quarter. The Company intends to maintain adequate records of the value
of its assets to determine the compliance with the 25% asset test, and to take
such action as may be required to cure any failure to satisfy the test within 30
days after the close of any quarter.
Distribution Requirements
The Company, in order to qualify as a real estate investment trust, is
required to distribute to its shareholders an amount equal to or greater than
the excess of (A) the sum of (i) 95% of the Company's "real estate investment
trust taxable income" (computed without regard to the dividends paid deduction
and the Company's net capital gain) and (ii) 95% of the net income, if any,
(after tax) from foreclosure property, over (B) the Company's "excess noncash
income," if any. "Excess noncash income" is the excess of the sum of (A) certain
imputed rent receipts, income from like-kind exchanges intended in good faith to
qualify but ultimately determined to be ineligible for nonrecognition under
Section 1031 of the Code and, in the case of a real estate investment trust on
the cash method of accounting, the excess of imputed original issue discount
income from certain debt instruments over amounts actually received under such
instruments over (B) five percent of the real estate investment trust taxable
income for the year determined without regard to the deduction for dividends
paid or net capital gain. In addition, the Company must have qualified as a real
estate investment trust for every taxable year beginning after February 28, 1986
or have no earnings and profits accumulated in any non-real estate investment
trust year. To the extent that the Company does not distribute all of its net
long-term capital gain or distributes at least 95%, but less than 100% of its
"real estate investment trust taxable income," as adjusted, even if it is not
subject to tax as a regular corporation it will be subject to regular federal
income tax on such undistributed net long-term capital gain or such
undistributed real estate investment trust taxable income. In addition, a
nondeductible 4% excise tax is imposed on the excess of (i) 85% of the Company's
ordinary income for the year plus 95% of capital gain net income for the year
and any undistributed income from prior years over (ii) the actual distribution
to the shareholders during the year. Dividends declared in October, November or
December and paid during the following January will be treated as having been
paid and received on December 3l.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirements, due to
timing differences between the actual receipt of income and
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actual payment of deductible expenses on the one hand and the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company on the other hand. In the event that timing differences were to occur,
in order to meet the 95% requirement, the Company might find it necessary to
arrange for short-term, or possibly long-term, borrowing.
In particular, the Company has borrowed significant amounts to acquire
certain of the facilities which it has leased. If and when the Company sells
such a facility, it will be required to repay any outstanding loans securing
such facility. If at the time of sale the debt required to be repaid exceeds the
Company's basis in the facility the Company will, because of the repayment of
the loan, realize a greater amount of income than cash from the sale. As a
consequence, the Company may be unable, without additional borrowings, to meet
the 95% distribution requirement for such taxable year.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. The Company may be able to
avoid being taxed on amounts distributed as deficiency dividends; however, the
Company will be required to pay interest and a penalty based upon the amount of
any deduction for deficiency dividends.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the Company's facilities will depend upon the
treatment of the Company (or its subsidiary or a partnership in which the
Company or its subsidiary is a partner) as the owner of the facilities and the
classification of the Leases as true leases, rather than as sales or financing
arrangements, for federal income tax purposes. The questions whether the Company
is the owner of the facilities and whether the Leases are true leases for
federal income tax purposes are essentially factual matters. In a series of
Revenue Procedures (Rev. Procs. 75-21, 75-28, 76-30, 79-48) the IRS set forth
guidelines (regarding such matters as the residual value of the property, the
term of the lease, the lessor's investment in the property and the terms of
purchase options, if any) for the issuance of rulings with respect to whether
certain transactions purporting to be leases of property would be treated as
such for federal income tax purposes. Although the transactions pursuant to
which the Company leases the facilities do not fully satisfy the conditions
enumerated in such Revenue Procedures, such conditions are applicable only to
advance ruling requests and are not statements of substantive law.
The Company believes that the Leases are true leases and it (or its
subsidiary or the partnership in which the Company or a subsidiary is a partner)
should be treated as the owner of the facilities so leased for federal income
tax purposes. However, no assurance can be given that the IRS will not
successfully challenge the status of the Company as the owner of the facilities
and the status of the Leases as true leases. In such event the Company would not
be entitled to claim depreciation deductions with respect to such facilities
and, as a result, the Company might fail to meet the 95% dividend distribution
requirement, or if such requirement is met, then a larger percentage of
distributions from the Company may in some years constitute ordinary dividend
income, instead of a partial return of capital to shareholders.
The IRS could assert that the acquisition price of one or more of the
facilities leased back to the seller was less than the fair market value of the
facility, and that the Company therefore realized prepaid rent in the amount of
the difference in the year of the purchase. Although the Company believes it has
paid fair market value for each of the facilities, there can be no assurance
that the IRS would not be successful in such a challenge. If the IRS were to
prevail, the Company might fail to meet the requirement that it distribute
annually at least 95% of its "real estate investment trust taxable income," in
which event it could lose its qualification as a real estate investment trust.
The Company should be able to rectify a failure to meet the 95% distribution
requirement arising from a determination by a court or a so-called "closing
agreement" with the IRS that the Company has prepaid rental income by paying a
"deficiency dividend" to its shareholders in a later year, which would be
included in the Company's deduction for dividends paid for the year challenged.
The Company might thus be able to avoid disqualification of real estate
investment trust status and being subject to the regular corporate income tax on
amounts ultimately distributed as deficiency dividends; however, it would in
such case remain liable for interest and penalties with respect to any failure
to meet the
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95% distribution requirement until the deficiency dividend was paid.
Furthermore, the Company might have to borrow funds to pay any deficiency
dividend and such interest, penalties and excise tax, since it will not actually
have received cash equal to any deemed prepaid rental income, and as a result
the Company's ability to pay future dividends might be impaired.
Additionally, it should be noted that Code Section 467 (concerning leases
with increasing rents) could apply to the Leases because each Lease provides for
percentage or additional rents which may increase from one period to the next.
Section 467 provides that in the case of a so-called "disqualified leaseback
agreement" rental income must be accrued at a constant rate. If such constant
rent accrual is required, the Company would recognize rental income in excess of
cash rents and as a result may fail to meet the 95% dividend distribution
requirement. See "Failure to Qualify." Because Section 467 directs the
Department of the Treasury to issue regulations providing that rents will not be
treated as increasing for tax avoidance purposes where the increases are based
upon a fixed percentage of lessee receipts, the additional rent provisions of
the leases should not cause the leases to be "disqualified leaseback
agreements." However, the absence of Treasury Regulations to date means that
there can be no assurance that none of the leases will be treated as
"disqualified leaseback agreements" resulting in constant rent accrual. Section
467 also requires that if the leased properties are disposed of during the lease
term (without taking into account renewal options), the Company must recapture
as ordinary income the portion of its realized gain that is equal to the excess
amounts of income that would have been accrued in prior years had constant
accrual been required.
Prohibited Transactions
Most of the Leases grant the lessee the option to purchase the leased
property. It is possible that the IRS, upon the sale of a facility either to the
lessee pursuant to such a purchase option or to another party, or upon the sale
of part or all of a loan made by the Company, will take the position that the
gain from such sale is income from a "prohibited transaction." A prohibited
transaction occurs when a real estate investment trust sells property to
customers in the ordinary course of its business. The determination whether a
sale by the Company of any of its real estate assets will occur in the ordinary
course of its business will be based upon the facts and circumstances of the
transaction, including the frequency of the Company's sales of property and the
length of time the Company held the property. The consequences to the Company of
realizing gain from a prohibited transaction are that the Company will be
subject to a 100% penalty tax upon the gain realized from such transaction and
such gain will be treated as non-qualifying income for purposes of the 30% test,
which could adversely affect the Company's status as a real estate investment
trust. See "Failure to Qualify". The Company believes that it does not hold any
of its real estate assets for sale to customers in the ordinary course of its
business. However, no assurance can be given that the IRS will not successfully
assert a contrary position with respect to a sale of any of the Company's assets
with the consequences described above.
Failure to Qualify
If the Company fails to qualify for taxation as a real estate investment
trust in any taxable year, and the relief provisions do not apply, the Company
will be subject to tax (including any applicable minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income. Subject to certain limitations provided in the Code,
corporations will be eligible for the dividends received deduction with respect
to such dividends. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a real estate
investment trust for the next four taxable years. It is not possible to state
whether in all circumstances the Company would be entitled to statutory relief.
Failure to qualify for even one year could result in the Company's incurring
substantial indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes.
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Taxation of Shareholders Generally
As long as the Company qualifies as a real estate investment trust,
distributions made to the Company's shareholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income
(which will not be eligible for the dividends received deduction for
corporations). Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain for the taxable year. Distributions in excess
of current or accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Shares, but will reduce the basis of the shareholder's Shares. To
the extent that such distributions exceed the adjusted basis of a shareholder's
Shares, they will be included in income as capital gain (long-term or short-term
depending upon the holding period for the Shares) assuming the Shares are a
capital asset in the hands of the shareholder. Shareholders may not include in
their individual income tax returns any net operating losses or capital losses
of the Company.
In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such Shares for six months or less (after applying certain rules), will
be treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such shareholder as long-term capital gain.
Distributions by the Company will constitute "portfolio income" to the
shareholders, and not "passive income," for purposes of applying the provisions
of Code Section 469. Accordingly, shareholders will not be able to net any
"passive losses" against such distributions.
Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a real
estate investment trust to a tax-exempt employees' pension trust did not
constitute "unrelated business taxable income." Revenue rulings are interpretive
in nature and subject to revocation or modification by the IRS. However, based
upon Revenue Ruling 66-106 and the analysis therein, dividend distributions by
the Company to qualified pension plans (including individual retirement
accounts) and other tax-exempt entities should not constitute "unrelated
business taxable income." This Ruling may not apply if a shareholder has
borrowed money to acquire Shares or if the Company makes a distribution of long
term capital gain.
Tax-exempt shareholders are urged to consult their tax advisors respecting
the tax consequences to them from their investment in the Company.
Withholding on Dividends
Shareholders may be subject to "back-up withholding" from a reportable
payment at a rate of 31% if, among other things, (i) the shareholder fails to
furnish a social security number or other taxpayer identification number ("TIN")
to the Company certified under penalties of perjury within a reasonable time
after the request therefor; (ii) the IRS notifies the Company that the TIN
furnished by the shareholder is incorrect; (iii) the IRS notifies the Company
that backup withholding should be commenced because the shareholder has failed
to properly report interest or dividends; or (v) when required to do so, the
shareholder fails to certify under penalties of perjury that such shareholder is
not subject to backup withholding or that the TIN provided to the Company is
correct.
Any amount withheld is creditable against a shareholder's federal income
tax liability for such year. Shareholders should consult their tax advisors as
to their qualification for exemption from withholding and the procedure for
obtaining such an exemption.
The Company will report to its shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any.
Alternative Minimum Tax
The Company will be subject to the alternative minimum tax on its
undistributed real estate investment trust taxable income to the extent such tax
exceeds its regular tax liability. Tax preference items of a real
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estate investment trust must be apportioned between the trust and its
shareholders in accordance with regulations. No such regulations have yet been
issued and, accordingly, the proper method of apportionment of preference items
of the Company is unclear.
Prospective investors should consult their tax advisors to determine
whether and to what extent an investment in the Company would have an adverse
effect on their alternative minimum tax position.
Foreign Shareholders
The preceding discussion does not address the federal income tax
consequences to foreign shareholders of an investment in the Company. Foreign
shareholders in the Company should consult their own tax advisors concerning the
application to them of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), which altered the federal income tax treatment of an investment in
REITs by foreign shareholders.
(a) Distributions of cash made by the Company to a foreign shareholder are
generally subject to United States withholding tax at a 30% rate unless a lower
rate or exemption is provided by an applicable tax treaty. A foreign shareholder
receiving a distribution subject to such withholding tax will be able to claim a
refund to the extent the withholding has been imposed on a portion of such
distribution which does not constitute a "dividend" (i.e., a distribution out of
the Company's current or accumulated earnings and profits). The basis which a
foreign shareholder has in his shares is reduced by the portion of the
distribution that does not constitute a dividend, and after basis has been
reduced to zero, such non-dividend distributions generally represent capital
gain from the sale or exchange of the shares. The United States tax treatment of
such gain is described in section (c) below. If a distribution is effectively
connected with a United States trade or business conducted by the foreign
holder, the portion of such distribution constituting a dividend is generally
subject to graduated United States federal income tax.
(b) Distributions attributable to gain from the Company's sale or exchange
of United States real property interests are subject to the same United States
graduated federal income tax which applies to U.S. persons unless a lower rate
or exemption is provided under an applicable tax treaty. Such distributions to a
foreign holder are also subject to withholding at a 35% rate to the extent the
distributions are designated as capital gains dividends by the Company. If a
distribution is designated as a capital gain dividend after the time that the
distribution has been made, the 35% withholding rate will generally apply to
subsequent distributions in an amount equal to the previous distribution
designated as capital gain.
(c) The Company believes that it is currently a domestically-controlled
REIT (i.e., a real estate investment trust where less than 50% in value of its
shares is held directly or indirectly by foreign persons at all times during the
period in question). As such, gain realized by a foreign holder on the sale,
exchange, redemption or other disposition of Shares is not subject to United
States federal income tax unless (1) the gain is effectively connected with a
United States trade or business of the foreign holder, in which case the gain is
generally subject to graduated United States federal income tax; or (2) in the
case of a nonresident alien, the individual is present in the United States for
183 days or more during the year of disposition, and either has a tax home in
the United States or maintains an office or other fixed place of business in the
United States and the income is attributable to such office, in which case the
gain is subject to 30% federal income tax.
If the Company is not a domestically-controlled REIT, the sale of Shares by
a foreign shareholder will be treated as a disposition of United States real
property interest, and consequently the gain will be subject to graduated United
States income tax rates and withholding as described in section (b).
(d) Shares held by an individual at the time of his death (or previously
transferred subject to certain rights or powers or certain transfers by gift
within three years of death) are subject to United States federal estate tax
unless otherwise provided by an applicable treaty.
(e) Dividend distributions are not subject to information reporting or
backup withholding. Under current law, payments of proceeds from the sale of
Shares to or through a broker are generally subject to information
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reporting and backup withholding unless the shareholder certifies as to his
non-United States status or otherwise establishes an exemption.
Future Tax Laws
The foregoing discussion is based on provisions of the Code, Treasury
Regulations, administrative interpretations and court decisions. No assurance
can be given that subsequent legislation, Treasury Regulations, administrative
interpretations or court decisions will not change the tax laws so that the
treatment of a real estate investment trust or the consequences of an investment
in the Company would vary substantially from the treatment described above. Any
such change might apply retroactively.
Other Tax Consequences
Certain of the Company's investments are through partnerships (the
"Partnerships"), which may involve certain tax risks. Such risks include
possible challenge by the IRS of (a) allocations of income and expense items
which could affect the computation of taxable income of the Company and (b) the
status of the Partnerships as partnerships (as opposed to associations taxable
as corporations) for income tax purposes. If any of the Partnerships in which
the Company is a partner is treated as an association, it would be treated as a
taxable entity. In such a situation, if the Company's ownership interest in any
of the Partnerships exceeded 10% of the Partnership's voting interests or the
value of such interest exceeded 5% of the value of the Company's assets, the
Company would cease to qualify as a real estate investment trust. Furthermore,
in such a situation distributions from any of the Partnerships to the Company
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described above and which could therefore make it more
difficult for the Company to qualify as a real estate investment trust for the
taxable year in which such distribution was received. In addition, in such a
situation the interest in any of the Partnerships held by the Company would not
qualify as a "real estate asset," which could make it more difficult for the
Company to meet the 75% asset test described above. Finally, in such a situation
the Company would not be able to deduct its share of losses generated by any of
the Partnerships in computing its taxable income. See "Failure to Qualify." The
Company believes that each of the Partnerships will be treated for tax purposes
as a partnership. However, no assurance can be given that the IRS may not
successfully challenge the tax status of any of the Partnerships.
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside.
There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular shareholder.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the Securities in any of three ways: (i) through
underwriting syndicates represented by one or more managing underwriters, or by
one or more underwriters without a syndicate; (ii) through agents designated
from time to time; and (iii) directly to investors. The names of any
underwriters or agents of the Company involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable
commissions or discounts will be set forth in the Prospectus Supplement. The net
proceeds to the Company from such sale will also be set forth in the Prospectus
Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices (which may be changed from time
to time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Prospectus Supplement
will describe the method of distribution of the Securities.
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In connection with the sale of Securities, underwriters or agents acting on
the Company's behalf may receive compensation from the Company or from
purchasers of Securities for whom they may act as agents, in the form of
discounts, concessions or commissions. The underwriter, dealers and agents that
participate in the distribution of Securities may be deemed to be underwriters
under the Securities Act and any discounts or commissions received by them and
any profit on the resale of Securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such underwriter will be
identified and any such compensation will be described in the Prospectus
Supplement.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may engage in transactions with or perform
services for the Company in the ordinary course of business.
STRUCTURED EQUITY PROGRAM
The Company may also issue and sell Shares from time to time through one or
more sales agents (to be named in a prospectus supplement hereto, the "Agent")
in ordinary brokers' transactions on the New York Stock Exchange (the "NYSE").
Such sales, if any, will be effected during a series of one or more pricing
periods (each, a "Pricing Period"), each consisting of five consecutive calendar
days in duration, unless a shorter period has otherwise been agreed to by the
Company and the Agent. For each Pricing Period, an Average Market Price (as
hereinafter defined) will be computed. With respect to any Pricing Period,
"Average Market Price" shall equal the average of the arithmetic mean of the
high and low sales prices of the Shares of the Company reported on the NYSE for
each trading day of such Pricing Period.
The net proceeds to the Company with respect to sales of Shares in any
Pricing Period up to a maximum amount agreed to in advance with the Agent (the
"Average Market Price Shares") will equal a percentage (the "Company's
Percentage") of the Average Market Price for each Share sold during the Pricing
Period (subject to adjustment in certain circumstances), plus Excess Proceeds
(as defined below), if any. The compensation to the Agent for sales of Average
Market Price Shares in any Pricing Period will equal the difference between the
aggregate gross sales price at which such sales are actually effected and the
net proceeds to the Company for such sales, but in no event will exceed 10% of
the aggregate gross sales prices of the Average Market Price Shares during any
Pricing Period (the "Maximum Commission"). To the extent that such aggregate
gross sales prices are less than the Average Market Price, the compensation to
the Agent will be correspondingly reduced; to the extent that such aggregate
gross sales prices are greater than the Average Market Price, the compensation
to the Agent will be correspondingly increased (but in no event will exceed the
Maximum Commission). In the event that the average aggregate gross sales price
in any Pricing Period equals the Company's Percentage of the Average Market
Price (or less) for such Pricing Period, all of the proceeds from such sales
will be for the account of the Company and no compensation will be payable to
the Agent. To the extent that the Agent's compensation under the foregoing
formula would otherwise exceed the Maximum Commission in any Pricing Period, the
excess will constitute additional net proceeds to the Company (the "Excess
Proceeds").
Any Shares sold by the Agent during the Pricing Period on behalf of the
Company other than Average Market Price Shares ("Additional Shares") will be at
a fixed commission rate based on a percentage of the Share price per Share. In
no event will the compensation to the Agent be in excess of any applicable
requirements of the National Association of Securities Dealers, Inc.
Settlements of sales of Additional Shares and Average Market Price Shares
will occur on the third business day following the date on which any such sales
are made. Purchases of Shares from the Agent, as sales agent for the Company,
will settle the regular way on the NYSE. Compensation to the Agent with respect
to sales of Average Market Price Shares will be paid out of the proceeds of such
settlements. There is no arrangement for funds to be received in an escrow,
trust or similar arrangement.
At the end of each Pricing Period, the Company will file a Prospectus
Supplement under the applicable paragraph of Rule 424(b) promulgated under the
Act, which Prospectus Supplement will set forth the name
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of the Agent, dates included in such Pricing Period, the number of such Shares
sold through the Agent as sales agent (identifying separately the number of
Average Market Shares and any Additional Shares), the high and low prices at
which Average Market Shares were sold during such Pricing Period, the net
proceeds to the Company, the compensation payable by the Company to the Agent
with respect to such sales pursuant to the formula set forth above and other
relevant information. Unless otherwise indicated in a Prospectus Supplement, the
Agent will act as sales agent on a best efforts basis.
In connection with the sale of the Shares on behalf of the Company, the
Agent will be deemed to be an "underwriter" within the meaning of the Securities
Act, and the compensation of the Agent may be deemed to be underwriting
commissions or discounts. The Company intends to provide indemnification and
contribution to the Agent against certain civil liabilities, including
liabilities under the Securities Act. The Agent may engage in transactions with,
or perform services for, the Company in the ordinary course of business.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. In addition,
Nutter, McClennen & Fish, LLP will pass upon certain Federal income tax matters
relating to the Company. The name of any legal counsel that passes on the
validity of the other Securities offered hereby for any underwriter or agent
will be set forth in the applicable Prospectus Supplement.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995, and the financial statement schedules incorporated by reference in
this Prospectus and elsewhere in the Registration Statement, have been audited
by Coopers & Lybrand L.L.P., independent accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference in
the registration statement of which this Prospectus is a part that have been
audited and are the subject of a report by independent accountants will be so
incorporated by reference in reliance upon such reports and upon the authority
of such firms as experts in accounting and auditing to the extent covered by
consents filed with the Commission.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
-----
Forward-Looking Statements............ S-3
Prospectus Supplement Summary......... S-5
Selected Financial Information........ S-7
Business and Properties............... S-9
Financing Policy...................... S-16
Recent Developments................... S-17
Use of Proceeds....................... S-19
Ratio of Earnings to Fixed Charges.... S-20
Management and Board of Trustees...... S-21
Selected Financial Information........ S-24
Capitalization........................ S-26
Selected Historical Financial Data.... S-27
Summary Combined Historical and Pro
Forma Financial Data................ S-28
Description of the Notes.............. S-30
Certain Federal Income Tax
Considerations...................... S-40
Underwriting.......................... S-43
Legal Matters......................... S-43
Experts............................... S-43
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Health Care Reform and Regulation..... 5
Ratio of Earnings to Fixed Charges.... 5
Use of Proceeds....................... 5
Description of Shares................. 6
Description of Debt Securities........ 11
Description of Securities Warrants.... 15
Federal Income Tax Considerations..... 18
Plan of Distribution.................. 26
Legal Matters......................... 28
Experts............................... 28
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$100,000,000
[MEDITRUST LOGO]
REMARKETED RESET NOTES
DUE AUGUST 15, 2002
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
AUGUST 7, 1997
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