As filed with the Securities and Exchange Commission
on April 6, 1998
Registration Nos. 333-48051 and 333-48051-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
JOINT REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDITRUST CORPORATION
(Exact name of registrant as specified in governing instruments)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-3520818
(I.R.S. Employer Identification No.)
197 First Avenue, Suite 300
Needham Heights, Massachusetts 02194
(781) 433-6000
(Address, including zip code, and telephone number, including
area code,
of registrant's principal executive offices)
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DAVID F. BENSON
President
MEDITRUST CORPORATION
197 First Avenue, Suite 300
Needham Heights, Massachusetts 02194
(781) 433-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
MEDITRUST OPERATING COMPANY
(Exact name of registrant as specified in governing instruments)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-3419438
(I.R.S. Employer Identification No.)
197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194
(781) 453-8062
(Address, including zip code, and telephone number, including
area code,
of registrant's principal executive offices)
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ABRAHAM D. GOSMAN
Chairman and Chief Executive Officer
MEDITRUST OPERATING COMPANY
197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194
(781) 453-8062
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of communications to:
KEVIN J. GREHAN
CRAVATH, SWAINE & MOORE
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
(212) 474-1490
Approximate date of commencement of proposed sale to public: From time to time
after the Joint Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 6, 1998
PROSPECTUS
7,600,000* Paired Shares
[LOGO OF THE MEDITRUST COMPANIES]
Common Stock
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All the Paired Shares, $.10 par value per share, of The Meditrust Companies
offered hereby (the "Shares") are being offered by certain selling stockholders
named herein (the "Selling Stockholders"). The Meditrust Companies (the "The
Meditrust Companies") are comprised of two companies, Meditrust Corporation
("Meditrust" or the "Corporation") and Meditrust Operating Company (the
"Operating Company"), each incorporated under the laws of Delaware. Meditrust
qualifies as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). The Meditrust Companies have an organizational
structure commonly referred to as a "paired share" structure. The shares of the
capital stock of The Meditrust Companies are sold and trade together as single
units, which are referred to as "paired shares." The paired shares of The
Meditrust Companies are comprised of common stock of Meditrust ("Meditrust
Common Stock") and common stock of the Operating Company ("Operating Common
Stock") and are herein referred to as "Paired Shares." The Paired Shares are
traded on the New York Stock Exchange (the "NYSE") under the symbol "MT". On
April 1, 1998 the closing sale price of the Paired Shares on the NYSE was
$30.937.
See "Risk Factors" beginning on page 6 for a discussion of certain matters
that should be considered by prospective investors.
The Shares may be offered and sold by the Selling Stockholders or their
transferees from time to time after the closing of the Cobblestone merger in
transactions on the NYSE, in privately-negotiated transactions or a combination
of such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Shares may be sold directly or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of Shares for whom such broker-dealers may act as agent or to whom
they sell as principal or both (which compensation to a particular broker-dealer
might be in excess of customary commissions). See "Selling Stockholders" and
"Plan of Distribution."
The Meditrust Companies will not receive any of the proceeds from the sale
of the Shares. The Meditrust Companies have agreed to bear certain expenses in
connection with the registration of the Shares being offered and sold by the
Selling Stockholders, which The Meditrust Companies estimate will be
approximately $237,644, and have agreed to indemnify the Selling Stockholders
against certain liabilities.
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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.
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* This Prospectus covers the offering for resale of an indeterminate number
of Paired Shares to be issued to the Selling Stockholders upon the consummation
of the merger of Cobblestone Holdings, Inc. ("Cobblestone") with and into
Meditrust, with Meditrust being the surviving corporation. The Cobblestone
merger has been approved by the requisite holders of the common and preferred
stock of Cobblestone, and is expected by The Meditrust Companies to close early
in the second quarter of 1998. The number of Paired Shares issuable in
connection with the Cobblestone merger and to be offered for resale hereby is
subject to adjustment as described in the Cobblestone merger agreement based on
a number of factors, including the Average Closing Price (as defined below under
"The Meditrust Company -- Recent Developments -- Cobblestone Merger") of the
Paired Shares on the NYSE prior to the closing date of the Cobblestone merger.
The actual number of Shares issued to the Selling Stockholders upon consummation
of the Cobblestone merger shall be specified in a prospectus supplement to this
Prospectus. See "The Meditrust Companies -- Recent Developments -- Cobblestone
Merger."
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The date of this Prospectus is April __, 1998.
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AVAILABLE INFORMATION
The Meditrust Companies are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission" or "SEC"). 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 and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, 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. The Meditrust Companies file information electronically with the
Commission, and the Commission maintains a Web Site that contains reports, proxy
and information statements and other information regarding registrants
(including The Meditrust Companies) that file electronically with the
Commission. The address of the Commission's Web Site is (http://www.sec.gov).
Reports, proxy materials and other information concerning The Meditrust
Companies can also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, Room 1102, New York, New York 10005.
The Meditrust Companies have 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 does 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 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
Meditrust and the Operating Company Joint Filings
1. Joint Annual Report on Form 10-K for the Fiscal year ended
December 31, 1997.
2. Joint Current Report on Form 8-K, event date January 3, 1998;
3. Joint Current Report on Form 8-K, event date January 3, 1998;
4. Joint Current Report on Form 8-K, event date January 4, 1998;
5. Joint Current Report on Form 8-K, event date January 11, 1998;
6. Joint Current Report on Form 8-K, event date January 11, 1998;
7. Joint Current Report on Form 8-K, event date February 24, 1998;
8. Joint Current Report on Form 8-K, event date February 26, 1998;
9. Joint Current Report on Form 8-K, event date March 16, 1998; and
10. Joint Current Report on Form 8-K, event date March 31, 1998.
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company
1. The description of the common stock of Santa Anita Realty Enterprises,
Inc. ("Santa Anita Realty") and Santa Anita Operating Company ("Santa
Anita Operating" and, together with Santa Anita Realty, "The Santa Anita
Companies"), including descriptions of the certificates of incorporation
and by-laws of The Santa Anita Companies and descriptions of applicable
provisions of the Delaware General Corporation Law (the "DGCL"), which are
contained or incorporated by reference in the Joint Registration Statement
on Form S-4 of the Santa Anita Companies (Nos. 333-34831 and
333-34831-01), including any amendments thereto (the "Santa Anita S-4"),
under the headings "Description of Capital Stock of The Santa Anita
Companies" and "The Mergers -- Material Differences in the Rights of
Shareholders of The Santa Anita Companies and Meditrust and MAC." The
Santa Anita Companies were the surviving corporations in the Santa Anita
Mergers (as defined below). Descriptions of their capital stock,
certificates of incorporation and by-laws and of the applicable provisions
of the DGCL, which are incorporated herein from the Santa Anita S-4,
therefore describe such items with respect to The Meditrust Companies in
this Prospectus.
All other documents filed by The Meditrust Companies 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
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<PAGE>
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. To the extent that any proxy statement
is incorporated by reference herein, such incorporation shall not include any
information contained in such proxy statement which is not, pursuant to the
Commission's rules, deemed to be "filed" with the Commission or subject to the
liabilities of Section 18 of the Exchange Act.
The Meditrust Companies 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, with respect to
Meditrust, to Michael S. Benjamin, Esq., Senior Vice President, Secretary and
General Counsel, Meditrust Corporation, 197 First Avenue, Suite 300, Needham
Heights, Massachusetts 02194, telephone (781) 433-6000; and with respect to the
Operating Company, to Michael J. Bohnen, Secretary, Meditrust Operating Company,
197 First Avenue, Suite 100, Needham Heights, Massachusetts 02194, telephone
(781) 453-8062.
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RISK FACTORS
In addition to the other information contained or incorporated by
reference in this Prospectus, prospective investors in the Paired Shares should
carefully consider the following risk factors.
REIT Tax Risks; Paired Share REIT Tax Risks
Pending Legislation Regarding Paired Share REITS. A significant component
of the Meditrust Companies' strategy is to grow through acquisitions, and they
believe that the current tax treatment of their paired share structure provides
them with certain advantages in making acquisitions. If the legislation
described below is enacted, then the income and activities of Operating Company
with respect to any property acquired by The Meditrust Companies after March 26,
1998, for which there was no binding written agreement, public announcement or
SEC filing on or before March 26, 1998, will be attributed to Meditrust for
purposes of determining whether Meditrust qualifies as a real estate investment
trust (a "REIT") under the Code. This proposed legislation would effectively
limit the advantages of The Meditrust Companies' paired share structure to their
existing properties and could make it more difficult for them to make
acquisitions in the future.
The tax rules relating to paired share REITs are the subject of intense
scrutiny by the Treasury Department and Congress. On February 2, 1998, the
Treasury Department released an explanation of the revenue proposals included in
the Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax
Proposals, among other things, include a freeze on the grandfathered status of
paired share REITs such as The Meditrust Companies. Under this proposal,
Meditrust and Operating Company would be treated as one entity with respect to
properties acquired on or after the date of the first Congressional committee
action with respect to such proposal and with respect to activities or services
relating to such properties that are undertaken or performed by one of the
paired entities on or after such date. The Tax Proposals also would prohibit
REITs from holding stock of a corporation possessing more than 10% of the vote
or value of all classes of stock of the corporation and impose a potentially
prohibitive tax on REITs that acquire regular "C" corporations in reorganization
transactions. Restructuring the operations of Meditrust and Operating Company to
comply with the rules contemplated by the Tax Proposals could cause The
Meditrust Companies to incur substantial tax liabilities; "unpair" the stock of
The Meditrust Companies or otherwise adversely affect The Meditrust Companies.
On March 26, 1998, Representative William Archer, Chairman of the House
Ways and Means Committee, and Senator William V. Roth, Jr., Chairman of the
Senate Finance Committee, introduced similar legislation to limit this
"grandfathering" rule. Under the proposed legislation, the anti-pairing rules
provided in the Code would apply to real property interests acquired or
substantially improved after March 26, 1998 by The Meditrust Companies, or a
subsidiary or partnership in which a ten percent or greater interest is owned by
The Meditrust Companies (collectively, the "REIT Group"), unless (1) the real
property interests are acquired pursuant to a written agreement which was
binding on March 26, 1998 and at all times thereafter or (2) the acquisition of
such real property interests was described in a public announcement or in a
filing with the SEC on or before March 26, 1998.
Under this legislation as currently proposed, the properties held on March
26, 1998, by La Quinta Inns, Inc. ("La Quinta") and Cobblestone, which would be
acquired pursuant to Meditrust's proposed mergers with such companies, would not
be subject to these anti-pairing rules. However, we cannot assure you that this
legislation will be adopted in its current form or that the properties to be
acquired from La Quinta and Cobblestone or other properties of The Meditrust
Companies will not become subject to the anti-pairing rules of the Code in the
future. In such a case, Operating Company (including corporate subsidiaries of
Meditrust that are controlled by Operating Company) may not be able to operate
the hotels and golf courses to be acquired by Meditrust in such mergers in the
manner currently contemplated without disqualifying Meditrust as a REIT. Such a
limitation would have a material adverse effect on The Meditrust Companies,
including their results of operation, financial condition and prospects.
In addition, the proposed legislation also provides that a property held by
The Meditrust Companies that is not subject to the anti-pairing rules would
become subject to such rules in the event of either (1) an improvement placed in
service after December 31, 1999 that changes the use of the property and the
cost of which is greater than 200 percent of (A) the undepreciated cost of the
property (prior to the improvement) or (B) in the case of property acquired
where there is a substituted basis (e.g., the properties to be acquired from La
Quinta and Cobblestone), the fair market value of the property on the date it
was acquired by The Meditrust Companies or (2) an addition or improvement that
expands beyond the boundaries of the land included in such property. There is an
exception for improvements placed in service before January 1, 2004 pursuant to
a binding contract in effect on December 31, 1999 and at all times thereafter.
This proposed restriction on property improvements would apply to the properties
to be acquired from La Quinta and Cobblestone, as well as all other properties
owned by The Meditrust Companies, and would limit the ability of The Meditrust
Companies to improve or change the use of those properties after December 31,
1999.
Other legislation (including other legislation that is currently pending
before Congress), as well as regulations, administrative interpretations or
court decisions, also could change the tax law with respect to Meditrust's
qualification as a REIT and the federal income tax consequence of such
qualification. The adoption of any such legislation, regulations or
administrative interpreta tions or court decisions could have a material adverse
effect on the results of operations, financial condition and prospects of The
Meditrust Companies.
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Dependence on Qualification as a REIT. Meditrust believes that it operates
so as to qualify as a REIT for federal income tax purposes. However, there is no
assurance that Meditrust has satisfied the requirements for REIT qualification
in the past or will qualify as a REIT in the future. Qualification as a REIT
involves the application of highly technical and complex provisions of the Code,
for which there are only limited judicial or administrative interpretations. The
complexity of these provisions is greater in the case of a paired share REIT
such as Meditrust. Qualification as a REIT also involves the determination of
various factual matters and circumstances not entirely within Meditrust's
control. In addition, Meditrust's ability to qualify as a REIT is dependent upon
its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the
Code, which, if they were to apply, would prevent Meditrust from qualifying as a
REIT. The "grandfathering" rules governing Section 269B generally provide,
however, that Section 269B(a)(3) does not apply to a paired share REIT if the
REIT and its paired operating company were paired on June 30, 1983. On June 30,
1983, Meditrust (which was then known as Santa Anita Realty Enterprises, Inc.)
was paired with the Operating Company (which was then known as Santa Anita
Operating Company). There are, however, no judicial or administrative
authorities interpreting this "grandfathering," rule. Moreover, if for any
reason Meditrust failed to qualify as a REIT in 1983, the benefit of the
"grandfathering" rule would not be available to Meditrust, in which case
Meditrust would not qualify as a REIT for any taxable year from and after 1983.
Failure of Meditrust to qualify as a REIT would have a material adverse effect
on The Meditrust Companies and their ability to make distributions to their
shareholders and to pay amounts due on their indebtedness. See "Certain Federal
Income Tax Considerations--REIT Qualification of Meditrust."
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On November 5, 1997, Meditrust, a Massachusetts business trust and
predecessor to Meditrust Corporation (hereinafter called "Meditrust's
Predecessor"), merged (the "Realty Merger") with Santa Anita Realty, with Santa
Anita Realty as the surviving corporation, whereupon Santa Anita Realty changed
its name to Meditrust Corporation. At the same time, Meditrust Acquisition
Company ("MAC"), a newly organized Massachusetts business business trust merged
(the "SAOC Merger" and together with the Realty Merger, the "Santa Anita
Mergers") with Santa Anita Operating, with Santa Anita Operating as the
surviving corporation, whereupon Santa Anita Operating changed its name to
Meditrust Operating Company. Qualification of Meditrust as a REIT in the future
also generally depends on the REIT qualification of Meditrust for prior periods
and the REIT qualification of Meditrust's Predecessor for periods prior to
November 5, 1997. Accordingly, failure of Meditrust's Predecessor to qualify as
a REIT for periods prior to November 5, 1997 could have a material adverse
effect on The Meditrust Companies and their ability to make distributions to
shareholders and pay amounts due on their indebtedness. See "Certain Federal
Income Tax Considerations--REIT Qualification of Meditrust."
If Meditrust fails to qualify as a REIT, it would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under certain
statutory provisions and subject to the discussion above regarding the impact if
Meditrust failed to qualify as a REIT in 1983, Meditrust also would be
disqualified from re-electing REIT status for the four taxable years following
the year during which qualification is lost. Failure to qualify as a REIT would
result in additional tax liability to Meditrust for the year or years involved.
In addition, distributions to shareholders would no longer be required by the
Code to be made. To the extent that distributions to shareholders would have
been made in anticipation of Meditrust qualifying as a REIT, Meditrust might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. See "Certain Federal Income Tax Considerations--REIT
Qualification of Meditrust."
The failure to qualify as a REIT would also constitute a default under
certain debt obligations of Meditrust, which would generally allow the holders
thereof to demand the immediate repayment of such indebtedness, which could have
a material adverse effect on The Meditrust Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.
Adverse Effects of REIT Minimum Distribution Requirements. In order to
qualify as a REIT, Meditrust is generally required each year to distribute to
its shareholders at least 95% of its taxable income (excluding any net capital
gain). In addition, if Meditrust disposes of assets acquired in certain
acquisitions during the ten-year period following the acquisition, Meditrust
will be required to distribute at least 95% of the amount of any
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"built-in gain" attributable to such assets that Meditrust recognizes in the
disposition, less the amount of any tax paid with respect to such recognized
built-in gain. See "Certain Federal Income Tax Considerations--REIT
Qualification of Meditrust." Meditrust generally is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed income from prior years.
Meditrust intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
Differences in timing between the recognition of taxable income and the receipt
of cash available for distribution and the seasonality of the businesses it owns
or may acquire could require Meditrust to borrow funds on a short-term basis to
meet the 95% distribution requirement and to avoid the nondeductible excise tax.
Distributions to shareholders by The Meditrust Companies are determined by
their respective Boards of Directors and depend on a number of factors,
including, the amount of cash available for distribution, financial condition,
results of operations, any decision by either Board of Directors to reinvest
funds rather than to distribute such funds, capital expenditures, the annual
distribution requirements under the REIT provisions of the Code (in the case of
Meditrust) and such other factors as either Board of Directors deems relevant.
For federal income tax purposes, distributions paid to shareholders may consist
of ordinary income, capital gains (in the case of Meditrust), return of capital,
or a combination thereof. The Meditrust Companies will provide shareholders with
annual statements as to the taxability of distributions.
Requirement to Distribute Accumulated Earnings and Profits. To maintain its
qualification as a REIT in the event its merger with La Quinta is consummated,
Meditrust will be required to distribute the current and accumulated earnings
and profits of La Quinta (as determined for federal income tax purposes).
Following the merger, Meditrust intends to make a distribution of earnings and
profits in the amount determined by Meditrust to be necessary for federal income
tax purposes.
It is a condition to the obligation of The Meditrust Companies to
consummate the proposed merger with La Quinta that, at the closing date of the
proposed merger, La Quinta and Meditrust shall have obtained a report prepared
by KPMG Peat Marwick LLP ("KPMG") of the accumulated and current earnings and
profits of La Quinta (as determined for federal income tax purposes) as of the
most recent date through which earnings and profits are ascertainable as well as
a reasonable estimate of any earnings and profits from such most recent date
through the closing date of the merger, and Coopers & Lybrand LLP shall have
reviewed and approved in the exercise of its reasonable judgment the report and
workpapers of KPMG. La Quinta has provided a report of the earnings and profits
calculation through December 31, 1996 from KPMG.
It is a condition to the obligation of The Meditrust Companies to
consummate the proposed merger with Cobblestone that, as of the closing date of
the proposed merger, Cobblestone and The Meditrust Companies shall have obtained
a certification of the independent accountants of Cobblestone, reasonably
satisfactory to The Meditrust Companies, to the effect that Cobblestone had no
current or accumulated earnings and profits (as determined for federal income
tax purposes) as of September 30, 1997, and a certification from Cobblestone's
Chief Financial Officer, reasonably satisfactory to The Meditrust Companies, to
the effect that as of the closing date of the proposed merger, Cobblestone has
no such current or accumulated earnings and profits.
If the Internal Revenue Service ("IRS") were to determine that La Quinta's
actual current or accumulated earnings and profits exceeded the amount
distributed or deemed distributed by Meditrust following the proposed merger
(due to miscalculation, insufficient funds or any other reason), or that
Cobblestone in fact had current or accumulated earnings and profits, Meditrust
would be disqualified as a REIT. Certain technical provisions of the Taxpayer
Relief Act of 1997 (the "Relief Act") facilitate the distribution of inherited
earnings and profits, but do not change the basic requirement that inherited
earnings and profits must be distributed.
Risks Associated with Rapid Growth of The Meditrust Companies; Risks of Growth
Strategy
The Meditrust Companies currently are experiencing a period of rapid growth
through acquisitions. The Meditrust Companies recently have completed the Santa
Anita Mergers, acquired (the "IRI Acquisition") five golf courses (the "IRI Golf
Courses") from IRI Golf Group ("IRI"), and entered into merger agreements with
La Quinta
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and Cobblestone. See "The Meditrust Companies--Recent Developments." Failure to
efficiently manage acquired assets, or the failure of The Meditrust Companies to
successfully integrate Santa Anita's, La Quinta's, IRI's or Cobblestone's
operations with existing operations and the operations of other acquired
businesses, could have a material adverse effect on The Meditrust Companies and
their ability to make distributions to shareholders and to pay amounts due on
their indebtedness. The success of any completed acquisition will depend in
large measure on The Meditrust Companies' ability to integrate the acquired
properties within The Meditrust Companies' existing portfolio, to integrate the
accounting systems, management information systems, personnel and other
operations acquired with those of The Meditrust Companies, and to improve the
operating results of the acquired properties and businesses. The process of
integrating acquired properties, operations and personnel and in particular,
geographically diverse properties and properties which, like the Santa Anita, La
Quinta, IRI and Cobblestone properties, are outside of The Meditrust Companies'
traditional expertise in health care related properties, with The Meditrust
Companies' existing properties may involve unforeseen difficulties and may
require a disproportionate amount of The Meditrust Companies' financial and
other resources, including management time, which could adversely impact The
Meditrust Companies.
As noted above, there can be no assurance that proposed or pending
acquisitions will be consummated or that acquired properties or businesses will
perform in accordance with expectations. In that regard, see "--Cautionary
Statements Concerning Forward-Looking Statements" below. In addition, the
proposed La Quinta and Cobblestone acquisitions will be financed largely through
the issuance of Paired Shares, and The Meditrust Companies may finance
acquisitions by, among other things, issuing debt and equity securities,
including Paired Shares. The issuance of Paired Shares to finance acquisitions
could have a dilutive effect on funds from operations per Paired Share. In that
regard, both the La Quinta and Cobblestone merger agreements are structured in a
way that will require The Meditrust Companies to increase the number of Paired
Shares they issue to consummate those mergers if the average market price of the
Paired Shares (as determined pursuant to the merger agreements) declines below
specified levels. Accordingly, there can be no assurance that acquisitions,
including the proposed La Quinta and Cobblestone acquisitions, will not be
dilutive to funds from operations per Paired Share or other operating results,
that acquired businesses (including La Quinta and Cobblestone) will be able to
maintain or improve historical results of operations or contribute to future
growth, or that the effect of the La Quinta and Cobblestone acquisitions (if
consummated) on The Meditrust Companies will be beneficial.
The Meditrust Companies' growth strategy depends, in large part, on their
ability to identify, finance, acquire and successfully operate additional real
estate interests. No assurance can be given that The Meditrust Companies will
find suitable acquisitions, that The Meditrust Companies will be able to
consummate or obtain financing for these acquisitions in a timely manner or at
all, that potential acquisitions will not be acquired by The Meditrust
Companies' competitors or that acquired properties will perform in accordance
with expectations. In that regard, enactment of certain proposed legislation
regarding paired share REITs could make it more difficult for The Meditrust
Companies to consummate acquisitions in the future. See "--REIT Tax Risks;
Paired Share REIT Tax Risks--Pending Legislation Regarding Paired Share REITs"
above.
Consummation of the acquisitions of La Quinta and Cobblestone is subject to
various conditions, including, receipt of appropriate governmental approvals
(including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended) and, in the case of La Quinta, approval of the shareholders of La
Quinta and Meditrust and, in the case of Cobblestone, approval by Cobblestone's
shareholders, successful completion of a tender offer for certain of
Cobblestone's outstanding debt instruments and receipt of requisite consents to
the amendment of certain covenants in Cobblestone's debt instruments. The
Meditrust Companies may also be required to obtain additional financing in
connection with such mergers, which is not, however, a condition to such
mergers. See "--Financing Risks Relating to Proposed La Quinta and Cobblestone
Acquisitions" below. In addition, if the average price (as determined pursuant
to the merger agreement) of the Paired Shares during the period prior to the
expected closing date of the La Quinta Merger is less than $30.40, then La
Quinta has the right to terminate the merger agreement unless Meditrust
exercises its right to increase the number of Paired Shares issuable in the
merger as provided in the merger agreement. If, however, the average price of
the Paired Shares on such date is less than $28.50, La Quinta has the right to
terminate the merger agreement outright. Moreover, La Quinta and The Meditrust
Companies were named in two substantially similar lawsuits filed after the
announcement of the planned merger with La Quinta which seek compensatory and
injunctive relief on the alleged grounds that the La Quinta directors violated
their fiduciary duty, duty of care and duty of loyalty to La Quinta shareholders
by entering into the merger agreement with Meditrust without having first
invited other bidders. Although The Meditrust Companies believe the claims are
entirely without merit, there can be no assurance that the plaintiffs in these
actions will not be successful or that these actions will not have an adverse
effect on The Meditrust Companies. Among other things, if the plaintiffs were to
prevail in these actions, they might obtain injunctive or other relief blocking
the proposed merger or requiring
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other action that could adversely affect the consummation of the proposed
merger, as well as monetary damages against both La Quinta and The Meditrust
Companies. As a result of the foregoing, and other factors, there can be no
assurance that the acquisitions of La Quinta and Cobblestone will be consummated
on their current terms or at all.
Potential Dilutive Effect of Issuance by The Meditrust Companies of Capital
Stock With Purchase Price Adjustment Mechanism
In connection with a private placement by The Meditrust Companies of
8,500,000 paired shares of Series A Non-Voting Convertible Common Stock to
Merrill Lynch International, The Meditrust Companies entered into a Purchase
Price Adjustment Mechanism Agreement, dated as of February 26, 1998, with
Merrill Lynch International (the "Price Adjustment Agreement"), pursuant to
which the parties agreed to adjust the purchase price of the 8,500,000 paired
shares of Series A Non-Voting Convertible Common Stock on or prior to February
26, 1999 by the difference between (i) the market price for the Paired Shares at
the time of the settlement and (ii) a reference price (the "Reference Price")
based on the closing price for the Paired Shares on February 25, 1998 plus a
forward accretion, minus an adjustment to reflect distributions on the Paired
Shares during the transaction period (such difference, the "Price Difference").
If the Price Difference is positive, Merrill Lynch International agrees to
deliver Paired Shares to The Meditrust Companies equal in value to the aggregate
Price Difference. If the Price Difference is negative, The Meditrust Companies
agree to deliver additional Paired Shares equal in value to the aggregate Price
Difference to Merrill Lynch International. In the event that the market price
for the Paired Shares at the time of settlement is lower than the Reference
Price, The Meditrust Companies will have to deliver additional Paired Shares to
Merrill Lynch International, which would have dilutive effects on the capital
stock of The Meditrust Companies. Additionally, under certain adverse market
conditions, Merrill Lynch International has the right to accelerate the
settlement of all or a portion of the obligation under the Price Adjustment
Agreement. Such early settlements may force The Meditrust Companies to issue
Paired Shares at a depressed price, which may heighten the dilutive effects on
the capital stock of The Meditrust Companies.
The Meditrust Companies Are Heavily Dependent on Health Care Related Properties
and Will Need to Rely on New Members of Management as They Diversify Their
Operations
Currently, approximately 93% of The Meditrust Companies' real property
portfolio is comprised of health care related real property. Recently, through
acquisitions that are either pending, such as Cobblestone and La Quinta, or have
been consummated, such as IRI, The Meditrust Companies have begun to diversify
their operations as well as their real property portfolio. The Meditrust
Companies are currently in the business of operating a race track acquired in
November 1997 in the Santa Anita Merger, Meditrust purchased the IRI Golf
Courses in February 1998, and, if the La Quinta and Cobblestone mergers are
consummated, The Meditrust Companies will enter the hotel business and further
develop their golf business. To the extent that The Meditrust Companies are
successful in diversifying into new areas through acquisitions, it is likely
that The Meditrust Companies will rely heavily upon the expertise of the
existing management of the acquired businesses or will need to hire outside
management to operate these diversified operations. No assurance can be given
that The Meditrust Companies will be able to hire or retain experienced
management to operate the businesses they acquire or propose to acquire, which
could have a material adverse effect on The Meditrust Companies and their
ability to make distributions to shareholders and to pay amounts due on their
indebtedness.
Health Care Industry Risks
Operating Risks. One of Meditrust's primary businesses is that of buying,
selling, financing and leasing health care related properties. The risks of this
business include, among other things: competition for tenants; competition from
other health care financing providers, a number of which may have greater
marketing, financial and other resources and experience than Meditrust; changes
in government regulation of health care; changes in the availability and cost of
insurance coverage; increases in operating costs due to inflation and other
factors; changes in interest rates; the availability of financing; and adverse
effects of general and local economic conditions.
Concentration of Credit Risks. As of December 31, 1997, long-term care
facilities comprised 51% of Meditrust's real estate investments, and Meditrust's
investments in facilities of its three largest health care operators totaled
approximately 39% of Meditrust's total real estate investments. Such a
concentration in specific types of facilities, as well as in these operators,
could have a material adverse effect on The Meditrust Companies.
Government Regulation May Increase. The health care industry is subject to
changing political, economic, regulatory and demographic influences that may
affect the operations of health care facilities and providers. During the past
several years, the health care industry has been subject to an increase in
government regulation of, among other things, reimbursement rates and certain
capital expenditures. Some elected officials have announced that they intend to
examine certain aspects of the U.S. health care system, including proposals
which may further increase governmental involvement in health care. For example,
the President and Congress have in the past, and may in the future, propose
health care reforms which could impose additional regulations on Meditrust and
its operators (including Operating Company) or limit the amounts that operators
may charge for services. Meditrust and the operators of its health care
facilities are and will continue to be subject to varying degrees of regulation
and licensing by health or social service agencies and other regulatory
authorities in the various states and localities in which they operate or in
which they will operate.
Reliance on Third-Party Payors; Availability of Reimbursement. The cost of
many of the services offered by the current operators of Meditrust health care
facilities are reimbursed or paid for by third-party payors such as Medicare and
Medicaid programs for elderly, low income and disabled patients and state
Medicaid programs for managed care organizations. No assurance can be given that
third-party reimbursement for Meditrust's operators will continue to be
available or when reimbursement will be offered or that reimbursement rates will
not be reduced. The increase in the number of providers contracting to provide
per person fixed cost health care to a patient population has increased pressure
on third party payors to lower costs.
The foregoing factors could adversely affect the ability of the operators
of Meditrust's health care facilities (including Operating Company) to generate
revenues and make payments to Meditrust. This, in turn, could materially
adversely affect The Meditrust Companies and their ability to make distributions
to shareholders and to pay amounts due on their indebtedness.
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Lodging Industry Risks
In the event the proposed merger with La Quinta is consummated, The
Meditrust Companies will have made a significant investment in hotels and
related lodging facilities. If the La Quinta merger occurs, La Quinta will be
operated as a business unit of Operating Company and its real estate assets will
be owned by Meditrust.
Competition. The results of operations of La Quinta hotels are subject to
general economic conditions, competition, the desirability of particular
locations, the relationship between supply of and demand for hotel rooms and
other factors. La Quinta hotels generally operate in markets that contain
numerous competitors, including a wide range of lodging facilities offering
full-service, limited-service and all-suite lodging options to the public. The
continued success of La Quinta's hotels will be dependent, in large part, upon
their ability to compete in such areas as reasonableness of room rates, quality
of accommodations, name recognition, service level and convenience of locations.
Additionally, an increasing supply of hotel rooms in La Quinta's market segment
and recent consolidations in the lodging industry generally resulting in the
creation of several large, multi-branded hotel chains with diversified
operations may adversely impact La Quinta's financial condition, results of
operations and business. No assurance can be given that demographic, geographic
or other changes in markets will not adversely affect the convenience or
desirability of the locations of La Quinta's hotels. Furthermore, no assurance
can be given that, in the markets in which La Quinta's hotels operate, competing
hotels will not provide greater competition for guests than currently exists,
and that new hotels will not enter such markets. Additionally, La Quinta's
hotels are concentrated in the western and southern regions of the United
States. As a result, La Quinta is sensitive to economic and competitive
conditions in those regions.
Extensive Employment and Other Governmental Regulations. The hotel business
is subject to extensive federal, state and local regulatory requirements,
including building and zoning requirements, all of which can prevent, delay,
make uneconomical or significantly increase the cost of developing additional
lodging facilities. In addition, La Quinta's hotels and Operating Company are
subject to laws governing their relationship with employees, including minimum
wage requirements, overtime, working conditions, work permit requirements and
discrimination claims. If the merger with La Quinta is consummated, an increase
in the minimum wage rate, employee benefit costs or other costs associated with
employees could adversely affect The Meditrust Companies.
Fluctuations in Operating Results. The lodging industry may be adversely
affected by, among other things, changes in economic conditions, changes in
local market conditions, oversupply of hotel space, a reduction in demand for
hotel space in specific areas, changes in travel patterns, weather conditions,
changes in governmental regulations that influence or determine wages, prices
or construction costs, changes in interest rates, the availability of financing
for operating or capital needs, and changes in real estate tax rates and other
operating expenses. Room supply and demand historically have been sensitive to
shifts in GNP growth, which has resulted in cyclical changes in average daily
room and occupancy rates. Due in part to the strong correlation between the
lodging industry's performance and economic conditions, the lodging industry is
subject to cyclical changes in revenues. In that regard, there can be no
assurance that the recent strength in the lodging industry generally, or in the
segment of the industry in which La Quinta operates, will not decline in the
future. Furthermore, the lodging industry is seasonal in nature, with revenues
typically higher in summer periods than in winter periods.
Risks of Expansion Strategy. If the La Quinta merger is consummated,
Meditrust intends to continue La Quinta's strategy of growth through both the
construction of new lodging facilities and the opportunistic acquisition of
existing lodging facilities. No assurance can be given that Meditrust will find
suitable sites for construction or suitable properties for acquisition or that
these sites and properties will not be acquired by competitors. Meditrust will
incur certain costs in connection with the construction and acquisition of new
properties and may be required to provide significant capital expenditures for
conversions and upgrades when acquiring a property operating as other than a La
Quinta[RegTM] brand property. No assurance can be given that any of the
properties Meditrust may construct or acquire will be profitable following such
construction or acquisition. The construction or acquisition of a property that
is not profitable, or the acquisition or construction of a property that results
in significant unanticipated conversion costs, or substantial construction cost
overruns, could materially adversely affect The Meditrust Companies and their
ability to make distributions to shareholders and to pay amounts due on their
indebtedness. Meditrust may in the future require additional financing in order
to continue to make acquisitions, and to fund construction costs of hotel
properties. No assurance can be given that such additional financing will be
available to Meditrust on acceptable terms or at all.
Construction. If the La Quinta merger is consummated and Meditrust
continues La Quinta's strategy of growing through new construction, Meditrust
may from time to time experience shortages of materials or qualified
tradespeople or volatile increases in the cost of certain construction materials
or labor, resulting in longer than normal construction and remodeling periods,
loss of revenue and increased costs. Meditrust will rely heavily on local
contractors, who may be inadequately capitalized or understaffed. The inability
or failure of one or more local contractors to perform may result in
construction or remodeling delays, increased cost and loss of revenue.
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The foregoing factors could adversely affect La Quinta's operations which,
in turn, could materially adversely affect The Meditrust Companies and their
ability to make distributions to shareholders and to pay amounts due on their
indebtedness.
Golf Course Industry Risks
In the event that the proposed merger with Cobblestone is consummated, and
as a result of the acquisition of the IRI Golf Courses, The Meditrust Companies
will have made a significant investment in golf courses and related facilities.
If the Cobblestone merger occurs, Cobblestone will be operated as a business
unit of Operating Company and its real estate assets will be owned by Meditrust.
Real Estate Investment Considerations. Investments in golf courses and
related properties are subject to risks typically associated with investments
in real estate. Revenue from golf courses may be affected by many factors,
including changes in government regulations, general or local economic
conditions, the available local supply of golf courses, a decrease in the
number of people playing golf or adverse weather conditions.
One factor specifically affecting real estate investments in golf
facilities is the availability of water. A severe water shortage could adversely
affect the revenue received from these investments.
In addition, the golf courses which The Meditrust Companies will acquire if
the Cobblestone Merger is consummated are generally located in sun-belt states.
Nine golf facilities are located in Texas, seven in California, four in Arizona,
three in Florida, two in Georgia and one in Virginia. The five golf courses
acquired from IRI are all located in Texas. The geographic proximity of many of
these golf courses may mean that adverse economic and/or weather conditions in
the same geographic area could adversely affect the operating results of a large
portion of The Meditrust Companies' golf course facilities.
Competition. If the Cobblestone merger is consummated, Meditrust intends to
continue to acquire golf courses. The Meditrust Companies will compete with
several national and regional golf course companies for the purchase, lease and
management of golf courses. No assurance can be given that suitable golf course
acquisition opportunities will be available or that, because of competition from
other purchasers or other reasons, Meditrust will be able to consummate
acquisitions on satisfactory terms or at all or to obtain necessary acquisition
financing. In addition, the acquisition of golf courses may become more
expensive in the future if demand for properties increases.
Cobblestone competes for the purchase, lease and management of golf
courses with several national and regional golf course companies. Several of
Cobblestone's national competitors have larger staffs and more golf courses
currently owned, leased or under management than does Cobblestone. In addition,
several of Cobblestone's national competitors and certain of its smaller,
regional competitors have significantly greater capital resources than does
Cobblestone.
Golf courses are also subject to competition for players and members from
other golf courses located in the same geographic areas. The number and quality
of golf courses in a particular area could have a material adverse effect on
the revenue of a golf course. The availability of sufficient acreage often
limits the number of competing courses, particularly in metropolitan areas.
However, the parts of Arizona and Texas in which many of Cobblestone's existing
properties, and all of the IRI Golf Courses, are clustered have significant
open land available, and there has been continued construction of both public
and private golf facilities in those areas. In addition, revenue will be
affected by a number of factors including, the demand for golf and the
availability of other forms of recreation.
Consumer Spending and Trends. The amount spent by consumers on
discretionary items, such as those offered by Cobblestone and IRI, has
historically been dependent upon levels of discretionary income which may be
adversely affected by general economic conditions. A decrease in the number of
golfers and in consumer spending on golf and golf associated activities could
have a material adverse effect on The Meditrust Companies' golf course
division's financial condition and results of operations.
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The foregoing factors could adversely affect the operations of Cobblestone
and the IRI Golf Courses which, in turn, could materially adversely affect The
Meditrust Companies and their ability to make distributions to shareholders and
to pay amounts due on their indebtedness.
Horse Racing Industry Risks
Regulation of Gaming Operations. Operating Company's pari-mutuel wagering
operations at Santa Anita Park (the "Race Track"), conducted by Los Angeles Turf
Club, Incorporated ("LATC"), a subsidiary of The Santa Anita Companies, Inc.
(itself a subsidiary of Operating Company), depend upon the continued
governmental acceptance of such operations as forms of legalized gaming. As a
form of gaming, pari-mutuel wagering is subject to extensive licensing and
regulatory control by the California Horse Racing Board (the "CHRB"). The CHRB
has broad powers with respect to the licensing of gaming operations. It may
revoke, suspend, condition or limit the gaming operations of Operating Company.
Any such change in regulations may have a material adverse effect on The
Meditrust Companies.
Dependence on Relationship with Owners and Trainers Associations. LATC's
horse racing operations require it to maintain good working relationships with
the Thoroughbred Owners of California, or the "Owners Association", and the
California Horsemen's Benevolent and Protective Association, or the "Trainers
Association." If LATC cannot maintain working relationships with the Owners
Association or the Trainers Association or finds itself unable to attract a
sufficient number of horses to its live horse race meets, such events could have
a material adverse effect on The Meditrust Companies.
Competition. Thoroughbred horse racing, and gaming generally, are
competitive industries. Operating Company competes in its markets with other
horse racing facilities, off-track betting, state-run lotteries and Native
American reservation gaming. Many of these competitors have resources that
exceed those of The Meditrust Companies. Operating Company also competes locally
with other sporting and entertainment businesses. Approval of legislation
legalizing casinos and other forms of gaming or expansion of gaming at Native
American reservations could increase competition for Operating Company.
Operating Company also may face increasing competition from businesses accepting
wagers by telephone and via the Internet.
Declines in On-Track Attendance and Wagering Revenue. The Meditrust
Companies believe that many horse racing tracks across the nation, including the
Race Track, are experiencing declines in on-track attendance. In addition,
Operating Company has experienced declining revenues from wagering in recent
years. It cannot be assured that Operating Company will not experience further
declines in on-track attendance and wagering revenues, which could have a
material adverse effect on The Meditrust Companies. In that regard, the amount
of rental revenues received by Meditrust from its lease of the Race Track to
LATC is wholly dependent upon the level of racing activities and wagering.
Seasonality. Operating Company has historically conducted a live
thoroughbred horse racing meet at the Race Track each winter and has sublet the
Race Track each fall for a live thoroughbred racing meet conducted by Oak Tree
Racing Association. The winter and fall meets generate a substantial amount of
Operating Company's horse racing revenue each year. As a result, Operating
Company's horse racing activities are subject to significant seasonal variations
in revenue and net income or loss.
Real Estate Investment Risks
General Risks. Meditrust's investments (including those of La Quinta and
Cobblestone, assuming consummation of their respective mergers) will be subject
to the risks inherent in owning real estate. The underlying value of Meditrust's
real estate investments and The Meditrust Companies' results of operations and
ability to make distributions to their shareholders and pay amounts due on their
indebtedness will depend on the ability of the lessees, the operators and
Operating Company to operate Meditrust's properties in a manner sufficient to
maintain or increase revenues and to generate sufficient revenues in excess of
operating expenses to make rent payments under their leases or loan payments in
respect of their loans from Meditrust.
Results of operations of Meditrust's properties may also be adversely
affected by, among other things:
[bullet] changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics;
[bullet] changes in interest rates and in the availability, cost and terms of
financing;
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[bullet] the impact of present or future environmental legislation and
compliance with environmental laws and other regulatory requirements;
[bullet] the ongoing need for capital improvements, particularly in older
structures;
[bullet] changes in real estate tax rates and assessments and other operating
expenses;
[bullet] adverse changes in governmental rules and fiscal policies;
[bullet] adverse changes in zoning and other land use laws; and
[bullet] civil unrest, earthquakes and other natural disasters (which may result
in uninsured losses) and other factors which are beyond its control.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. Meditrust's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If Meditrust
wants to sell an investment, no assurance can be given that Meditrust will be
able to dispose of it in the time period it desires or that the sales prices of
any investment will recoup or exceed the amount of Meditrust's investment.
Increases in Property Taxes Could Affect Ability to Make Expected
Shareholder Distributions. Meditrust's health care facilities and real estate
investments, La Quinta's and Cobblestone's properties and Meditrust's racing
facilities are all subject to real property taxes. The real property taxes on
properties in which Meditrust invests may increase or decrease as property tax
rates change and as the value of the properties are assessed or reassessed by
taxing authorities. In addition, as a result of acquisitions, certain of
Meditrust's properties may be subject to reappraisal or reassessment. Increases
in property taxes resulting from such reappraisals or reassessments may have an
adverse effect on The Meditrust Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.
Environmental Matters. The obligation to pay for the cost of complying with
existing environmental laws, ordinances and regulations, as well as the cost of
complying with future legislation, may affect the operating costs of Meditrust
and Operating Company. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on or under the property. Environmental laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances and whether or not such
substances originated from the property. In addition, the presence of hazardous
or toxic substances, or the failure to remediate such property properly, may
adversely affect Meditrust's ability to borrow by using such real property as
collateral.
Persons who arrange for the transportation, disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of hazardous or toxic substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. Certain environmental laws and common law principles could be used to
impose liability for releases of hazardous materials, including asbestos-
containing materials or "ACMs", into the environment. In addition, third parties
may seek recovery from owners or operators of real properties for personal
injury associated with exposure to released ACMs or other hazardous materials.
Environmental laws may also impose restrictions on the use or transfer of
property, and these restrictions may require expenditures. In connection with
the ownership and operation of any of Meditrust's properties, Meditrust,
Operating Company and the other lessees or operators of these properties may be
liable for any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect The Meditrust Companies and their ability
to make distributions to shareholders and to pay amounts due on their
indebtedness.
Compliance with the ADA May Affect Expected Distributions to Meditrust's
Shareholders. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. A determination that Meditrust or
Operating Company is not in compliance with the ADA could result in the
imposition of fines and/or an award of damages to private litigants. If
Meditrust or Operating Company were required to make modifications to comply
with the ADA, there could be a material adverse effect on The Meditrust
Companies and their ability to make distributions to shareholders and to pay
amounts due on their indebtedness.
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Uninsured and Underinsured Losses. Each of Meditrust's leases and mortgage
loans typically specifies that comprehensive insurance is to be maintained on
each of the applicable properties, including liability, fire and extended
coverage. Leases and loan documents for new investments (including those leased
to Operating Company) typically contain similar provisions. However, there are
certain types of losses, generally of a catastrophic nature, such as earthquakes
and floods, that may be uninsurable or not economically insurable. The Meditrust
Companies will use their discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the investments of Meditrust and Operating Company at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the lost investment and
also may result in certain losses being totally uninsured. Inflation, changes in
building codes, zoning or other land use ordinances, environmental
considerations, lender imposed restrictions and other factors also might make it
infeasible to use insurance proceeds to replace the property after such property
has been damaged or destroyed. Under such circumstances, the insurance proceeds,
if any, received by Meditrust or Operating Company might not be adequate to
restore its economic position with respect to such property.
Real Estate Financing Risks
Financing and Maturities. Meditrust is subject to the normal risks
associated with debt and preferred stock financing, including the risk that
Meditrust's cash flow will be insufficient to meet required payments of
principal and interest and dividends, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness. If Meditrust were unable to
refinance the indebtedness on acceptable terms, or at all, Meditrust might be
forced to dispose of one or more of its properties on disadvantageous terms,
which might result in losses to Meditrust, which losses could have a material
adverse effect on Meditrust and its ability to make distributions to
shareholders and to pay amounts due on its indebtedness. Furthermore, if a
property is mortgaged to secure payment of indebtedness and Meditrust is unable
to meet mortgage payments, the mortgagee could foreclose upon the property,
appoint a receiver and receive an assignment of rents and leases or pursue other
remedies, all with a consequent loss of revenues and asset value to Meditrust.
Foreclosures could also create taxable income without accompanying cash
proceeds, thereby hindering Meditrust's ability to meet the REIT distribution
requirements of the Code.
Risk of Rising Interest Rates. Meditrust has incurred and expects in the
future to incur indebtedness which bears interest at variable rates.
Accordingly, increases in interest rates would increase Meditrust's interest
costs (to the extent that the related indebtedness was not protected by interest
rate protection arrangements), which could have a material adverse effect on
Meditrust and its ability to make distributions to shareholders and to pay
amounts due on its indebtedness or cause Meditrust to be in default under
certain debt instruments (including certain debt securities). In addition, an
increase in market interest rates may lead holders of the Paired Shares to
demand a higher yield on their Paired Shares from distributions by The Meditrust
Companies, which could adversely affect the market price for the Paired Shares
and could also adversely affect the market price of any preferred stock issued
by either of The Meditrust Companies.
Additional Debt. Meditrust currently funds acquisition opportunities
partially through borrowings (including its lines of credit). The organizational
documents of Meditrust do not contain any limitation on the amount of
indebtedness that Meditrust may incur. Accordingly, Meditrust could become more
highly leveraged, resulting in an increase in debt service, which could have a
material adverse effect on Meditrust and its ability to make distributions to
shareholders and to pay amounts due on its indebtedness and in an increased risk
of default on its obligations.
Employment and Other Governmental Regulation
The health care, golf, hotel, race track and related businesses of The
Meditrust Companies are subject to varying degrees to extensive federal, state
and local regulatory requirements, including building and zoning requirements,
all of which can prevent, delay, make uneconomical or significantly increase the
cost of developing and maintaining existing and additional facilities or
properties in the health care, golf, hotel, race track and related businesses.
In addition, La Quinta, Cobblestone and The Meditrust Companies are subject to
laws governing their relationship with employees, including minimum wage
requirements, overtime, working conditions, work permit requirements and
discrimination claims. An increase in the minimum wage rate, employee benefit
costs or other costs associated with employees, could adversely affect The
Meditrust Companies and their ability to make distributions to shareholders and
to pay amounts due on their indebtedness.
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ERISA Plans May Be Affected by Certain Ownership of REIT Securities
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and section 4975 of the Code prohibit certain transactions that involve (i)
certain pension, profit-sharing, employee benefit, or retirement plans or
individual retirement accounts (each, a "Plan") and (ii) the assets of a Plan,
on the one hand, and a "party in interest" or "disqualified person" with respect
to such Plan, on the other hand. A "party in interest" or "disqualified person"
with respect to a Plan will be subject to (x) an initial 15% excise tax on the
amount involved in any prohibited transaction involving the assets of the Plan
and (y) an excise tax equal to 100% of the amount involved if any prohibited
transaction is not corrected. Consequently, the fiduciary of a Plan
contemplating an investment in Shares offered by any prospectus supplement
should consider whether The Meditrust Companies, any other person associated
with the issuance of the Shares offered by any prospectus supplement, or any
affiliate of the foregoing is or might become a "party in interest" or
"disqualified person" with respect to the Plan. In such a case, the acquisition
or holding of Shares offered by any prospectus supplement by or on behalf of the
Plan could be considered to give rise to a prohibited transaction under ERISA
and the Code.
Regulations of the Department of Labor that define "plan assets" provide
that in some situations, when a Plan acquires an equity interest in an entity,
the Plan's assets include both the equity interest and an undivided interest in
each of the underlying assets of the entity, unless one or more exceptions
specified in the plan asset regulations are satisfied. In such a case, certain
transactions that The Meditrust Companies might enter into in the ordinary
course of their business and operations might constitute "prohibited
transactions" under ERISA and the Code.
Substantial Leverage Risks
Meditrust has substantial leverage. The degree of leverage of Meditrust
could have important consequences to investors, including the following: (i)
Meditrust's ability to obtain additional financing may be impaired in the
future; (ii) a substantial portion of Meditrust's cash flow from operations must
be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to Meditrust for other purposes; (iii) as
described below, certain of Meditrust's borrowings are and will continue to be
at variable rates of interest, which will expose Meditrust to the risk of
increased interest rates; (iv) Meditrust may be substantially more leveraged
than certain of its competitors, which may place Meditrust at a competitive
disadvantage; and (v) Meditrust's substantial degree of leverage may limit its
flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business.
If the mergers with La Quinta and Cobblestone had been consummated on
December 31, 1997, The Meditrust Companies would have had, as of December 31,
1997, approximately $3.14 billion of pro forma combined total indebtedness as
compared to combined total indebtedness of The Meditrust Companies, without
giving effect to the La Quinta and Cobblestone acquisitions, of approximately
$1.38 billion at that date. The interest rates of The Meditrust Companies'
credit facilities bear interest at variable rates based, in part, on The
Meditrust Companies' leverage ratio. Consequently, the incurrence of
indebtedness if the La Quinta and Cobblestone acquisitions are consummated,
Meditrust's subsequent distribution of inherited earnings and profits in
connection with the La Quinta Merger (see "--REIT Tax Risks; Paired Share REIT
Tax Risks--Requirement to Distribute Accumulated Earnings and Profits"), and the
resulting increase in the leverage ratio will result in increased interest
expense under The Meditrust Companies' credit facilities. In addition, increases
in market interest rates will also result in increased borrowing cost for The
Meditrust Companies, which may adversely affect The Meditrust Companies and
their ability to make distributions to shareholders and to pay amounts due on
their indebtedness.
The foregoing risks associated with the debt obligations of The Meditrust
Companies may adversely affect the market price of Shares offered by any
prospectus supplement and may inhibit the ability of The Meditrust Companies to
raise capital in both the public and private markets.
Risks Related to Restrictions on Dividends and Distributions; Risks Relating to
Restrictive Debt Covenants and Compliance with Debt Instruments
The Meditrust Companies and their subsidiaries are or in the future may
become parties to agreements and debt instruments which restrict or prevent the
payment of dividends on, or the purchase or redemption of, the Paired Shares,
preferred stock or series common stock, including indirect restrictions
(through, for example, covenants requiring the maintenance of specified levels
of net worth) and direct restrictions. In particular, Meditrust is currently a
party to revolving loan agreements (the "Revolving Loan Agreements") which
permit borrowings in an aggregate amount of up to $365 million with Fleet
National Bank, as agent for certain other financial institutions, and with Via
Banque. The Revolving Loan Agreements provide that Meditrust shall not declare
or pay any dividends (other than a dividend payable in capital stock of The
Meditrust Companies) on any of its capital stock if such action would constitute
an event of default or an event which, with the giving of notice or lapse of
time or both, would constitute an event of default under the Revolving Loan
Agreements or any other material agreement to which Meditrust is a party. Events
of default under the Revolving Loan Agreements include, among other things,
failure by Meditrust to comply with certain financial covenants relating to cash
flow coverage, combined tangible net worth, and a ratio of total liabilities to
combined financial net worth. Other events of default under the Revolving Loan
Agreements include failure to pay principal, interest, fees or reimbursements
under letters of credit when due, certain events of bankruptcy or insolvency or
creditor actions
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with respect to Meditrust and its subsidiaries, breach of any of the
representations, warranties or covenants under the Revolving Loan Agreements,
certain monetary defaults under other debt instrument of Meditrust, failure to
pay all amounts due under the Revolving Loan Agreements upon the sale or
permanent disposition of an operator of Meditrust's properties who operates more
than a specified percentage of Meditrust's properties, or the occurrence of
events of default under any of the other documents relating to the Revolving
Loan Agreements. Likewise, Meditrust has previously issued debt securities under
several indentures (each, an "Existing Indenture"). As of December 31, 1997,
approximately $1,134,594,000 of borrowings were outstanding under the Existing
Indentures. Each Existing Indenture provides that Meditrust may not pay
dividends on any of its capital stock (other than dividends payable in capital
stock) if at the time of such action an event of default under such Existing
Indenture has occurred and is continuing or would exist immediately after giving
effect to such action. Events of default under the Existing Indenture include a
failure by Meditrust, after the expiration of any applicable grace period, to
pay principal or interest when due, failure by Meditrust after expiration of a
grace period to comply with any agreements in the Existing Indentures, events of
default under any other debt instruments of Meditrust or its subsidiaries if any
such event of default results from either the failure to pay such other
indebtedness when due or acceleration of such other indebtedness, and the
commencement of voluntary or involuntary bankruptcy or similar proceedings with
respect to Meditrust. As a result of the foregoing, in the event of a
deterioration in the financial condition or results of operations of Meditrust
or Operating Company, the terms of the Revolving Loan Agreements, the Existing
Indentures or other instruments or agreements to which The Meditrust Companies
or their subisidiaries are or may in the future become parties could limit or
prohibit the payment of dividends on shares of Paired Shares, preferred stock or
series common stock offered by any prospectus supplement. Any such limitation or
prohibition could have a material adverse effect on the market price of such
Paired Shares, preferred stock, or series common stock. Any failure of Meditrust
to pay dividends as required by the Code, whether as a result of restrictive
covenants in its debt instruments or otherwise, would result in the loss of its
status as a real estate investment trust under the Code, which would have a
material adverse effect on The Meditrust Companies and their ability to make
distributions to shareholders and to pay amounts due on their indebtedness.
Debt instruments (including the Revolving Loan Agreements and the Existing
Indentures) to which Meditrust is currently a party and to which Meditrust
and/or Operating Company may in the future become parties contain and may
contain a number of significant covenants that, among other things, will
restrict in varying degrees the applicable Meditrust Company from disposing of
assets, incurring additional indebtedness, repaying other indebtedness, paying
dividends, creating liens on assets, entering into leases, making investments,
loans or advances, making acquisitions, engaging in mergers or consolidations,
engaging in certain transactions with affiliates and otherwise restrict
corporate activities.
A Meditrust Company's ability to remain in compliance with certain such
covenants will depend upon, among other things, its results of operations and
may be affected by events beyond its control, including economic, financial and
industry conditions. Accordingly, there can be no assurance that The Meditrust
Companies will remain in compliance with such agreements and covenants. In the
event of a default under such instruments or agreements relating to any
indebtedness of the applicable Meditrust Company, the holders of such
indebtedness generally will be able to declare all such indebtedness, together
with accrued interest thereon, to be due and payable immediately and, in the
case of collateralized indebtedness, to proceed against their collateral. In
addition, default under one debt instrument could in turn permit lenders under
other debt instruments to declare borrowings outstanding thereunder to be due
and payable pursuant to cross-default clauses. Accordingly, the occurrence of a
default under any debt instrument could have a material adverse effect on The
Meditrust Companies.
Financing Risks Relating to Proposed La Quinta and Cobblestone Acquisitions
Although the Cobblestone and La Quinta mergers will be financed largely
through the issuance of Paired Shares, The Meditrust Companies are exploring
various alternative means to most effectively finance the cash that will be
payable in connection with the La Quinta merger and the Cobblestone merger,
including costs associated with the earnings and profits distribution (see
"--REIT Tax Risks; Paired Share REIT Tax Risks" above), the cash consideration
to be paid in the La Quinta merger pursuant to cash elections by La Quinta
shareholders and the other costs associated with the proposed mergers, such as
the refinancing and assumption of certain La Quinta debt and the repayment of
certain Cobblestone debt. This financing may consist of, among other things,
public or private offerings of equity or debt securities, borrowings under the
Revolving Loan Agreements, or a combination thereof. No assurance can be given,
however, that The Meditrust Companies will successfully obtain the financing
necessary to consummate the mergers, or if obtained, that such financing will be
on terms and conditions favorable to The Meditrust Companies. The Meditrust
Companies' obligations under the La Quinta merger agreement and the Cobblestone
merger agreement are not conditioned on the obtaining of financing.
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Restrictions on Transfer of Capital Stock; Repurchase of Capital Stock
In order to qualify as a REIT under the Code, Meditrust's capital stock
must be held by 100 or more shareholders and more than 50% of its capital stock
may not be held by five or fewer individuals (taking into account applicable
attribution of ownership rules). The Meditrust Companies' respective by-laws
contain provisions intended to preserve the status of Meditrust as a REIT for
federal income tax purposes. Among other things, the by-laws of each Meditrust
Company provide that, if its Board of Directors shall at any time be of the
opinion that direct or indirect ownership of shares of its capital stock has or
may become concentrated to an extent which would cause Meditrust to fail to
qualify or be disqualified as a REIT under the Code, or to an extent which would
cause any rent to be paid to Meditrust to fail to qualify or to be disqualified
as rent from real property for purposes of the Code, the Board of Directors of
such Meditrust Company may call for the purchase from any shareholder of such
Meditrust Company such number of shares sufficient, in the opinion of the Board
of Directors, to maintain or bring the direct or indirect ownership of shares of
stock of such Meditrust Company into conformity with the requirements of the
Code. The purchase price for the shares called for purchase shall be equal to
the fair market value of such shares as reflected in the closing price for such
shares on the principal stock exchange on which such shares are listed or, if
such shares are not listed, then the last bid quotation for shares of such stock
as of the close of business on the date fixed by the Board of Directors for such
purchase or, if no quotation for the shares is available, as determined in good
faith by the Board of Directors. From and after the date fixed for purchase by
the Board of Directors as aforesaid, the holders of any shares so called for
purchase shall cease to be entitled to dividends, voting rights and other
benefits with respect to such shares, excepting only the right to payment of the
purchase price fixed as aforesaid. Such purchase price may be paid in cash or,
at the option of the Board of Directors, in the form of subordinated
indebtedness equal to the purchase price of the shares (less amounts paid in
cash, if any), which subordinated indebtedness shall have such other terms as
may be determined by the Board of Directors. In addition, the by-laws of each
Meditrust Company provide that such Meditrust Company may refuse to transfer
shares of stock to any person whose acquisition of such shares would, in the
opinion of its Board of Directors, result in Meditrust being unable to conform
to the requirements of the Code referred to above. The by-laws also provide that
any transfer of shares that would prevent Meditrust from continuing to be
qualified as a REIT under the Code shall be void and the intended transferee of
such shares shall be deemed never to have had an interest therein. If the
foregoing provision is determined to be invalid, the by-laws also provide that
the transferee of such shares shall be deemed to have acted as agent on behalf
of Meditrust or Operating Company, as applicable, in acquiring such shares and
to hold such shares on behalf of Meditrust or Operating Company, as applicable.
Year 2000 Issues
The Meditrust Companies have begun the process of identifying, evaluating
and implementing changes to computer programs necessary to address the year 2000
issue. This issue affects computer systems that have programs that may not
properly recognize the year 2000. This could result in system failures or
miscalculations. The Meditrust Companies are currently addressing their internal
year 2000 issues, with modifications to existing programs and conversions to new
programs. The Meditrust Companies are also communicating with financial
institutions, software vendors and others with which they conduct business to
help them identify and resolve the year 2000 issue. The total cost of converting
all internal systems has not been completely quantified, but it is not expected
to be a material cost. However, no estimates can be made as to the potential
adverse impact that may result from the financial institutions, software vendors
and others with which the Companies conduct business. Costs related to the year
2000 issue are being expensed as incurred.
Cautionary Statements Concerning Forward-Looking Statements
Any statements in this Prospectus or any prospectus supplement, including
any statements in the documents that are incorporated by reference as set forth
on page 4 under "Available Information," that are not strictly historical are
forward-looking statements within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Any such forward-looking
statements contained or incorporated by reference herein or in any prospectus
supplement should not be relied upon as predictions of future events. Certain
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "pro forma," "estimates" or "anticipates"
or the negative thereof or other variations thereof or comparable terminology,
or by discussions of strategy, plans, intentions or anticipated or projected
events, results or conditions. Such forward-looking statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise and
they may be incapable of being realized. Such forward-looking statements include
statements with respect to (i) the declaration or payment of distributions by
the Meditrust Companies, (ii) the ownership, management and operation of hotels,
golf courses, health care related facilities, race tracks and other properties,
including the integration of the acquisitions effected or proposed by The
Meditrust Companies, (iii) potential acquisitions or dispositions of properties,
assets or other public or private companies by The Meditrust Companies,
including the acquisitions of La Quinta and Cobblestone, (iv) the policies of
The Meditrust Companies and (if the mergers with La Quinta and Cobblestone are
consummated) La Quinta and Cobblestone regarding investments, acquisitions,
dispositions, financings, conflicts of interest and other matters, (v) the
qualification of Meditrust and Meditrust's Predecessor as a REIT under the Code
and the "grandfathering" rules under Section 269B of the Code, (vi) the health
care, real estate, golf and lodging industries and real estate markets in
general, (vii) the availability of debt and equity financing, (viii) interest
rates, (ix) general economic conditions, (x) supply and customer demand, (xi)
trends affecting The Meditrust Companies, and, if the mergers are consummated,
La Quinta's and Cobblestone's financial condition or results of operations,
(xii) the effect of acquisitions (including the proposed La Quinta and
Cobblestone acquisitions) on capitalization and financial flexibility, (xiii)
the anticipated performance of The Meditrust Companies and of acquired
properties and businesses, including, without limitation, statements regarding
anticipated revenues, cash flows, funds from operations, EBITDA, operating or
profit margins and sensitivity to economic downturns or anticipated growth or
improvements in any of the foregoing, (xiv) conditions or prospects in the
health care, lodging, golf and other industries, including anticipated growth of
profitability, and the sensitivity of certain segments of those industries to
economic downturns, (xv) the ability of The Meditrust Companies and of acquired
properties and businesses to grow (including La Quinta's ability to renovate
hotels and open new hotels as planned), (xvi) Meditrust's funds from operations
payout ratio after giving effect to anticipated acquisitions and (xvii) proposed
tax legislation that, if enacted, may adversely affect The Meditrust Companies.
Shareholders are cautioned that, while forward looking statements reflect the
respective companies' good faith beliefs, they are not guarantees of future
performance and they involve known and unknown risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors. The information contained or incorporated by
reference in this Prospectus or any prospectus supplement hereto, including
without limitation the information set forth in "Risk Factors" or in any risk
factors included in a prospectus supplement hereto or in documents that are
incorporated by reference in this Prospectus or any prospectus supplement
hereto, identifies important factors that could cause such differences. The
Meditrust Companies undertake no obligations to publicly release the results of
any revisions to these forward-looking statements that may reflect any future
events or circumstances.
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THE MEDITRUST COMPANIES
Overview
Meditrust is a Delaware corporation that qualifies as a REIT under the
Code. Meditrust has historically invested primarily in health care related real
property. Meditrust also invests in other entities outside of the United States
which make similar health care related real property investments. In addition to
its health care related real property investments, Meditrust also owns Santa
Anita Park in California.
Operating Company is a Delaware corporation which currently operates the
thoroughbred horse racing business at Santa Anita Park.
Meditrust and Operating Company have an organizational structure called a
"paired share structure" such that the shares of capital stock of both companies
trade and are transferable as a single unit. The paired share structure allows
the shareholders of The Meditrust Companies to enjoy the economic benefits of
owning both a company that owns and leases real estate and a company that
operates businesses that use real estate. This structure generally will permit
the combined companies to reduce the amount of payments to third parties who
traditionally would operate the businesses conducted on the REIT's real estate
for a fee because the Operating Company is permitted to operate such businesses
and receive the operating and management fees that would otherwise be paid to
the third party. See, however, "Risk Factors -- REIT Tax Risks; Paired Share
REIT Tax Risks."
On November 5, 1997 the predecessors of Meditrust and Operating Company
merged with and into Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company, respectively, which had been operating under the paired share
structure. Upon consummation of the Santa Anita Mergers, Santa Anita Realty
changed its name to "Meditrust Corporation" and Santa Anita Operating changed
its name to "Meditrust Operating Company."
Meditrust Corporation's principal executive offices are located at 197
First Avenue, Suite 300, Needham Heights, Massachusetts 02194, and the telephone
number is (781) 433-6000. Meditrust Operating Company's principal executive
offices are located at 197 First Avenue, Suite 100, Needham Heights,
Massachusetts 02194, and the telephone number is (781) 453-8062.
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Recent Developments
La Quinta Merger. On January 3, 1998, The Meditrust Companies entered into
a merger agreement with La Quinta pursuant to which La Quinta will merge with
and into Meditrust with Meditrust being the surviving corporation. If the La
Quinta Merger is consummated, holders of La Quinta common stock will receive in
exchange therefor newly-issued Paired Shares of The Meditrust Companies, cash or
a combination thereof, with an aggregate value of approximately $2.1 billion,
subject to certain adjustments. In addition, Meditrust will assume approximately
$900 million of La Quinta's existing indebtedness.
La Quinta is a fully-integrated lodging company that focuses on the
ownership, operation and development of its two hotel products: (i) La Quinta
Inns, a chain positioned in the mid-price segment without food and beverage
facilities, and (ii) La Quinta Inn & Suites, a new concept positioned at the
upper end of the mid-price segment without food and beverage facilities. As of
February 13, 1998 La Quinta owned and operated 270 hotels with a total of
approximately 35,000 rooms.
The La Quinta Merger is expected to close in the second quarter of 1998 and
is subject to various conditions including approval of the La Quinta Merger by
two-thirds of the outstanding shares of La Quinta common stock and by a majority
of the outstanding shares of Meditrust, and approval from various regulatory
agencies. On March 27, 1998, The Meditrust Companies filed Pre-Effective
Amendment No. 1 to their Joint Registration Statement on Form S-4 in connection
with the pending La Quinta Merger.
Cobblestone Merger. On January 11, 1998, The Meditrust Companies entered
into a merger agreement with Cobblestone pursuant to which Cobblestone will
merge with and into Meditrust with Meditrust being the surviving corporation
(the "Cobblestone Merger"). Pursuant to the merger agreement, upon the closing
of the Cobblestone Merger holders of all of the outstanding preferred and common
stock of Cobblestone will receive in exchange therefor newly-issued Paired
Shares of The Meditrust Companies, which Paired Shares are being offered for
resale by the Selling Stockholders pursuant to this Prospectus. In addition,
under the terms of the Cobblestone merger agreement, approximately $154 million
of Cobblestone debt and associated costs will be refinanced. The Cobblestone
Merger has been approved by the requisite holders of the preferred and common
stock of Cobblestone, and is expected by The Meditrust Companies to close early
in the second quarter of 1998.
The number of Paired Shares issuable in connection with the Cobblestone
Merger is subject to adjustment as described in the Cobblestone merger agreement
based on a number of factors, including the average per share closing price of
the Paired Shares on the NYSE for the five trading day period ending on the
third trading day prior to the closing date of the Cobblestone Merger (the
"Average Closing Price"). The Meditrust Companies currently expect to issue to
the Selling Stockholders at closing approximately 7,600,000 Paired Shares with
an aggregate market value of approximately $235,100,000 (assuming the Average
Closing Price is equal to $30.939, the closing price of the Paired Shares on
the NYSE on April 1, 1998). The actual number of Paired Shares issued at closing
and the related aggregate market value could be materially more or less than
such estimates.
Cobblestone is a privately-held company and one of the leading owners and
operators of golf courses in the United States. Cobblestone has a portfolio of
26 facilities with 31 courses in major golf markets in Arizona, California,
Florida, Georgia, Texas and Virginia. The portfolio includes 11 private country
clubs, 7 semi-private clubs and 8 daily fee courses.
On March 6, 1998, Meditrust entered into an agreement to acquire five golf
courses from the IRI, a privately held owner and manager of golf facilities, for
$41 million in cash. Meditrust completed the acquisition of three of the courses
on the same date, and the acquisitions of the other two courses closed during
the following week. Prior to the Cobblestone Merger the golf courses will be
managed by Cobblestone Golf Group, Inc., a subsidiary of Cobblestone.
Equity Placement. On February 26, 1998, The Meditrust Companies entered
into two transactions with Merrill Lynch International, a UK-based broker/dealer
subsidiary of Merrill Lynch. Pursuant to the terms of a stock purchase
agreement, Merrill Lynch International agreed to purchase 8,500,000 shares of
Series A Non-Voting Convertible Common Stock (the "Series A Stock") from The
Meditrust Companies at a purchase price of $32.625 per share. The Series A Stock
which was issued on February 27, 1998, is initially non-voting and will convert
into voting Paired Shares on the earlier of (a) the business day following the
date on which shareholders of The Meditrust Companies have approved the La
Quinta Merger or (b) the date of any termination of the La Quinta merger
agreement. Additionally, pursuant to the stock purchase agreement, Merrill Lynch
International is prohibited from disposing of these Paired Shares during the
period in which the Meeting Date Price (as defined in the La Quinta merger
agreement) is determined. Pursuant to the terms of a purchase price adjustment
agreement, The Meditrust Companies will, within one year from the date of the
purchase of the Series A Stock, adjust the original purchase price per share
based on a decrease in market price of the Paired Shares at the time of the
adjustment, by receiving Paired Shares or cash from Merrill Lynch International
or by issuing additional Paired Shares to Merrill Lynch International. See "Risk
Factors--Potential Dilutive Effect of Issuance by The Meditrust Companies of
Capital Stock with Purchase Price Adjustment Mechanism."
Shelf Registration Statement. On March 31, 1998, The Meditrust Companies
filed Pre-Effective Amendment No. 1 to their Joint Registration Statement on
Form S-3 relating to the proposed offering from time to time of shares of common
and preferred stock of The Meditrust Companies with an aggregate offering price
of up to $2,000,000,000. Such securities will be offered in amounts, at prices
and on terms to be determined at the time of offering. See "Risk
Factors--Financing Risks Relating to Proposed La Quinta and Cobblestone
Acquisitions."
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DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Each of The Meditrust Companies' authorized capital stock consists of
270,000,000 shares of common stock, par value $.10 per share, 30,000,000 shares
of series common stock, par value $.10 per share and 6,000,000 shares of
preferred stock, par value $.10 per share. The board of directors of each
company is authorized, without further shareholder approval, to issue the
preferred stock from time to time in one or more series, and to determine the
provisions applicable to each series, including the number of shares, dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices, and
liquidation preferences. Such preferred shares may be subject to the pairing
agreement described below.
The Meditrust Companies Paired Shares are traded on the NYSE under the
ticker symbol "MT." As of March 10, 1998 there were 88,403,535 shares of
Meditrust Common Stock issued and outstanding, 89,708,912 shares of Operating
Company Common Stock issued and outstanding and 8,500,000 shares of Series A
Non-Voting Convertible Common Stock of each of Meditrust and Operating Company
(described below) issued and outstanding. No shares of preferred stock were
issued and outstanding.
Common Stock
Subject to provisions of law and the preferences of any series of
preferred stock which may be issued, holders of the Paired Shares are entitled
to receive dividends at times and in amounts as are declared from time to time
by The Meditrust board of directors or the Operating Company board of directors
out of funds legally available for dividends. To maintain eligibility as a
REIT, Meditrust must in general distribute to its shareholders at least 95% of
its "real estate investment trust taxable income" before deduction of dividends
paid (less any net long-term capital gain and certain other adjustments). See
"Certain Federal Income Tax Consideration -- REIT Qualifications of the
Corporation."
Holders of Paired Shares are entitled to one vote for each share held
on each matter submitted to a shareholder vote. Except as otherwise provided by
law, or by the certificates of incorporation or by resolutions of the boards of
directors of The Meditrust Companies providing for the issuance of any series of
preferred stock, the holders of the Paired Shares have sole voting power.
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Series Common Stock
Series common stock may be issued from time to time in one or more series.
The boards of directors of The Meditrust Companies are authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of series common stock and the number of shares constituting
any such series and the designation thereof, or all or any of them.
Meditrust and Operating Company have each designated 10,000,000 shares of
series common stock as "Series A Non-Voting Convertible Common Stock" which are
paired in units consisting of one share of Series A Non-Voting Convertible
Common Stock for each company. The holders of paired shares of Series A
Non-Voting Convertible Common Stock shall have the same rights and privileges as
the holders of Paired Shares including dividend and liquidation rights except
that they have no right to vote. The paired shares of Series A Non-Voting
Convertible Common Stock will convert into Paired Shares on the earlier of (i)
the next business day after Meditrust and Operating Company shareholders approve
the La Quinta Merger or (ii) the date that the La Quinta merger agreement is
terminated. See "Risk Factors--Potential Dilutive Effect of Issuance by The
Meditrust Companies of Capital Stock with Purchase Price Adjustment Mechanism."
Preferred Stock
Each of the Meditrust board of directors and the Operating Company board of
directors is authorized to issue shares of preferred stock in one or more
series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof. Because each of the
Meditrust board of directors and the Operating Company board of directors has
the power to establish the preferences and rights of each class or series of
preferred stock, each such board may afford the shareholders of any series or
class of preferred stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of shares of Meditrust Common Stock or Operating
Company Common Stock, respectively. The issuance of shares of preferred stock
could have the effect of delaying or preventing a change in control of The
Meditrust Companies.
Rights Agreement and Certain Other Anti-Takeover Provisions
Meditrust has in effect a shareholder rights plan which is summarized under
the heading "Description of Capital Stock of the Santa Anita Companies -- Rights
Agreement" in the Santa Anita S-4, incorporated herein by reference. This rights
plan could make it more difficult for a third party to gain control of The
Meditrust Companies, and could have the effect of delaying or preventing a
merger, tender offer or other attempt to take over The Meditrust Companies.
Certain provisions of DGCL and the certificates of incorporation and
by-laws of The Meditrust Companies could have a potential for similar
anti-takeover effects. These provisions are summarized under "The
Mergers--Material Differences in the Rights of Shareholders of The Santa Anita
Companies and Meditrust and MAC--Fair Price Provisions and Shareholder Rights
Plan" and "--Business Combinations with Interested Stockholders" in the Santa
Anita S-4. See "Available Information."
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The Pairing
Pursuant to a pairing agreement by and between Meditrust and Operating
Company, dated as of December 20, 1979, as amended, the shares of capital stock
of Meditrust and Operating Company are transferable and tradeable only in
combination as units, each unit consisting of one share of Meditrust stock and
one share of Operating Company stock. These restrictions on the transfer of
shares of Meditrust stock and Operating Company stock are imposed by The
Meditrust Companies' By-laws. The pairing is evidenced by "back-to-back" stock
certificates; that is, certificates evidencing shares of Operating Company
stock are printed on the reverse side of certificates evidencing shares of
Meditrust stock. The certificates bear a legend referring to the restrictions
on transfer imposed by The Meditrust Companies' By-laws. To permit proper
allocation of the consideration received in connection with the sale of Paired
Shares, the pairing agreement provides that Meditrust and Operating Company
shall, as decided from time to time but not less than once a year, jointly make
arrangements to determine the relative value of the stock of each company.
Restrictions on Transfers
Under the Code, Meditrust may not own, directly or indirectly, after
application of the attribution rules of the Code, 10% or more of the outstanding
shares of Operating Company Common Stock, if Meditrust is to qualify as a REIT.
Moreover, Meditrust Common Stock must be held by 100 or more shareholders and
50% or more of the Meditrust Common Stock may not be held by or for five or
fewer individuals. The Meditrust Companies By-Laws provided that any transfer of
shares which would cause a shareholder to own, as determined under the
provisions of the Code, such an amount of the outstanding voting power or total
number of outstanding shares as would cause Meditrust not to be in conformance
with the requirements of the Code shall be void; or, if such provision is
determined to be invalid, the transferee of such shares shall be deemed to have
acted as agent on behalf of Meditrust or Operating Company, as applicable, in
acquiring such shares and to hold such shares on behalf of Meditrust or
Operating Company, as applicable. In addition, The Meditrust Companies' By-Laws
provide that if a shareholder obtained or obtains any ownership interest which
is not in conformity with the requirements of the Code pertaining to a REIT, the
board of directors of Meditrust or Operating Company may call for the purchase
from such shareholder of such number of shares sufficient to reduce his holdings
to conform to the requirements of the Code. The purchase price for the shares
called for purchase shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock exchange
on which such shares are listed, or if such shares are not listed, then the last
bid quotation for shares of such stock as of the close of business on the date
fixed by the board of directors for such purchase. See "Certain Federal Income
Tax Considerations -- REIT Qualification of the Corporation." See also "Risk
Factors--Restrictions on Transfers of Capital Stock; Repurchases of Capital
Stock."
Registrar and Transfer Agent
The Meditrust Companies' Registrar and Transfer Agent is BankBoston, N.A.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief and general summary of the material Federal
income tax considerations of an investment in the Paired Shares to the extent
those considerations relate to the federal income taxation of Meditrust,
Operating Company and U.S. Stockholders (as defined below) that hold the Paired
Shares as capital assets. For the particular provisions that govern Federal
income tax treatment of Meditrust and its stockholders, reference is made
to Sections 856 through 860 of the Code and the regulations thereunder. The
following summary is qualified in its entirety by such reference.
The statements in this discussion are based on current provisions of
the Code, Treasury Regulations, the legislative history of the Code, existing
administrative rulings and practices of the Internal Revenue Service (the
"IRS"), and judicial decisions. No assurance can be given that future
legislative, judicial or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Registration Statement with respect to the transaction entered into or
contemplated prior to the effective date of such changes.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF AN INVESTMENT IN THE
MEDITRUST COMPANIES' SECURITIES.
REIT Qualification of Meditrust
General. Meditrust believes that, prior to the consummation of the
La Quinta and Cobblestone Mergers, Meditrust qualified as a REIT. Meditrust
intends to operate following these mergers in a manner so that it will continue
to qualify as a REIT. If Meditrust failed to qualify as a REIT in any taxable
year, it would be subject to federal income taxation as if it were a domestic
corporation, and its stockholders would be taxed in the same manner as
stockholders of ordinary corporations. In this event, Meditrust could be subject
to potentially significant tax liabilities, and the amount of cash available for
distribution to stockholders would be reduced and possibly eliminated. Unless
entitled to relief under certain Code provisions, Meditrust also would be
disqualified from re-electing REIT status for the four taxable years following
the year during which qualification was lost.
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In the opinion of Nutter, McClennen & Fish, LLP, special tax counsel to
Meditrust, Meditrust has qualified as a REIT through its taxable year ending
December 31, 1997 (subject to the filing of its Federal income tax return for
that year) and Meditrust's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. This opinion is based on representations from Meditrust and
its predecessor regarding their compliance with the requirements for REIT
qualification, and it will not be binding on the IRS. Qualification and taxation
as a REIT depends upon Meditrust's and its predecessors' having met and
continuing to meet, through actual annual operating results, the distribution
levels, stock ownership, and other various qualification tests imposed under the
Code. Counsel has not verified and will not verify Meditrust's compliance with
these tests. Accordingly, no assurance can be given that the IRS will not
challenge the status of Meditrust as a REIT prior to the La Quinta and
Cobblestone mergers or the status of Meditrust after the mergers.
In rendering its opinion regarding REIT qualification, Nutter, McClennen &
Fish, LLP has relied upon the representations of Meditrust that it will
distribute, with respect to the taxable year in which each merger closes, all
earnings and profits inherited from Cobblestone and La Quinta. If the IRS were
to determine that Cobblestone's or La Quinta's actual earnings and profits
exceeded the amount distributed, Meditrust would be disqualified as a REIT.
To qualify for tax treatment as a REIT under the Code, Meditrust must
meet the following requirements, among others:
(a) At least 95% of Meditrust's gross income each taxable year
(excluding any income from so-called "prohibited transactions") must be
derived from:
(i) rents from real property;
(ii) gain from the sale or disposition of real
property that is not held primarily for sale to customers in
the ordinary course of business;
(iii) interest on obligations secured by mortgages on
real property (with certain minor exceptions);
(iv) dividends or other distributions from, or gains
from the sale of, shares of REITs that are not held primarily
for sale to customers in the ordinary course of business;
(v) abatements and refunds of real property
taxes;
(vi) income and gain derived from foreclosure
property;
(vii) most types of commitment fees related to
either real property or mortgage loans;
(viii) gains from sales or dispositions of real
estate assets that are not "prohibited transactions" under the
Code;
(ix) dividends;
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(x) interest on obligations other than those
secured by mortgages on properties; and
(xi) gains from sales or dispositions of securities
not held primarily for sale to customers in the ordinary
course of business.
In addition, at least 75% of Meditrust's gross income each taxable year
(excluding any income from "prohibited transactions") must be derived from items
(i) through (viii) above and from certain qualified temporary investment income.
For purposes of these requirements, the term "rents from real property"
is defined in the Code to include charges for services customarily furnished or
rendered in connection with the rental of real property, whether or not such
charges are separately stated. The term "rents from real property" also includes
rent attributable to incidental personal property that is leased under, or in
connection with, a lease of real property; provided that the rent attributable
to such personal property for the taxable year does not exceed 15% of the total
rent for the taxable year attributable to both the real and personal property
leased under such lease. The term "rents from real property" is also defined to
exclude: (A) any amount received or accrued with respect to real property, if
the determination of such amount depends in whole or in part on the income or
profits derived by any person from the property (except that any amount so
received or accrued shall not be excluded from "rents from real property",
solely by reason of being determined on the basis of a fixed percentage of
receipts or sales); (B) any amount received or accrued, directly or indirectly,
from any person or corporation if ownership of a 10% or greater interest in the
stock, assets or net profits of such person or corporation is attributed to
Meditrust; (C) any amount received or accrued from property that Meditrust
manages or operates and for which Meditrust furnishes services to the tenants
that would constitute unrelated trade or business income if received by certain
tax-exempt entities, either itself or through another person who is not an
"independent contractor" (as defined in the Code) from whom Meditrust does not
derive or receive income; and (D) any amount received or accrued from property
with respect to which Meditrust furnishes (whether or not through an independent
contractor) services not customarily rendered to tenants in properties of a
similar class in the geographic market in which the property is located, other
than a de minimis amount (defined in the Code as 1% of all amounts received or
accrued with respect to the property). The amount received for any service for
this purpose shall be deemed to be not less than 150% of the direct cost to the
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REIT in furnishing or rendering the service. Meditrust believes that any
services furnished to its tenants are not, and will not be, of a type that would
cause any rents to fail to qualify as rents from real property, or, if so, that
the amount of income derived from those activities would not jeopardize
Meditrust's REIT status.
If Meditrust should fail to satisfy the foregoing income tests but
otherwise satisfies the requirements for taxation as a REIT and if such failure
is held to be due to reasonable cause and not wilful neglect and if certain
other requirements are met, then Meditrust would continue to qualify as a REIT
but would be subject to a 100% tax on the excessive unqualified income reduced
by an approximation of the expenses incurred in earning that income.
(b) At the close of each quarter of its taxable year, Meditrust must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of Meditrust's total assets must be represented by real estate
assets (including (i) assets held by Meditrust's qualified REIT subsidiaries and
Meditrust's allocable share of real estate assets held by partnerships in which
Meditrust owns an interest, (ii) stock in other REITs and (iii) stock or debt
instruments that were purchased with the proceeds of a stock offering or a
long-term (at least five years) public debt offering of Meditrust and are not
held for merger for more than one year, cash items and governmental securities).
Second, not more than 25% of Meditrust's total assets may be represented by
securities other than those in the 75% asset class. Third, of the securities
that are not qualified for purposes of the 75% asset class, the value of any one
issuer's securities owned by Meditrust may not exceed 5% of the value of
Meditrust's total assets and Meditrust may not own more than 10% of any one
issuer's outstanding voting securities. Meditrust's share of income earned or
assets held by a partnership in which Meditrust is a partner will be
characterized by Meditrust in the same manner as they are characterized by the
partnership for purposes of the assets and income requirements described in this
paragraph (b) and in paragraph (a) above.
(c) The shares of Meditrust must be "transferable" and beneficial
ownership of them must be held by 100 or more persons during at least 335 days
of each taxable year (or a proportionate part of a short taxable year). More
than 50% of the outstanding stock may not be owned, directly or indirectly,
actually or constructively, by or for five or fewer "individuals" at any time
during the last half of any taxable year. For the purpose of such determination,
shares owned directly or indirectly by or for
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a corporation, partnership, estate or trust are considered as being owned
proportionately by its shareholders, partners or beneficiaries; an individual is
considered as owning shares directly or indirectly owned by or for members of
his family; and the holder of an option to acquire shares is considered as
owning such shares. In addition, because of the lessor-lessee relationship
between Meditrust and Operating Company (or their respective subsidiaries), no
person may own, actually or constructively, 10% of more of the outstanding
voting power or total number of shares of stock of the two companies. The
By-laws of Meditrust and Operating Company prohibit any transfer of shares which
would cause the ownership of shares not to be in conformity with the above
requirements. Each year Meditrust must demand written statements from the record
holders of designated percentages of its shares disclosing the actual owners of
the shares and must maintain, within the Internal Revenue District in which it
is required to file its federal income tax return, permanent records showing the
information it has thus received as to the actual ownership of such shares and a
list of those persons failing or refusing to comply with such demand.
(d) Meditrust must distribute to its shareholders dividends in an
amount at least equal to the sum of 95% of its "real estate investment trust
taxable income" before the deduction for dividends paid (i.e., taxable income
less any net capital gain and less any net income from foreclosure property or
from property held primarily for sale to customers, and subject to certain other
adjustments provided in the Code); plus (i) 95% of the excess of the net income
from foreclosure property over the tax imposed on such income by the Code; less
(ii) a portion of certain noncash items of Meditrust that are required to be
included in income, such as the amounts includable in gross income under Section
467 of the Code (relating to certain payments for use of property or services).
The distribution requirement is reduced by the amount by which the sum of such
noncash items exceeds 5% of real estate investment trust taxable income. Such
undistributed amount remains subject to tax at the tax rate then otherwise
applicable to corporate taxpayers. For purposes of this analysis, certain
dividends paid by Meditrust after the close of the taxable year may be
considered as having been paid during the taxable year. However, any such
dividends may result in the imposition of the 4% REIT excise tax, which would be
applicable to the extent that Meditrust does not actually distribute during each
year the sum of: (i) 85% of its real estate investment trust taxable income;
(ii) 95% of its capital gain net income; and (iii) any undistributed taxable
income from prior periods.
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If a determination (by a court or by the Internal Revenue Service)
requires an adjustment to Meditrust's tax able income that results in a failure
to meet the percentage distribution requirements (e.g., a determination that
increases the amount of Meditrust's real estate investment trust taxable
income), Meditrust may, by following the "deficiency dividend" procedure of the
Code, cure the failure to meet the annual percentage distribution requirement
by distributing a dividend within 90 days after the determination, even though
this deficiency dividend is not distributed to the shareholders in the same
taxable year as that in which income was earned. Meditrust will, however, be
liable for interest based on the amount of the deficiency dividend.
(e) The directors of Meditrust must have authority over the management
of Meditrust, the conduct of its affairs and, with certain limitations, the
management and disposition of Meditrust's property.
(f) Meditrust must have the calendar year in its annual accounting
period.
(g) Meditrust must not have any undistributed earnings and profits
accumulated during any "C" corporation years (including any such earnings and
profits attributable to Meditrust as a result of the La Quinta Merger or the
Cobblestone Merger).
(h) Meditrust must satisfy certain procedural requirements.
Paired Shares. On October 17, 1979, the IRS issued a Private Letter Ruling
(the "Ruling") to Meditrust (formerly known as Santa Anita Realty Enterprises,
Inc.) in which the IRS held that the pairing of Santa Anita Realty and Santa
Anita Operating shares would not preclude Meditrust from qualifying as a REIT.
Subsequent to the issuance of the Ruling, (i) the IRS announced that it would no
longer issue rulings to the effect that a REIT whose shares are paired with
those of a non-REIT will qualify as a REIT if the activities of the paired
entities are integrated, and (ii) Congress, in 1984, enacted Section 269B of the
Code. Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) of the Code applied to Meditrust and Operating Company,
then Meditrust would not be eligible to be taxed as a REIT. Section 269B(a)(3)
does not apply, however, if the shares of the REIT and the non-REIT were paired
on June 30, 1983, and the REIT was taxable as a REIT on June 30, 1983. As a
result of this "grandfathering" rule, Section 269B(a)(3) of the Code does not
apply to Meditrust and Operating Company. By its terms, this "grandfathering"
rule will continue to apply to Meditrust after the La Quinta Merger and the
Cobblestone Merger. There are, however, no judicial or administrative
authorities interpreting this "grand fathering" rule in the context of a merger
or otherwise, and this interpretation, as well as the opinion of Nutter,
McClennan & Fish, LLP, regarding Meditrust's qualification as a REIT, is based
solely on the literal language of the statute. There can be no assurance that
the IRS will not seek to deny Meditrust REIT status despite its grandfathered
status. If for any reason Meditrust failed to qualify as a REIT in 1983, the
benefit of the "grandfathering" rule would
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not be available to Meditrust, in which case Meditrust would not qualify as a
REIT for any taxable year.
A significant component of the Meditrust Companies' strategy is to grow
through acquisitions, and they believe that the current tax treatment of their
paired share structure provides them with certain advantages in making
acquisitions. If the legislation described below is enacted, then the income and
activities of Operating Company with respect to any property acquired by The
Meditrust Companies after March 26, 1998, for which there was no binding written
agreement, public announcement or SEC filing on or before March 26, 1998, will
be attributed to Meditrust for purposes of determining whether Meditrust
qualifies as a REIT under the Code. This proposed legislation would effectively
limit the advantages of The Meditrust Companies' paired share structure to their
existing properties and could make it more difficult for them to make
acquisitions in the future.
The tax rules relating to paired share REITs are the subject of intense
scrutiny by the Treasury Department and Congress. On February 2, 1998, the
Treasury Department released its Tax Proposals explaining the revenue proposals
included in the Clinton Administration's fiscal 1999 budget. The Tax Proposals,
among other things, include a freeze on the grandfathered status of paired share
REITs such as The Meditrust Companies. Under this proposal, Meditrust and
Operating Company would be treated as one entity with respect to properties
acquired on or after the date of the first Congressional committee action with
respect to such proposal and with respect to activities or services relating to
such properties that are undertaken or performed by one of the paired entities
on or after such date. The Tax Proposals also would prohibit REITs from holding
stock of a corporation possessing more than 10% of the vote or value of all
classes of stock of the corporation and impose a potentially prohibitive tax on
REITs that acquire regular "C" corporations in reorganization transactions.
Restructuring the operations of Meditrust and Operating Company to comply with
the rules contemplated by the Tax Proposals could cause The Meditrust Companies
to incur substantial tax liabilities; "unpair" the stock of The Meditrust
Companies or otherwise adversely affect The Meditrust Companies.
On March 26, 1998, Representative William Archer, Chairman of the House
Ways and Means Committee, and Senator William V. Roth, Jr., Chairman of the
Senate Finance Committee, introduced similar legislation to limit this
"grandfathering" rule. Under the proposed legislation, the anti-pairing rules
provided in the Code would apply to real property interests acquired or
substantially improved after March 26, 1998 by The Meditrust Companies, or a
subsidiary or partnership in which a ten percent or greater interest is owned by
The Meditrust Companies (collectively, the "REIT Group"), unless (1) the real
property interests are acquired pursuant to a written agreement which was
binding on March 26, 1998 and at all times thereafter or (2) the acquisition of
such real property interests was described in a public announcement or in a
filing with the SEC on or before March 26, 1998.
Under this legislation as currently proposed, the properties held on March
26, 1998, by La Quinta and Cobblestone, which would be acquired pursuant to
Meditrust's proposed mergers with such companies, would not be subject to these
anti-pairing rules. However, we cannot assure you that this legislation will be
adopted in its current form or that the properties to be acquired from La Quinta
and Cobblestone or other properties of The Meditrust Companies will not become
subject to the anti-pairing rules of the Code in the future. In such a case,
Operating Company (including corporate subsidiaries of Meditrust that are
controlled by Operating Company) may not be able to operate the hotels and golf
courses to be acquired by Meditrust in such mergers in the manner currently
contemplated without disqualifying Meditrust as a REIT. Such a limitation would
have a material adverse effect on The Meditrust Companies, including their
results of operation, financial condition and prospects.
In addition, the proposed legislation also provides that a property held by
The Meditrust Companies that is not subject to the anti-pairing rules would
become subject to such rules in the event of either (1) an improvement placed in
service after December 31, 1999 that changes the use of the property and the
cost of which is greater than 200 percent of (A) the undepreciated cost of the
property (prior to the improvement) or (B) in the case of property acquired
where there is a substituted basis (e.g., the properties to be acquired from La
Quinta and Cobblestone), the fair market value of the property on the date it
was acquired by The Meditrust Companies or (2) an addition or improvement that
expands beyond the boundaries of the land included in such property. There is an
exception for improvements placed in service before January 1, 2004 pursuant to
a binding contract in effect on December 31, 1999 and at all times thereafter.
This proposed restriction on property improvements would apply to the properties
to be acquired from La Quinta and Cobblestone, as well as all other properties
owned by The Meditrust Companies, and would limit the ability of The Meditrust
Companies to improve or change the use of those properties after December 31,
1999.
Other legislation (including other legislation that is currently pending
before Congress), as well as regulations, administrative interpretations or
court decisions, also could change the tax law with respect to Meditrust's
qualification as a REIT and the federal income tax consequence of such
qualification. The adoption of any such legislation, regulations or
administrative interpretations or court decisions could have a material adverse
effect on the results of operations, financial condition and prospects of The
Meditrust Companies.
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Potential Reallocation of Income. Due to the paired-share structure,
Meditrust, Operating Company and their respective subsidiary entities will be
controlled by the same interests. As a result, the IRS could, pursuant to
Section 482 of the Code, seek to distribute, apportion or allocate gross income,
deductions, credits or allowances between or among them if it determines that
such distribution, apportionment or allocation is necessary in order to prevent
evasion of taxes or to clearly reflect income. Meditrust and Operating Company
believe that all material transactions between them have been negotiated and
structured with the intention of achieving an arm's-length result. It is
believed that all material transactions between Meditrust and Operating Company,
and among them and/or their subsidiary entities, will be negotiated and
structured with the intention of achieving an arm's-length result. Accordingly,
the potential application of Section 482 of the Code should not have a material
effect on Meditrust or Operating Company. There can be no assurance, however,
that the IRS will not challenge the terms of such transactions, or that such
challenge would not be successful.
Built-In Gain Tax. As a result of the La Quinta and Cobblestone mergers
being consummated, if Meditrust recognizes gain on the disposition of an asset
acquired from Cobblestone or La Quinta during the ten-year period beginning at
the date the mergers were consummated, then, to the extent of the asset's
"built-in gain" (i.e., the excess of the fair market value of such asset at the
date that the mergers were consummated over its then tax basis), Meditrust will
be subject to tax on such gain at the highest regular corporate rate applicable,
pursuant to Treasury Regulations not yet promulgated. Meditrust would have to
distribute 95% of the excess of the amount of recognized built-in gain over the
amount of tax paid in order to maintain its qualification as a REIT. The
foregoing assumes that Meditrust makes an election pursuant to IRS Notice 88-19
with respect to the mergers and that the availability or nature of such election
is not modified as proposed in the Tax Proposals. The Tax Proposals propose to
require that built-in gain inherent in the assets of a "C" corporation be
recognized upon the merger of a REIT with a "C" corporation. If such proposal
were enacted, then Meditrust would recognize taxable income equal to the
built-in gain on the assets of La Quinta and Cobblestone. Meditrust will make
the election pursuant to IRS Notice 88-19 if such election is available.
Operational Limitations Imposed by the REIT Requirements. Operating
income derived from health care related facilities, hotels, golf courses, a
racetrack or similar operating businesses does not constitute qualifying income
under the REIT requirements. Accordingly, all of Meditrust's facilities have
been leased (rather than operated by Meditrust), and Meditrust will continue to
lease such facilities to Operating Company or other third parties after the La
Quinta Merger and the Cobblestone Merger. In addition, the hotels and golf
courses acquired in such transactions also will be leased to Operating Company.
Rent derived from all such leases will be qualifying income under the REIT
requirements, provided several requirements are satisfied.
Payments under a lease will not constitute qualifying income for
purposes of the REIT requirements if Meditrust owns, directly or indirectly, 10%
or more of the ownership interests in the relevant lessee. Constructive
ownership rules apply, such that, for instance, Meditrust is deemed to own the
assets of stockholders who own 10% or more in value of the stock of Meditrust.
The by-laws of Meditrust and Operating Company are therefore designed to prevent
a stockholder of Meditrust from owning Paired Shares that would cause Meditrust
to own, actually or constructively, 10% or more of the ownership interests in a
lessee (including the Operating Company). Thus, Meditrust should never own,
actually or constructively, 10% or more of a lessee. However, because the
relevant constructive
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ownership rules are broad and it is not possible to monitor continually all
direct and indirect transfers of Paired Shares, and because the by-law
provisions referred to above may not be effective, no absolute assurance can be
given that such transfers, or other events of which Meditrust has no knowledge,
will not cause Meditrust to own constructively 10% or more of one or more
lessees at some future date.
In addition to the considerations discussed above, the REIT
requirements will impose a number of other restrictions on the operations of
Meditrust. For example, net income from sales of property sold to customers in
the ordinary course of business (other than inventory acquired by reason of
certain foreclosures) generally is subject to a 100% tax.
Taxation of Meditrust. As a REIT, Meditrust is subject to Federal
corporate income tax on its taxable income, which is computed taking into
account a deduction for dividends paid and certain other special rules. Thus, if
Meditrust does not distribute all its net capital gains or distributes more than
95% but less than 100% of its other REIT Income, Meditrust will be subject to
Federal corporate income tax (including any applicable alternative minimum tax)
on the undistributed portion of such income (in the case of capital gains taxes
paid by the REIT, each Meditrust shareholder shall be entitled to a tax credit
based on the amount of such taxes). Such undistributed income also may be
subject to the 4% excise tax mentioned earlier. Meditrust expects to distribute
all its income on a current basis so that it will not incur any Federal income
or excise tax (although it may incur some amount of state and local tax in
jurisdictions whose tax laws do not conform to the Federal income tax treatment
of REITs).
Federal Income Taxation of the Operating Company and Non Controlled
Subsidiaries. As a "C" corporation under the Code, the Operating Company will be
subject to Federal corporate income tax on its taxable income. Any income of the
Operating Company, net of all taxes, will be available for retention in the
Operating Company's business or for distribution to shareholders as dividends.
However, unlike Meditrust, there is no tax law provision that requires the
Operating Company to distribute any of its after-tax earnings and Operating
Company does not expect to pay cash dividends in the foreseeable future.
In addition, any corporate subsidiaries of Meditrust that are not wholly
owned by it will also be subject to Federal income tax in the same manner as the
Operating Company. Meditrust currently has one such corporate subsidiary, and it
is expected that one or more additional such corporate subsidiaries will be
formed in connection with the La Quinta Merger.
Federal Income Taxation of Holders of Paired Shares
Separate Taxation of Each Type of Share. Notwithstanding that the
Paired Shares may only be transferred as a unit, holders of the Paired Shares
will be treated for U.S. federal income tax purposes as holding equal numbers of
shares of Meditrust Common Stock and of Operating Company Common Stock. The tax
treatment of distributions to stockholders and of any gain or loss upon sale or
other disposition of the Paired Shares (as well as the amount of gain or loss)
must therefore be determined separately with respect to each share of Meditrust
Common Stock and each share of Operating Company Common Stock contained within
each Paired Share. The tax basis and holding period for each share of Meditrust
Common Stock and each share of Operating Company Common Stock also must be
determined separately. Upon a taxable sale of a Paired Share, the amount
realized should be allocated between the Meditrust Common Stock and the
Operating Common Stock based on their then relative values.
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<PAGE>
Taxation of Taxable U.S. Stockholders. As used herein, the term "U.S.
Stockholder" means a holder of Paired Shares that for U.S. federal income tax
purposes is (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 any political subdivision thereof, (iii) an estate, the income
of which is subject to U.S. federal income taxation regardless of its source or
(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
persons have the authority to control all substantial decisions of the trust and
(v) is not an entity that has a special status under the Code (such as a
tax-exempt organization or a dealer in securities).
As long as Meditrust qualifies as a REIT, distributions made to
Meditrust's taxable U.S. Stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations.
Distributions that are designated as capital gain dividends will be taxed as
capital gains (to the extent they do not exceed Meditrust's actual net capital
gain for the taxable year) without regard to the period for which the
stockholder has held Meditrust Common Stock. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a stockholder to the
extent that they did not exceed the adjusted basis of the stockholder's
Meditrust Common Stock, but rather will reduce the adjusted basis of such stock.
To the extent that such distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a stockholder's Meditrust
Common Stock, such distributions will be included in income as capital gain. In
addition, any distribution declared by Meditrust in October, November or
December of any year and payable to a stockholder of record on a specified date
in any such month shall be treated as both paid by Meditrust and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by Meditrust during January of the following calendar year.
Distributions on Operating Common Stock from the Operating Company up
to the amount of the Operating Company's current or accumulated earnings and
profits
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<PAGE>
will be taken into account by U.S. Stockholders as ordinary income and generally
will be eligible for the dividends-received deduction for corporations (subject
to certain limitations). Distributions in excess of the Operating Company's
current and accumulated earnings and profits will not be taxable to a holder to
the extent that they do not exceed the adjusted tax basis of the holder's
Operating Company Common Stock, but rather will reduce the adjusted tax basis of
such Operating Company Common Stock. To the extent that such distributions
exceed the adjusted basis of the U.S. Stockholder's Operating Common Stock,
they will be included in income as capital gain.
Meditrust may elect to retain and pay income tax on net long-term
capital gains recognized during any taxable year. If Meditrust so elects its
stockholders will include in income as capital gain their proportionate share of
such portion of its long-term capital gains as Meditrust may designate. A U.S.
Stockholder will be deemed to have paid its share of the tax paid by Meditrust
which will be credited or refunded to the U.S. Stockholder. The U.S.
Stockholder's tax basis in its shares of Meditrust Common Stock will be
increased by the amount of undistributed capital gains (less the capital gains
tax paid by Meditrust) included in the stockholder's income.
Taxable distributions from Meditrust or the Operating Company and gain
or loss from the disposition of shares of Meditrust and Operating Common Stock
will not be treated as passive activity income and, therefore, stockholders
generally will not be able to apply any passive activity losses (such as losses
from certain types of limited partnerships in which the stockholder is a limited
partner) against such income. In addition, taxable distributions from Meditrust
or Operating Company generally will be treated as investment income for purposes
of the investment interest deduction limitations. Capital gains dividends,
capital gains (other than short-term capital gains) from the disposition of
Paired Shares and actual or deemed distributions from either company treated as
such, including capital gains (other than short-term capital gains) recognized
on account of distributions in excess of a stockholder's tax basis or any deemed
capital gain distributions to a Meditrust stockholder on account of Meditrust's
retained capital gains, will be treated as investment income for purposes of the
investment interest deduction limitations only if and to the extent the U.S.
stockholder so elects, in which case such capital gains will be taxed at
ordinary income rates to the extent of the election. Meditrust and Operating
Company will notify U.S.
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<PAGE>
Stockholders after the close of their taxable years as to the portions of the
distributions attributable to that year that constitute ordinary income, return
of capital, and (in the case of Meditrust) capital gain. U.S. Stockholders may
not include in their individual income tax returns any net operating losses or
capital losses of Meditrust or of the Operating Company.
Taxation of U.S. Stockholders on the Disposition of Paired Shares. In
general, and assuming the U.S. Stockholder has the same holding period for
Meditrust Common Stock and the Operating Common Stock, any gain or loss realized
upon a taxable disposition of Paired Shares by a U.S. Stockholder will be
treated as capital gain or loss. In addition, any loss upon a sale or exchange
of Meditrust Common Stock by a U.S. Stockholder who has held such stock for six
months or less (after applying certain holding period rules), will be treated as
a long-term capital loss to the extent of distributions from Meditrust or
undistributed capital gains required to be treated by such stockholder as
long-term capital gain. However, the IRS has indicated in a recent notice that
it is examining the proper tax treatment of a long-term capital loss upon a sale
or exchange of corporation capital stock by a U.S. shareholder who has held the
stock for less than six months. All or a portion of any loss realized upon a
taxable disposition of Paired Shares may be disallowed if other Paired Shares
are purchased within 30 days before or after the disposition.
The Taxpayer Relief Act of 1997 (the "Relief Act") altered the taxation
of capital gain income. Under the Relief Act, individuals, trusts and estates
that hold certain investments for more than 18 months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain investments for more than 12
months but not more than 18 months may be taxed at a maximum capital gain rate
of 28% on the sale or exchange of those investments. The Relief Act also
provides a maximum rate of 25% for "unrecaptured section 1250 gain" for
individuals, trusts and estates, special rules for "qualified 5-year gain," as
well as other changes to prior law. Gain or loss from the disposition of assets
held for less than 12 months is short-term capital gain or loss. The Relief Act
allows the IRS to prescribe regulations on how the Relief Act's new capital gain
rates will apply to sales of capital assets by (or interests in) "pass-thru
entities", which include REITs such as Meditrust. To date regulations have not
yet been prescribed, but the IRS has issued a notice describing the principles
which will be reflected in the Regulations. The notice provides that a
REIT may
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<PAGE>
designate (subject to certain limits) whether a capital gain dividend is taxable
to U.S. shareholders (other than corporations) as a 20% rate capital gain
distribution (for capital gains with respect to capital assets held by the REIT
for more than 18 months), a 28% rate gain distribution with respect to capital
assets held by the REIT for more than one year but not more than 18 months), or
a Section 1250 gain distribution taxed at a 25% rate (for a portion of the gain
recognized by the REIT with respect to dispositions of certain real property
held for more than 18 months, equal to the amount of all prior depreciation
deductions not otherwise required to be taxed as ordinary depreciation recapture
income). This designation will apply to distributed and undistributed capital
gain dividends. Investors are urged to consult their own tax advisors with
respect to the new rules contained in the Relief Act. No change was made to the
capital gains tax rate or holding period for corporations under the Relief Act.
Information Reporting Requirements and Backup Withholding. Meditrust
and the Operating Company will report to their U.S. Stockholders and the IRS the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. A stockholder who does not provide Meditrust
and Operating Company with his, her or its correct taxpayer identification
number also may be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, Meditrust may be required to withhold a portion of
capital gain distributions to any stockholders who fail to certify their
non-foreign status to Meditrust.
The Treasury Department recently issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
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<PAGE>
Taxation of Tax-Exempt Stockholders. Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual retirement
accounts ("Exempt Organizations"), generally are exempt from Federal income
taxation. They are, however, subject to taxation on their unrelated business
taxable income ("UBTI"). While many investments in real estate generate UBTI,
amounts distributed by Meditrust to Exempt Organizations generally will not
constitute UBTI, nor will dividends paid by the Operating Company generally
constitute UBTI. However, if an Exempt Organization finances its acquisition of
Paired Shares with debt, a portion of its income from Meditrust and Operating
Company will constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services plans that are
exempt from taxation under paragraphs (7), (90, (17) and (20), respectively, of
section 501(c) of the Code are subject to different UBTI rules, which generally
will require them to characterize distributions from Meditrust and the Operating
Company as UBTI.
State and Local Taxation. The Meditrust Companies and their
stockholders may be subject to state and local taxes in various jurisdictions,
including those in which it or they transact business, own property, or reside.
The state and local tax treatment of such entities or persons may not conform to
the Federal income tax consequences discussed above. Consequently, the
Companies and their stockholders should consult their own tax advisers
regarding the effect of state and local tax laws on the ownership of Paired
Shares.
Investors are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the Paired Shares offered hereby and
with respect to the tax consequences arising under Federal law and the laws of
any state municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in Meditrust and Operating Company including the possibility of
U.S. income tax withholding on distributions.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders, the
estimated number of Paired Shares to be owned beneficially by each of them as of
the closing of the Cobblestone Merger and the estimated number of Shares which
may be offered by each of them pursuant to this Prospectus. See footnote(1) to
the table.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Prior to Shares Beneficially
Offering and Being Owned If All
Selling Stockholders Registered for Sale(1) Shares are Sold(1)
-------------------- ----------------------- -------------------
Number Number Percent*
------ ------ --------
<S> <C> <C> <C>
Brentwood Golf Partners, L.P. .................... 4,922,298 -- --
The Northwestern Mutual Life Insurance Company ... 531,371 -- --
James A. Husband, Jr. ............................ 504,097 -- --
Cede & Co. ....................................... 309,983 -- --
Wilmington Interstate Corporation ................ 303,641 -- --
BankAmerica Investment Corporation ............... 148,817 -- --
FSC Corp. ........................................ 103,262 -- --
Steven L. Holmes ................................. 92,173 -- --
Pacific Enterprises Golf Partners, L.P. .......... 79,374 -- --
Henry L. Hillman, Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees of the Henry L.
Hillman Trust U/A/T dated November 18, 1985..... 68,312 -- --
Venhill Limited Partnership ...................... 68,312 -- --
Joseph L. Champ .................................. 65,525 -- --
SSB Investments, Inc. ............................ 51,656 -- --
Gary Dee ......................................... 45,870 -- --
John M. Sullivan ................................. 39,139 -- --
Norman Goodmanson ................................ 33,943 -- --
Oak Leaf Partners ................................ 30,243 -- --
Andrew Crosson ................................... 24,247 -- --
C.G. Grefenstette and Thomas G. Bigley, Trustees
U/A/T dated 8/28/68 for Henry Lea Hillman, Jr. . 22,799 -- --
C.G. Grefenstette and Thomas G. Bigley, Trustees
U/A/T dated 8/28/68 for William Talbott Hillman 22,799 -- --
C.G. Grefenstette and Thomas G. Bigley, Trustees
U/A/T dated 8/28/68 for Juliet Lea Hillman...... 22,756 -- --
C.G. Grefenstette and Thomas G. Bigley, Trustees
U/A/T dated 8/28/68 for Audrey Hilliard Hillman 22,756 -- --
Paul Lewis Davies III ............................ 21,450 -- --
Robert West ...................................... 17,474 -- --
Martin R. Reid, IRA R/O Oppenheimer & Co., Inc.
as custodian.................................... 15,201 -- --
James T. Bergmark ................................ 10,922 -- --
Martin R. Reid.................................... 8,737 -- --
Balboa Park Management Co., Inc. ................. 6,742 -- --
George M. Meaney ................................. 6,101 -- --
---------
TOTAL ............................................ 7,600,000
</TABLE>
- ----------
* Less than one percent.
(1) The number of Paired Shares indicated as beneficially owned by each of the
Selling Stockholders is an estimate based on, among other factors, the
assumption that the Average Closing Price of the Paired Shares prior to the
closing date of the Cobblestone Merger will equal $30.937 per Paired Share,
which is the closing price of the Paired Shares on the NYSE on April 1,
1998. Such number is subject to adjustment as described in the Cobblestone
merger agreement and upon closing of the Cobblestone Merger could be
materially more or less than such estimate depending upon, among other
factors, the Average Closing Price of the Paired Shares prior to the
closing date of the Cobblestone Merger. The actual number of Shares issued
to the Selling Stockholders upon consummation of the Cobblestone Merger
shall be specified in a prospectus supplement to this Prospectus. The
number of shares of Cobblestone Common Stock owned by each Selling
Stockholder that was used to calculate the information set forth below was
provided by such Selling Stockholder.
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<PAGE>
PLAN OF DISTRIBUTION
The Meditrust Companies have been advised that the Selling Stockholders or
their transferees may sell the Shares from time to time after the closing of the
Cobblestone Merger in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the Shares may be effected in
transactions (which may involve cross or block trades) (i) on the NYSE or any
other national securities exchange or quotation service on which the Shares may
be listed or quoted at the time of sale, (ii) in the over-the-counter market,
(iii) in transactions otherwise than on such exchanges or in the
over-the-counter market, (iv) through the writing of options or (v) by any other
legally available means. The Shares may be sold directly or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions).
Certain persons who sell the Shares covered by this Prospectus, and any
broker or dealer to or through whom any such person shall sell such securities,
may be deemed to be underwriters within the meaning of the Securities Act with
respect to the sale of such securities, and any commissions received by them and
profit on any resale of the Shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offering of Shares is made, a prospectus
supplement, if required, will be distributed which will set forth the specific
amount of Shares being offered, the name of the selling stockholders and the
terms of the offering, including the name or names of any underwriters,
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers and
any other material information with respect to the plan of distribution not
previously disclosed.
Pursuant to the Cobblestone merger agreement, all expenses of the
registration of the Shares will be paid by The Meditrust Companies, including,
without limitation, Commission filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Shareholders
will pay all underwriting discounts, selling commissions and related fees, if
any.
The Meditrust Companies have agreed to maintain the effectiveness of the
Registration Statement until the earlier of (i) one year from the closing of the
Cobblestone Merger and (ii) the date that all of the Shares covered by the
Registration Statement have been sold pursuant to the Registration Statement.
The Meditrust Companies have agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Shares offered hereby will be passed
upon by Cravath, Swaine & Moore, New York, New York. In addition, Nutter,
McClennen & Fish, LLP, Boston, Massachusetts, will pass on certain Federal
income tax matters relating to the Meditrust Companies.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Michael J. Bohnen, a partner in the law firm Nutter, McClennen & Fish, LLP,
currently serves as Secretary of Operating Company. Nutter, McClennen and Fish,
LLP, serves as counsel to The Meditrust Companies, and has rendered a legal
opinion with respect to certain Federal income tax matters filed as a part of
the Registration Statement.
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<PAGE>
EXPERTS
The combined and consolidated financial statements of Meditrust Corporation
and Meditrust Operating Company and the consolidated financial statements of
Meditrust Corporation as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996 and 1995, and the consolidated financial statements of
Meditrust Operating Company as of December 31, 1997 and for the initial period
ended December 31, 1997 incorporated by reference in this registration statement
have been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included herein in reliance upon the authority of such firm as experts in
accounting and auditing.
The combined balance sheets of La Quinta as of December 31, 1997 and 1996,
and the related combined statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997,
incorporated herein by reference to The Meditrust Companies' Joint Current
Report on Form 8-K, event date March 31, 1998, have been audited by KPMG Peat
Marwick LLP, independent auditors as set forth in their report thereon included
therein and incorporated herein by reference and have been so incorporated
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those herein, in connection with this offering and,
if given or made, such information or representations must not be relied upon as
having been authorized by The Meditrust Companies or any other person. This
Prospectus does not constitute an offer to sell, or solicitation of an offer to
buy, any of the Shares in any jurisdiction to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. The delivery of this
Prospectus at any time does not imply that the information in the Prospectus is
correct as of any time subsequent to its date.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Available Information............................... 3
Incorporation of Certain Documents by Reference..... 4
Risk Factors........................................ 6
The Meditrust Companies............................. 20
Description of Capital Stock........................ 22
Certain Federal Income Tax Considerations........... 25
Selling Stockholders................................ 39
Plan of Distribution................................ 40
Legal Matters....................................... 40
Interests of Named Experts and Counsel ............. 40
Experts............................................. 41
----------
MEDITRUST CORPORATION
MEDITRUST OPERATING COMPANY
PROSPECTUS
April __, 1998
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
Registration fee......................... $72,275
New York Stock Exchange fee.............. $60,000
Printing fees and expenses............... $15,000
Accounting fees and expenses............. $20,000
Blue sky fees and expenses
(including legal fees)................. $60,000
Miscellaneous............................ $10,000
-------
Total.................................... $237,275
* Fees and expenses are estimated with the exception of the registration fee.
Item 15. Indemnification of Directors and Officers.
As permitted by Section 102 of the General Corporation Law of Delaware (the
"GCL"), both the Meditrust Charter and the Operating Company Charter eliminate
personal liability of its respective directors to such company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for: (i) any breach of the duty of loyalty to such company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (iii) liability under
Section 174 of the GCL relating to certain unlawful dividends and stock
repurchases; or (iv) any transaction from which the director derived an improper
personal benefit.
As permitted by Section 145 of the GCL, both Meditrust's By-laws and the
Operating Company's By-laws provide for indemnification of directors and
officers (and permit the respective Boards of Directors to provide for
indemnification of employees and agents) of such Registrant against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and other amounts paid in settlement)
actually and reasonably incurred by them in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, in which any such person was or is a party or
is threatened to be made a party, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of such Registrant and, with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. In the case of an action or suit by or in the right of a Registrant,
such a person may be indemnified only for expenses (including attorneys fees)
and may not be
II-1
<PAGE>
indemnified in respect of any claim, issue or matter as to which he has been
adjudged liable for negligence or misconduct in the performance of his duty to
the respective Registrant, unless and only to the extent the court in which such
action or suit was brought determines that such person is fairly and reasonably
entitled to indemnity for such expenses as such court may deem proper. In each
case, indemnification of an officer or director shall be made only upon specific
authorization of a majority of disinterested directors, by written opinion of
independent legal counsel or by the stockholders, unless the officer, or
director has been successful on the merits or otherwise in defense of any such
action or suit, in which case he shall be indemnified without such
authorization. Both Meditrust's By-laws and the Operating Company's By-laws
require such Registrant to pay the expenses incurred by a director or officer in
defending or investigating a threatened or pending action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding upon receipt
by such Registrant of an undertaking by or on behalf of such director or officer
to repay such amount if it is ultimately determined that he is not entitled to
indemnification and permit such Registrant to advance such expenses to other
employees and agents of such Registrant upon such terms and conditions as are
specified by the respective Registrant's Board of Directors. The advancement of
expenses, as well as indemnification, pursuant to each Registrant's Bylaws is
not exclusive of any other rights which those seeking indemnification or
advancement of expenses from such Registrant may have.
Individual indemnification agreements (the "Indemnification Agreements")
have been entered into by each of Meditrust and the Operating Company with
certain of its respective directors and officers. The Indemnification Agreements
provide for indemnification to the fullest extent permitted by law and provide
contractual assurance to directors and officers that indemnity and advancement
of expenses will be available to them regardless of any amendment or revocation
of such Registrant's By-laws.
Both Meditrust's By-laws and the Operating Company's By-laws permit such
Registrant to purchase and maintain insurance on behalf of any director,
officer, employee or agent of such Registrant against liability asserted against
him or her in any such capacity, whether or not such Registrant would have the
power to indemnify him against such liability under the provisions of the
Bylaws. Both Meditrust and the Operating Company maintain liability insurance
providing officers and directors with coverage with respect to certain
liabilities.
II-2
<PAGE>
Item 16. Exhibits
The following is a list of exhibits filed as part of this Registration
Statement (numbering corresponds to numbering in Item 601 of Regulation S-K).
Exhibit
No. Description
- ------ -----------
2.1 Agreement and Plan of Merger, dated as of January 3, 1998, by and
among La Quinta Inns, Inc., Meditrust Corporation and Meditrust
Operating Company (incorporated by reference to Exhibit 10.1 to the
Joint Current Report on Form 8-K for Meditrust Corporation and
Meditrust Operating Company filed January 8, 1998).
2.2 Shareholders Agreement, dated as of January 3, 1998, by and among
Meditrust Corporation, Meditrust Operating Company, certain
shareholders of LaQuinta Inns, Inc. and, solely for the purposes of
Section 3.6 thereof, LaQuinta Inns, Inc. (incorporated by reference
to Exhibit 10.2 to the Joint Current Report on Form 8-K for
Meditrust Corporation and Meditrust Operating Company filed
January 8, 1998).
2.3 Agreement and Plan of Merger, dated as of January 11, 1998, by and
among Cobblestone Holdings, Inc., Meditrust Corporation and Meditrust
Operating Company (incorporated by reference to Exhibit 2 to the
Joint Current Report on Form 8-K for Meditrust Corporation and
Meditrust Operating Company filed January 16, 1998).
2.4 Shareholders Agreement, dated as of January 11, 1998, by and among
Meditrust Corporation, Meditrust Operating Company and certain
shareholders of Cobblestone Holdings, Inc. (incorporated by
reference to Exhibit 10 to the Joint Current Report on Form 8-K for
Meditrust Corporation and Meditrust Operating Company filed
January 16, 1998).
4.1 Pairing Agreement by and between Meditrust Corporation (formerly known
as Santa Anita Realty Enterprises, Inc.) and Meditrust Operating
Company (formerly known as Santa Anita Operating Company), dated as of
December 20, 1979 (incorporated by reference to Exhibit 5 to Joint
Registration Statement on Form 8-A of Santa Anita Operating Company
filed February 5, 1980).
4.2 First Amendment to Pairing Agreement, by and between Meditrust
Corporation and Meditrust Operating Company, dated November 6, 1997
(incorporated by reference to Exhibit 4.4 to Joint Registration
Statement on Form S-8 of Meditrust Corporation and Meditrust Operating
Company filed November 7, 1997).
4.3 Rights Agreement, dated June 15, 1989, among Meditrust Corporation
(formerly known as Santa Anita Realty Enterprises, Inc.), Meditrust
Operating Company (formerly known as Santa Anita Operating Company),
and Boston EquiServe, as Rights Agent (incorporated by reference to
Exhibit 2.1 to Joint Registration Statement on Form 8-A of Santa Anita
Realty Enterprises, Inc., filed June 19, 1989).
4.4 Appointment of Boston EquiServe as Rights Agent, dated October 24,
1997 (incorporated by reference to Exhibit 4.6 to Joint Registration
Statement on Form S-8 of Meditrust Corporation and Meditrust Operating
Company, filed November 7, 1997).
4.5 Registration Rights Agreement, dated as of January 3, 1998, by and
among Meditrust Corporation, Meditrust Operating Company and certain
other parties signatory thereto (incorporated by reference to
Exhibit 10.3 to the Joint Current Report on Form 8-K for Meditrust
Corporation and Meditrust Operating Company filed January 8, 1998).
5 Opinion letter of Cravath, Swaine & Moore*
8 Opinion letter of Nutter, McClennen & Fish, LLP, regarding tax
matters*
II-3
<PAGE>
23.1 Consent of Cravath, Swaine & Moore (included in Exhibit 5)*
23.2 Consent of Nutter, McClennen & Fish, LLP (included in Exhibit 8)*
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick LLP
24.1 Meditrust Corporation Power of Attorney (included in this Joint
Registration Statement under "Meditrust Corporation Signatures")
24.2 Meditrust Operating Company Power of Attorney (included in this
Registration Statement under "Meditrust Operating Company Signatures")
*Previously Filed
- ----------
Item 17. Undertakings.
a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the foregoing
provisions, or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer, or controlling person of the registrants in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
MEDITRUST CORPORATION SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Meditrust Corporation certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Form S-3 Joint Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Needham,
Commonwealth of Massachusetts, as of April 6, 1998.
MEDITRUST CORPORATION
By: /s/ Michael S. Benjamin
----------------------------------------
Name: Michael S. Benjamin
Title: Senior Vice President,
Secretary and Corporate Counsel
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Joint Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Abraham D. Gosman Chairman of the Board April 6, 1998
- -------------------------
Abraham D. Gosman
II-5
<PAGE>
* Director, President April 6, 1998
- -------------------------- and Treasurer
David F. Benson (Principal Executive Officer)
* Chief Financial Officer April 6, 1998
- -------------------------- (Principal Financial and
Laurie T. Gerber Accounting Officer)
* Director April 6, 1998
- --------------------------
Donald J. Amaral
* Director April 6, 1998
- --------------------------
Edward W. Brooke
- -------------------------- Director
James P. Conn
*
- -------------------------- Director April 6, 1998
John C. Cushman
Director
- --------------------------
C. Gerald Goldsmith
Director
- --------------------------
Phillip L. Lowe
* Director April 6, 1998
- --------------------------
Thomas J. Magovern
* Director April 6, 1998
- --------------------------
Gerald Tsai, Jr.
*By /s/ Michael S. Benjamin
----------------------
Michael S. Benjamin,
attorney-in-fact
</TABLE>
II-6
<PAGE>
MEDITRUST OPERATING COMPANY SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Meditrust
Operating Company certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Form S-3 Joint Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Needham,
Commonwealth of Massachusetts as of April 6, 1998.
MEDITRUST OPERATING COMPANY
By: /s/ Abraham D. Gosman
----------------------------------------
Name: Abraham D. Gosman
Title: Chairman of the Board,
Chief Executive Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Joint Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
/s/ Abraham D. Gosman Chairman of the Board,
- --------------------------- Chief Executive Officer
Abraham D. Gosman and Treasurer
(Principal Executive, Financial
and Accounting Officer) April 6, 1998
II-7
<PAGE>
* Director April 6, 1998
- -----------------------------
Donald J. Amaral
*
- -------------------------- Director April 6, 1998
William C. Baker
* Director April 6, 1998
- -----------------------------
David S. Benson
* Director April 6, 1998
- -----------------------------
Edward W. Brooke
Director
- -----------------------------
C. Gerald Goldsmith
*
- -------------------------- Director April 6, 1998
J. Terrence Lanni
Director
- -----------------------------
Phillip L. Lowe
* Director April 6, 1998
- -----------------------------
Thomas J. Magovern
* Director April 6, 1998
- -----------------------------
Gerald Tsai, Jr.
* By /s/ Michael J. Bohnen
------------------------
Michael J. Bohnen,
attorney-in-fact
</TABLE>
399298_3.WP6
II-8
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Amendment No. 1 to
the Joint Registration Statement on Form S-3 dated April 3, 1998 of Meditrust
Corporation, formerly known as Santa Anita Realty Enterprises, Inc. and
Meditrust Operating Company, formerly known as Santa Anita Operating Company, of
our report dated January 30, 1998, except for Note 16 to which the date is
February 26, 1998, on our audits of the financial statements of the Meditrust
Companies and Meditrust Corporation as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996, and 1995, and Meditrust Operating
Company as of December 31, 1997 and for the initial period ended December 31,
1997.
Coopers & Lybrand, L.L.P.
Boston, Massachusetts
April 3, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITOR
------------------------------
The Board of Directors
La Quinta Inns, Inc.
San Antonio, Texas
We consent to the incorporation by reference in Amendment No. 1 to this Joint
Registration Statement Nos. 333-48051 and 333-48051-01 and related prospectus of
Meditrust Corporation and Meditrust Operating Company of our report dated
January 23, 1998, except for note 17, which is as of February 12, 1998, with
respect to the combined balance sheets of La Quinta Inns, Inc. as of December
31, 1997 and 1996, and the related combined statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the Meditrust
Corporation and Meditrust Operating Company Joint Current Report on Form 8-K,
dated March 31, 1998, and to the reference to our firm under the heading
"Experts" in this Amendment No. 1 to the Joint Registration Statement and
related prospectus.
KPMG Peat Marwick LLP
San Antonio, Texas
April 3, 1998
