<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Under The Securities Act of 1933
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 26, 1995
$220,000,000
[AMERICAN HEALTH PROPERTIES, INC. LOGO]
$100,000,000 7.05% NOTES DUE JANUARY 15, 2002
$120,000,000 7.50% NOTES DUE JANUARY 15, 2007
------------------------
Interest on the 7.05% Notes due 2002 and the 7.50% Notes due 2007
(collectively, the "Notes") is payable on January 15 and July 15 of each year,
commencing July 15, 1997. The Notes do not provide for a sinking fund. The
Notes are unsecured obligations of American Health Properties, Inc. and will
rank on a parity with all other unsecured and unsubordinated debt of the
Company. The Notes are redeemable at any time by the Company, in whole or in
part, at a redemption price equal to the sum of (i) the principal amount of the
Notes being redeemed plus accrued interest to the redemption date and (ii) the
Make-Whole Amount (as defined herein), if any. The Notes will be issued only in
denominations of $1,000 and integral multiples thereof. See "Description of the
Notes" and "Description of Other Indebtedness".
The Notes of each series will be represented by one or more Global
Securities registered in the name of a nominee of The Depository Trust Company,
as Depositary. Interests in the Global Securities will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary and its participants. Except as described herein under "Description
of the Notes -- Book-Entry Notes", owners of beneficial interests in Book-Entry
Notes will not be considered holders thereof and will not be entitled to receive
physical delivery of Notes in definitive form.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
TO WHICH IT RELATES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ -------------
<S> <C> <C> <C>
Per Note due 2002................................ 99.749% 0.700% 99.049%
Total............................................ $99,749,000 $700,000 $99,049,000
Per Note due 2007................................ 99.347% 0.750% 98.597%
Total............................................ $119,216,400 $900,000 $118,316,400
</TABLE>
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(1) Plus accrued interest from January 15, 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting estimated expenses of $500,000 payable by the Company.
------------------------
The Notes are offered severally by the respective Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the Notes will be made through the facilities of The Depository Trust Company in
New York, New York, on or about January 23, 1997, against payment therefor in
immediately available funds.
For the Notes due 2002:
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
For the Notes due 2007:
GOLDMAN, SACHS & CO.
FIRST UNION CAPITAL MARKETS CORP.
NATIONSBANC CAPITAL MARKETS, INC.
------------------------
The date of this Prospectus Supplement is January 17, 1997.
<PAGE> 2
AMERICAN HEALTH PROPERTIES, INC.
FACILITIES
<TABLE>
<CAPTION>
LOCATIONS OPERATORS
--------- ---------
<S> <C> <C>
ACUTE CARE HOSPITALS
Chesterfield General Hospital Cheraw, South Carolina Community Health Systems, Inc.
Cleveland Regional Medical Center Cleveland, Texas Community Health Systems, Inc.
Desert Valley Hospital Victorville, California PrimeCare International, Inc.
Frye Regional Medical Center Hickory, North Carolina Tenet Healthcare Corporation
Irvine Medical Center Irvine, California Tenet Healthcare Corporation
Kendall Regional Medical Center Miami, Florida Columbia/HCA Healthcare Corporation
Lucy Lee Hospital Poplar Bluff, Missouri Tenet Healthcare Corporation
Marlboro Park Hospital Bennettsville, South Carolina Community Health Systems, Inc.
North Fulton Medical Center Roswell, Georgia Tenet Healthcare Corporation
Palm Beach Gardens Medical Center Palm Beach Gardens, Florida Tenet Healthcare Corporation
Pioneer Valley Hospital West Valley City, Utah Paracelsus Healthcare Corporation
Shannon Medical Center, St. John's Campus San Angelo, Texas Shannon Health System
Tarzana Regional Medical Center Tarzana, California Tenet Healthcare Corporation
REHABILITATION HOSPITALS
HCA Wesley Rehabilitation Hospital Wichita, Kansas Horizon/CMS Healthcare Corporation
MountainView Regional Rehabilitation Morgantown, West Virginia HealthSouth Corporation
Hospital
Northwest Arkansas Rehabilitation Hospital Fayetteville, Arkansas Horizon/CMS Healthcare Corporation
ASSISTED LIVING FACILITIES
Cambria Lodge El Paso, Texas Emeritus Corporation
Garrison Creek Lodge Walla Walla, Washington Emeritus Corporation
Sherwood Place Odessa, Texas Emeritus Corporation
Summer Wind Residence Boise, Idaho Emeritus Corporation
LONG-TERM ACUTE CARE HOSPITAL
Comprehensive Care Hospital of Amarillo(1) Amarillo, Texas Spectrum Comprehensive Care, Inc.
LONG-TERM CARE FACILITIES
Arkansas Manor Denver, Colorado Unison HealthCare Corporation
Cornerstone Care Center Lakewood, Colorado Unison HealthCare Corporation
Douglas Manor Douglas, Arizona Unison HealthCare Corporation
Safford Care Center Safford, Arizona Unison HealthCare Corporation
MEDICAL OFFICE BUILDING
Walsh Medical Arts Center Murrieta, California CDM/WestMar
ALZHEIMER'S CARE FACILITIES
Pinehaven I Alzheimer's Community Houston, Texas Autumn Hills
Pinehaven II Alzheimer's Community(1) Sugarland, Texas Autumn Hills
PSYCHIATRIC CARE FACILITIES
Four Winds Psychiatric Hospital Katonah, New York Four Winds, Inc.
Four Winds Psychiatric Hospital Saratoga Springs, New York FW of Saratoga, Inc.
Northpointe Behavioral Health System Tarpon Springs, Florida Quorum Health Resources, Inc.
The Retreat Sunrise, Florida Quorum Health Resources, Inc.
Rock Creek Center Lemont, Illinois DHP, L.P.
</TABLE>
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(1) Currently under construction.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE> 3
THE COMPANY
American Health Properties, Inc. (the "Company") is a self-administered
real estate investment trust ("REIT") that commenced operations in 1987. The
Company has investments in health care facilities that are operated by qualified
third party health care providers, as well as one medical office building.
The Company's current portfolio of investments consists of 13 acute care
hospitals, three psychiatric hospitals owned by the Company, two mortgage loans
secured by psychiatric hospitals, three rehabilitation hospitals, four assisted
living facilities, one long-term acute care hospital (currently under
construction), four long-term care facilities, one medical office building and
two Alzheimer's care facilities (one of which is currently under construction).
The Company has separated its business and properties into two distinct units:
(i) the Core Group, which includes the Company's acute care, rehabilitation
hospitals, assisted living facilities, long-term acute care facility, long-term
care facilities, medical office building and Alzheimer's care facilities and
(ii) the Psychiatric Group, which includes all of the Company's investments in
psychiatric hospitals.
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Notes offered
hereby (the "Offering") are estimated to be $216.9 million, after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The Company anticipates using the net proceeds from the Offering to repay
outstanding borrowings under the Company's revolving credit facility (the
"Credit Facility"), which matures on December 27, 1998. As of September 30,
1996, the Company's $51.5 million of outstanding borrowings under the Credit
Facility bore interest at an average rate of 6.6%.
The remaining proceeds from the Offering will be used to prepay the entire
aggregate principal amount outstanding of the Company's 11.45% Series B Senior
Notes (the "Series B Senior Notes") and the Company's 10.41% Senior Notes (the
"10.41% Senior Notes") and to pay premiums on the Series B Senior Notes and the
10.41% Senior Notes in connection with such prepayments. As of September 30,
1996, the $72.0 million of outstanding principal amount of the Series B Senior
Notes bore interest at a rate of 11.45%, and the $80.0 million of outstanding
principal amount of the 10.41% Senior Notes bore interest at a rate of 10.41%.
As of September 30, 1996, the premium payable in connection with the prepayment
of the aggregate principal amount outstanding of the Series B Senior Notes was
approximately $5.3 million. As of September 30, 1996, the premium payable in
connection with the prepayment of the aggregate principal amount outstanding of
the 10.41% Senior Notes was approximately $6.6 million. See "Description of
Other Indebtedness".
The borrowings under the Credit Facility, the Series B Senior Notes and the
10.41% Senior Notes were used to finance certain real estate investments.
S-3
<PAGE> 4
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of September 30, 1996 and as adjusted to reflect the Offering,
the receipt of the estimated net proceeds therefrom, estimated to be $216.9
million, and the application thereof. See "Use of Proceeds". The information set
forth below should be read in conjunction with the Consolidated Financial
Statements and notes thereto contained in the Company's Annual Report on Form
10-K and the Company's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1996, both of which are incorporated by reference in the
accompanying Prospectus. There have been no material changes in the
capitalization of the Company since September 30, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS,
UNAUDITED)
<S> <C> <C>
Bank loans payable......................................... $ 51,500 $ 0
========= ==========
Notes and bonds payable.................................... $ 158,544 $ 226,544
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 208,000 shares issued and outstanding(1)..... 2 2
Common stock, $.01 par value, 100,000,000 shares
authorized, 23,459,000 issued and outstanding(2)......... 235 235
Additional paid-in capital................................. 481,895 481,895
Cumulative net income...................................... 244,883 232,583
Cumulative dividends....................................... (379,890) (379,890)
--------- ----------
Total stockholders' equity................................. 347,125 334,825
--------- ----------
Total capitalization (excluding bank loans)................ $ 505,669 $ 561,369
========= ==========
</TABLE>
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(1) Does not include, as of September 30, 1996, up to 82,295 shares of
Psychiatric Group Preferred Stock issuable upon exercise of outstanding
Company stock options.
(2) Does not include, as of September 30, 1996: (i) 225,000 shares of the
Company's common stock (the "Core Group Common Stock") that are issuable
upon conversion of $6,544,000 aggregate principal amount of the Company's
8 1/2% Convertible Dual Currency Subordinated Bonds (the "Swiss Bonds") and
(ii) up to 947,832 shares of Core Group Common Stock issuable upon exercise
of outstanding options under the Company's equity incentive plans.
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<PAGE> 5
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data relating to the Company for the
five years ended December 31, 1991 through 1995 are derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report incorporated by reference in the accompanying Prospectus. See "Experts".
The data presented for the nine-month periods ended September 30, 1995 and 1996
are derived from the unaudited consolidated financial statements of the Company
and include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the data for such
periods. The financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus Supplement or incorporated by
reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
UNAUDITED
-------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Base Rental and Mortgage Interest Income........ $ 70,355 $ 72,905 $ 70,242 $ 73,519 $ 74,525 $ 55,495 $ 56,172
Additional Rental and Interest Income........... 8,164 8,529 9,334 9,506 11,125 8,122 9,103
Total Revenues.................................. 80,129 82,079 81,523 87,027 91,230 66,109 66,186
Depreciation and Amortization................... 11,155 12,822 14,087 14,103 14,377 10,667 11,204
Interest Expense................................ 29,040 29,777 27,269 26,101 27,057 20,860 16,564
General and Administrative...................... 5,940 8,221 6,437 5,376 6,839 4,967 5,678
Total Expense................................... 46,135 98,831 50,027 77,030 48,573 36,794 33,446
Net Income (loss)(1)(2)......................... 33,753 (6,317) 50,987 9,693 42,381 29,096 32,571
CASH FLOW STATEMENT DATA:
Cash Flows From Operating Activities............ $ 46,805 $ 43,486 $ 45,884 $ 54,984 $ 57,471 $ 36,869 $ 42,665
Dividends Declared.............................. 43,243 45,747 44,766 47,982 50,769 35,993 39,699
BALANCE SHEET DATA (AT PERIOD END):
Total Assets.................................... $630,511 $566,394 $614,453 $579,503 $586,316 $603,623 $579,127
Total Debt...................................... 301,176 286,859 245,423 245,663 207,378 280,323 210,044
Total Equity.................................... 303,069 255,349 343,303 307,501 353,060 300,821 347,125
OTHER DATA:
Ratio of Earnings to Fixed Charges(3)........... 2.09x (4) 2.81x 1.33x(5) 2.54x 2.39x 2.83x
As Adjusted Ratio of Earnings to Fixed
Charges(3)(6)................................. 3.30x 3.60x
Funds from Operations(7)........................ $ 44,724 $ 43,285 $ 48,299 $ 54,390 $ 54,280 $ 39,969 $ 43,679
Ratio of Funds From Operations Before Fixed
Interest Charges to Fixed Interest
Charges(7)(8)................................. 2.56x 2.45x 2.78x 3.09x 3.07x 2.99x 3.63x
As Adjusted Ratio of Funds From Operations
Before Fixed Interest Charges to Fixed
Interest Charges(6)(7)(8)..................... 4.06x 4.73x
</TABLE>
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(1) Includes gains of $11.1 million and $19.7 million in 1992 and 1993,
respectively, on the sale of properties or partnership interests therein.
(2) Includes write-downs of $45.0 million in 1992 and $30.0 million in 1994
relating to Psychiatric Group real estate investments.
(3) For purposes of calculating the ratio of earnings to fixed charges of the
Company, "earnings" include income before income taxes and fixed charges.
"Fixed charges" consists of interest on all indebtedness and that portion of
rental expenses that management believes to be representative of interest.
(4) Earnings in 1992 did not cover fixed charges by $7.2 million due primarily
to a $45.0 million write-down of Psychiatric Group real estate investments.
(5) Decrease in ratio was primarily due to a $30.0 million write-down of
Psychiatric Group real estate investments.
(6) Adjusted for the Offering of the Notes and the use of the estimated net
proceeds thereof. See "Use of Proceeds" and "Capitalization".
(7) Funds From Operations ("FFO") is defined as net income (loss), excluding
gains (losses) from sales of property, adjusted for write-downs of real
estate investments and real estate depreciation. This definition conforms to
the new definition of funds from operations adopted by the National
Association of Real Estate Investment Trusts ("NAREIT"). The Company adopted
the new NAREIT definition of FFO in the first quarter of 1996 and all
amounts have been restated to conform to the new NAREIT definition. The
amounts shown for funds from operations include certain adjustments for the
impact of items that management does not consider to be routine costs of
ongoing operations. These nonroutine items include: in 1992, litigation
costs of $.8 million and costs related to the termination of a purchase
commitment of $2.2 million; in 1993, litigation costs of $2.2 million and
accrued relocation costs of $.9 million; in 1994, targeted stock issuance
costs of $1.5 million and reversal of accrued relocation costs of $.8
million; in 1995, the receipt of a $2.7 million mortgage loan prepayment
premium and targeted stock issuance costs of $.3 million; and for the nine
months ended September 30, 1995, targeted stock issuance costs of $.3
million. There were no adjustments for nonroutine items in 1991 and for the
nine months ended September 30, 1996. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles ("GAAP"), is not necessarily indicative of cash available to fund
cash needs and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity.
(8) The ratio of FFO (as defined above) before fixed interest charges to fixed
interest charges is calculated as FFO plus fixed interest charges
(consisting primarily of interest expense, excluding amortization of debt
discount and deferred financing fees, and including capitalized interest)
divided by fixed interest charges. The Company believes that in addition to
the ratio of earnings to fixed charges, this ratio provides a useful measure
of a REIT's ability to service its debt because of the exclusion of non-cash
items such as real estate depreciation from the definition of FFO. This
ratio differs from the ratio of earnings to fixed charges prescribed by
rules of the Securities and Exchange Commission and should not be considered
as an alternative to that ratio.
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<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following is a discussion of the consolidated financial condition and
results of operations of the Company, which should be read in conjunction with
the consolidated financial statements and accompanying notes incorporated by
reference in the accompanying Prospectus. For discussions of the financial
condition and results of operations of the Core Group and the Psychiatric Group,
see the Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Core Group and the Psychiatric Group incorporated by
reference in the accompanying Prospectus.
Distribution of Psychiatric Group Depositary Shares. On July 25, 1995, the
Company completed the distribution of 2,085,675 Psychiatric Group Depositary
Shares to holders of its common stock (the "Distribution"). Shareholders
received one Psychiatric Group Depositary Share for every ten shares of common
stock held of record at the close of business on July 14, 1995. Each Psychiatric
Group Depositary Share represents one-tenth of a share of the Company's
Psychiatric Group Preferred Stock. The Distribution was designed to separate the
economic attributes of the Company's investments in psychiatric hospitals and
its investments in acute care and rehabilitation hospitals, assisted living
facilities, long-term care facilities, a medical office building and Alzheimer's
care facilities into two distinct portfolios, with two distinct classes of
publicly-traded shares intended to represent those portfolios. In connection
with the Distribution, the Company directly assigned or, if not directly
assigned, allocated its assets, liabilities and stockholders' equity, and its
revenues, expenses and cash flow items, between the Core Group and Psychiatric
Group. The Psychiatric Group Depositary Shares are intended to reflect the
separate financial performance of the Psychiatric Group. The Core Group Common
Stock is intended to reflect the separate financial performance of the Core
Group. However, the change in the capital structure of the Company effected by
the Distribution does not affect the respective legal title to assets or
responsibility for liabilities of the Company, and the Notes offered hereby will
be issued by and will be liabilities of the consolidated Company.
Factors Regarding Future Results and Forward-Looking Statements. The
Company's business is subject to numerous factors that could adversely affect
future results and cause forward-looking statements herein not to be realized.
Such factors include, among others: the financial success of the operations
conducted at the Company's facilities and the financial strength of the
operators of such facilities, the continuing ability of operators to meet their
obligations to the Company under existing or restructured agreements, changes in
operators or ownership of operators, changes in government policy relating to
the health care industry including reductions in reimbursement levels under the
Medicare and Medicaid programs, operators' continued eligibility to participate
in the Medicare or Medicaid programs, reductions in reimbursement by other third
party payors, lower occupancy levels at the Company's facilities, the strength
and financial resources of the Company's competitors, the availability and cost
of capital, the Company's ability to make additional real estate investments at
attractive yields and changes in tax laws and regulations affecting real estate
investment trusts. For a fuller discussion of such factors, please refer to the
Company's annual report on Form 10-K for the fiscal year ended December 31, 1995
and its Quarterly Report on Form 10-Q for the nine months ended September 30,
1996 incorporated by reference in the accompanying Prospectus.
OPERATING RESULTS
Nine Months Ended September 30, 1996 Compared With 1995
For the nine months ended September 30, 1996, the Company reported net
income of $32,571,000, an increase of $3,475,000 or 12% compared with net income
of $29,096,000 for the first nine months of 1995.
Rental income was $51,693,000 for the nine months ended September 30, 1996,
an increase of $1,216,000 or 2% from $50,477,000 for the comparable period in
1995. This net increase was
S-6
<PAGE> 7
primarily attributable to rental income from new properties acquired subsequent
to the first quarter of 1995, which was partially offset by a reduction in
rental income due to the sale of two psychiatric properties during the first
quarter of 1995 and the nonpayment of $692,000 of rent by two psychiatric
operators during the first nine months of 1996. The net property additions also
resulted in a net increase in depreciation and amortization of $537,000 or 5% to
$11,204,000 for the nine months ended September 30, 1996 compared with
$10,667,000 for the same period in 1995.
Mortgage interest income was $4,479,000 for the nine months ended September
30, 1996, a decrease of $539,000 or 11% from $5,018,000 for the comparable
period in 1995. This net decrease was primarily attributable to the payoff of a
mortgage loan on a hospital located in Austin, Texas in October 1995.
Additional rental and interest income was $9,103,000 for the nine months
ended September 30, 1996, an increase of $981,000 or 12% from $8,122,000 for the
comparable period in 1995. This positive variation was primarily attributable to
increased additional rent from the Company's six original acute care properties
and its acute care property in Utah.
Other interest income for the nine months ended September 30, 1996
decreased $1,581,000 or 63% to $911,000 from $2,492,000 for the comparable
period in 1995. Other interest income for the first nine months of 1995 included
approximately $1,500,000 of interest on a construction loan that subsequently
converted to a mortgage loan in the third quarter of 1995. In addition, this
variation was due to a lower average balance of borrowings outstanding under
revolving credit facilities provided to psychiatric hospital operators, the
nonpayment of $132,000 of interest by a psychiatric hospital operator during the
first nine months of 1996, and a lower average balance of direct financing
leases, partially offset by higher investable cash balances.
Interest expense was $16,564,000 for the nine months ended September 30,
1996, a decrease of $4,296,000 or 21% from $20,860,000 for the comparable period
in 1995. Interest expense decreased as a result of the $24 million, $29 million
and $20 million senior notes maturities in May 1995, May 1996 and September
1996, respectively, lower average bank loan borrowings during 1996 and an
increase in capitalized interest in 1996 compared to 1995.
For the first nine months of 1996, general and administrative expenses were
$5,678,000, an increase of $711,000 or 14% from $4,967,000 for the first nine
months of 1995. This increase was primarily attributable to higher shareholder
reporting costs as a result of the Distribution, financial advisory services
provided primarily by an investment banking firm that included supplemental
monitoring of the performance of the Company's psychiatric properties and
assistance in addressing operational and cash flow difficulties of certain
operators of the psychiatric properties, higher legal costs, higher compensation
and benefits expense and expenses related to the hiring of a Chief Investment
Officer.
The $300,000 of targeted stock issuance costs in 1995 was an additional
accrual made in the second quarter of 1995 to reflect the increased costs of the
Distribution. The increased costs primarily reflected higher legal and
accounting fees and printing and shipping costs as a result of the extended
filing period.
1995 Compared to 1994
In 1995, the Company reported net income of $42,381,000 compared with net
income of $9,693,000 in 1994. Net income in 1994 reflects a write-down of
psychiatric real estate investments of $30,000,000 as a result of accelerating
negative trends in the psychiatric industry, and net income in 1995 reflects a
reduction in income due to the sale of three psychiatric properties and the
lease restructurings of two psychiatric investments subsequent to September
1994. Net income in 1995 included a $2,652,000 premium from the prepayment of a
mortgage loan while net income in 1994 included $710,000 of fee income related
to the prepayment of a construction loan. Net income for 1995 and 1994 reflect
costs related to the Distribution of $300,000 and $1,450,000, respectively.
S-7
<PAGE> 8
Rental income was $67,793,000 in 1995, an increase of $61,000 from
$67,732,000 in 1994. This net increase was primarily attributable to rental
income from new properties acquired and various capital additions subsequent to
the first quarter of 1994, which was partially offset by a reduction in rental
income due to the sale of three psychiatric properties and the lease
restructurings of two psychiatric investments. These factors, combined with
lower depreciation expense on psychiatric properties written down in June 1994,
resulted in a net increase in depreciation and amortization of $274,000 to
$14,377,000 in 1995 compared with 1994.
Mortgage interest income increased $945,000 to $6,732,000 in 1995 from
$5,787,000 in 1994. This increase was primarily attributable to the conversion
of a construction loan on a hospital located in Austin, Texas to a mortgage loan
during the third quarter of 1995. In October 1995, the Company received $29.15
million as proceeds from the payoff of this mortgage loan, which represented
$26.5 million in principal and a $2.65 million prepayment premium.
Additional rental and interest income was $11,125,000 in 1995, an increase
of $1,619,000 or 17% from $9,506,000 in 1994. This positive variation was
attributable to increased additional rent from six of the Company's original
acute care properties and more recently purchased properties generating
additional rent for the first time in 1995.
Other interest income increased $1,578,000 to $5,580,000 in 1995 from
$4,002,000 in 1994. Other interest income in 1995 included a $2.65 million
premium from the prepayment of a mortgage loan in October 1995. Other interest
income in 1994 included $710,000 of fee income related to the prepayment of a
construction loan in February 1994. The remaining net decrease in other interest
income during 1995 resulted from a lower average construction loan balance, a
lower average balance of short-term investments and a lower average balance of
borrowings outstanding under revolving credit facilities provided to psychiatric
hospital operators, which was partially offset by a higher average balance of
direct financing leases.
Interest expense was $27,057,000 in 1995, an increase of $956,000 or 4%
from $26,101,000 in 1994. Interest expense increased as a result of higher
average bank loan borrowings during 1995 and a reduction in capitalized interest
in 1995 compared to 1994. This was partially offset by a reduction in interest
expense on senior notes payable as a result of a $24 million maturity in May
1995.
General and administrative expenses increased to $6,839,000 in 1995 from
$5,376,000 in 1994. In the second quarter of 1994, the Company reversed $750,000
of a corporate relocation accrual recorded in the fourth quarter of 1993 after
the Company decided to maintain its headquarters in Denver, Colorado. The
remaining net increase in 1995 was primarily attributable to increased
compensation and benefits expense and costs incurred related to financial
advisory services provided to the Psychiatric Group by an investment banking
firm.
In 1994, $1,450,000 was accrued for the cost of the planned Distribution.
The $300,000 of targeted stock issuance costs in 1995 was an additional accrual
made in the second quarter of 1995 to reflect the increased costs of the
Distribution. The increased costs primarily reflect higher legal and accounting
fees and printing and shipping costs as a result of the extended filing period.
1994 Compared to 1993
In 1994, the Company reported net income of $9,693,000 compared with net
income of $50,987,000 in 1993. Several significant items impacted net income in
both 1994 and 1993. Net income in 1994 reflected a write-down of psychiatric
hospital investments of $30,000,000 as a result of accelerating negative trends
in the psychiatric industry. In 1994, $1,450,000 was accrued for the cost of the
planned issuance of the Psychiatric Group Depositary Shares. Net income in 1993
included a gain of $19,742,000 on the sale of an acute care property in March
1993. Litigation costs were $2,234,000 in 1993 as a result of the defense and
settlement of a shareholder class action lawsuit against the Company.
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<PAGE> 9
Rental income was $67,732,000 in 1994, an increase of $3,177,000 or 5% from
$64,555,000 in 1993. This net increase is primarily attributable to rental
income from new properties acquired and various capital additions subsequent to
the first quarter of 1993 partially offset by a reduction in rental income due
to the previously mentioned property sale in March 1993.
Additional rental and interest income was $9,506,000 in 1994, an increase
of $172,000 or 2% from $9,334,000 in 1993. This increase is attributable to
increased additional rent from six of the Company's original acute care
properties and more recently purchased properties generating additional rent for
the first time in 1994. This increase is net of the loss of additional rent due
to the previously mentioned property sale.
Other interest income increased $2,055,000 to $4,002,000 in 1994 from
$1,947,000 in 1993. This increase resulted from higher average balances of
construction loans, other notes receivable and direct financing leases in 1994
compared with 1993. In addition, 1994 included the recognition of $710,000 of
fee income related to the prepayment of a construction loan in February 1994.
Interest expense was $26,101,000 in 1994, a decrease of $1,168,000 or 4%
from $27,269,000 in 1993. An equity offering in July 1993 resulted in lower
average short-term borrowings during 1994 compared with 1993. A higher level of
construction in progress during 1994 compared with 1993 resulted in an increase
in capitalized interest. In addition, the Company prepaid mortgage notes payable
of $14.4 million in February 1994.
General and administrative expenses decreased to $5,376,000 in 1994 from
$6,437,000 in 1993. The decrease for 1994 was attributable to the reversal of
$750,000 of a corporate relocation accrual recorded in the fourth quarter of
1993, after the Company decided to maintain its headquarters in Denver,
Colorado. This was partially offset by higher expense from the Company's stock
incentive plans and increased shareholder reporting and distribution costs in
1994.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had commitments of $21.1 million to
fund real estate and related investments over approximately the next fifteen
months. Aggregate unfunded commitments under revolving credit agreements
provided to psychiatric hospital operators totaled $1.5 million as of December
31, 1996.
The Company has continued to increase its liquidity and enhance its
financial flexibility. In October 1995, the Company received $29.2 million as
proceeds from the payoff of its interest in a mortgage loan and completed an
offering of 2,500,000 additional shares of Core Group Common Stock resulting in
net proceeds of $50.3 million. In December 1995, the Company closed on the
Credit Facility, which matures on December 27, 1998. As of December 31, 1996,
the Company had $48.5 million of borrowings under the Credit Facility and had
$1.5 million in cash and short-term investments. The Company's total
indebtedness as of December 31, 1996 was $207.1 million. The Company will
utilize the Credit Facility to fund future acquisitions and its other
commitments. The Company may incur additional indebtedness if the Company
determines that opportunities to pursue such transactions would be attractive.
The Company currently believes it has sufficient capital to meet its commitments
and that its cash flow and liquidity will continue to be sufficient to fund
current operations and to provide for the payment of dividends to stockholders
in compliance with the applicable sections of the Internal Revenue Code of 1986,
as amended, governing real estate investment trusts.
S-9
<PAGE> 10
BUSINESS AND PROPERTIES
American Health Properties, Inc. is a self-administered real estate
investment trust that commenced operations in 1987. The Company has investments
in health care facilities that are operated by qualified third party health care
providers, as well as a medical office building. The Company has separated its
business and properties into two distinct business units (i) the Core Group,
which includes the Company's acute care hospitals, rehabilitation hospitals,
assisted living facilities, long-term acute care facility, long-term care
facilities, medical office building and Alzheimer's care facilities and (ii) the
Psychiatric Group, which includes all of the Company's investments in
psychiatric hospitals.
The Company's current portfolio of investments consists of 13 acute care
hospitals, three psychiatric hospitals owned by the Company, two mortgage loans
secured by psychiatric hospitals, three rehabilitation hospitals, four assisted
living facilities, one long-term acute care hospital (currently under
construction), four long-term care facilities, one medical office building and
two Alzheimer's care facilities (one of which is currently under construction).
As of September 30, 1996, the net book value of the Company's total assets was
$579.1 million. As of September 30, 1996, 93% of the net book value of the
Company's real estate assets was held in fee and 7% was held as mortgage or
construction financing.
THE CORE GROUP
The Core Group's current portfolio of investments consists of 13 acute care
hospitals, three rehabilitation hospitals, four assisted living facilities, one
long-term acute care hospital (currently under construction), four long-term
care facilities, a medical office building and two Alzheimer's care facilities
(one of which is currently under construction). As of September 30, 1996, the
net book value of the Core Group's total assets was $529.6 million. Of the Core
Group's real estate assets at that date, 84% in net book value represented the
acute care segment, 6% represented the rehabilitation segment, 4% represented
the assisted living segment, 3% represented the long-term care segment, 2%
represented the medical office building and 1% represented the Alzheimer's care
segment. In addition, at September 30, 1996, the Core Group had funded $1.1
million out of a total commitment of $4.4 million related to an Alzheimer's care
facility under construction. As of September 30, 1996, all of the Core Group's
real estate assets were held in fee. As of December 31, 1996, the Core Group had
funded $2.0 million of a $6.2 million project for the acquisition and renovation
of an existing property in Amarillo, Texas to be operated as a long-term acute
care facility.
The Core Group's facilities are diversified geographically across 15
states, are distributed among large and small population centers, and are
operated by 13 experienced management companies. These operators include the
following companies or their subsidiaries: Tenet Healthcare Corporation
("Tenet," formerly American Medical International, Inc.), Columbia/HCA
Healthcare Corporation, Paracelsus Healthcare Corporation, Community Health
Systems, Inc. (formerly Dynamic Health, Inc.), PrimeCare International, Inc.,
Horizon/CMS Healthcare Corporation (formerly Continental Medical Systems, Inc.),
Emeritus Corporation, Unison HealthCare Corporation (formerly Signature Health
Care Corporation), Shannon Health System, HealthSouth Corporation, CDM/WestMar,
Autumn Hills and Spectrum Comprehensive Care, Inc. Facilities operated by Tenet
represented 55% of the Core Group's total revenues for the nine months ended
September 30, 1996.
Approximately 75% of the Core Group's property revenues for the nine months
ended September 30, 1996 were secured by corporate guarantees of these operating
companies or their subsidiaries. Also, as of September 30, 1996, letters of
credit from commercial banks and cash deposits aggregating $16 million were
available to the Core Group as security for lease financings. Leases for 16 of
the Core Group's facilities, representing 70% of the Core Group's property
revenues for the nine months ended September 30, 1996, contain cross-default
provisions.
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<PAGE> 11
The Core Group Facilities
The Company's 28 Core Group facilities consist of 13 acute care hospitals
(the "Acute Care Hospitals"), three rehabilitation hospitals (the
"Rehabilitation Hospitals"), four assisted living facilities (the "Assisted
Living Facilities"), one long-term acute care hospital (currently under
construction) (the "Long-Term Acute Care Hospital"), four long-term care
facilities (the "Long-Term Care Facilities"), a medical office building and two
Alzheimer's care facilities (one of which is under construction) (the
"Alzheimer's Care Facilities" and together, the "Core Group Facilities"). All of
the Core Group Facilities are owned by the Company.
Acute Care Hospitals. The Acute Care Hospitals provide a wide range of
services, which may include fully-equipped operating and recovery rooms,
obstetrics, radiology, intensive care, open-heart surgery and coronary care,
neurosurgery, neonatal intensive care, magnetic resonance imaging, nursing
units, oncology, clinical laboratories, respiratory therapy, physical therapy,
nuclear medicine, rehabilitation services and outpatient services.
Rehabilitation Hospitals. The Rehabilitation Hospitals provide acute
rehabilitation care on a multidisciplinary, physician-directed basis to severely
disabled patients. In addition to general medical rehabilitation programs, the
Rehabilitation Hospitals offer a number of specialty programs, including
pulmonary, ventilator, neurobehavioral, brain injury and pain programs. Each of
the Rehabilitation Hospitals is operated pursuant to a joint venture between a
publicly-held, national rehabilitation hospital operator and a local health care
provider.
Assisted Living Facilities. The Assisted Living Facilities provide a
special combination of housing, supportive services, personalized assistance and
health care services designed to respond to the individual needs of the elderly
and other persons who require help with activities of daily living. These
services are available 24 hours a day to meet both scheduled and unscheduled
needs in a way that promotes maximum dignity and independence for each resident.
Long-Term Acute Care Hospital. The Long-Term Acute Care Hospital provides
care for patients with complex medical conditions that require more intensive
care, monitoring, or emergency back-up than that available in most skilled
nursing-based subacute programs. Most Long-Term Acute Care Hospital patients
have severe chronic health problems and are medically unstable or at risk of
medical instability. These patients have historically been treated in general
acute care hospitals. The most common cases treated in this setting include high
acuity ventilator-dependent patients and patients with multiple system failures
related to cancer, spinal cord injuries or head injuries. The average length of
stay in this setting commonly ranges from 60 to 90 days.
Long-Term Care Facilities. The Long-Term Care Facilities are skilled
nursing centers that provide a broad range of health care services, including
skilled nursing care, subacute care, rehabilitation therapy and other
specialized services to the elderly and to other patients with medically complex
needs who can be cared for outside of the acute care hospital environment and
generally cannot be efficiently and effectively cared for at home.
Medical Office Building. The Company owns a 60,000 square-foot medical
office building located in Murrieta, California known as Walsh Medical Arts
Center. The medical office building is located across the street from Sharp
Healthcare Murrieta, a developing medical campus that includes 49 acute care
beds and 42 skilled nursing beds operated by Sharp Healthcare system of San
Diego.
Alzheimer's Care Facilities. The Alzheimer's Care Facilities have a strong
health care orientation rather than the more customary residential care
orientation.
The following is a listing of the Core Group portfolio of investments as of
September 30, 1996.
S-11
<PAGE> 12
CORE GROUP FACILITIES
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL
ACQUIRED/ TOTAL BASE TERM
DESCRIPTION & LOCATION OPERATOR FUNDED INVESTMENT(1) RENT(2) OF LEASE(3)
- ---------------------- -------- --------- ------------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACUTE CARE HOSPITALS
Chesterfield General Hospital Community Health Systems, Inc. 1995 $ 11,407 $ 1,238 2005
Cheraw, South Carolina
Cleveland Regional Medical Center Community Health Systems, Inc. 1994 8,300 812 2003
Cleveland, Texas
Desert Valley Hospital PrimeCare International, Inc. 1994 24,000 2,654 2004
Victorville, California
Frye Regional Medical Center Tenet Healthcare Corporation 1987 45,449 5,265 1999
Hickory, North Carolina
Irvine Medical Center Tenet Healthcare Corporation 1991 75,000 10,057 2004
Irvine, California
Kendall Regional Medical Center Columbia/HCA Healthcare Corporation 1987 69,012 7,884 1999
Miami, Florida
Lucy Lee Hospital Tenet Healthcare Corporation 1987 23,566 2,731 1999
Poplar Bluff, Missouri
Marlboro Park Hospital Community Health Systems, Inc. 1995 7,793 845 2005
Bennettsville, South Carolina
North Fulton Medical Center Tenet Healthcare Corporation 1987 46,191 5,471 1999
Roswell, Georgia
Palm Beach Gardens Medical Center Tenet Healthcare Corporation 1987 45,648 5,283 1999
Palm Beach Gardens, Florida
Pioneer Valley Hospital Paracelsus Healthcare Corporation 1996 49,890 7,051 2004
West Valley City, Utah
Shannon Medical Center, Shannon Health System 1991 16,452 1,478 2001
St. John's Campus
San Angelo, Texas
Tarzana Regional Medical Center Tenet Healthcare Corporation 1987 73,700 8,308 2004
Tarzana, California
--------- -------
Total Acute Care Hospitals $ 496,408 $59,077
========= =======
REHABILITATION HOSPITALS
HCA Wesley Rehabilitation Horizon/CMS Healthcare Corporation 1992 $ 14,597 $ 1,615 2002
Hospital Corporation
Wichita, Kansas
MountainView Regional HealthSouth Corporation 1991 11,718 1,358 2001
Rehabilitation Hospital
Morgantown, West Virginia
Northwest Arkansas Horizon/CMS Healthcare Corporation 1991 9,086 1,064 2001
Rehabilitation Hospital
Fayetteville, Arkansas
--------- -------
Total Rehabilitation Hospitals $ 35,401 $ 4,037
========= =======
ASSISTED LIVING FACILITIES
Cambria Lodge Emeritus Corporation 1996 $ 5,182 $ 544 2006
El Paso, Texas
Garrison Creek Lodge Emeritus Corporation 1996 5,648 593 2006
Walla Walla, Washington
Sherwood Place Emeritus Corporation 1996 5,034 529 2006
Odessa, Texas
Summer Wind Residence Emeritus Corporation 1995 3,000 315 2005
Boise, Idaho
--------- -------
Total Assisted Living Facilities $ 18,864 $ 1,981
========= =======
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL
ACQUIRED/ TOTAL BASE TERM
DESCRIPTION & LOCATION OPERATOR FUNDED INVESTMENT(1) RENT(2) OF LEASE(3)
- ---------------------- -------- --------- ------------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LONG-TERM ACUTE CARE HOSPITAL
Comprehensive Care Hospital of Amarillo(4) Spectrum Comprehensive Care, Inc. 1996 $ 6,200 $ 620 2007
Amarillo, Texas ========= =======
LONG-TERM CARE FACILITIES
Arkansas Manor Unison HealthCare Corporation 1995 $ 4,066 $ 406 2005
Denver, Colorado
Cornerstone Care Center Unison HealthCare Corporation 1995 4,856 485 2005
Lakewood, Colorado
Douglas Manor Unison HealthCare Corporation 1995 2,621 254 2005
Douglas, Arizona
Safford Care Center Unison HealthCare Corporation 1995 4,934 478 2005
Safford, Arizona
--------- -------
Total Long-Term Care Facilities $ 16,477 $ 1,623
========= =======
MEDICAL OFFICE BUILDING
Walsh Medical Arts Center CDM/WestMar 1994 $ 8,800 $ 956 2003
Murrieta, California ========= =======
ALZHEIMER'S CARE FACILITIES
Pinehaven I Alzheimer's Community Autumn Hills(5) 1995 $ 3,700 $ 353 2005
Houston, Texas
Pinehaven II Alzheimer's Community(4) Autumn Hills(5) 1996 4,424 465 2007
Sugarland, Texas
--------- -------
Total Alzheimer's Care Facilities $ 8,124 $ 818
========= =======
CORE GROUP PORTFOLIO TOTAL $ 590,274 $69,112
========= =======
</TABLE>
- ---------------
(1) Reflects gross investment, except for facilities under construction, for
which the Company's total investment commitment is reflected.
(2) Reflects contract rate of annual base rent received or estimated to be
received upon completion of construction.
(3) Each lease provides the lessee with renewal options to extend the term of
the lease beyond the primary term.
(4) Currently under construction.
(5) Autumn Hills is the operator of these facilities. MQ Development I, L.P. is
the lessee of Pinehaven I and MQ Development II, L.P. is the lessee of
Pinehaven II.
S-13
<PAGE> 14
THE PSYCHIATRIC GROUP
The Psychiatric Group's portfolio of psychiatric hospital investments
consists of three psychiatric hospitals owned by the Company and two mortgage
loans secured by psychiatric hospitals (the "Psychiatric Hospitals"). As of
September 30, 1996, the net book value of the Psychiatric Group total assets was
$63.8 million. Of the Psychiatric Group's real estate assets at that date, 35%
in net book value were held in fee and 65% in net book value were held as
mortgages.
The Psychiatric Hospitals provide a wide range of inpatient and outpatient
care for children, adolescents and adults, including specialized care relating
to eating disorders, substance abuse and psychiatric illness. Fundamental
changes in the psychiatric industry in recent years have reduced the operating
cash flow at the Psychiatric Hospitals. These changes have had, and may continue
to have, an adverse effect on the results of operations of the Psychiatric
Hospital operators and borrowers. As a result, certain of the Psychiatric
Hospital operators have had, and may continue to have, difficulty meeting their
payment obligations to the Psychiatric Group. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of
Operations -- Operating Results -- Future Operating Results" incorporated by
reference in the accompanying Prospectus.
The following is a listing of the current Psychiatric Group portfolio of
investments as of September 30, 1996.
PSYCHIATRIC GROUP HOSPITALS
<TABLE>
<CAPTION>
INITIAL
YEAR ANNUAL TERM
ACQUIRED/ TOTAL BASE RENT/ OF LEASE/
DESCRIPTION & LOCATION OPERATOR FUNDED INVESTMENT(1) INTEREST(2) MORTGAGE(3)
- ---------------------- -------- --------- ------------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Four Winds Psychiatric Hospital(4) Four Winds, Inc. 1988 $27,600 $3,708 2002
Katonah, New York
Four Winds Psychiatric Hospital(4) FW of Saratoga, Inc. 1989 18,154 2,257 1999
Saratoga Springs, New York
Less: Mortgage note
receivable impairment
reserve (7,950)
Northpointe Behavioral Health Quorum Health Resources, Inc. 1990 6,523 600 2000
System(5)(6)
Tarpon Springs, Florida
The Retreat(5)(6) Quorum Health Resources, Inc. 1990 11,934 1,100 2000
Sunrise, Florida
Rock Creek Center(6) DHP, L.P. 1989 6,505 1,000 1997
Lemont, Illinois
------- ------
Total Psychiatric Hospitals $62,766 $8,665
======= ======
</TABLE>
- ---------------
(1) Reflects gross investment less write-downs.
(2) Reflects contract rate of annual base rent or interest.
(3) Each lease and mortgage provides the lessee or borrower with renewal options
to extend the term of the lease or mortgage beyond the primary term.
(4) Investment held in the form of a mortgage rather than owned by the Company.
(5) Quorum is the operator of these facilities. The Anclote Psychiatric
Hospital, Ltd. is the lessee of Northpointe Behavioral Health System and The
Retreat Psychiatric Hospital, Ltd. is the lessee of The Retreat.
(6) Actual rent received for the nine months ended September 30, 1996 for
Northpointe Behavioral Health System, The Retreat and Rock Creek Center was
$50,000, $825,000 and $458,000, respectively.
S-14
<PAGE> 15
LEASES AND MORTGAGE LOANS
The Company owns the 13 Acute Care Hospitals, three of the Psychiatric
Hospitals, the three Rehabilitation Hospitals, the four Assisted Living
Facilities, one long-term acute care hospital (currently under construction),
the four Long-Term Care Facilities, a medical office building and the two
Alzheimer's Care Facilities (one of which is currently under construction),
which are collectively referred to herein as the "Leased Properties" or
individually as a "Leased Property".
The leases for the Leased Properties provide for base rental rates that
generally range from 9.0% to 13.4% per annum of the acquisition price less
write-downs of the related Leased Property. Rental rates vary by lease, taking
into consideration many factors, including, but not limited to, credit of the
lessee, operating performance of the Leased Property, interest rates, and
location, type and physical condition of the Leased Property. The leases provide
for additional rents that are generally based upon a percentage of increased
revenues over specified base period revenues of the related Leased Properties.
The obligations under the leases are generally guaranteed by the parent
corporation of the lessee, if the lessee is a subsidiary, or have some other
form of credit enhancement such as a letter of credit or a security deposit.
Certain of the Company's leases are with subsidiaries of the operators described
above and are non-recourse to such operators. Approximately 67% of the Company's
property revenues for the nine months ended September 30, 1996 were secured by
corporate guarantees. Also, as of September 30, 1996, letters of credit from
commercial banks and cash deposits aggregating $18 million were available to the
Company as security for lease and construction development obligations.
The leases are on a "triple net" basis, and the lessee is responsible
thereunder for all additional charges, including every fine, penalty, interest
and cost that may be levied for non-payment or late payment thereof, for taxes,
assessments, levies, fees, water and sewer rents and charges, all governmental
charges with respect to the Leased Property and all utility and other charges
incurred in the operation of the Leased Property. Each lessee is required, at
its expense, to maintain the Leased Property in good order and repair. The
Company is not required to repair, rebuild or maintain the Leased Properties.
Core Group Facilities
Acute Care Hospitals. The Acute Care Hospital leases provide for a fixed
term of ten to 17 years and one or more renewal options of from five to ten
years each. In addition to monthly base rent, all of the Acute Care Hospital
leases provide for the quarterly payment of additional rent in an amount equal
to (i) a specified percentage of the amount by which the gross revenues (as
defined) attributable to the Leased Property for the year exceeded the gross
revenues derived from such Leased Property during a specified base year ("Excess
Gross Revenues") up to a designated dollar amount (the "Transition Amount").
Should the Transition Amount be reached in any year, additional rent is equal to
a reduced percentage of the Excess Gross Revenues for the remainder of such
year.
Pursuant to the terms of the Acute Care Hospital leases, the Company has
the right to approve capital expenditures (only in excess of $2 million for
certain leases), the option to fund certain capital expenditures under some of
the leases and, in certain situations, is obligated to fund approved capital
expenditures on terms comparable to the original investment. The base and
additional rent provisions of leases are amended when such capital expenditures
are funded to reflect the Company's increased investment.
Six of the Acute Care Hospitals are operated by subsidiaries of American
Medical International, Inc. ("AMI"), a subsidiary of Tenet, under long-term
leases with the Company, which comprised 55% of the Core Group's total revenues
for the nine months ended September 30, 1996. AMI has guaranteed certain
obligations of its subsidiaries under such leases and each such lease is cross-
S-15
<PAGE> 16
defaulted to the other AMI leases. Five of the AMI leases grant to AMI the
option, exercisable on not less than six months nor more than 24 months notice,
to purchase the Leased Property upon the expiration of any term of the lease at
the Fair Market Value of the Leased Property at the expiration of said term.
Four of these leases with purchase options expire in 1999 and one of such leases
expires in 2004. For purposes of the second preceding sentence, "Fair Market
Value" means the price that a willing buyer not compelled to buy would pay to a
willing seller not compelled to sell for such property at the applicable
expiration less the portion of such price attributable to capital additions paid
for by AMI. The determination of such price will take into account (i) that the
applicable lease is assumed not to be in effect on the Leased Property and (ii)
that the seller of such Leased Property must pay for title insurance and closing
costs.
One of the other Acute Care Hospital leases provides the lessee with an
option to purchase the property at the end of the term of the lease at the fair
market value of the Leased Property. Three of the leases generally provide the
lessee with an option to purchase the property at the end of the term of the
lease at the greater of the fair market value (or some percentage thereof) or
total investment cost (as defined). One of the leases provides the lessee with a
purchase option, on or after the fifth anniversary of the lease, at the greater
of fair market value or total investment cost (as defined). One of the leases
provides the lessee with a purchase option during the term of the lease at a
predetermined purchase price designed to provide the Company with a favorable
total return on its investment. In addition, this lease provides the lessee with
an option to purchase the property at the end of the term of the lease at the
greater of 90% of the fair market value of the Leased Property or 125% of the
total investment cost (as defined).
One of the Acute Care Hospitals is operated by a subsidiary of Paracelsus
Healthcare Corporation ("Paracelsus") under a long-term lease with the Company,
which comprised 9% of the Core Group's total revenues for the nine months ended
September 30, 1996.
Rehabilitation Hospitals. The Rehabilitation Hospital leases provide for
an initial term of ten years and three renewal periods of five years each,
except in the case of the MountainView Regional Rehabilitation Hospital lease,
which provides for two renewal periods of ten years each and a third renewal
period of up to fifteen years. In addition to monthly base rent, the
Rehabilitation Hospital leases provide for the quarterly payment of additional
rent in an amount equal to a specified percentage of Excess Gross Revenues. The
Rehabilitation Hospital leases each grant to the operator the option to purchase
the Rehabilitation Hospital upon expiration of any term of the lease at the
greater of the fair market value of, or the Company's cost basis in, the
Rehabilitation Hospital at the expiration of said term.
Assisted Living Facilities. The Assisted Living Facility leases provide
for a ten year initial term with six renewal periods of five years each. Each of
the four Assisted Living Facilities is operated by an affiliate of Emeritus
Corporation ("Emeritus") and all of the facilities are cross-defaulted. The
Assisted Living Facility leases provide for monthly base rent plus additional
rent payable quarterly in an amount equal to the sum of (i) the additional rent
for the immediately preceding year and (ii) an amount equal to a specified
percentage of the sum of base rent and additional rent payable for the
immediately preceding year. The leases provide the tenant with the option to
purchase the property at the end of the fixed term or at the end of any extended
term at the greater of (i) fair market value minus the tenant's share of the
appreciation amount (as defined) less the fair market value of any improvements
funded by the tenant or (ii) the Company's total investment (as defined).
Long-Term Acute Care Hospital. The Company has recently entered into an
agreement with Spectrum Comprehensive Care, Inc. ("Spectrum") to provide
construction financing for a facility in Amarillo, Texas. The Company will
purchase the facility and enter into a ten-year lease with Spectrum upon its
completion. The lease will provide for monthly payments of base rent along with
quarterly payments of additional rent in an amount equal to four percent of
Excess Gross Revenues. The participation rate in Excess Gross Revenues drops to
one percent upon reaching a predetermined rate of return. The lease will provide
the tenant with three renewal terms of ten years each
S-16
<PAGE> 17
and the option to purchase the property at the end of the fixed term or at the
end of any extended term at the greater of (i) fair market value or (ii) the
Company's total investment (as defined). The lease will be guaranteed by
Spectrum.
Long-Term Care Facilities. The Long-Term Care Facility leases provide for
an initial term of ten years and three renewal periods of ten years each. Each
of the four Long-Term Care Facilities is operated by an affiliate of Unison
Healthcare Group, Inc. (formerly Signature Health Care Corporation) ("Unison")
and all of the facilities are cross-defaulted. Additionally, the obligations
under each lease are guaranteed by Unison and an affiliate of Unison. The leases
provide for a monthly base rent plus additional rent payable quarterly in an
amount equal to the sum of (i) additional rent for the immediately preceding
year and (ii) an amount equal to a specified percentage of the sum of base rent
and additional rent payable for the immediately preceding year. Each of the
Long-Term Care Facility leases provides the tenant with an option to purchase
the property at the end of the fixed term or the end of any extended term at the
greater of fair market value or the total investment cost (as defined), provided
that the option to purchase the property is simultaneously exercised on each of
the four Long-Term Care Facilities. The leases also provide the tenant with a
right of first refusal to purchase the property on the same terms and conditions
as received by and acceptable to the Company.
Medical Office Building. The medical office building is master-leased for
a seven-year remaining term to a partnership consisting of 22 physicians who are
the primary tenants of the building.
Alzheimer's Care Facilities. The Alzheimer's Care Facility leases provide
for a ten-year initial term with three renewal periods of ten years each. The
Company is currently providing construction financing for one of the Alzheimer's
Care Facilities and will enter into a ten-year operating lease for such facility
upon completion with the lessee of the other Alzheimer's Care Facility. The
leases relating to the Alzheimer's Care Facilities will be cross-defaulted to
each other. The Alzheimer's Care Facility leases provide or will provide for
monthly base rent plus additional rent payable quarterly in an amount equal to
the sum of (i) additional rent for the immediately preceding year and (ii) an
amount equal to a specified percentage of the sum of base rent and additional
rent payable for the immediately preceding year. The leases provide or will
provide the tenant with the option to purchase the property at the end of the
fixed term or at the end of any extended term at a purchase price equal to the
greater of the fair market value or total investment cost (as defined).
Psychiatric Group Facilities
Psychiatric Hospitals. The leases for two of the owned Psychiatric
Hospitals provide for an initial term expiring in 2000 with three renewal
periods for ten years each. The lease for the third owned Psychiatric Hospital
has an initial term expiring in 1997 with one renewal period for five years and
two renewal periods for ten years each. In addition to monthly base rent, the
leases provide for the quarterly payment of additional rent in an amount equal
to a specified percentage of Excess Gross Revenues.
The Company has made mortgage loans to two of the Psychiatric Hospitals.
The two mortgage loans are secured by first mortgages and security interests in
the two separate Psychiatric Hospitals. The two loans are also
cross-collateralized. The two mortgage loans have an initial term of ten years
with two optional ten-year extension terms. Pursuant to the terms of the
mortgage loans, the Company may receive additional interest each year in an
amount equal to a specified percentage of Excess Gross Revenues.
Continuing challenges facing psychiatric hospitals have resulted in
restructuring of the payment obligations of the operators of the Company's
Psychiatric Hospitals during 1996, as well as significant write-downs of such
investments in prior years. In addition, late in 1996 the owners of two of the
Company's Psychiatric Hospitals in Florida, together with other operators of
psychiatric hospitals in Florida, were named in a suit filed by several large
insurance companies. The suit alleges wide-spread irregularities with respect to
operations in 1994 and prior years by the former
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<PAGE> 18
operator of these facilities. Adverse consequences from this lawsuit will likely
have a negative impact on the Psychiatric Group's results of operations and cash
flows as well as its quarterly dividend payment. The Company does not believe
this litigation will have a material adverse effect on the financial condition
or results of operations of the consolidated Company or the Core Group.
For a fuller discussion of the restructuring of the Company's Psychiatric
Group investments during 1996 and certain issues facing the operators of the
Company's Psychiatric Group Facilities, see "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of
Operations -- Operating Results -- Future Operating Results" set forth in the
Company's Quarterly Report on Form 10-Q for the nine months ended September 30,
1996 incorporated by reference in the accompanying Prospectus.
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<PAGE> 19
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, insofar
as such description relates to the Notes, the description of the general terms
and provisions of the Debt Securities set forth in the Prospectus, to which
description reference is hereby made. The following summary is qualified in its
entirety by reference to the Senior Indenture referred to in the Prospectus.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Prospectus.
GENERAL
The Notes due 2002 and the Notes due 2007 will be issued as two separate
series of Senior Securities under an Indenture, dated as of January 15, 1997,
between the Company and The Bank of New York, as Trustee (the "Senior
Indenture"). The Notes due 2002 will be limited in aggregate principal amount to
$100 million. The Notes due 2007 will be limited in aggregate principal amount
to $120 million. The Notes due 2002 and the Notes due 2007 will mature on
January 15, 2002 and 2007, respectively. The Notes due 2002 and the Notes due
2007 will bear interest from January 15, 1997 at the respective rates per annum
shown on the front cover of this Prospectus Supplement payable semi-annually on
January 15 and July 15 of each year, commencing July 15, 1997 to the person in
whose name the Note (or any predecessor) is registered at the close of business
on the January 1 or July 1, as the case may be, next preceding such interest
payment date. The Notes will be unsecured and unsubordinated obligations of the
Company.
CERTAIN COVENANTS; DEFEASANCE
The Notes are entitled to the benefits of both restrictive covenants, and
are subject to defeasance and covenant defeasance, as described in the
Prospectus under the captions "Description of Debt Securities -- Certain
Covenants of the Company" and "-- Defeasance and Covenant Defeasance".
SINKING FUND
The Notes are not entitled to any sinking fund payments.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Company, in
whole or from time to time in part, at a redemption price equal to the sum of
(i) the principal amount of the Notes (or portion thereof) being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount
(as defined below), if any, with respect to the Notes (or portion thereof) (the
"Redemption Price").
If notice has been given as provided in the Senior Indenture and funds for
the redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
the Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to be
redeemed.
The Company will notify the Trustee at least 45 days prior to giving notice
of redemption (or such shorter period as is satisfactory to the Trustee) of the
aggregate principal amount of such Notes to be redeemed and their redemption
date. If less than all of the Notes are to be redeemed at
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<PAGE> 20
the option of the Company, the Trustee shall select, in such manner as it shall
deem fair and appropriate, the Notes to be redeemed in whole or in part.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption
or accelerated payment of any Notes, the excess, if any, of (i) the
aggregate present value as of the date of such redemption or accelerated
payment of each dollar of principal being redeemed or paid and the amount
of interest (exclusive of interest accrued to the date of redemption or
accelerated payment) that would have been payable in respect of each such
dollar if such redemption or accelerated payment had not been made,
determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third Business Day
preceding the date such notice of redemption is given or declaration of
acceleration is made) from the respective dates on which such principal and
interest would have been payable if such redemption or accelerated payment
had not been made, over (ii) the aggregate principal amount of the Notes
being redeemed or paid.
"Reinvestment Rate" means 0.25% plus the arithmetic mean of the yields
under the respective heading "Week Ending" published in the most recent
Statistical Release under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month) corresponding to the remaining
life to maturity, as of the payment date of the principal being redeemed or
paid. If no maturity exactly corresponds to such maturity, yields for the
two published maturities most closely corresponding to such maturity shall
be calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purpose of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication that is published weekly by the
Federal Reserve System and that establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Senior Indenture, then such other reasonably comparable index
that shall be designated by the Company.
BOOK-ENTRY DELIVERY AND FORM
Upon issuance, the Notes of each series will be represented by one or more
fully registered global securities (the "Global Notes"). Each such Global Note
will be deposited with, or on behalf of, the Depositary, and registered in the
name of the Depositary or a nominee thereof. Unless and until it is exchanged in
whole or in part for Notes in registered form, no Global Note may be transferred
except as a whole by or to the Depositary, a nominee of the Depositary or any
successor to either of them.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The Depositary holds securities that its participants ("Direct
Participants") deposit with the Depositary. The Depositary also facilitates the
settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Direct Participants' accounts, thereby eliminating the
need for physical movement of securities. The Depositary's Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, including the Underwriters. The
S-20
<PAGE> 21
Depositary is owned by a number of its Direct Participants and by The New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others, such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
Purchases of Notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for the Notes on the records of
the Depositary. The ownership interest of each actual purchaser of each Note (a
"Beneficial Owner") is in turn to be recorded on the Direct Participants' and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but Beneficial Owners are
expected to receive written confirmation providing details of the transaction,
as well as periodic statements of their holdings, from the Direct Participant or
Indirect Participant through which each such Beneficial Owner entered into the
transaction. Ownership of beneficial interests in Global Notes will be shown on,
and the transfer of such ownership interests will be effected only through,
records maintained by the Depositary (with respect to interests of persons held
through Direct Participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in Global Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by such Global Note
for all purposes under the Senior Indenture. Except as provided below,
Beneficial Owners of a Global Note will not be entitled to have the Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form, and
will not be considered the owners or Holders thereof under the Senior Indenture
(Sections 204 and 305). Accordingly, each person owning a beneficial interest in
a Global Note must rely on the procedures of the Depositary and, if such Person
is not a Direct Participant, on the procedures of the Direct Participant through
which such Person owns its interest, to exercise any rights of a Holder under
the Senior Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or that
a Beneficial Owner desires to give or take any action that a Holder is entitled
to give or take under the Senior Indenture, the Depositary would authorize the
Direct Participants holding the relevant beneficial interests to give or take
such action, and such Direct Participants would authorize or otherwise would act
upon the instructions of Beneficial Owners. Conveyance of notices and other
communications by the Depositary to Direct Participants, by Direct Participants
to Indirect Participants, and by Direct Participants and Indirect Participants
to Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of the principal of, and interest on, Notes registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the Holder of the Global Note or Notes representing such
Notes. None of the Company, the Trustee or any other agent of the Company or
agent of the Trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests or for supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that the Depositary, upon
receipt of any payment of principal or interest in respect of a Global Note,
will credit the accounts of the Direct Participants with payments in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in such Global Notes as shown on the record of the Depositary. The
Company also expects that payments by Direct Participants to Beneficial Owners
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and such payments will be the
responsibility of such Direct Participants.
S-21
<PAGE> 22
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary or at any time ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, or (y) the Company executes and
delivers to the Trustee a Company Order to the effect that the Global Notes
shall be transferable, registrable and exchangeable, and such transfers shall be
registrable, or (z) an Event of Default has occurred and is continuing with
respect to the Notes, the Global Note or Notes will be exchangeable for Notes
registered only in the name or names of such Person or Persons as the Depositary
for such Global Note shall have directed.
S-22
<PAGE> 23
DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITY
On December 27, 1995, the Company entered into a $150 million unsecured
revolving credit facility with Wells Fargo Bank, N.A., as arranger, and the
lenders signatory thereto, which matures on December 27, 1998 and bears an
annual facility fee of 20 to 37.5 basis points. The Credit Facility provides for
interest on outstanding borrowings at either LIBOR plus a margin of 37.5 to 150
basis points or the prime rate plus, in certain circumstances, a margin of 25 to
50 basis points. The margins on LIBOR or prime rate borrowings and the annual
facility fee are dependent upon various conditions, including the Company's debt
ratings and the level of borrowings outstanding. Currently, the Company is able
to borrow at either LIBOR plus 87.5 basis points or the prime rate, and the
annual facility fee is 25 basis points.
The weighted average amount of borrowings outstanding under the Company's
revolving credit agreements during 1995 and for the nine months ended September
30, 1996 were $27,467,000 and $12,918,000 at weighted average interest rates of
7.5% and 6.4%, respectively. The maximum amount outstanding under such
agreements in 1995 and for the nine months ended September 30, 1996 were
$73,000,000 and $53,000,000, respectively. As of September 30, 1996, the Company
had $51,500,000 outstanding under the Credit Facility.
The Credit Facility contains customary affirmative and restrictive
covenants that, among other things, limit the Company and its subsidiaries with
respect to effecting fundamental changes to the corporate structure or line of
business, indebtedness, liabilities, liens, dividends, loans, investments and
purchases, certain Company contribution commitments to employee retirement plans
and sales of assets. The Company also covenants to maintain a minimum tangible
net worth (currently approximately $299.2 million), an interest coverage ratio
greater than 2.50 and a leverage ratio less than 1.10, as defined in the Credit
Facility.
The Credit Facility contains customary events of default, including, among
other things, and subject to applicable grace periods, other indebtedness
payment defaults, material misrepresentations, covenant defaults, certain
bankruptcy events and judgment defaults.
SENIOR NOTES PAYABLE
In May 1989 the Company sold $120 million of 11.40% Series B Senior Notes
in a private placement. As provided under the terms of the note agreement with
respect thereto, the interest rates on these notes were automatically adjusted
to 11.45% effective October 25, 1989, concurrent with the downgrading of AMI's
publicly-rated unsecured senior debt obligations. In the event that such AMI
debt obligations are subsequently upgraded to an investment grade rating, the
interest rate on the Series B Senior Notes automatically will readjust to
11.40%. Interest is payable quarterly in arrears. The remaining $72 million of
Series B Senior Notes require annual principal payments of $24 million on May
31, 1997 through maturity on May 31, 1999.
In September 1990, the Company sold $100 million of 10.41% Senior Notes in
a private placement. Interest on these notes is payable semi-annually in
arrears. The remaining $80 million of 10.41% Senior Notes require annual
principal payments of $20 million on September 15, 1997 through maturity on
September 15, 2000.
The net proceeds from the Offering will be used to prepay the entire
outstanding aggregate principal amount of the Series B Senior Notes and the
10.41% Senior Notes.
SUBORDINATED CONVERTIBLE BONDS PAYABLE
In July 1990, the Company sold the Swiss Bonds pursuant to a public
subscription. The Swiss Bonds have a coupon rate of 8 1/2% and are convertible
at the option of the holder at any time until July 9, 2000 into shares of Core
Group Common Stock at a conversion price of $23.45 per share
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<PAGE> 24
and a fixed exchange rate of Sfr. 1.41 per U.S. $1.00. For the nine months ended
September 30, 1996, no conversions of Swiss Bonds were made. Final redemption of
the 1,491 remaining Swiss Bonds will be made in U.S. dollars of $7,455,000 on
July 19, 2000 provided additional conversions or redemption have not occurred
earlier.
Interest on outstanding Swiss Bonds is payable annually in arrears in Swiss
francs in July of each year. Accrued and accreted interest is not paid on Swiss
Bonds previously converted into Core Group Common Stock. The Company has
reserved approximately 225,000 unissued shares of Core Group Common Stock for
potential future Swiss Bond conversions.
The Public Bond Issue Agreement (the "Bond Agreement") between the Company
and a syndicate of Swiss banks underwriting the public subscription contains
certain representations and warranties, including among other things, no
material misrepresentations, compliance with other debt and contractual
instruments and general compliance with the terms of the Bond Agreement. The
Swiss Bonds also contain certain covenants, as defined in the Bond Agreement,
that require the Company to maintain a tangible net worth of $125 million, a
real property assets to total unsecured borrowings ratio greater than 110% and a
consolidated total borrowings to consolidated tangible net worth ratio less than
2.0.
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<PAGE> 25
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement for the Notes due 2002 dated January 17, 1997, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase, the principal amount of the
Notes due 2002 set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES DUE 2002
------------ --------------
<S> <C>
Goldman, Sachs & Co. ........................................ $ 60,000,000
Alex. Brown & Sons Incorporated.............................. 20,000,000
Dean Witter Reynolds Inc. ................................... 20,000,000
-------------
Total.............................................. $ 100,000,000
=============
</TABLE>
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement for the Notes due 2007 dated January 17, 1997, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase, the principal amount of the
Notes due 2007 set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES DUE 2007
----------- --------------
<S> <C>
Goldman, Sachs & Co. ........................................ $ 84,000,000
First Union Capital Markets Corp. ........................... 12,000,000
NationsBanc Capital Markets, Inc. ........................... 24,000,000
-------------
Total.............................................. $ 120,000,000
=============
</TABLE>
The Underwriters of the Notes due 2002 and the Underwriters of the Notes
due 2007 are referred to collectively in this Prospectus Supplement as the
"Underwriters." References herein to the "relevant Underwriting Agreement," the
"relevant Pricing Agreement" and the "relevant Underwriters" means, with respect
to any series of Notes, the Underwriting Agreement and Pricing Agreement for
such Notes and the Underwriters thereunder.
Under the terms and conditions of the Underwriting Agreement and the
Pricing Agreement for each series, the relevant Underwriters are committed to
take and pay for all of the Notes of such series, if any are taken.
The relevant Underwriters propose to offer the Notes of each series in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement for such series and in part to certain
securities dealers at such price less a concession of 0.400% of the principal
amount of the Notes due 2002 and 0.450% of the principal amount of the Notes due
2007. The relevant Underwriters may allow, and such dealers may reallow, a
concession not to exceed 0.250% of the principal amount of the Notes due 2002
and the Notes due 2007 to certain brokers and dealers. After the Notes are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the relevant Underwriters.
The Notes are new issues of securities with no established trading market.
The Company has been advised by the relevant Underwriters that such Underwriters
intend to make a market in the Notes of each series but are not obligated to do
so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Each of the Underwriters has from time to time performed various investment
banking services for the Company. Affiliates of First Union Capital Markets
Corp. and NationsBanc Capital Markets,
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<PAGE> 26
Inc. from time to time conduct banking transactions with the Company and its
subsidiaries in the normal course of business, and such affiliates are parties
to the Company's Credit Facility. An amount that may exceed 10% of the net
proceeds from the sale of the Notes due 2007 will be used to repay the
indebtedness to such affiliates under the Credit Facility. Accordingly, the
offering of the Notes due 2007 is being conducted in conformity with Rules
2710(8) and 2720(c)(3) of the Conduct Rules of the National Association of
Securities Dealers, Inc.
VALIDITY OF THE NOTES
The validity of the Notes offered hereby will be passed upon for the
Company by Davis, Graham & Stubbs LLP, Denver, Colorado, and for the
Underwriters by Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The consolidated balance sheets of American Health Properties, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995; the combined balance sheets
of the Core Group (a business unit of American Health Properties, Inc.) as of
December 31, 1995 and 1994 and the related combined statements of operations,
total attributed equity and cash flows for each of the three years in the period
ended December 31, 1995; and the combined balance sheets of the Psychiatric
Group (a business unit of American Health Properties, Inc.) as of December 31,
1995 and 1994 and the related combined statements of operations, total
attributed equity and cash flows for each of the three years in the period ended
December 31, 1995, incorporated by reference in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
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<PAGE> 27
PROSPECTUS
[AMERICAN HEALTH PROPERTIES, INC. LOGO]
COMMON STOCK
DEBT SECURITIES
PREFERRED STOCK, DEPOSITARY SHARES
WARRANTS
------------------------
American Health Properties, Inc. (the "Company", which term refers to the
Company and its subsidiaries unless the context otherwise requires) may offer
from time to time (i) shares of Common Stock, par value $.01 per share ("Common
Stock") of the Company, (ii) debt securities ("Debt Securities"), which may be
either senior debt securities ("Senior Securities") or subordinated debt
securities ("Subordinated Securities"), consisting of debentures, notes, bonds
and/or other unsecured evidences of indebtedness in one or more series, which
Debt Securities may (or may not) be convertible into Common Stock, other Debt
Securities, or Preferred Stock, par value $.01 per share ("Preferred Stock") of
the Company or (iii) shares of Preferred Stock in one or more series, which may
(or may not) be convertible into Common Stock, and depositary shares
("Depositary Shares") representing a fractional interest in a share of Preferred
Stock; or (iv) warrants ("Warrants") to purchase Common Stock, Debt Securities,
Preferred Stock or Depositary Shares. The foregoing securities are collectively
referred to as the "Securities." The Securities will be offered at an aggregate
initial offering price not to exceed U.S. $275,000,000, at prices and on terms
to be determined at the time of sale.
The accompanying Prospectus Supplement sets forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Common Stock, the number of shares of Common Stock and the terms
of the offering thereof; (ii) in the case of Debt Securities, the title,
aggregate principal amount, whether such Debt Securities are senior or
subordinate, denominations (which may be in United States dollars or in any
other currency, currencies or currency unit), maturity, premium (if any),
interest rate (which may be fixed or variable) or method of calculation thereof,
and time of payment of any interest, place or places where principal of (and
premium, if any) and interest on such Debt Securities will be payable, the
currency or currency unit in which principal, premium (if any) or interest is
payable, any terms for redemption at the option of the Company or the holder of
such Debt Securities, any terms for sinking fund payments, any conversion or
exchange rights, any listing on a securities exchange and the initial public
offering price and any other terms in connection with the offering and sale of
such Debt Securities; (iii) in the case of Preferred Stock and Depositary
Shares, the designation, number of shares, stated value and liquidation
preference per share, initial public offering price, dividend rate (or method of
calculation), dates on which dividends will be payable and dates from which
dividends will accrue, voting rights, any redemption or sinking fund provisions,
any conversion or exchange rights, whether the Company has elected to offer the
Preferred Stock in the form of Depositary Shares, any listing of the Preferred
Stock on a securities exchange, and any other terms in connection with the
offering and sale of such Preferred Stock; and (iv) in the case of Warrants, the
number and terms thereof, the designation and the number of Securities issuable
upon their exercise, the exercise price, any listing of the Warrants or the
underlying Securities on a securities exchange and any other terms in connection
with the offering, sale and exercise of the Warrants. The Prospectus Supplement
will also contain information, as applicable, about material United States
Federal income tax, accounting and other considerations relating to the
Securities in respect of which this Prospectus is being delivered.
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Subordinated Securities will be
subordinated to all existing and future Senior Indebtedness (as defined herein)
of the Company. If so specified in the accompanying Prospectus Supplement, all
or a portion of any Debt Securities may be issued in permanent global form.
The Company's Common Stock is listed on The New York Stock Exchange, Inc.
(Symbol: "AHE") and its Psychiatric Group Preferred Stock is quoted on the
National Association of Securities Dealers Automated Quotations National Market
(Symbol: "AHEPZ"). Any Common Stock offered hereby or into which the other
Securities offered hereby are convertible will be listed, subject to notice of
issuance, on The New York Stock Exchange, Inc. See "Price Range of Common Stock
and Dividends."
The Company may sell Securities to or through underwriters, and also may
sell Securities directly to other purchasers or through agents. The accompanying
Prospectus Supplement sets forth the names of any underwriters or agents
involved in the sale of the Securities in respect of which this Prospectus is
being delivered, the principal amounts, if any, to be purchased by underwriters
and the compensation, if any, of such underwriters or agents. See "Plan of
Distribution" herein. This Prospectus may not be used to consummate sales of
Securities unless accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is September 26, 1995
<PAGE> 28
No person is authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus or
in the accompanying Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any underwriter, agent or dealer. This Prospectus and the
accompanying Prospectus Supplement do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities in
respect of which this Prospectus and the accompanying Prospectus Supplement is
delivered or an offer of any securities in any jurisdiction to any person when
such an offer would be unlawful.
The delivery of this Prospectus together with a Prospectus Supplement
relating to particular Securities shall not constitute an offer in any
jurisdiction of any of the other Securities covered by this Prospectus.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at its Regional Offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed notes from the Public
Reference Section of the Commission, 450 Fifth Street, N.W. Plaza, Washington,
D.C. 20549. Such reports and proxy statements can also be inspected at the
offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005 and at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. In addition, the Company
electronically files its reports, proxy statements and other information with
the Commission utilizing the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system, and copies of such material can be obtained electronically
through EDGAR and numerous commercial sources.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and
reference is hereby made to the Registration Statement and the exhibits thereto
for further information with respect to the Company and the Securities.
Statements contained in this Prospectus as to the contents of certain documents
are not necessarily complete, and, with respect to each such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission,
reference is made to the copy of the document so filed. Each statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994.
2. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1995.
3. Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1995.
4. Current Report on Form 8-K, dated August 14, 1995.
5. Current Report on Form 8-K, dated September 22, 1995.
6. All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering of
the Securities shall be deemed to be incorporated herein by reference
and to be a part of this Prospectus from the date of filing of each such
document.
2
<PAGE> 29
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein or in the Prospectus
Supplement modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner of Securities, to whom this Prospectus is delivered, upon the
request of such person, a copy of any of the documents incorporated by reference
herein, except for the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to 6400 South Fiddler's Green Circle, Suite 1800, Englewood, Colorado
80111 (telephone (303) 796-9793), Attention: Secretary.
3
<PAGE> 30
The following information is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
incorporated herein by reference. Certain capitalized terms used herein are
defined in the Glossary.
THE COMPANY
American Health Properties, Inc. (together with its subsidiaries, the
"Company") is a self-administered real estate investment trust ("REIT") that
commenced operations in 1987. The Company has investments in health care
facilities that are operated by qualified third party health care providers, as
well as one medical office building.
As of June 30, 1995, the Company's core portfolio of investments (the "Core
Group") consisted of 15 acute care hospitals, three physical rehabilitation
hospitals, two long-term care facilities, one Alzheimer's care facility
currently under construction and one medical office building. At that date, the
net book value of the Core Group's assets was $544 million. Of the Core Group's
real estate assets at that date, 90% in net book value represented the acute
care segment, 6% represented the rehabilitation segment, 2% represented the
long-term care segment, including the Alzheimer's care facility, and 2%
represented the medical office building. As of June 30, 1995, 95% in net book
value of the Core Group's real estate assets were held in fee and 5% were held
as construction and/or mortgage financing.
As of June 30, 1995, the Core Group's facilities were diversified
geographically across 12 states, were distributed among large and small
population centers, and were operated by ten experienced management companies.
These operators included Columbia/HCA Healthcare Corporation, Dynamic Health,
Inc., Horizon/CMS Healthcare Corporation (formerly Continental Medical Systems,
Inc.), HealthSouth Corporation, Paracelsus Healthcare Corporation, Quorum Health
Group, Inc., Signature Health Care Corporation and Tenet Healthcare Corporation
("Tenet", formerly American Medical International, Inc.). Facilities operated by
Tenet represented 55% of the Core Group's revenues for the six months ended June
30, 1995.
Approximately 83% of the Core Group's property revenues for the six months
ended June 30, 1995 were secured by corporate guarantees of these operating
companies or their subsidiaries. Also, as of June 30, 1995, letters of credit
from commercial banks and cash deposits aggregating $13 million were available
to the Core Group as security for lease financings. Leases for nine of the Core
Group's facilities, representing 80% of the Core Group's property revenues for
the six months ended June 30, 1995, contain cross-default provisions. All of the
Company's leases are on a triple "net" basis, and the lessees are responsible
thereunder, in addition to the base and additional rents, for all additional
charges with respect to the leased properties.
The Company's portfolio of psychiatric hospital investments (the
"Psychiatric Group") consists of three psychiatric hospitals owned by the
Company and two mortgage loans secured by psychiatric hospitals. As of June 30,
1995, the net book value of the Psychiatric Group assets was $64.9 million. Of
the Psychiatric Group's real estate assets at that date, 36% in net book value
were held in fee and 64% in net book value were held as mortgages.
The operators of the Company's facilities derive a substantial percentage
of their total revenues from federal and state health care programs such as
Medicare and Medicaid and from other third party payors such as private
insurance companies, self-insured employers and health maintenance
organizations. Such operators are also subject to extensive federal, state and
local government regulation relating to their operations, and the Company's
facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with mandated procedures, licensure
requirements under state law and certification standards under the Medicare and
Medicaid programs. A change in reimbursement levels under the Medicare or
Medicaid programs, a reduction in reimbursement by other third party payors or
an operator's failure to maintain its certification under the Medicare or
Medicaid programs could adversely affect revenues to the Company's facilities.
The Company's principal executive office is located at 6400 South Fiddler's
Green Circle, Suite 1800, Englewood, Colorado 80111, and its telephone number at
such address is (303) 796-9793.
4
<PAGE> 31
RECENT DEVELOPMENTS
CORE GROUP
Additional Investments. In August 1995, the Company entered into agreements
to provide $16.6 million of financing for three 80-unit assisted living
facilities to be constructed in Walla Walla, Washington, El Paso, Texas and
Odessa, Texas. The Company is providing construction financing and will purchase
the facilities upon completion. Construction of the facilities has commenced and
will take approximately ten months to complete. In addition, in September 1995
the Company purchased for $3.0 million an assisted living facility located in
Boise, Idaho containing 50 assisted living units. Each of these four facilities
will be leased to and operated by Emeritus Corporation (formerly Assisted Living
of America) of Seattle, Washington ("Emeritus") pursuant to ten-year operating
leases, each of which will contain cross-default provisions. Emeritus is one of
the national leaders in the emerging assisted living facility industry and is
managed by executives with substantial experience in managing multiple facility
long-term care operations.
Also in August 1995, the Company completed a $7.6 million purchase of two
long-term care facilities containing a total of 192 skilled nursing beds and 124
living units, located in Safford and Douglas, Arizona. The Company has leased
the facilities to affiliates of Signature Health Care Corporation ("Signature")
of Denver, Colorado. Signature operates 11 nursing homes in Colorado and
Arizona, including two facilities in Denver, Colorado that are leased from the
Company. The leases for all of the four long-term care facilities leased by
Signature from the Company contain cross-default provisions.
PSYCHIATRIC GROUP
Distribution of Psychiatric Group Stock
In July, 1995 the Company created a new series of preferred stock
designated as Psychiatric Group Preferred Stock ("Psychiatric Group Stock") and
made a distribution (the "Distribution") of one Depositary Share for every ten
shares of Common Stock held of record on July 14, 1995, each such Depositary
Share representing a one-tenth interest in one share of Psychiatric Group Stock.
By way of the issuance of the Psychiatric Group Stock, the Company sought to
separate the economic attributes of the Psychiatric Group and the Core Group
into two distinct portfolios, with two distinct classes of publicly traded
shares intended to represent those portfolios. The assets, liabilities and
expenses of the Company have been allocated between the two portfolios. In
addition to consolidated financial statements, the Company publishes separate
financial statements for each Group. Dividends and other payouts or
distributions with respect to the Common Stock and Psychiatric Group Stock are
expected to be a function of the individual financial performance of the Core
Group and the Psychiatric Group, respectively. See "Management and Accounting
Policies" and "Description of Common Stock and Psychiatric Group Stock."
The Securities offered through delivery of this Prospectus and the
accompanying Prospectus Supplement do not include Psychiatric Group Stock. The
Company does not intend to issue additional Psychiatric Group Stock except upon
exercise of options granted in connection with the initial issuance of
Psychiatric Group Stock.
Consolidated Capital Structure. The outstanding Common Stock and
Psychiatric Group Stock are part of the consolidated capital structure of the
Company. Notwithstanding the allocation of assets and liabilities (including
contingent liabilities), stockholders' equity and items of income, expense and
cash flow between the Core Group and the Psychiatric Group for purposes of
preparing their respective financial statements, the change in the capital
structure of the Company effected by the issuance of the Psychiatric Group Stock
does not affect the respective legal title to assets or responsibility for
liabilities of the Company or any of its subsidiaries. The issuance of
Psychiatric Group Stock does not affect the rights of creditors of the Company
or any subsidiary, including rights under financing covenants. Each holder of
the Company's Common Stock is a holder of an issue of capital stock of the
entire Company and is subject to risks associated with an investment in the
Company and all of its businesses, assets and liabilities. For example, if the
cash flow and proceeds of any sales of assets of the Psychiatric Group should be
insufficient to service inter-Group loans or other debt owed by the Psychiatric
Group, the Core Group would be adversely affected.
5
<PAGE> 32
Financial effects arising from the Psychiatric Group that affect the
Company's consolidated results of operations, financial condition or borrowing
costs could adversely affect the results of operations, financial condition or
borrowing costs of the Core Group or the market price of the Common Stock. In
addition, net losses of the Psychiatric Group, as well as dividends and
distributions on, and repurchases of, Psychiatric Group Stock will reduce the
funds of the Company legally available for dividends on the Common Stock.
Potential Conflicts of Interest. The issuance of Psychiatric Group Stock
could give rise to occasions when the interests of the holders of Common Stock
and the holders of Psychiatric Group Stock might diverge or appear to diverge.
Examples include determinations by the Company's Board of Directors (the
"Board") and, in certain circumstances, the management of the Company to (i) pay
or omit the payment of dividends on Common Stock or Psychiatric Group Stock,
(ii) allocate consideration to be received in connection with a merger or
consolidation involving the Company among holders of Common Stock and
Psychiatric Group Stock, (iii) advance or repay inter-Group loans, (iv) redeem
Psychiatric Group Stock or exchange it for Common Stock, (v) approve
dispositions of assets of either of the Groups and (vi) make other operational
and financial decisions with respect to one Group that could be considered to be
detrimental to the other Group. When making decisions with regard to matters
that create potential conflicts of interest, the Board will act in accordance
with the terms of the Company's Certificate of Incorporation, management and
accounting policies as described in "Management and Accounting Policies" and its
fiduciary duties under Delaware law. The Company's management is responsible for
both the Core Group and the Psychiatric Group and consequently could make
management decisions with respect to one Group that could be considered
detrimental to the other.
Inter-Group Loans. If the Psychiatric Group is unable to repay any
inter-Group loans owed to the Core Group, the Core Group would be adversely
impacted. For this and other reasons, the Board has established policies
relating to the amount of inter-Group loans and required repayments thereof. See
"Management and Accounting Policies."
Stockholder Voting Rights. Subject to certain limited exceptions, eligible
holders of Common Stock, Psychiatric Group Stock and any other series of
Preferred Stock outstanding vote as one class on all matters coming before any
meeting of stockholders. Holders of Common Stock and Psychiatric Group Stock do
not have any right to vote on matters as a separate class (except pursuant to
certain limited class voting rights provided under Delaware law and, in limited
circumstances, in connection with a merger or consolidation of the Company with
or into another company). Similarly, separate meetings for the holders of Common
Stock or Psychiatric Group Stock are not held.
Certain matters as to which the holders of Common Stock and Psychiatric
Group Stock are entitled to vote may involve a divergence or the appearance of a
divergence of the interests of holders of Common Stock and Psychiatric Group
Stock. See "-- Potential Conflicts of Interest" and "Description of Common Stock
and Psychiatric Group Stock -- Voting Rights."
Management and Accounting Policies Subject to Change. The Board has
adopted certain management and accounting policies described herein with respect
to inter-Group loans, cash management, corporate expenses, allocation of assets
and liabilities (including contingent liabilities) and inter-Group transactions,
any and all of which could be modified or rescinded in the sole discretion of
the Board without the approval of stockholders, although there is no present
intention to do so. The Board could also adopt additional policies depending
upon the circumstances. Any determination by the Board to modify or rescind such
policies, or to adopt additional policies, including any such decision that
could have disparate effects upon holders of Common Stock and Psychiatric Group
Stock, will be made by the Board in good faith and in the honest belief that
such decision is in the best interests of the Company's stockholders, including
holders of Common Stock and Psychiatric Group Stock. In addition, generally
accepted accounting principles would require that changes in accounting
principles must be preferable (in accordance with generally accepted accounting
principles) to the principles previously in place. See "Management and
Accounting Policies."
Financial Covenants. Financial covenants in the Company's various debt
agreements require the Company to maintain on a consolidated basis certain
financial ratios, including (i) a minimum tangible net worth of $260 million
plus 75% of certain equity proceeds and (ii) a fixed charge coverage ratio (the
"Coverage Ratio") of at least 1.85 to 1. For the purposes of such debt
agreements, the Coverage Ratio is
6
<PAGE> 33
defined as the ratio of (a) net income before income taxes, less cash tax
expense, extraordinary income and gains from asset dispositions, plus
depreciation and amortization, interest expense, extraordinary losses and losses
from asset dispositions, to (b) interest expense and scheduled payments of debt.
Such debt agreements also limit the amount of outstanding indebtedness, and
certain other financings, including the issuance of Preferred Stock, of the
Company, and require that specified ratios of liabilities to tangible net worth
and asset values be maintained on a consolidated basis. Such debt covenants
further limit the payment of dividends and other distributions to stockholders,
including making funds available to stockholders through the purchase,
redemption or retirement of capital stock. This restriction on dividends and
other distributions applies to both the Common Stock and the Psychiatric Group
Stock and, in general, limits such payments to 95% of consolidated cash flow
available for debt service, less interest expense, plus gains on asset
dispositions and plus certain proceeds ("PG Excess Proceeds") from the
disposition of Psychiatric Group assets after the repayment of Psychiatric Group
indebtedness. Dividends or other distributions paid out of PG Excess Proceeds
are available only for the Psychiatric Group Stock and are limited to $30
million in the aggregate and $15 million in any calendar year. These covenants
in various debt agreements may limit the financial flexibility of the Company as
well as its ability to pay dividends, or otherwise make funds available to
stockholders (for example through redemptions or repurchases of stock), in the
future. However, dividends or other distributions that are payable in the form
of stock are generally not restricted. In addition, if the Company borrows
additional funds in the future, or refinances existing debt obligations, it is
expected that the Company will agree to financial covenants that could be more
or less restrictive than those referred to above. For additional information on
the Company's debt and the provisions of its debt agreements, see the notes to
the Company's consolidated financial statements, as well as the corresponding
notes to the financial statements of the Core Group and the Psychiatric Group,
incorporated herein by reference.
Retention of Financial Advisor
The Company has retained the New York based investment banking firm of
Benedetto, Gartland & Greene, Inc. for an initial one year period to provide a
broad range of financial advisory services to the Psychiatric Group investment
portfolio. Their services are expected to include supplemental monitoring of the
performance of individual assets, assistance in potential sales or
restructurings of particular investments and continuing assessments of available
strategic alternatives for the portfolio. The Company expects the services
provided by Benedetto, Gartland & Green will enable the Company's management to
focus more of its time on growing and expanding the Company's Core Group
portfolio.
Recent Inquiries
The Company has recently received information from the operator of its two
psychiatric hospitals in Florida regarding wide-ranging objections by several
large insurance companies and other payors with respect to claims presented for
services rendered. There have also been a series of negative stories in the
national media and the local press in Florida on psychiatric care provided in
Florida, including criticism of admissions policies and practice patterns at
psychiatric hospitals in the State generally, and at these two facilities. There
have been legislative hearings in Florida on these issues, and the Company
believes that regulatory investigations are being conducted. At this time both
of these facilities remain current on their rent and interest obligations to the
Company, and the Company is continuing to monitor this situation closely.
OTHER DEVELOPMENTS
In September 1995, the Company's Board of Directors elected Michael J.
McGee as Treasurer of the Company, filling a vacancy created by the resignation
in August 1995 of Victor C. Streufert, who was the Chief Financial Officer of
the Company. Mr. McGee is also the Vice President, Controller and Assistant
Secretary of the Company and has been employed by the Company since November
1989. Prior to joining the Company, Mr. McGee was an accountant with Arthur
Andersen LLP for eleven years. In addition, in September 1995 Geoffrey D. Lewis
resigned as the Senior Vice President, General Counsel and Secretary of the
Company. The Company intends to fill this position as soon as practicable and in
the interim will rely on outside counsel to assist with legal matters.
7
<PAGE> 34
MANAGEMENT AND ACCOUNTING POLICIES
The Company prepares financial statements in accordance with generally
accepted accounting principles, consistently applied, for both of the Groups,
and these financial statements, taken together, comprise all of the accounts
included in the corresponding consolidated financial statements of the Company.
The financial statements of each Group principally reflect the investments
included therein. Such Group financial statements also include allocated
portions of the Company's corporate assets, liabilities (including contingent
liabilities), stockholders' equity and items of income, expense and cash flow
that are not separately identified with the operations of the other Group.
Notwithstanding such allocations for the purpose of preparing Group financial
statements, each holder of Common Stock or Psychiatric Group Stock is a holder
of an issue of capital stock of the entire Company and is subject to risks
associated with an investment in the entire Company and all of its businesses,
assets and liabilities. See "Recent Developments -- Distribution of Psychiatric
Group Stock -- Consolidated Capital Structure."
Cash management and allocation of principal corporate activities between
the Psychiatric Group and the Core Group are based upon methods that management
believes to be reasonable and are reflected in their respective Group financial
statements. The following is a summary of certain policies adopted by the Board
and relating to these matters, as in effect as of the date of this Prospectus.
(i) Cash needs of the Psychiatric Group in excess of cash held by
the Psychiatric Group may, at the option of the Board, be funded by
advances from the Core Group to the Psychiatric Group constituting
additional revolving inter-Group loans, but the aggregate revolving
inter-Group loans owed by the Psychiatric Group to the Core Group are
limited to a maximum of $8,750,000 at any one time outstanding, subject to
reduction of such limit commensurate with any permanent repayment in the
future of working capital loans extended to certain psychiatric hospital
operators, but in no event will such limit be reduced below $5,000,000.
(ii) Except as permitted by (i) above, no additional fixed rate or
other inter-Group loans will be advanced by the Core Group to the
Psychiatric Group.
(iii) All third party debt incurred by the Company and its
subsidiaries is specifically attributed to and reflected on the financial
statements of the Core Group except for debt that is non-recourse to the
assets of the Core Group.
(iv) All Common Stock and any other class or series of stock of the
Company other than the Psychiatric Group Stock, as well as the net proceeds
of any future issuances thereof, are specifically attributed to and
reflected on the financial statements of the Core Group.
(v) If the Psychiatric Group sells any assets out of the ordinary
course ("Psychiatric Group Asset Sales"), the Net Proceeds from Psychiatric
Group Asset Sales will be applied, first, to repay revolving inter-Group
loans owed by the Psychiatric Group to the Core Group to the extent of the
psychiatric hospital operator working capital loans associated with the
asset or assets sold, second, to repay fixed rate inter-Group loans owed by
the Psychiatric Group to the Core Group (until repaid in full), and third,
to repay other revolving inter-Group loans owed by the Psychiatric Group to
the Core Group (until repaid in full), before any remaining Net Proceeds
from Psychiatric Group Asset Sales may be used to make distributions to
holders of Psychiatric Group Stock as described under "Price Range of
Common Stock and Dividends."
(vi) Excess cash held by the Psychiatric Group (other than Net
Proceeds from Psychiatric Group Asset Sales, which is treated as described
in (v) above) is applied to reduce revolving inter-Group loans owed by the
Psychiatric Group to the Core Group (until repaid in full), subject to the
ability of the Psychiatric Group, at the option of the Board, to re-borrow
cash from the Core Group up to the limitations described in (i) above to
cover future cash needs of the Psychiatric Group (including, without
limitation, to fund dividends in a manner consistent with the dividend
policy then applicable to the Psychiatric Group Stock).
8
<PAGE> 35
(vii) Fixed rate inter-Group loans owed by the Psychiatric Group to
the Core Group (a) bear interest at a fixed rate of approximately 13% per
annum (which is equal to the weighted average interest rate on the
Company's fixed rate senior debt at December 31, 1994, plus 2%) and (b) are
prepayable without premium at any time, at the option of the Board. The
higher interest rate charged to the Psychiatric Group reflects management's
belief that the consolidated Company is a stronger credit than the
Psychiatric Group on a stand alone basis.
(viii) Revolving inter-Group loans owed by the Psychiatric Group to
the Core Group (a) bear interest at a floating rate equal from time to time
to the prevailing prime rate (as determined by the Board, whose
determination shall be conclusive) plus 2% and (b) are prepayable without
premium at any time, at the option of the Board. The higher interest rate
charged to the Psychiatric Group reflects management's belief that the
consolidated Company is a stronger credit than the Psychiatric Group on a
stand alone basis.
(ix) Cash held by the Psychiatric Group in excess of inter-Group
loans owed by the Psychiatric Group required to be repaid as set forth in
(v) and (vi) above may, at the option of the Board, be advanced to the
Core Group as revolving inter-Group loans (to the extent such cash can be
beneficially put to use by the Core Group) or otherwise invested on behalf
of the Psychiatric Group.
(x) Revolving inter-Group loans owed by the Core Group to the
Psychiatric Group (a) bear interest at a floating rate equal from time to
time to the weighted average interest rate borne by the Company's revolving
debt (or, for periods in which there is no such revolving debt outstanding,
the interest rate at which the Company could borrow on a revolving basis,
as determined by the Board, whose determination shall be conclusive) and
(b) are prepayable without premium at any time, at the option of the Board.
The interest rate charged to the Core Group reflects management's belief
that the consolidated Company and the Core Group, on a stand alone basis,
are comparable credits.
(xi) As a result of the foregoing, the balance sheet of the Core
Group reflects its net revolving and net fixed rate inter-Group loans to
or borrowings from the Psychiatric Group, and the balance sheet of the
Psychiatric Group reflects its net revolving and net fixed rate
inter-Group loans to or borrowings from the Core Group. Similarly, the
respective income statements of the Core Group and the Psychiatric Group
reflect interest income or expense, as the case may be, associated with
such loans or borrowings and the respective statements of cash flows of
the Core Group and the Psychiatric Group reflect changes in the amounts
thereof deemed outstanding.
(xii) Corporate, general and administrative costs that cannot be
directly allocated to either Group are allocated between the Core Group and
the Psychiatric Group on the basis of their respective contributions to
revenue, provided that at no time will such expenses allocated to either
Group be less than $250,000 per annum.
Nothing in the foregoing policies obligates the Board to cause the Core
Group to provide funds to the Psychiatric Group if the Board determines it is in
the best interests of the Company not to do so. The foregoing policies may be
modified or rescinded in the sole discretion of the Board without the approval
of stockholders, although there is no present intention to do so. The Board
could also adopt additional policies depending upon the circumstances. Any
determination by the Board to modify or rescind such policies, or to adopt
additional policies, including any such decision that could have disparate
effects upon holders of Common Stock and Psychiatric Group Stock, would be made
by the Board in the good faith belief that such decision is in the best
interests of the Company and its stockholders, including the holders of Common
Stock and Psychiatric Group Stock. In addition, generally accepted accounting
principles would require that changes in accounting principles must be
preferable (in accordance with generally accepted accounting principles) to the
principles previously in place.
9
<PAGE> 36
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on The New York Stock Exchange, Inc.
(the "NYSE") under the symbol "AHE." The following table sets forth, for the
periods shown, the range of high and low sales prices of the Common Stock on the
NYSE and the cash dividends declared on the Common Stock.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- -------
<S> <C> <C> <C>
1993
First quarter....................................... $25 5/8 $18 7/8 $.5550
Second quarter...................................... 26 3/4 23 .5600
Third quarter....................................... 28 3/4 24 3/8 .5650
Fourth quarter...................................... 29 24 1/2 .5700
1994
First quarter....................................... $27 1/4 $24 5/8 $.5750
Second quarter...................................... 27 24 .5750
Third quarter....................................... 24 5/8 22 .5750
Fourth quarter...................................... 23 3/8 18 1/2 .5750
1995
First quarter....................................... $22 1/8 $19 3/8 $.5750
Second quarter (1).................................. 22 1/8 19 5/8 .4950
Third quarter (through September 25, 1995) (2)...... 22 3/8 20 1/2
</TABLE>
- ---------------
(1) On July 25, 1995, the Company made a distribution of one Depositary Share
for every ten shares of Common Stock held of record on July 14, 1995, each
such Depositary Share representing a one-tenth interest in one share of
Psychiatric Group Stock. On July 11, 1995, the Company declared dividends
totalling $.5750 for the second quarter of 1995, comprised of a dividend of
$.4950 to be paid on the Common Stock and a dividend of $.08 to be paid on
each one-hundredth of a share of Psychiatric Group Stock, which is
equivalent to $.80 per Depositary Share.
(2) The high and low sales prices of the Common Stock for the periods
subsequent to July 25, 1995 reflect the value of the Common Stock after the
Distribution.
If shares of Common Stock, or Securities convertible or exercisable for
Common Stock, are being offered, a recent last sale price of the Common Stock
will be set forth on the cover page of the accompanying Prospectus Supplement.
The Company expects to declare quarterly dividends on the Common Stock and
the Psychiatric Group Stock in the future based primarily upon the Funds From
Operations attributable to the Core Group and the Psychiatric Group,
respectively. Specifically, the Company expects to maintain the Common Stock
dividend payout ratio at less than 90% of annual Funds From Operations
attributable to the Core Group and the Psychiatric Group Stock dividend payout
ratio (excluding distributions out of asset sale proceeds) at less than 95% of
annual Funds From Operations attributable to the Psychiatric Group.
In addition, the Company expects to use the Net Proceeds from Psychiatric
Group Asset Sales initially to repay then outstanding inter-Group loans or other
debt owed by the Psychiatric Group and then to distribute all remaining net
proceeds, if any, to holders of Psychiatric Group Stock by dividend, tender
offer, open market or privately negotiated repurchases or otherwise (in cash, or
in Common Stock valued at a ten Trading Day average Market Value prior to the
time of the distribution).
The payment of dividends on the Common Stock and Psychiatric Group Stock
will also be dependent in part upon the financial condition of the Company as a
whole.
The Company expects the aggregate annual dividends paid on the Common Stock
and the Psychiatric Group Stock to be at least sufficient to cause the Company
to maintain its status as a REIT. In order to permit the Company to qualify as a
REIT, the Company must distribute to stockholders at least 95% of its
10
<PAGE> 37
annual REIT taxable income (which essentially is its net ordinary income,
excluding capital gains). Generally, as a result of non-cash items, primarily
depreciation, cash dividends have exceeded and may continue to exceed the
Company's REIT taxable income and to that extent represent a return of capital.
Dividends on the Common Stock and Psychiatric Group Stock will be limited
to the Available Dividend Amount attributable to the Core Group and the
Psychiatric Group, respectively. The Available Dividend Amount is similar to the
amount that would be legally available under Delaware law for the payment of
dividends by the Core Group or the Psychiatric Group, as the case may be, if
such Group were a separate Delaware corporation. There can be no assurance that
there will be an Available Dividend Amount with respect to either Group. As of
June 30, 1995, the Available Dividend Amount attributable to the Core Group and
the Psychiatric Group as of that date was at least $254.7 million and $48.0
million, respectively. All dividends on Common Stock will be deemed to be out of
the Core Group's funds and all dividends on Psychiatric Group Stock will be
deemed to be out of the Psychiatric Group's funds.
Dividends on the Common Stock and the Psychiatric Group Stock will be
further limited to the amount of funds of the Company legally available under
Delaware law for the payment of dividends by the Company on its capital stock.
As of June 30, 1995, the funds of the Company legally available for the payment
of dividends would have been at least $302.7 million. Payments of dividends on
either the Common Stock or the Psychiatric Group Stock will decrease the amount
of funds legally available for the payment of dividends on both the Common Stock
and the Psychiatric Group Stock.
USE OF PROCEEDS
Except as otherwise described in the accompanying Prospectus Supplement,
the net proceeds from the sale of Securities will be used for general corporate
purposes, which may include working capital, acquisitions, investments,
refinancings of indebtedness, capital expenditures, and repurchases and
redemptions of securities.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for the periods indicated. For purposes of calculating such ratio,
"earnings" includes income before income taxes and fixed charges. "Fixed
charges" consists of interest on all indebtedness and that portion of rental
expense that management believes to be representative of interest. The Company
did not have any Preferred Stock outstanding for any period presented.
Accordingly, the ratio of earnings to combined fixed charges and preferred stock
dividends is identical to the ratio of earnings to fixed charges for the periods
presented. Because dividends payable on the Psychiatric Group Stock are not
fixed, dividends paid on the Psychiatric Group Stock will not be included in any
future presentations of the ratio of earnings to combined fixed charges and
preferred stock dividends.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------------------------
JUNE 30, 1995 1994 1993 1992 1991 1990
---------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to
fixed charges (unaudited)......... 2.39 1.33(a) 2.81 (b) 2.09 2.31
</TABLE>
- ---------------
(a) Decrease in ratio was primarily due to a $30 million write-down of
Psychiatric Group real estate investments.
(b) Earnings did not cover fixed charges by $7.2 million primarily due to a $45
million write-down of Psychiatric Group real estate investments.
The Coverage Ratios as defined in the Company's debt agreements for the six
months ended June 30, 1995 and the years ended 1994, 1993, 1992, 1991 and 1990
were 2.96, 3.09, 2.58, 2.29, 2.48 and 2.73, respectively. See "Recent
Developments -- Distribution of Psychiatric Group Stock -- Financial Covenants."
11
<PAGE> 38
DESCRIPTION OF COMMON STOCK AND PSYCHIATRIC GROUP STOCK
The following description is intended as a summary of the principal
provisions of, and is qualified in all respects by reference to, (a) the
Company's Certificate of Incorporation and Bylaws previously filed with the
Securities and Exchange Commission and (b) the Certificate of Designations
specifying the terms of the Psychiatric Group Stock, filed as Exhibit 4.1 to the
Current Report on Form 8-K, dated August 14, 1995, incorporated by reference
herein.
GENERAL
The Certificate of Incorporation of the Company provides that the Company
is authorized to issue 100,000,000 shares of Common Stock, par value $0.01 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per share,
issuable in series by the Board. As of July 31, 1995, the Company had issued and
outstanding 20,865,539 shares of Common Stock. As of July 31, 1995, the Company
had outstanding approximately 209,000 shares of Psychiatric Group Stock, which
constitute a separate series of Preferred Stock, issued and outstanding. Such
shares are the only shares of Psychiatric Group Stock authorized by the Board to
be issued, except shares of Psychiatric Group Stock issuable upon exercise of
options granted in connection with the Distribution. In addition, the Company
has authorized the issuance of approximately 232,000 Series A Preferred Shares.
See " -- Preferred Stock Purchase Rights Plan."
The authorized but unissued shares of Common Stock of the Company will be
available for issuance from time to time by the Company at the sole discretion
of the Board for any proper corporate purpose, which could include raising
capital, providing compensation or benefits to employees, paying stock dividends
or acquiring companies or businesses. Under applicable Delaware law, such future
issuances of Common Stock would not require further approval of stockholders,
and the Company would not seek approval of stockholders unless such approval
would be required by stock exchange regulations, would be in conjunction with a
further amendment to the Certificate of Incorporation or would otherwise be
deemed advisable by the Board.
Each holder of Common Stock will be a holder of an issue of capital stock
of the entire Company and will be subject to the risks associated with an
investment in the Company and all of its businesses, assets and liabilities. For
example, if the cash flow and proceeds of any sales of assets of the Psychiatric
Group should be insufficient to service inter-Group loans or other debt owed by
the Psychiatric Group, the Core Group would be adversely affected.
The Common Stock trades on The New York Stock Exchange, Inc. under the
symbol "AHE" and the Psychiatric Group Stock is quoted on the National
Association of Securities Dealers Automated Quotations National Market under the
symbol "AHEPZ."
DIVIDENDS
Subject to the rights, if any, of holders of any other Preferred Stock
dividends may be paid on the Common Stock and/or the Psychiatric Group Stock in
equal or unequal amounts, when, as and if declared by the Board. Dividends on
the Common Stock and Psychiatric Group Stock will be limited to the Available
Dividend Amount attributable to the Core Group and the Psychiatric Group,
respectively. As of June 30, 1995, the Available Dividend Amount attributable to
the Core Group and the Psychiatric Group as of that date was at least $254.7
million and $48.0 million, respectively. The Available Dividend Amount is
similar to the amount that would be legally available under Delaware law for the
payment of dividends by the Core Group or Psychiatric Group, as the case may be,
if such Group were a separate Delaware corporation. There can be no assurance
that there will be an Available Dividend Amount with respect to either Group.
Dividends on the Common Stock and the Psychiatric Group Stock will be
further limited to the amount of funds of the Company legally available under
Delaware law for the payment of dividends by the Company on its capital stock.
As of June 30, 1995, the funds of the Company legally available for the payment
of dividends would have been at least $302.7 million. Payments of dividends on
either the Common Stock or the Psychiatric Group Stock will decrease the amount
of funds legally available for the payment of dividends on both the Common Stock
and the Psychiatric Group Stock.
See "Recent Developments -- Distribution of Psychiatric Group
Stock -- Financial Covenants."
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<PAGE> 39
EXCHANGE AND REDEMPTION
Common Stock. The Certificate of Incorporation does not provide for either
mandatory or optional conversion, exchange or redemption rights relating to
outstanding shares of Common Stock.
Psychiatric Group Stock. The Company may, at any time commencing one year
after the date of the Distribution and in its sole discretion, redeem all
outstanding shares of Psychiatric Group Stock for cash in an amount, or in
exchange for newly issued shares of Common Stock having an aggregate value
(based on the average Market Value for the ten consecutive Trading Days ending
on the last Trading Day prior to the date on which notice of such exchange is
mailed to holders of Psychiatric Group Stock), equal to 115% of the average
Market Value during such ten Trading Day period of the shares of Psychiatric
Group Stock being redeemed; provided, however, that in connection with the sale
of all or substantially all of the assets of the Psychiatric Group the Company
may at any time after the date of the Distribution redeem all outstanding shares
of Psychiatric Group Stock for cash or in exchange for newly issued shares of
Common Stock having an aggregate value (based on the average Market Value for
the ten consecutive Trading Days ending on the last Trading Day prior to the
date on which notice of such exchange is mailed to holders of Psychiatric Group
Stock), equal to 105% of the average Market Value during such ten Trading Day
period of the shares of Psychiatric Group Stock being redeemed.
If at any time commencing one year after the date of the Distribution, the
Fair Market Value of the assets (other than cash, deposits and readily
marketable securities) of the Psychiatric Group (as determined by the Board,
whose determination shall be conclusive) is less than $10,000,000, the Company
may, in its sole discretion, redeem all outstanding shares of Psychiatric Group
Stock for cash in an amount, or in exchange for newly issued shares of Common
Stock having an aggregate value (based on the average Market Value for the ten
consecutive Trading Days ending on the last Trading Day prior to the date on
which notice of such exchange is mailed to holders of Psychiatric Group Stock),
equal to 105% of the Net Fair Market Value of the Psychiatric Group (as
determined by the Board, whose determination shall be conclusive).
VOTING RIGHTS
Holders of Common Stock are entitled to one vote per share and vote as one
class with the holders of Psychiatric Group Stock (together with any other
series of Preferred Stock outstanding at the time of such vote and so entitled
to vote) on all matters submitted to stockholders, other than matters which
would be required by law or the Company's Certificate of Incorporation to be
submitted to a separate class vote.
Holders of Psychiatric Group Stock are entitled to a variable number of
votes per share equal to the ratio (calculated to the nearest three decimal
places) of the average Market Value of one share of Psychiatric Group Stock to
one share of Common Stock for the ten consecutive Trading Days ending on the
last Trading Day prior to the applicable record date, and could have more than,
less than or exactly one vote per share. This formula is intended to equate the
proportionate voting rights of the Common Stock and Psychiatric Group Stock to
their respective Market Values at the time of any vote. Holders of Psychiatric
Group Stock vote as one class with holders of Common Stock (together with any
other series of Preferred Stock outstanding at the time of such vote and so
entitled to vote) on all matters submitted to stockholders, other than matters
which would be required by law or the Company's Certificate of Incorporation to
be submitted to a separate class vote. Each holder of Depositary Shares
representing interests in Psychiatric Group Stock is, through the depositary
share arrangements relating thereto, entitled to a number of votes per
Depositary Share equal to one-tenth the number of votes to which a holder of one
share of Psychiatric Group Stock is entitled.
No class vote of holders of Psychiatric Group Stock is required upon a
merger or consolidation if (a) the Psychiatric Group Stock remains outstanding
and unchanged as a result of the merger or consolidation, (b) the type and
amount of consideration for such merger or consolidation is divided between
holders of Psychiatric Group Stock and holders of Common Stock in a manner
determined to be fair by the Board (whose determination shall be conclusive) or
(c) the Psychiatric Group Stock is converted into capital stock of the surviving
company to the merger or consolidation having terms substantially similar to the
terms of the Psychiatric Group Stock. A class vote of the holders of a majority
of the outstanding shares of Psychiatric Group Stock is required for any other
merger or consolidation.
13
<PAGE> 40
Provisions of the Company's Certificate of Incorporation require that any
action permitted or required to be taken by the stockholders must be effected at
a duly called annual or special meeting; stockholders cannot take any action by
written consent of the stockholders. Special meetings of the stockholders may be
called only by a majority of the Board, by the Chairman of the Board or by the
President and may not be called by the stockholders.
Neither the holders of Common Stock nor the holders of Psychiatric Group
Stock have any cumulative voting rights or any preemptive rights to subscribe
for or purchase additional shares of capital stock or any other obligations
convertible into or exercisable for shares of capital stock that may hereafter
be issued by the Company.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, holders of Common Stock and Psychiatric Group Stock
are entitled to receive their respective proportionate interests in the net
assets of the Company, if any, remaining for distribution to holders of stock
(after payment or provision for all liabilities, including contingent
liabilities, of the Company and payment of the liquidation preference payable to
holders of any other series of Preferred Stock ranking senior to the Psychiatric
Group Stock as to distributions upon liquidation) pro rata based upon the
average Market Value of the Common Stock as compared to the average Market Value
of the Psychiatric Group Stock, in each case for the ten consecutive Trading
Days ending on the Trading Day prior to the date of the first public
announcement of (i) a voluntary liquidation, dissolution or winding-up of the
Company or (ii) the institution of any proceeding for the involuntary
liquidation, dissolution or winding-up of the Company; provided that if the
foregoing would result in a liquidation payment valued at less than $1.00 per
share of the Psychiatric Group Stock, the holders of Psychiatric Group Stock are
not entitled to a proportionate interest in such net assets but instead are
entitled to receive a liquidation preference of $1.00 per share (and no more)
before any payment may be made to holders of Common Stock.
Neither the merger nor consolidation of the Company into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with the Company, nor a sale, transfer or lease of all or any part of the assets
of the Company, would be deemed a liquidation, dissolution or winding-up for
these purposes.
DETERMINATIONS BY THE BOARD
The Company's Certificate of Incorporation provides that a Director will
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) pursuant to specific provisions of Delaware law
or (iv) for any transaction from which the Director derived any improper
personal benefit. The liability of Directors will be further eliminated or
limited to the fullest extent permitted by future changes in Delaware law. In
addition, the Certificate of Designations relating to the Psychiatric Group
Stock provides that any determinations made in good faith by the Board under
such Certificate of Designations, and any determinations with respect to either
Group or the rights of holders of shares of Common Stock or Psychiatric Group
Stock made pursuant to or in furtherance of such Certificate of Designations,
will be final and binding on all stockholders of the Company, subject to the
rights of stockholders under Delaware law and under the federal securities laws.
PREFERRED STOCK PURCHASE RIGHTS PLAN
On April 20, 1990, the Company distributed to its holders of Common Stock
one preferred stock purchase right (each, a "Right") for each outstanding share
of Common Stock. Under certain conditions, each Right may be exercised to
purchase one one-hundredth of a share of preferred stock, Series A, par value
$.01 per share (the "Series A Preferred Shares"), of the Company at a price of
$45. The total number of Rights currently issued or issuable, including Rights
issuable in connection with Common Stock which may be
14
<PAGE> 41
issued under the Company's stock incentive plans and upon the conversion of the
Company's outstanding Swiss franc convertible bonds, is approximately
23,200,000. Approximately 232,000 Series A Preferred Shares could be purchased
upon the exercise of all Rights currently issued or issuable. The number of
Rights outstanding and Series A Preferred Shares issuable upon exercise, as well
as the Series A Preferred Share purchase price, are subject to customary
antidilution adjustments.
The Rights are evidenced by the certificates for shares of Common Stock,
and in general are not transferable apart from the Common Stock or exercisable
until after a party has acquired beneficial ownership of or made a tender offer
for 10% or more of the outstanding Common Stock of the Company (an "Acquiring
Person"), or the occurrence of other events as specified in the Rights Plan.
Under certain conditions as specified in the Rights Plan, including but not
limited to the acquisition by a party of 15% or more of the outstanding Common
Stock of the Company or the acquisition of the Company in a merger or other
business combination, each holder of a Right (other than an Acquiring Person,
whose Rights will be void) will receive upon exercise thereof and payment of the
exercise price that number of shares of Common Stock of the Company or of the
other party, as applicable, having a market value of two times the exercise
price of the Right.
The Rights expire on April 20, 2000, and until exercised, the holder
thereof, as such, will have no rights as a shareholder of the Company. At the
Company's option, the Rights may be redeemed in whole at a price of $.01 per
Right at any time prior to becoming exercisable. In general, the Company may
also exchange the Rights at a ratio of one share of Common Stock per Right after
becoming exercisable but prior to the acquisition of 50% or more of the
outstanding shares of Common Stock by any party.
Series A Preferred Shares issuable upon exercise of the Rights will not be
redeemable. Each Series A Preferred Share will have 100 votes and will be
entitled to (a) dividends in an amount equal to the greater of $1.00 or 100
times the amount of the dividends per share paid on the Common Stock, (b) a
liquidation preference in an amount equal to the greater of $100 or 100 times
the amount per share paid on the Common Stock and (c) a payment in connection
with a business combination (in which shares of Common Stock are exchanged)
equal to 100 times the amount per share paid on the Common Stock.
The Psychiatric Group Stock will not include, or entitle the holders
thereof to receive, the Rights, which will be applicable only to the Common
Stock.
LIMITS ON STOCK OWNERSHIP
The Company's Certificate of Incorporation provides that as a condition to
the transfer and/or registration of transfer of any shares of capital stock of
the Company which would result in any stockholder owning, directly or
indirectly, shares in excess of 9% of the issued and outstanding capital stock
of the Company, the proposed transferee must file with the Company an affidavit
setting forth the number of shares owned, directly or indirectly, by such
transferee. Any acquisition of shares, transfer of shares or any options,
warrants or other securities convertible into shares that would result in the
disqualification of the Company as a REIT will be deemed void to the fullest
extent permitted under applicable law and the intended transferee shall be
deemed never to have had an interest therein. If more than 9.8% of the capital
stock of the Company has become concentrated in the hands of one beneficial
owner, (i) such beneficial owner and its affiliates and associates will be
deemed to have offered to sell to the Company or its designee on the date
specified in the Company's notice of acceptance of such offer to sell such
number of shares sufficient, in the opinion of the Board, to maintain or bring
the direct or indirect ownership of the capital stock of the Company held by
such beneficial owner to a level of no more than 9.8% of the issued and
outstanding capital stock of the Company, and (ii) the Board also will refuse to
transfer or issue shares of capital stock to any person whose acquisition of
such shares would result in the direct or indirect ownership by that person of
more than 9.8% of the issued and outstanding capital stock of the Company. The
purchase price for any shares of capital stock of the Company so redeemed will
be equal to the fair market value of the shares reflected in the closing sales
price for the shares, if then listed on a national securities exchange, or the
average of the closing sales prices for the shares if then listed on more than
one national securities exchange, or if the shares are not then listed on a
national securities exchange, the latest bid quotation for the shares if then
traded over-the-counter, on the last business
15
<PAGE> 42
day immediately preceding the day on which notice of acceptance of the offer of
sale is sent by the Company, or, if no such closing sales prices or quotations
are available, then the purchase price will be equal to the net asset value of
such shares as determined in good faith by the Board. The purchase price of any
such shares acquired by the Company, or its designee, will be paid, at the
option of the Company, in cash or in the form of an unsecured, subordinated
promissory note of the Company, or its designee, bearing interest and having a
term to maturity (to be not less than 5 nor more than 20 years) as determined by
the Board. From and after the tender by the Company of the purchase price
therefor, the holder of any shares of capital stock of the Company so called for
purchase will cease to be entitled to any rights as a holder of such shares,
except the right to payment of the purchase price therefor.
BUSINESS COMBINATION PROVISIONS
The Certificate of Incorporation requires that Business Combinations (as
defined in the Certificate of Incorporation) between the Company and a
Beneficial Owner (as defined in the Certificate of Incorporation) of 10% or more
of the Company's outstanding shares of Voting Stock (as defined in the
Certificate of Incorporation) (a "Related Person"), and any Affiliate (as
defined in the Certificate of Incorporation) or Associate (as defined in the
Certificate of Incorporation) of such person, be approved by (i) the affirmative
vote of the holders of not less than 80% of the outstanding shares of Voting
Stock and (ii) the holders of a majority of the outstanding shares of Voting
Stock other than such Related Person and such person's Associates and
Affiliates, unless a majority of the Continuing Directors (as defined in the
Certificate of Incorporation) shall have approved the Business Combination or
shall have approved the acquisition of outstanding shares of Voting Stock which
caused the Related Person to become a Related Person. In general, Voting Stock
means the capital stock of the Company entitled to vote generally in the
election of directors, including the Psychiatric Group Stock, and each share is
allocated for this purpose the number of votes granted to it generally in the
election of directors.
A "Business Combination" is defined in the Certificate of Incorporation as
(a) any merger or consolidation of the Company or any subsidiary (other than
pursuant to Section 253 of the Delaware General Corporation Law with or into any
corporation which owns at least 90% of the outstanding shares of each class of
stock of the Company or its subsidiary, as applicable) with a Related Person or
any other corporation (whether or not itself a Related Person) which is, or
after such merger or consolidation would be, an Affiliate or Associate of a
Related Person, (b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with a
Related Person or such person's Affiliates or Associates of any assets of the
Company (including the securities of a subsidiary) or a subsidiary having a fair
market value of $20 million or more, (c) the issuance or transfer of any
securities of the Company or a subsidiary by the Company or such subsidiary to
any Related Person having an aggregate fair market value of $20 million or more,
other than by any distribution pro rata to, or exchange offer made to, all
holders of a publicly held class or series of stock of the Company or any of its
subsidiaries, or upon the exercise, conversion or exchange of securities of the
Company or any of its subsidiaries which are exercisable, convertible or
exchangeable into or for securities of the Company or any of its subsidiaries,
(d) the adoption of any plan or proposal for the liquidation or dissolution of
the Company by or on behalf of a Related Person or any of such person's
Affiliates or Associates or (e) any reclassification of securities or
recapitalization of the Company (including any reverse stock split), or any
merger or consolidation of the Company with any of its subsidiaries or any other
transaction involving the Company or any of its subsidiaries (whether or not
with or into or otherwise involving a Related Person) which has the effect,
directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class of voting stock of the Company or of any of its subsidiaries
directly or indirectly owned by any Related Person or such person's Associates
or Affiliates.
The Company is also subject to the provisions of Section 203 of the
Delaware General Corporation Law, which relate to business combinations.
STAGGERED BOARD; REMOVAL OF DIRECTORS
The Board is divided into three classes, each class consisting, as nearly
as may be possible, of one-third of the total number of Directors. Directors are
elected for a three-year term and the term of one class expires
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<PAGE> 43
each year. A Director holds office until the annual meeting for the year in
which his or her term expires. If the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible, but in no
case will a decrease in the number of Directors shorten the term of any
incumbent Director. Under Delaware law, because the Board is divided into
classes, no Director may be removed from office before expiration of his or her
term except for cause.
VOTE REQUIRED TO CHANGE CERTAIN PROVISIONS
The provisions described under "Limits on Stock Ownership" and "Business
Combination Provisions" above may not be amended without the affirmative vote of
stockholders holding at least 80% of the Voting Stock of the Company and, with
respect to the provisions under "Business Combination Provisions" only, a
majority vote of the stockholders of Voting Stock who are Disinterested
Stockholders (as defined in the Certificate of Incorporation). The provisions
described under "Staggered Board" above may not be amended without the
affirmative vote of stockholders holding at least 66 2/3% of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of Directors.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions described under "-- Preferred Stock Purchase Rights Plan,"
"-- Limits on Stock Ownership," "-- Business Combination Provisions" and
"-- Staggered Board" above may have the effect of discouraging unilateral tender
offers or other takeover proposals which certain stockholders might deem in
their interests or in which they might receive a substantial premium over market
price for their shares. The Board's authority to issue and establish the terms
of currently authorized Preferred Stock without stockholder approval may also
have the effect of discouraging takeover attempts. The provisions could also
have the effect of insulating current management against the possibility of
removal and could, by possibly reducing temporary fluctuations in market price
caused by accumulations of Common Stock, deprive stockholders of opportunities
to sell at a temporarily higher market price. However, the Board believes that
the Preferred Stock Purchase Rights Plan and inclusion of the Business
Combination and Staggered Board provisions may help assure fair treatment of
stockholders and continuity of management and that the Limits on Stock Ownership
provision is reasonably necessary to safeguard the Company's REIT status.
STOCK REGISTRAR AND TRANSFER AGENT
Chemical Mellon Shareholder Services is the registrar and transfer agent
for the Common Stock and the Psychiatric Group Stock. Chemical Mellon
Shareholder Services is also depositary for the depositary shares with respect
to the Psychiatric Group Stock.
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<PAGE> 44
DESCRIPTION OF DEBT SECURITIES
The Debt Securities constitute either Senior Securities or Subordinated
Securities as specified in the accompanying Prospectus Supplement. The Senior
Securities will be issued under an Indenture (the "Senior Indenture") to be
entered into by the Company prior to the issuance of any such Senior Securities,
the form of which is filed as an exhibit to the Registration Statement. The
Subordinated Securities will be issued under an Indenture (the "Subordinated
Indenture") to be entered by the Company prior to the issuance of any such
Subordinated Securities, the form of which is also filed as an exhibit to the
Registration Statement. Both the Senior Indenture and the Subordinated Indenture
are subject to and governed by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Information regarding the trustee under the Senior
Indenture (the "Senior Trustee") or the trustee under the Subordinated Indenture
(the "Subordinated Trustee"), as the case may be, will be included in any
Prospectus Supplement relating to such Senior Securities or Subordinated
Securities. The Senior Indenture and the Subordinated Indenture are sometimes
collectively referred to herein as the "Indentures;" the Senior Trustee and the
Subordinated Trustee are sometimes collectively referred to herein as the
"Trustees" and individually as a "Trustee." The following discussion includes a
summary description of all material terms of the Indentures, other than terms
that are specific to a particular series of Debt Securities, which will be
described in the Prospectus Supplement relating to such series. Accordingly, for
a description of the terms of a particular issue of Debt Securities reference
must be made to both the accompanying Prospectus Supplement and the following
description. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indentures, including the definitions therein of certain
capitalized terms in this Prospectus. The following summary is also qualified in
its entirety by reference to the terms made a part of the Indenture by the Trust
Indenture Act. Wherever particular Sections or Articles or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections,
Articles or defined terms are incorporated herein or therein by reference.
The Debt Securities may be issued from time to time in one or more series.
The particular terms of each series of Debt Securities offered by any Prospectus
Supplement or Prospectus Supplements will be described in such Prospectus
Supplement or Prospectus Supplements relating to such series.
Other than as set forth under "Certain Covenants of the Company," and only
to the extent applicable to the Debt Securities of a particular series, as
indicated in the applicable Prospectus Supplement, there are no provisions of
the Indentures that afford holders of the Debt Securities protection in the
event of a highly leveraged transaction involving the Company.
GENERAL
The Indentures do not limit the aggregate amount of Debt Securities which
may be issued thereunder, and Debt Securities may be issued thereunder from time
to time in separate series up to the aggregate amount from time to time
authorized by the Company for each series. The Senior Securities will be
unsecured and unsubordinated obligations of the Company and will rank equally
and ratably with other unsecured and unsubordinated indebtedness of the Company.
The Subordinated Securities will be subordinated in right of payment to the
prior payment in full of the Senior Indebtedness (as defined) of the Company, as
described below under "Subordination of Subordinated Securities" and in a
Prospectus Supplement applicable to an offering of Subordinated Securities.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the series of Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities; (3)
whether any of such Debt Securities are to be issuable in permanent global form
("Global Security") and, if so, the terms and conditions, if any, upon which
interests in such Securities in global form may be exchanged, in whole or in
part, for the individual Debt Securities represented thereby; (4) the person to
whom any interest on any Debt Security of the series shall be payable if other
than the person in whose name the Debt Security is registered on the Regular
Record Date; (5) the date or dates on which such Debt Securities will mature;
(6) the rate or rates of interest, if any, or the method of calculation thereof,
which such Debt Securities will bear; (7) the
18
<PAGE> 45
date or dates from which any such interest will accrue, the Interest Payment
Dates on which any such interest on such Debt Securities will be payable and the
Regular Record Date for any interest payable on any Interest Payment Date; (8)
the place or places where the principal of, premium (if any) and interest on
such Debt Securities will be payable; (9) the period or periods within which,
the events upon the occurrence of which, and the price or prices at which, such
Debt Securities may, pursuant to any optional provisions, be redeemed or
purchased, in whole or in part, and any terms and conditions relevant thereto
and the period or periods within which and the price or prices at which the Debt
Securities will be redeemed or purchased, in whole or in part, and any terms and
conditions relevant thereto; (10) the obligation of the Company, if any, to
redeem or repurchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of the Holders; (11) the denominations in
which any such Debt Securities will be issuable, if other than denominations of
$1,000 and any integral multiple thereof; (12) the currency, currencies or
currency unit or units of payment of principal of and any premium and interest
on such Debt Securities if other than U.S. dollars; (13) any index or formula
used to determine the amount of payments of principal of and any premium and
interest on such Debt Securities; (14) if the principal of or any premium or
interest on such Debt Securities is to be payable, at the election of the
Company or a Holder thereof, in one or more currencies or currency units other
than that or those in which such Debt Securities are stated to be payable, the
currency, currencies or currency units in which payment of the principal of and
any premium and interest on Debt Securities of such series as to which such
election is made shall be payable, and the periods within which and the terms
and conditions upon which such election is to be made; (15) if other than the
principal amount thereof, the portion of the principal amount of such Debt
Securities of the series which will be payable upon declaration of the
acceleration of the Maturity thereof; (16) the applicability of any provisions
described under "Certain Covenants of the Company"; (17) the applicability of
any provisions described under "Defeasance"; (18) the terms and conditions, if
any, pursuant to which such Debt Securities are convertible or exchangeable into
Common Stock or other securities of the Company or another issuer and (19) any
other terms of such Debt Securities not inconsistent with the provisions of the
applicable Indentures. (Section 301)
Debt Securities may be issued at a discount from their principal amount.
All material United States Federal income tax, accounting and other special
considerations applicable to any such Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general tax considerations, specific terms and
other information with respect to such issue of Debt Securities and such foreign
currency or currencies or foreign currency unit or units will be set forth in
the applicable Prospectus Supplement.
SUBORDINATION OF SUBORDINATED SECURITIES
The indebtedness evidenced by the Subordinated Securities will be
subordinated and junior in right of payment to the extent set forth in the
Subordinated Indenture to the prior payment in full of amounts then due on all
Senior Indebtedness (as defined below). No payment shall be made by the Company
on account of principal of (or premium, if any) or interest on the Subordinated
Securities or on account of the purchase or other acquisition of Subordinated
Securities, if the maturity of any of the Subordinated Securities shall have
been accelerated, until all amounts due have been paid on all outstanding Senior
Indebtedness, or if (i) there shall have occurred and be continuing a default in
the payment of principal (or premium, if any) or interest on any Senior
Indebtedness beyond any applicable grace period with respect thereto, or any
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity of such Senior Indebtedness, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist and such acceleration shall have been rescinded or annulled or (ii) any
such default in payment or event of default shall be the subject of a judicial
proceeding. By reason of these provisions in the event of default of any Senior
Indebtedness, whether now outstanding or hereafter issued, payments of principal
of (and premium, if any) and interest on the Subordinated Securities may not be
permitted to be made until such default is cured or such Senior Indebtedness is
paid in full.
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Upon any distribution of assets of the Company upon any receivership,
dissolution, winding-up, liquidation, reorganization or similar proceeding of
the Company, whether voluntary or involuntary, or in bankruptcy or insolvency,
all principal of (and premium, if any) and interest due upon all Senior
Indebtedness must be paid in full before the Holders of the Subordinated
Securities or the Trustee is entitled to receive or retain any assets so
distributed in respect of the Subordinated Securities. By reason of this
provision, in the event of insolvency Holders of the Subordinated Securities may
recover less than other creditors of the Company, including holders of Senior
Indebtedness.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest on (a) all indebtedness of the Company (including indebtedness of
others guaranteed by the Company) other than the Subordinated Securities which
is (i) for money borrowed or (ii) evidenced by a note or similar instrument
given in connection with the acquisition of any business, properties or assets
of any kind, (b) obligations of the Company as lessee under leases required to
be capitalized on the balance sheet of the lessee under generally accepted
accounting principles, and (c) amendments, renewals, extensions, modifications
and refunding of any such indebtedness or obligation, in any such case whether
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed, unless in any case in the instrument creating or evidencing
any such indebtedness or obligation or pursuant to which the same is outstanding
it is provided that such indebtedness or obligation is not superior in right of
payment to the Subordinated Securities or it is provided that such obligation is
subordinated to senior indebtedness to substantially the same extent as the
Subordinated Securities are subordinated to Senior Indebtedness. As of June 30,
1995, the amount of Senior Indebtedness was approximately $263 million. The
Subordinated Indenture does not prohibit or limit the incurrence of additional
Senior Indebtedness.
FORM, EXCHANGE, REGISTRATION, CONVERSION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof. (Section 302) Unless otherwise indicated
in the applicable Prospectus Supplement, payment of principal, premium (if any)
and interest on the Debt Securities will be payable, and the exchange,
conversion and transfer of Debt Securities will be registerable, at the office
or agency of the Company maintained for such purposes and at any other office or
agency maintained for such purpose. (Sections 301, 305 and 1002) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental change imposed in connection therewith. (Section 305)
All moneys paid by the Company to a Paying Agent for the payment of
principal of and any premium or interest on any Debt Security which remain
unclaimed for two years after such principal, premium or interest has become due
and payable may be repaid to the Company and thereafter the Holder of such Debt
Security may look only to the Company for payment thereof. (Section 1003)
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a Depositary ("Depositary") or its nominee identified in the applicable
Prospectus Supplement. In such a case, one or more Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of Outstanding Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer or exchange except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any nominee to a successor Depositary or a
nominee of such successor Depositary and except in the circumstances described
in the applicable Prospectus Supplement. (Sections 204 and 305)
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The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interest in such Global Security will be limited to participants or Persons that
may hold interests through participants. Ownership of beneficial interests by
participants in such Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by Persons that hold through participants will
be shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in certificated form. The foregoing
limitations and such laws may impair the ability to transfer beneficial
interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Securities
represented by such Global Security for all purposes under the applicable
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not be
considered the Holders thereof for any purposes under the applicable Indenture.
(Sections 204 and 305) Accordingly, each Person owning a beneficial interest in
such Global Security must rely on the procedures of the Depositary and, if such
Person is not a participant, on the procedures of the participant through which
such Person owns its interest, to exercise any rights of a Holder under the
applicable Indenture. The Company understands that under existing industry
practices, if the Company requests any action of Holders or an owner of a
beneficial interest in such Global Security desires to give any notice or take
any action a Holder is entitled to give or take under an Indenture, the
Depositary would authorize the participants to give such notice or take such
action, and participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE COMPANY
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, the Company will be subject to either or
both of the following covenants.
The Debt Securities will not be secured by mortgage, pledge or other lien.
The Company will covenant in the Indenture not to pledge or otherwise subject to
any lien, any property or assets of the Company or its subsidiaries unless the
Debt Securities of such series are secured by such pledge or lien equally and
ratably with all other obligations secured thereby so long as such obligations
shall be so secured; provided, however, that such covenant will not apply to
liens securing obligations which do not in the aggregate at any one time
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outstanding exceed 10% of Consolidated Net Tangible Assets (as defined below) of
the Company and its consolidated subsidiaries and in addition will not apply to:
(1) Any lien or charge on any property, tangible or intangible, real
or personal, existing at the time of acquisition or construction of such
property (including acquisition through merger or consolidation) or given
to secure the payment of all or any part of the purchase or construction
price thereof or to secure any indebtedness incurred prior to, at the time
of, or within one year after, the acquisition or completion of construction
thereof for the purpose of financing all or any part of the purchase or
construction price thereof;
(2) Any liens securing the performance of any contract or undertaking
of the Company not directly or indirectly in connection with the borrowing
of money, obtaining of advances or credit or the securing of debts, if made
and continuing in the ordinary course of business;
(3) Any lien in favor of the United States or any state thereof or the
District of Columbia, or any agency, department or other instrumentality
thereof, to secure progress, advance, or other payments pursuant to any
contract or provision of any statute;
(4) Mechanics, materialmen's, carriers', or other like liens arising
in the ordinary course of business (including construction of facilities)
in respect of obligations which are not due or which are being contested in
good faith;
(5) Any lien arising by reason of deposits with, or the giving of any
form of security to, any governmental agency or any body created or
approved by law or governmental regulations, which is required by law or
governmental regulation as a condition to the transaction of any business,
or the exercise of any privilege, franchise or license;
(6) Any liens for taxes, assessments or governmental charges or levies
not yet delinquent, or liens for taxes, assessments or governmental charges
or levies already delinquent but the validity of which is being contested
in good faith;
(7) Liens (including judgment liens) arising in connection with legal
proceedings so long as such proceedings are being contested in good faith
and in the case of judgment liens, execution thereof is stayed;
(8) Liens relating to secured indebtedness of the Company outstanding
as of June 30, 1995; and
(9) Any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any lien referred to
in the foregoing clauses (1) to (8) inclusive; provided, however, that the
amount of any and all obligations and indebtedness secured thereby shall
not exceed the amount thereof so secured immediately prior to the time of
such extension, renewal or replacement and that such extension, renewal or
replacement shall be limited to all or a part of the property which secured
the charge or lien so extended, renewed or replaced (plus improvements on
such property).
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(less applicable reserves and other properly deductible items) less (i) all
current liabilities and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expenses and other like intangibles of the Company
and its consolidated subsidiaries, all as set forth on the most recent balance
sheet of the Company and its consolidated subsidiaries prepared in accordance
with generally accepted accounting principles. (Section 1008)
The Company will also covenant in the Indenture that it will not create,
assume, incur, or otherwise become liable in respect of, any
(a) Senior Debt (as defined below) unless the aggregate outstanding
principal amount of Senior Debt of the Company will not, at the time of
such creation, assumption or incurrence and after giving effect thereto and
to any concurrent transactions, exceed the greater of (i) 150% of Capital
Base (as defined below), or (ii) 225% of Tangible Net Worth (as defined
below); and
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(b) Non-Recourse Debt (as defined below) unless the aggregate
outstanding principal amount of Senior Debt and Non-Recourse Debt of the
Company will not, at the time of such creation, assumption or incurrence
and after giving effect thereto and to any concurrent transactions, exceed
225% of Capital Base.
For the purposes of this limitation as to borrowing money, "Senior Debt"
means all Debt other than Non-Recourse Debt and Subordinated Debt; "Debt", with
respect to any Person, means (i) its indebtedness, secured or unsecured, for
borrowed money; (ii) Liabilities secured by any existing lien on property owned
by such Person; (iii) Capital Lease Obligations, and the present value of all
payments due under any arrangement for retention of title (discounted at a rate
per annum equal to the average interest borne by all outstanding Debt Securities
determined on a weighted average basis and compounded semi-annually) if such
arrangement is in substance an installment purchase or an arrangement for the
retention of title for security purposes; and (iv) guarantees of obligations of
the character specified in the foregoing clauses (i), (ii) and (iii), to the
full extent of the liability of the guarantor (discounted to present value, as
provided in the foregoing clause (iii), in the case of guarantees of title
retention arrangements); "Capital Lease" means at any time any lease of
property, real or personal, which, in accordance with generally accepted
accounting principles, would at such time be required to be capitalized on a
balance sheet of the lessee; "Capital Lease Obligation" means at any time the
amount of the liability in respect of a Capital Lease which, in accordance with
generally accepted accounting principles, would at such time be required to be
capitalized on a balance sheet of the lessee; "Person" means an individual,
partnership, corporation, joint venture, association, joint stock company,
trust, limited liability company, unincorporated organization, or a government
or agency or political subdivision thereof; "Non-Recourse Debt" with respect to
any Person, means any Debt secured by, and only by, property on or with respect
to which such Debt is incurred where the rights and remedies of the holder of
such Debt in the event of default do not extend to assets other than the
property constituting security therefor; "Subordinated Debt" means any unsecured
Debt of the Company which is issued or assumed pursuant to, or evidenced by, an
indenture or other instrument which contains provisions for the subordination of
such other Debt (to which appropriate reference shall be made in the instruments
evidencing such other Debt if not contained therein) to the Debt Securities
(and, at the option of the Company, if so provided, to other Debt of the
Company, either generally or as specifically designated); "Capital Base" means,
at any date, the sum of Tangible Net Worth and Subordinated Debt; "Tangible Net
Worth" means, at any date, the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other proper reserves)
of the tangible assets of the Company at such date, minus the amount of its
Liabilities at such date; and "Liabilities" means, at any date, the items shown
as liabilities on the balance sheet of the Company, except any item of deferred
income, including capital gains. (Section 1009)
EVENTS OF DEFAULT
The following are Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of or premium, if
any, on any Debt Security of that series when due; (b) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(c) failure to make any sinking fund payment, when due, in respect of any Debt
Security of that series; (d) failure to perform any other covenant of the
Company in the applicable Indenture (other than a covenant included in such
Indenture solely for the benefit of a series of Debt Securities other than that
series), continued for 60 days after written notice as provided in the
respective Indentures; (e) failure to pay at the final maturity thereof the
principal of, or acceleration of, any indebtedness for money borrowed by the
Company in excess of $5 million, if such indebtedness is not discharged, or such
acceleration is not annulled, as provided in the respective Indentures; (f)
certain events of bankruptcy, insolvency or reorganization; and (g) any other
Event of Default provided with respect to Debt Securities of that series.
(Section 501)
If an Event of Default (other than an Event of Default described in clause
(f) above) with respect to Outstanding Debt Securities of any series shall occur
and be continuing, either the Trustee or the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series by notice as
provided in the respective Indentures may declare the principal amount (or, if
the Debt Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
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of all Debt Securities of that series to be due and payable immediately. If an
Event of Default described in clause (f) above with respect to the Debt
Securities of any series at the time Outstanding shall occur, the principal
amount of all the Debt Securities of that series (or, in the case of any such
Original Issue Discount Security or other Debt Security, such specified amount)
will automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration his been obtained, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration. (Section 502) For information as to waiver or defaults, see
"Modification and Waiver" below.
The Indentures provide that, subject to the duty of the respective Trustees
thereunder during an Event of Default to act with the required standard of care,
such Trustee will be under no obligation to exercise any of its rights or powers
under the respective Indentures at the request or direction of any of the
Holders, unless such Holders shall have offered to such Trustee reasonable
security or indemnity. (Sections 601 and 603) Subject to certain provisions,
including those requiring security or indemnification of the Trustees, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee, or
exercising any trust or power conferred on such Trustee, with respect to the
Debt Securities of that series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the applicable Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the applicable
Trustee written notice of a continuing Event of Default (as defined) and unless
the Holders of at least 25 percent in aggregate principal amount of the
outstanding Debt Securities of the same series shall have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the outstanding Debt Securities of the same
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security for
enforcement of payment of the principal of and interest on such Debt Security on
or after the respective due dates expressed in such Debt Security. (Section 508)
The Company will be required to furnish to the Trustees annually a
statement as to the performance by the Company of its obligations under the
respective Indentures and as to any default in such performance. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the respective Indentures may be made by
the Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series affected thereby; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby: (a) change the Stated Maturity of the principal of,
or any installment of principal of, or interest on, any Debt Security; (b)
reduce the principal amount of, the rate of interest on, or the premium, if any,
payable upon the redemption of, any Debt Security; (c) reduce the amount of
principal of an Original Issue Discount Security payable upon acceleration of
the Maturity thereof, (d) change the place or currency of payment of principal
of, or premium, if any, or interest on any Debt Security; (e) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Debt Security on or after the Stated Maturity or Redemption Date thereof; (f) in
the case of Subordinated Securities, modify the provisions of the Subordinated
Indenture with respect to subordination or conversion of such Subordinated
Securities in a manner adverse to the Holders, or (g) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults. (Section 902)
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The Holders of at least a majority in aggregate principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain covenants of the applicable Indenture.
(Section 1010) The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series may, on behalf of the Holders of
all Debt Securities of that series, waive any past default under the applicable
Indenture with respect to that series, except a default in the payment of the
principal of, or premium, if any, or interest on, any Debt Security of that
series or in respect of a provision which under the applicable Indenture cannot
be modified or amended without the consent of the Holder of each Outstanding
Debt Security of that series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any Holders of Outstanding Debt
Securities, may consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate with or merge into, or transfer or lease its assets substantially as
an entirety to, the Company, provided (a) that the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
which acquires or leases the assets of the Company substantially as an entirety
is a Person organized and existing under the laws of any United States
jurisdiction and assumes the Company's obligations on the Debt Securities and
under the respective Indentures, (b) that after giving effect to such
transaction no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have happened and be
continuing, and (c) that certain other conditions are met. (Article Eight)
DEFEASANCE AND COVENANT DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Company, at its option, (i) will be discharged
from any and all obligations in respect of the Debt Securities of such series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, to replace destroyed, stolen, lost or mutilated Debt
Securities of such series, and to maintain an office or agency in respect of the
Debt Securities and hold moneys for payment in trust) or (ii) will be released
from its obligations to comply with the Covenants that are specified under
"Certain Covenants of the Company" above with respect to the Debt Securities of
such series, and the occurrence of an event described in clause (d) under
"Events of Default" above with respect to any defeased covenant and clauses (e)
and (g) of the "Events of Default" above shall no longer be an Event of Default
if, in either case, the Company irrevocably deposits with the Trustee, in trust,
money or U.S. Government Obligations that through the payment of interest
thereon and principal thereof in accordance with their terms will provide money
in an amount sufficient to pay all of the principal of (and premium, if any) and
any interest on the Debt Securities of such series on the dates such payments
are due (which may include one or more redemption dates designated by the
Company) in accordance with the terms of such Debt Securities. Such a trust may
only be established if, among other things, (a) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the applicable Indenture shall have occurred and be continuing
on the date of such deposit, (b) no Event of Default described under clause (f)
under "Events of Default" above or event which with the giving of notice or
lapse of time, or both, would become an Event of Default described under such
clause (f) shall have occurred and be continuing at any time on or prior to the
90th day following such date of deposit, (c) the Company shall have delivered an
Opinion of Counsel to the effect that the Holders of the Debt Securities of such
series will not recognize gain or loss for United States Federal income tax
purposes as a result of such deposit or defeasance and will be subject to United
States Federal income tax in the same manner as if such defeasance had not
occurred. In the event the Company omits to comply with its remaining
obligations under the applicable Indenture after a defeasance of such Indenture
with respect to the Debt Securities of any series as described under clause (ii)
above and the Debt Securities of such series are declared due and payable
because of the occurrence of any undefeased Event of Default, the amount of
money and U.S. Government Obligations on deposit with the Trustee may be
insufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting
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from such Event of Default. However, the Company will remain liable in respect
of such payments. (Article Thirteen)
Notwithstanding the description set forth under "Subordination of
Subordinated Securities" above, in the event that the Company deposits money or
U.S. Government Obligations in compliance with the Subordinated Indenture in
order to defease all or certain of its obligations with respect to any
Subordinated Securities, the moneys or U.S. Government Obligations so deposited
will not be subject to the subordination provisions of the Subordinated
Indenture and the indebtedness evidenced by such Subordinated Securities will
not be subordinated in right of payment to the holders of Senior Indebtedness to
the extent of the moneys or U.S. Government Obligations so deposited.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York. (Section 112)
REGARDING THE TRUSTEE
The Indentures contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. (Section 613) The Trustee
will be permitted to engage in certain other transactions; however, if it
acquires any potential conflicting interest and there is a default under the
Debt Securities, it must eliminate such conflict or resign. (Section 608)
DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Preferred Stock. The particular terms of any series of Preferred Stock will
be described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below.
The summary of terms of the Company's preferred stock (including the
Preferred Stock) contained in this Prospectus does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Company's Certificate of Incorporation and the certificate of designations
relating to each series of the Preferred Stock (the "Certificate of
Designations"), which will be filed as an exhibit to or incorporated by
reference in the Registration Statement of which this Prospectus is a part at or
prior to the time of issuance of such series of the Preferred Stock.
The Certificate of Incorporation of the Company provides that the Company
is authorized to issue 1,000,000 shares of Preferred Stock, par value $0.01 per
share, issuable in series by the Board. As of July 31, 1995, the Company had
outstanding approximately 209,000 shares of Psychiatric Group Stock, which
constitute a separate series of Preferred Stock, issued and outstanding. Such
shares are the only shares of Psychiatric Group Stock authorized by the Board to
be issued, except shares of Psychiatric Group Stock issuable upon exercise of
options granted in connection with the initial issuance of shares of Psychiatric
Group Stock. In addition, the Company has authorized the issuance of
approximately 232,000 Series A Preferred Shares. See "Description of Common
Stock and Psychiatric Group Stock -- Preferred Stock Purchase Rights Plan."
The authorized but unissued shares of Preferred Stock of the Company will
be available for issuance from time to time by the Company at the sole
discretion of the Board for any proper corporate purpose, which could include
raising capital, providing compensation or benefits to employees, paying stock
dividends or acquiring companies or businesses. The Preferred Stock may be
issued in such series and with such voting powers, and such preferences or other
special rights, qualifications, limitations or restrictions, as may be stated
and expressed in the resolutions authorizing its issuance as may be adopted by
the Board from time to time. Under applicable Delaware law, such future
issuances would not require further approval of stockholders, and the Company
would not seek approval of stockholders unless such approval would be required
by stock exchange
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regulations, would be in conjunction with a further amendment to the Certificate
of Incorporation or would otherwise be deemed advisable by the Board. Thus, the
Board of Directors, without stockholder approval, could authorize the issuance
of preferred stock with voting, conversion and other rights that could adversely
affect the voting power and other rights of holders of Common Stock or other
series of preferred stock or that could have the effect of delaying, deferring
or preventing a change in control of the Company. See "Description of Common
Stock and Psychiatric Group Stock -- Preferred Stock Purchase Rights Plan."
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. The
applicable Prospectus Supplement will describe the following terms of the series
of Preferred Stock in respect of which this Prospectus is being delivered: (1)
the designation and stated value per share of such Preferred Stock and the
number of shares offered; (2) the amount of liquidation preference per share;
(3) the initial public offering price at which such Preferred Stock will be
issued; (4) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence to
cumulate, if any; (5) any redemption or sinking fund provisions; (6) any
conversion or exchange rights; (7) whether the Company has elected to offer
Depositary Shares as described below under "Description of Depositary Shares";
and (8) any additional voting, dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions.
GENERAL
The Preferred Stock will be issued in one or more series. The holders of
Preferred Stock will have no preemptive rights. Preferred Stock, upon issuance
against full payment of the purchase price therefor, will be fully paid and
nonassessable. Neither the par value nor the liquidation preference is
indicative of the price at which the Preferred Stock will actually trade on or
after the date of issuance. The applicable Prospectus Supplement will contain a
description of material United States Federal income tax, accounting and other
considerations relating to the purchase and ownership of the series of Preferred
Stock offered by such Prospectus Supplement.
As described under "Description of Depositary Shares," the Company may, at
its option, elect to offer depositary shares ("Depositary Shares") evidenced by
depositary receipts ("Depositary Receipts"), each representing a fractional
interest (to be specified in the Prospectus Supplement relating to the
particular series of the Preferred Stock) in a share of the particular series of
the Preferred Stock issued and deposited with a Depositary (as defined below).
RANK
The Preferred Stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution of the Company, rank prior to the
Company's Common Stock and Psychiatric Group Stock and to all other classes and
series of equity securities of the Company now or hereafter authorized, issued
or outstanding (the Common Stock and such other classes and series of equity
securities collectively may be referred to herein as the "Junior Stock"), other
than any classes or series of equity securities of the Company ranking on a
parity with (the "Parity Stock") or senior to (the "Senior Stock") the Preferred
Stock as to dividend rights and rights upon liquidation, winding up or
dissolution of the Company. The Preferred Stock shall be junior to all
outstanding debt of the Company. The Preferred Stock shall be subject to
creation of Senior Stock, Parity Stock and Junior Stock to the extent not
expressly prohibited by the Company's Certificate of Incorporation.
DIVIDENDS
Holders of shares of Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds of the Company legally
available for payment, cash dividends, payable at such dates and at such rates
per share per annum as set forth in the applicable Prospectus Supplement. Such
rates may be fixed or variable or both. Each declared dividend shall be payable
to holders of record as they appear at the close of business on the stock books
of the Company (or, if applicable, on the records of the Depositary (as
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hereinafter defined) referred to below under "Description of Depositary Shares")
on such record dates, not more than 60 calendar days preceding the payment dates
therefor, as are determined by the Board of Directors (each of such dates, a
"Record Date").
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement. If dividends on a series of Preferred Stock are
noncumulative and if the Board of Directors fails to declare a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Stock will have no right to receive a dividend in respect of such
dividend period, and the Company will have no obligation to pay the dividend for
such period, whether or not dividends are declared payable on any future
Dividend Payment Dates. Dividends on the shares of each series of Preferred
Stock for which dividends are cumulative will accrue from the date on which the
Company initially issues shares of such series.
No full dividends shall be declared or paid or set apart for payment on
preferred stock of the Company of any series ranking, as to dividends, on a
parity with or junior to the series of Preferred Stock offered by the Prospectus
Supplement attached hereto for any period unless full dividends for the
immediately preceding dividend period on such Preferred Stock (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such Preferred Stock are cumulative) have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment. When dividends are not so paid in full (or a sum
sufficient for such full payment is not so set apart) upon such Preferred Stock
and any other preferred stock of the Company ranking on a parity as to dividends
with the Preferred Stock, dividends upon shares of such Preferred Stock and
dividends on such other preferred stock shall be declared pro rata so that the
amount of dividends declared per share on such Preferred Stock and such other
preferred stock shall in all cases bear to each other the same ratio that
accrued dividends for the then-current dividend period per share on the shares
of such Preferred Stock (including any accumulation in respect of unpaid
dividends for prior dividend periods, if dividends on such Preferred Stock are
cumulative) and accrued dividends, including required or permitted
accumulations, if any, on shares of such other preferred stock, bear to each
other. Unless full dividends on the series of Preferred Stock offered by the
Prospectus Supplement attached hereto have been declared and paid or set apart
for payment for the immediately preceding dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such Preferred Stock are cumulative) (a) no cash dividend or
distribution (other than in shares of Junior Stock) may be declared, set aside
or paid on the Junior Stock, (b) the Company may not repurchase, redeem or
otherwise acquire any shares of its Junior Stock (except by conversion into or
exchange for Junior Stock) and (c) the Company may not, directly or indirectly,
repurchase, redeem or otherwise acquire any shares of Preferred Stock or Parity
Stock otherwise than pursuant to certain pro rata offers to purchase or a
concurrent redemption of all, or a pro rata portion, of the outstanding shares
of such Preferred Stock and Parity Stock (except by conversion into or exchange
for Junior Stock). The Company does not currently have outstanding any Parity
Stock.
CONVERTIBILITY
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted (mandatorily or otherwise) into shares of Common
Stock of the Company or another series of Preferred Stock or other securities of
the Company or another issuer will be set forth in the Prospectus Supplement
relating thereto. See "Description of Common Stock and Psychiatric Group Stock."
REDEMPTION
The terms, if any, on which shares of Preferred Stock of any series may be
redeemed will be set forth in the related Prospectus Supplement.
LIQUIDATION
Unless otherwise specified in the applicable Prospectus Supplement, in the
event of a voluntary or involuntary liquidation, dissolution or winding-up of
the affairs of the Company, the holders of a series of Preferred Stock will be
entitled, subject to the rights of creditors, but before any distribution or
payment to the
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holders of Common Stock or any other security ranking junior to the Preferred
Stock on liquidation, dissolution or winding up of the Company, to receive an
amount per share as set forth in the related Prospectus Supplement plus accrued
and unpaid dividends for the then-current dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such series of Preferred Stock are cumulative). If the amounts
available for distribution with respect to the Preferred Stock and all other
outstanding stock of the Company ranking on a parity with the Preferred Stock
upon liquidation are not sufficient to satisfy the full liquidation rights of
all the outstanding Preferred Stock and stock ranking on a parity therewith,
then the holders of each series of such stock will share ratably in any such
distribution of assets in proportion to the full respective preferential amount
(which in the case of preferred stock may include accumulated dividends) to
which they are entitled. After payment of the full amount of the liquidation
preference, the holders of shares of Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Company.
VOTING
The Preferred Stock of a series will not be entitled to vote, except as
provided below or in the applicable Prospectus Supplement and as required by
applicable law. Unless otherwise specified in the related Prospectus Supplement,
at any time dividends in an amount equal to six quarterly dividend payments on
the Preferred Stock shall have accrued and be unpaid, holders of the Preferred
Stock shall have the right to a separate class vote (together with the holders
of shares of any Parity Stock upon which like voting rights have been conferred
and are exercisable, "Voting Parity Stock") to elect two members of the Board of
Directors at the next annual meeting of stockholders and thereafter until
dividends on the Preferred Stock have been paid in full for four consecutive
dividend periods, including the last preceding dividend period. Additionally,
without the affirmative vote of the holders of two-thirds of the shares of
Preferred Stock then outstanding (voting separately as a class together with any
Voting Parity Stock), the Company may not, either directly or indirectly or
through merger or consolidation with any other corporation, (i) approve the
authorization, creation or issuance, or an increase in the authorized or issued
amount, of any class or series of stock ranking prior to the shares of Preferred
Stock in rights and preferences or (ii) amend, alter or repeal its Certificate
of Incorporation or the Certificate of Designations so as to materially and
adversely change the specific terms of the Preferred Stock. An amendment which
increases the number of authorized shares of or authorizes the creation or
issuance of other classes or series of preferred stock ranking junior to or on a
parity with the Preferred Stock with respect to the payment of dividends or
distribution of assets upon liquidation, dissolution or winding up, or
substitutes the surviving entity in a merger, consolidation, reorganization or
other business combination for the Company, shall not be considered to be such
an adverse change.
As more fully described under "Description of Depositary Shares" below, if
the Company elects to issue Depositary Shares, each representing a fraction of a
share of a series of the Preferred Stock, each such Depositary Share will, in
effect, be entitled to such fraction of a vote per Depositary Share.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the related Prospectus Supplement, the
Certificate of Incorporation and in the certificate of designations or as
otherwise required by law.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts does not purport to be complete and is subject to
and qualified in its entirety by reference to the forms of Deposit Agreement and
Depositary Receipts relating to each series of the Preferred Stock which have
been or will be filed with the Commission at or prior to the time of the
offering of such series of the Preferred Stock.
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GENERAL
The Company may, at its option, elect to offer fractional interests in
shares of Preferred Stock, rather than shares of Preferred Stock. In the event
such option is exercised, the Company will provide for the issuance by a
Depositary to the public of receipts for Depositary Shares, each of which will
represent a fractional interest (to be set forth in the Prospectus Supplement
relating to a particular series of the Preferred Stock which will be filed with
the Commission at or prior to the time of the offering of such series of the
Preferred Stock as described below).
The shares of any series of the Preferred Stock underlying the Depositary
Shares will be deposited under a separate Deposit Agreement (the "Deposit
Agreement") between the Company and a bank or trust company selected by the
Company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000 (the "Depositary"). The Prospectus
Supplement relating to a series of Depositary Shares will set forth the name and
address of the Depositary. Subject to the terms of the Deposit Agreement, each
owner of a Depositary Share will be entitled, in proportion to the applicable
fractional interest in a share of Preferred Stock underlying such Depositary
Shares, to all the rights and preferences of the Preferred Stock underlying such
Depositary Share (including dividend, voting, redemption, conversion and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Company's expense.
Upon surrender of Depositary Receipts at the office of the Depositary and
upon payment of the charges provided in the Deposit Agreement and subject to the
terms thereof, a holder of Depositary Shares is entitled to have the Depositary
deliver to such holder the whole shares of Preferred Stock underlying the
Depositary Shares evidenced by the surrendered Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all the dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
numbers of such Depositary Shares owned by such holders on the relevant record
date. Fractions will be rounded down to the nearest whole cent.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.
The Deposit Agreement will also contain provisions relating to the manner
in which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to holders of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole or in part,
of such series of the Preferred Stock held by the Depositary. The Depositary
shall mail notice of redemption not less than 30 and not more than 60 days prior
to the date fixed for redemption to the record holders of the Depositary Shares
to be so redeemed at their respective addresses appearing in the Depositary's
books. The redemption price per Depositary Share will be equal to the
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applicable fraction of the redemption price per share payable with respect to
such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares relating to shares of
Preferred Stock so redeemed. If less than all of the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot or pro
rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which the
holders of such Depositary Shares were entitled upon such redemption upon
surrender to the Depositary of the Depositary Receipts evidencing such
Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the number of shares of Preferred Stock
underlying such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the number of shares of Preferred Stock
underlying such Depositary Shares in accordance with such instructions, and the
Company will agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
refrain from voting shares of Preferred Stock to the extent it does not receive
specific instructions from the holders of Depositary Shares relating to such
Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment which materially
and adversely alters the rights of the existing holders of Depositary Shares
will not be effective unless such amendment has been approved by the record
holders of at least a majority of the Depositary Shares then outstanding. A
Deposit Agreement may be terminated by the Company or the Depositary only if (i)
all outstanding Depositary Shares relating thereto have been redeemed or (ii)
there has been a final distribution in respect of the Preferred Stock of the
relevant series in connection with any liquidation, dissolution or winding up of
the Company and such distribution has been distributed to the holders of the
related Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of the
Preferred Stock and any redemption of the Preferred Stock. Holders of Depositary
Shares will pay other transfer and other taxes and government charges and such
other charges as are expressly provided in the Deposit Agreement for the
accounts.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Shares all reports
and communications from the Company which are delivered to the Depositary and
which the Company is required to furnish to the holders of the Preferred Stock.
Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. Neither the Company nor the Depositary
will be subject to any liability under the Deposit Agreement to any holder of a
Depositary Share, other than for their gross negligence or willful misconduct,
and they will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Shares or Preferred Stock unless
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satisfactory indemnity is furnished. They may rely upon written advice of
counsel or accountants, or information provided by persons presenting Preferred
Stock for deposit, holders of Depositary Shares or other persons believed to be
competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
DESCRIPTION OF WARRANTS
The Company may issue, together with any other series of Securities offered
or separately, Warrants entitling the holder to purchase from or sell to the
Company, or to receive from the Company the cash value of the right to purchase
or sell, Debt Securities, shares of Preferred Stock, Depositary Shares, Common
Stock or other securities. The Warrants are to be issued under Warrant
Agreements (each a "Warrant Agreement") to be entered into between the Company
and a bank or trust company, as warrant agent (the "Warrant Agent"), all as set
forth in the applicable Prospectus Supplement relating to the particular issue
of Warrants. Copies of the forms of Warrant Agreement, including the forms of
Warrant Certificates representing the Warrants (the "Warrant Certificates"), are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
In the case of each series of Warrants, the applicable Prospectus
Supplement will describe the terms of the Warrants being offered thereby,
including the following, if applicable: (i) the offering price; (ii) the
currencies in which such Warrants are being offered; (iii) the number of
Warrants offered; (iv) the securities underlying the Warrants; (v) the exercise
price, the procedures for exercise of the Warrants and the circumstances, if
any, that will cause the Warrants to be deemed to be automatically exercised;
(vi) the date on which the right to exercise the Warrants shall commence and the
date on which such right shall expire; (vii) U.S. federal income tax
consequences; and (viii) other terms of the Warrants.
Warrants may be exercised at the appropriate office of the Warrant Agent or
any other office indicated in the applicable Prospectus Supplement. Prior to the
exercise of Warrants entitling the holder to purchase any securities, holders of
such Warrants will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payments made to
holders of such securities.
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Warrants issued thereunder to effect changes that are not
inconsistent with the provisions of the Warrants and that do not adversely
affect the interests of the holders of the Warrants.
PLAN OF DISTRIBUTION
The Company may offer Securities to or through underwriters, through agents
or directly to other purchasers. The accompanying Prospectus Supplement sets
forth the names of any underwriters or agents involved in the sale of the
Securities in respect of which this Prospectus is being delivered.
The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers in the form of
discounts, concessions or commissions. The accompanying Prospectus Supplement
sets forth the terms of the offering of the Securities in respect of which this
Prospectus is being delivered, including any underwriting discounts and other
items constituting compensation of the
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underwriters and agents. Underwriters, agents and dealers participating in the
distribution of the Securities may be deemed to be underwriters within the
meaning of the Securities Act.
Pursuant to agreements that may be entered into between the Company and any
underwriters or agents named in the Prospectus Supplement, such underwriters or
agents may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as agents for the Company to solicit offers
by certain institutional investors to purchase Debt Securities or Preferred
Stock from the Company pursuant to contracts providing for payment and delivery
on a future date. Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but shall in all
cases be subject to the approval of the Company. The obligations of the
purchaser under any such contract will not be subject to any conditions except
(i) the investment in the Debt Securities or Preferred Stock by the institution
shall not at the time of delivery be prohibited by the laws of any jurisdiction
in the United States to which such institution is subject, and (ii) if a portion
of the Debt Securities or Preferred Stock is being sold to underwriters, the
Company shall have sold to such underwriters the Debt Securities or Preferred
Stock not sold for delayed delivery. Underwriters and such other persons will
not have any responsibility in respect of the validity or performance of such
contracts.
All Debt Securities, Preferred Stock and Warrants offered will be a new
issue of securities with no established trading market. Any underwriters to whom
such Debt Securities, Preferred Stock and Warrants are sold by the Company for
public offering and sale may make a market in such Debt Securities, Preferred
Stock and Warrants, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or the trading markets for any Debt Securities,
Preferred Stock or Warrants.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
The specific terms and manner of sale of the Securities in respect of which
this Prospectus is being delivered are set forth or summarized in the Prospectus
Supplement.
VALIDITY OF SECURITIES
The validity of the Securities offered will be passed upon for the Company
by Davis, Graham & Stubbs, L.L.C., Denver, Colorado, and for the Underwriters or
agents, if any, by Sullivan & Cromwell, Los Angeles, California, or such other
counsel as may be named in the accompanying Prospectus Supplement.
EXPERTS
The consolidated balance sheets of American Health Properties, Inc. and
subsidiaries as of December 31, 1994 and December 31, 1993 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994; the combined
balance sheets of the Core Group (a business unit of American Health Properties,
Inc.) as of December 31, 1994 and December 31, 1993 and the related combined
statements of operations, total attributed equity and cash flows for each of the
three years in the period ended December 31, 1994; and the combined balance
sheets of the Psychiatric Group (a business unit of American Health Properties,
Inc.) as of December 31, 1994 and December 31, 1993 and the related combined
statements of operations, total attributed equity and cash flows for each of the
three years in the period ended December 31, 1994, incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited
by, Arthur Andersen LLP, independent public accountants, as stated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
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GLOSSARY
"Available Dividend Amount," on any date (the "calculation date") with
respect to the Common Stock or the Psychiatric Group Stock (the "subject group
stock") issued with reference to either Group (the "subject group"), means
either:
(i) the excess of (x) an amount equal to the total assets of the
subject group less its total liabilities as of such calculation date,
determined in accordance with Delaware law applied as if the subject group
were a Delaware corporation, over (y) the sum of the aggregate par value of
all outstanding subject group stock and all other capital stock of the
Company attributed to the subject group; or
(ii) in case there shall be no such excess, an amount equal to the net
profits, if any, of the subject group for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, determined in
accordance with Delaware law applied as if the subject group were a
Delaware corporation.
"Board" means the Board of Directors of the Company.
"Core Group" means all assets and liabilities of, and all activities
engaged in by, the Company and its subsidiaries, other than assets, liabilities
and activities which comprise part of the Psychiatric Group. Future issuances of
Common Stock or any other capital stock of the Company (other than Psychiatric
Group Stock) will be deemed to be for the account of, and net proceeds from such
issuances will be deemed to be assets of, the Core Group. All dividends or other
distributions on or repurchases of the Common Stock or any other capital stock
of the Company (other than Psychiatric Group Stock), and all costs attributed by
the Board to the Core Group, will be deemed to be funded out of assets of the
Core Group. In the case of an issuance of shares of Common Stock as a dividend
or other distribution on Psychiatric Group Stock, the Psychiatric Group will be
deemed to have purchased such shares for an amount equal to the average Market
Value of such shares for the ten consecutive Trading Days ending on the last
Trading Day prior to the record date for determining holders of Psychiatric
Group Stock entitled to receive such dividend or distribution, and an amount
equal to such purchase price shall be deemed to have been transferred from the
Psychiatric Group to the Core Group.
"Fair Market Value" for any assets means the price that a willing buyer
adequately informed and not compelled to buy would pay for such assets to a
willing seller adequately informed and not compelled to sell, as determined by
the Board (whose determination shall be conclusive).
"Funds From Operations" as used herein means net income (loss) computed in
accordance with GAAP, excluding gains (losses) from sales of property, adjusted
for write-downs of mortgage notes and investments in real estate and certain
other non-cash items, primarily depreciation and amortization. Funds From
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered an alternative to net income
as an indicator of the Company's operating performance or an alternative to cash
flow as a measure of liquidity.
"GAAP" means generally accepted accounting principles.
"Group" means the Core Group or the Psychiatric Group.
"Market Value" of any stock on any Trading Day means the average of the
high and low reported sales prices regular way of a share of such stock on such
Trading Day or in case no such reported sale takes place on such Trading Day the
average of the reported closing bid and asked prices regular way of a share of
such stock on such Trading Day, in either case on the New York Stock Exchange
Composite Tape or other national securities exchange, or if the shares of such
stock are not listed or admitted to trading on any national securities exchange
on such Trading Day, on the NASDAQ/NM, or if the shares of such stock are not
listed or admitted to trading on any national securities exchange or quoted on
such National Market on such Trading Day, the average of the closing bid and
asked prices of a share of such stock in the over-the-counter market on such
Trading Day as furnished by any New York Stock Exchange member firm selected
from time to time by the Company, or if such closing bid and asked prices are
not made available by any such New York Stock Exchange member firm on such
Trading Day, the market value of a share of such stock (as determined by the
Board, whose determination shall be conclusive); provided that, for purposes of
determining the ratios which
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compare the Market Values of Common Stock and Psychiatric Group Stock, as
calculated over any period, (i) the "Market Value" of any share of Common Stock
and/or Psychiatric Group Stock on any day prior to the "ex" date or any similar
date occurring during such period for any dividend or distribution paid or to be
paid with respect to such stock shall be reduced by the fair market value of the
per share amount of such dividend or distribution (as determined by the Board,
whose determination shall be conclusive) and (ii) the "Market Value" of any
share of Common Stock and/or Psychiatric Group Stock on any day prior to (A) the
effective date of any subdivision (by stock split or otherwise) or combination
occurring during such period or (B) the "ex" date or any similar date occurring
during such period for any dividend or distribution with respect to such stock
in shares of such stock shall be appropriately adjusted to reflect such
subdivision, combination, dividend or distribution. For purposes of the
foregoing, the Market Value of the Psychiatric Group Stock on any day will be
deemed to equal ten times (or such other ratio as reflects the number or
fraction of shares of Psychiatric Group Stock that a Depositary Share
represents, if such number or fraction is changed) the Market Value of the
Depositary Shares on such day.
"NASDAQ/NM" means the National Association of Securities Dealers Automated
Quotations National Market.
"Net Fair Market Value" of the Psychiatric Group or Core Group, as the case
may be, means the hypothetical Fair Market Value of 100% of the stock of a
corporation, assuming the corporation had all of the assets and liabilities of
such Group and no other assets or liabilities, as determined by the Board (whose
determination shall be conclusive).
"Net Proceeds from Psychiatric Group Asset Sales" means the net proceeds of
any sales of Psychiatric Group investments (after transaction costs and reserves
for contingencies).
"Psychiatric Group" means (a) the interests of the Company and its
subsidiaries in their respective investments in psychiatric hospitals, (b) all
activities engaged in by the Company and its subsidiaries in connection with
such investments and (c) all assets and liabilities of the Company or any of its
subsidiaries relating to or arising out of, or otherwise attributed by the Board
to, such investments or activities. Future issuances of Psychiatric Group Stock
will be deemed to be for the account of, and net proceeds from such issuances
will be deemed to be assets of, the Psychiatric Group. All dividends or other
distributions on or repurchases of the Psychiatric Group Stock, and all costs
attributed by the Board to the Psychiatric Group, will be deemed to be funded
out of assets of the Psychiatric Group. In the case of an issuance of shares of
Common Stock as a dividend or other distribution on Psychiatric Group Stock, the
Psychiatric Group will be deemed to have purchased such shares for an amount
equal to the average Market Value of such shares for the ten consecutive Trading
Days ending on the last Trading Day prior to the record date for determining
holders of Psychiatric Group Stock entitled to receive such dividend or
distribution, and an amount equal to such purchase price shall be deemed to have
been transferred from the Psychiatric Group to the Core Group.
"REIT" means a real estate investment trust.
"Trading Day" means each weekday other than any day on which the Common
Stock or Depositary Shares, as the case may be, is not traded on any national
securities exchange or the NASDAQ/NM or in the over-the-counter market.
35
<PAGE> 62
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company.............................. S-3
Use of Proceeds.......................... S-3
Capitalization........................... S-4
Selected Consolidated Financial
Information............................ S-5
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations.................. S-6
Business and Properties.................. S-10
Description of the Notes................. S-19
Description of Other Indebtedness........ S-23
Underwriting............................. S-25
Validity of the Notes.................... S-26
Experts.................................. S-26
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
The Company.............................. 4
Recent Developments...................... 5
Management and Accounting Policies....... 8
Price Range of Common Stock and
Dividends.............................. 10
Use of Proceeds.......................... 11
Ratios of Earnings to Fixed Charges...... 11
Description of Common Stock and
Psychiatric Group Stock................ 12
Description of Debt Securities........... 18
Description of Preferred Stock........... 26
Description of Depository Shares......... 29
Description of Warrants.................. 32
Plan of Distribution..................... 32
Validity of Securities................... 33
Experts.................................. 33
Glossary................................. 34
</TABLE>
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$220,000,000
[AMERICAN HEALTH PROPERTIES, INC. LOGO]
$100,000,000
7.05% NOTES DUE JANUARY 15, 2002
$120,000,000
7.50% NOTES DUE JANUARY 15, 2007
------------------------
PROSPECTUS SUPPLEMENT
------------------------
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
For the Notes due 2002
GOLDMAN, SACHS & CO.
FIRST UNION CAPITAL MARKETS CORP.
NATIONSBANC CAPITAL MARKETS, INC.
For the Notes due 2007
================================================================================
