<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-27651
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 14, 1997
4,000,000 DEPOSITARY SHARES
AMERICAN HEALTH PROPERTIES, INC.
EACH REPRESENTING 1/100 OF A SHARE OF
8.60 % CUMULATIVE REDEEMABLE PREFERRED STOCK, SERIES B
------------------------
Each Depositary Share offered by this Prospectus Supplement represents
ownership of one-one-hundredth of a share of 8.60% Cumulative Redeemable
Preferred Stock, Series B, par value $.01 per share, of the Company, to be
deposited with ChaseMellon Shareholder Services, L.L.C., as Depositary, and
entitles the owner to such proportion of all the rights, preferences and
privileges of the Series B Preferred Stock represented thereby. The Series B
Preferred Stock will rank senior to the Company's Common Stock, its Preferred
Stock, Series A (if and when issued) and its Psychiatric Group Preferred Stock
with respect to dividend payments and liquidation rights. See "Description of
Common Stock and Psychiatric Group Stock" in the accompanying Prospectus and
"Description of Series B Preferred Stock -- Ranking".
The annual dividend rate and liquidation preference with respect to each
Depositary Share are $2.15 and $25.00, respectively ($215.00 and $2,500.00 per
share of Series B Preferred Stock, respectively). Dividends on the Depositary
Shares will be cumulative from the date of original issue and will be payable
quarterly in arrears on the last day of February, May, August and November of
each year (or, if such day is not a business day, the next business day),
commencing in November 1997. See "Description of Series B Preferred
Stock -- Dividends".
The Depositary Shares are not redeemable prior to October 27, 2002. On and
after such date, the Depositary Shares may be redeemed, in whole or in part, at
the option of the Company, at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends. The Depositary Shares will not be subject to any
sinking fund or mandatory redemption and will not be convertible into any other
securities of the Company. See "Description of Series B Preferred
Stock -- Redemption." Subject to certain limited exceptions, ownership of more
than 9% of the capital stock of the Company is restricted in order to preserve
the Company's status as a REIT for federal income tax purposes. See "Description
of Common Stock and Psychiatric Group Stock -- Limits on Stock Ownership" in the
accompanying Prospectus.
Application will be made to have the Depositary Shares approved for listing
on The New York Stock Exchange. Trading of the Depositary Shares on The New York
Stock Exchange is expected to commence within a 30-day period after the initial
delivery of the Depositary Shares. The Company expects that public trading of
the shares of Series B Preferred Stock will take place solely in the form of the
Depositary Shares. See "Underwriting".
------------------------
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 Depositary Share............................... $25.00 $.7875 $24.2125
Total(4)........................................... $100,000,000 $3,150,000 $96,850,000
</TABLE>
- ---------------
(1) Plus accrued dividends, if any, from the date of original issue.
(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.
(4) The Company has granted the several Underwriters an option for 30 days to
purchase up to 600,000 additional Depositary Shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments, if any. If the option is exercised in full, the Initial
Public Offering Price, Underwriting Discount and Proceeds to the Company
will be $115,000,000, $3,622,500 and $111,377,500, respectively. See
"Underwriting".
----------------------------
The Depositary Shares offered hereby 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 the Depositary Shares will be ready for
delivery in book-entry form only through the facilities of The Depository
Trust Company in New York, New York, on or about October 27, 1997, against
payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
EVEREN SECURITIES, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
------------------------
The date of this Prospectus Supplement is October 22, 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 Community Health Systems, Inc.
Carolina
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 HOSPITALS
Comprehensive Care Hospital of Amarillo(1) Amarillo, Texas Spectrum Comprehensive Care, Inc.
Total Life Care Hospital Houston, Texas Spectrum Comprehensive Care, Inc.
SKILLED NURSING FACILITIES
Arkansas Manor Denver, Colorado Unison HealthCare Corporation
Buffalo Drive(1) Las Vegas, Nevada Covenant Care, Inc.
Cornerstone Care Center Lakewood, Colorado Unison HealthCare Corporation
Douglas Manor Douglas, Arizona Unison HealthCare Corporation
Torrey Pines(1) Las Vegas, Nevada Covenant Care, Inc.
Safford Care Center Safford, Arizona Unison HealthCare Corporation
MEDICAL OFFICE BUILDINGS
Northpark Professional Building North Miami Beach, Florida LaSalle Partners Management Limited(2)
Walsh Medical Arts Center Murrieta, California CDM/WestMar(2)
ALZHEIMER'S CARE FACILITIES
Pinehaven I Alzheimer's Community Houston, Texas Pinehaven Health Care, Inc.
Pinehaven II Alzheimer's Community Sugarland, Texas Pinehaven Health Care, Inc.
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 None
The Retreat Sunrise, Florida Quorum Health Resources, Inc.
Rock Creek Center Lemont, Illinois DHP, L.P.
</TABLE>
- ---------------
(1) Currently under construction.
(2) Property manager.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEPOSITARY SHARES,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<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 owns and finances health care facilities throughout the United States
that are operated by qualified third party health care providers.
The Company's current portfolio of investments consists of 13 acute care
hospitals, 3 rehabilitation hospitals, 4 assisted living facilities, 1 mortgage
loan secured by a long-term acute care hospital, 1 long-term acute care hospital
(currently under construction), 6 skilled nursing facilities (2 of which are
under construction), 2 medical office buildings, 2 Alzheimer's care facilities
and a psychiatric hospital portfolio that includes 3 owned facilities and 2
mortgage loans. The Company has separated its business and properties into two
distinct units: (i) the Core Group, which includes the Company's investments in
acute care hospitals, rehabilitation hospitals, assisted living facilities,
long-term acute care facilities, skilled nursing facilities, medical office
buildings and Alzheimer's care facilities and (ii) the Psychiatric Group, which
includes all of the Company's investments in psychiatric hospitals. At September
30, 1997, the Core Group had $608.1 million in gross real estate investments and
the Psychiatric Group had $49.6 million in gross real estate investments.
RECENT FINANCIAL RESULTS
On October 15, 1997, the Board of Directors of the Company declared
dividends of $.525 per share on the Company's common stock, $.01 par value (the
"Common Stock") and $.62 per share on the Company's Psychiatric Group Depositary
Shares, each representing one-tenth of one share of the Company's Psychiatric
Group Preferred Stock, $.01 par value (the "Psychiatric Group Preferred Stock"),
payable on November 18, 1997 to stockholders of record on November 4, 1997. On a
consolidated basis, the Company's gross revenues increased to $23.0 million in
the third quarter of 1997 compared to $22.1 million for the third quarter of
1996. Net income for the third quarter of 1997 was $12.3 million versus $11.2
million for the third quarter of 1996.
THE OFFERING
For a more complete description of the terms of the Depositary Shares and
the Series B Preferred Stock, including definitions of capitalized terms used
but not defined in this summary, see "Description of Depositary Shares" and
"Description of Preferred Stock" in the accompanying Prospectus and "Description
of Series B Preferred Stock" in this Prospectus Supplement. Unless indicated
otherwise, the information contained in this Prospectus Supplement assumes that
the Underwriters' over-allotment option is not exercised.
Securities Offered......... 4,000,000 Depositary Shares, each such share
representing one-one-hundredth of a share of
8.60% Cumulative Redeemable Preferred Stock,
Series B (the "Series B Preferred Stock") and
entitling the owner to all of the proportionate
rights, preferences and privileges of the Series
B Preferred Stock represented thereby.
Use of Proceeds............ The net proceeds to the Company from the Offering
of approximately $96.4 million will be used to
make certain Core Group investments and to repay
borrowings under the Company's unsecured
revolving credit facility. See "Use of Proceeds".
Ranking.................... With respect to the payment of dividends and
amounts upon liquidation, the Series B Preferred
Stock will rank senior to the Common Stock, the
Company's Preferred Stock, Series A (the "Series
A Preferred Stock"), if and when issued by the
Company, and the Psychiatric Group Preferred
Stock. See "Description of Series B Preferred
Stock -- Ranking".
Dividends.................. Dividends on the Depositary Shares will be
cumulative from the date of original issue and,
if and when declared, will be payable quarterly
in arrears on the last day of February, May,
August and November of each year (or, if such day
is not a business
S-3
<PAGE> 4
day, the next business day), commencing in
November 1997, at the rate of 8.60% of the
liquidation preference per annum (equivalent to
$2.15 per Depositary Share per annum and $215.00
per share of Series B Preferred Stock per annum).
Dividends on the Depositary Shares will accrue
whether or not the Company has earnings, whether
or not there are funds legally available for the
payment of such dividends and whether or not such
dividends are declared. See "Description of
Series B Preferred Stock -- Dividends".
Liquidation Rights......... The liquidation preference for each Depositary
Share is $25.00 (equivalent to $2,500.00 per
share of Series B Preferred Stock). Upon
liquidation, holders will be entitled to be paid
the liquidation preference plus an amount equal
to accrued and unpaid dividends thereon out of
the assets available for such payment. See
"Description of Series B Preferred Stock --
Liquidation Rights".
Redemption................. Except in certain circumstances relating to
preservation of the Company's status as a REIT,
the Series B Preferred Stock is not redeemable
prior to October 27, 2002. On and after October
27, 2002, the Depositary Shares will be
redeemable at the option of the Company, in whole
or in part, at a redemption price of $25.00 per
Depositary Share ($2,500.00 per share of Series B
Preferred Stock), plus accrued and unpaid
dividends thereon. The redemption price (other
than the portion thereof consisting of accrued
and unpaid dividends) is payable solely out of
proceeds from the sale of other capital stock of
the Company. See "Description of Series B
Preferred Stock -- Redemption".
Voting Rights.............. Holders of Series B Preferred Stock generally will
have no voting rights except as required by law.
However, if dividends on the Series B Preferred
Stock are in arrears for six or more consecutive
quarterly periods, holders of Series B Preferred
Stock (voting separately as a class with all
other series of Parity Shares upon which like
voting rights have been conferred and are
exercisable) will be entitled to vote for the
election of two additional directors to serve on
the Board of Directors of the Company until all
such dividend arrearages are eliminated. See
"Description of Series B Preferred
Stock -- Voting Rights".
Conversion................. The Preferred Stock is not convertible into or
exchangeable for any other property or security
of the Company.
Ownership Limits........... Subject to certain limited exceptions, ownership of
more than 9% of the capital stock of the Company
is restricted in order to maintain the Company's
ability to qualify as a REIT for federal income
tax purposes. See "Description of Common Stock
and Psychiatric Group Stock -- Limits on Stock
Ownership" in the accompanying Prospectus.
Trading.................... Application will be made to have the Depositary
Shares approved for listing on The New York Stock
Exchange. Trading of the Depositary Shares on The
New York Stock Exchange is expected to commence
within a 30-day period after the initial delivery
of the Depositary Shares.
S-4
<PAGE> 5
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Depositary Shares
offered hereby (the "Offering") are estimated to be $96.4 million ($110.9
million if the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discount and estimated offering expenses payable by
the Company. The Company anticipates using a portion of 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, 1997, the Company's $8.5 million of outstanding borrowings
under the Credit Facility bore interest at an average rate of 7.7%. The
borrowings under the Credit Facility were used to finance certain real estate
investments.
The remaining proceeds from the Offering will be used to make additional
Core Group investments. As of September 30, 1997, the Company had remaining
commitments of $15.8 million to fund real estate projects currently under
construction over approximately the next fifteen months. The Company also has
agreed to provide real estate financing to two different operators aggregating
approximately $59.4 million. Of this amount, $50.0 million has been committed to
the assisted living sector and $9.4 million has been committed to the long-term
acute care sector. The Company has signed letters of intent and is currently
negotiating or has under contract investments in a number of seasoned existing
medical office buildings and similar facilities, which, if closed, would
aggregate approximately $130 million of total investment. Each of the proposed
investments is part of an integrated health care delivery system and several of
the properties are master leased to leading health care providers. Although the
Company anticipates closing approximately $100 million of these proposed
investments in the fourth quarter of 1997 and the remainder in the first quarter
of 1998, there can be no assurance as to the actual timing of such closings or
that the proposed investments will ultimately be consummated.
Pending such uses, the net cash proceeds from the Offering will be invested
by the Company in short-term, interest-bearing securities.
S-5
<PAGE> 6
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of September 30, 1997 and as adjusted to reflect the Offering,
the receipt of the estimated net proceeds therefrom, estimated to be $96.4
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 for the year ended December 31, 1996 and its Current Report on Form 8-K
dated October 20, 1997, 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, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS,
UNAUDITED)
<S> <C> <C>
Bank loans payable......................................... $ 8,500 $ 0
========= =========
Notes and bonds payable.................................... $ 225,807 $ 225,807
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized:
Psychiatric Group Preferred Stock, 208,000 shares issued
and outstanding(1).................................... 2 2
Series B Cumulative Redeemable Preferred Stock, 40,000
shares issued and outstanding as adjusted............. -- 100,000
Common stock, $.01 par value, 100,000,000 shares
authorized, 23,559,000 issued and outstanding(2)......... 236 236
Additional paid-in capital................................. 485,365 481,715
Cumulative net income...................................... 270,324 270,324
Cumulative dividends....................................... (435,076) (435,076)
--------- ---------
Total stockholders' equity................................. 320,851 417,201
--------- ---------
Total capitalization (excluding bank loans)................ $ 546,658 $ 643,008
========= =========
</TABLE>
- ---------------
(1) Does not include, as of September 30, 1997, up to 7,646 shares of
Psychiatric Group Preferred Stock issuable upon exercise of outstanding
Company stock options.
(2) Does not include, as of September 30, 1997: (i) 225,000 shares of Common
Stock that are issuable upon conversion of $6,773,000 aggregate principal
amount of the Company's 8 1/2% Convertible Dual Currency Subordinated Bonds
and (ii) up to 1,041,099 shares of Common Stock issuable upon exercise of
outstanding options under the Company's equity incentive plans.
S-6
<PAGE> 7
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data relating to the Company for the
five years ended December 31, 1992 through 1996 are derived from the
Consolidated Financial Statements of the Company, which statements 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 six-month periods ended June 30, 1996 and
1997 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
-------------------
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Base Rental and Mortgage Interest Income.... $ 72,905 $ 70,242 $ 73,519 $ 74,525 $ 75,468 $ 37,364 $ 38,675
Additional Rental and Interest Income....... 8,529 9,334 9,506 11,125 12,342 6,011 6,123
Total Revenues.............................. 82,079 81,523 87,027 91,230 88,924 44,048 46,104
Depreciation and Amortization............... 12,822 14,087 14,103 14,377 15,016 7,443 7,717
Interest Expense............................ 29,777 27,269 26,101 27,057 21,842 11,279 10,585
General and Administrative.................. 8,221 6,437 5,345 6,796 7,427 3,769 3,828
Impairment loss on psychiatric real estate
investments and other notes receivable.... 45,000 -- 30,000 -- -- -- 11,000
Total Expense............................... 98,831 50,027 77,030 48,573 44,329 22,513 33,218
Net Income (loss)(1)(2)..................... (6,317) 50,987 9,693 42,381 44,379 21,420 12,792
CASH FLOW STATEMENT DATA:
Cash Flows From Operating Activities........ $ 43,486 $ 45,884 $ 54,984 $ 57,471 $ 61,241 $ 29,137 $ 34,405
Dividends Declared.......................... 45,747 44,766 47,982 50,769 53,681 26,492 27,508
BALANCE SHEET DATA (AT PERIOD END):
Total Assets................................ $566,394 $614,453 $579,503 $586,316 $577,882 $578,359 $582,758
Total Debt.................................. 286,859 245,423 245,663 207,378 207,101 205,487 234,723
Total Equity................................ 255,349 343,303 307,501 353,060 345,139 348,617 319,832
OTHER DATA:
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends(3).......... (4) 2.81x 1.33x(5) 2.54x 2.91x 2.76x 2.16x(5)
Funds from Operations(6).................... $ 43,285 $ 48,299 $ 54,390 $ 54,280 $ 59,268 $ 28,799 $ 31,452
Ratio of Funds From Operations Before Fixed
Interest Charges to Fixed Interest 2.45(4)
Charges(6)(7)............................. x 2.78x 3.09x 3.07x 3.73x 3.55x 4.08x
</TABLE>
- ---------------
(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, $30.0 million in 1994 and
$11.0 million in the six months ended June 30, 1997 relating to Psychiatric
Group real estate investments. Excludes extraordinary loss on debt
prepayment of $11.4 million in the six months ended June 30, 1997.
(3) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends 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. Because dividends payable on the
Psychiatric Group Preferred Stock are not fixed, such dividends are not
included in the presentation of the ratio of earnings to combined fixed
charges and preferred stock dividends. Accordingly, the ratio of earnings to
combined fixed charges and preferred stock dividends is identical to the
ratio of earnings to fixed charges for all periods presented.
(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 and $11.0 million
write-down of Psychiatric Group real estate investments in 1994 and the six
months ended June 30, 1997, respectively.
(6) 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 six
months ended June 30, 1997, loss on debt prepayment of $11.4 million and
impairment loss on real estate investments and other notes receivable of
$11.0 million. There were no adjustments for nonroutine items in 1996 and
for the six months ended June 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.
(7) 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.
S-7
<PAGE> 8
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 acute care facilities, skilled nursing facilities, medical
office buildings 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 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 Series
B Preferred Stock offered hereby will be issued by the consolidated Company.
Factors Regarding Future Results and Forward-Looking Statements. Statements
that are not historical facts contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations are forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
from projected results. Certain factors that could cause actual results to
differ materially 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, the viability of alternative uses for the
Company's properties when necessary, 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, 1996 and its Quarterly Report on Form 10-Q for the six
months ended June 30, 1997 incorporated by reference in the accompanying
Prospectus.
Six Months Ended June 30, 1997 Compared With 1996
For the second quarter of 1997, the Company reported net income of
$12,332,000 compared with net income of $10,669,000 for the second quarter of
1996. For the six months ended June 30, 1997, the Company reported net income of
$1,365,000 compared with net income of $21,420,000 for the six months ended June
30, 1996. For the six months ended June 30, 1997, the Company reported net
income before extraordinary item of $12,792,000 compared with net income before
S-8
<PAGE> 9
extraordinary item of $21,420,000 for the six months ended June 30, 1996. Net
income for the six months ended June 30, 1997 included an impairment loss on
psychiatric investments of $11,000,000 and an extraordinary loss on debt
prepayment of $11,427,000.
Rental income was $17,817,000 for the second quarter of 1997, an increase
of $737,000 or 4% from $17,080,000 for the second quarter of 1996. Rental income
was $35,627,000 for the six months ended June 30, 1997, an increase of
$1,249,000 or 4% from $34,378,000 for the six months ended June 30, 1996. This
increase was primarily attributable to rental income from new properties
acquired subsequent to the first quarter of 1996. These property additions also
resulted in an increase in depreciation and amortization of $171,000 or 5% to
$3,889,000 for the second quarter of 1997 compared with $3,718,000 for the
second quarter of 1996 and an increase of $274,000 or 4% to $7,717,000 for the
six months ended June 30, 1997 compared with $7,443,000 for the same period in
1996.
Additional rental and interest income was $3,147,000 for the second quarter
of 1997, an increase of $84,000 or 3% from $3,063,000 for the second quarter of
1996. Additional rental and interest income was $6,123,000 for the six months
ended June 30, 1997, an increase of $112,000 or 2% from $6,011,000 for the six
months ended June 30, 1996. The majority of this positive variation was
attributable to various properties that began paying additional rent for the
first time.
Other property income of $34,000 for the second quarter of 1997 and the six
months ended June 30, 1997 represents property operating expense reimbursements
from medical office facility tenants.
Other interest income decreased $49,000 or 17% to $242,000 for the second
quarter of 1997 from $291,000 for the second quarter of 1996. Other interest
income increased $599,000 or 89% to $1,272,000 for the six months ended June 30,
1997 from $673,000 for the six months ended June 30, 1996. The decrease in other
interest income for the second quarter was primarily attributable to a lower
average balance of direct financing leases in 1997. The increase in other
interest income for the first six months of 1997 was primarily attributable to
higher investable cash balances, partially offset by a lower average balance of
direct financing leases. Investable cash balances were significantly higher
during the first quarter of 1997 due to the temporary investment of a portion of
the proceeds of a public debt offering in late January 1997 until used to prepay
the Company's private placement debt in late February 1997 after the prepayment
notice period had expired.
Property operating expense was $77,000 for the second quarter of 1997, an
increase of $66,000 from $11,000 for the second quarter of 1996. Property
operating expense was $88,000 for the six months ended June 30, 1997, an
increase of $66,000 from $22,000 for the comparable period in 1996. This
increase was attributable to operating expenses associated with an investment in
a multi-tenant medical office facility during the second quarter of 1997 and
costs related to the protection and maintenance of a psychiatric property in
Florida after the hospital owner ceased hospital operations during the second
quarter of 1997.
Interest expense was $4,478,000 for the second quarter of 1997, a decrease
of $1,035,000 or 19% from $5,513,000 for the second quarter of 1996. Interest
expense was $10,585,000 for the six months ended June 30, 1997, a decrease of
$694,000 or 6% from $11,279,000 for the six months ended June 30, 1996. The
decrease in interest expense during these periods was primarily attributable to
a lower weighted average effective interest rate on long-term debt during 1997,
partially offset by a higher amount of long-term debt and a lower amount of
capitalized interest in 1997. In late January 1997, the Company sold $220
million of publicly-traded unsecured senior notes with a weighted average
effective interest rate of approximately 7.56%. The Company used the proceeds of
this offering to pay off the borrowings under its bank credit agreement
outstanding at the time and to prepay $152 million of 11.03% private placement
debt in late February 1997 prior to its scheduled maturity, incurring an
extraordinary charge in the first quarter of 1997 of $11,427,000.
S-9
<PAGE> 10
General and administrative expenses were $1,948,000 for the second quarter
of 1997, a decrease of $10,000 or 1% from $1,958,000 for the second quarter of
1996. For the first half of 1997, general and administrative expenses were
$3,828,000, an increase of $59,000 or 2% from $3,769,000 for the first half of
1996. These variations were primarily attributable to higher compensation and
benefits expense and an increase in travel expense, partially offset by a
reduction in financial advisory and officer hiring costs.
1996 Compared With 1995
In 1996, the Company reported net income of $44,379,000 compared with net
income of $42,381,000 in 1995. Net income in 1995 included a $2,652,000 premium
from the prepayment of a mortgage loan and reflects $300,000 of additional costs
related to the Distribution.
Rental income was $69,488,000 in 1996, an increase of $1,695,000 or 3% from
$67,793,000 in 1995. This net increase was 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 $734,000 of rent by two psychiatric operators during 1996. The net property
additions also resulted in a net increase in depreciation and amortization of
$639,000 or 4% to $15,016,000 in 1996 compared with $14,377,000 in 1995.
Mortgage interest income was $5,980,000 in 1996, a decrease of $752,000 or
11% from $6,732,000 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 $12,342,000 in 1996, an increase
of $1,217,000 or 11% from $11,125,000 in 1995. This positive variation was
primarily attributable to increased additional rent from the Company's six
original acute care properties.
Other interest income decreased $4,466,000 or 80% to $1,114,000 in 1996
from $5,580,000 in 1995. Other interest income in 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
$182,000 of interest by a psychiatric operator during 1996, and a lower average
balance of direct financing leases, partially offset by higher investable cash
balances.
Interest expense was $21,842,000 in 1996, a decrease of $5,215,000 or 19%
from $27,057,000 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.
General and administrative expenses were $7,471,000 in 1996, an increase of
$632,000 or 9% from $6,839,000 in 1995. This increase was primarily attributable
to higher shareholder reporting costs as a result of the Distribution, higher
financial advisory services provided primarily by an investment banking firm
which 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 and higher
travel and legal costs. In addition, stock incentive expense was lower in 1995
due to the reversal of a significant amount of such expense upon termination of
two officers.
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.
S-10
<PAGE> 11
1995 Compared With 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.
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.
S-11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had remaining commitments of $15.8
million to fund real estate projects currently under construction over
approximately the next fifteen months. The Company also had agreed to provide
real estate financing to two different operators aggregating approximately $59.4
million. Of this amount, $50.0 million has been committed to the assisted living
sector and $9.4 million has been committed to the long-term acute care sector.
The Company has signed letters of intent and is currently negotiating or has
under contract investments in a number of seasoned existing medical office
buildings and similar facilities, which, if closed, would aggregate
approximately $130 million of total investment. Each of the proposed investments
is part of an integrated health care delivery system and several of the
properties are master leased to leading health care providers. Although the
Company anticipates closing approximately $100 million of these proposed
investments in the fourth quarter of 1997 and the remainder in the first quarter
of 1998, there can be no assurance as to the actual timing of such closings or
that the proposed investments will ultimately be consummated.
The Company has continued to increase its liquidity and enhance its
financial flexibility. In January 1997, the Company completed a $220 million
public unsecured debt offering, issuing $100 million of five-year senior notes
and $120 million of ten-year senior notes. The Company used the net proceeds to
pay off all outstanding borrowings under its $150 million bank facility at the
time and to prepay all of its $152 million of outstanding private placement debt
in late February 1997. As of September 30, 1997, the Company had $8.5 million of
outstanding borrowings under its revolving credit facility and had $1.4 million
in cash and short-term investments. The Company's total indebtedness as of
September 30, 1997 was $234.3 million. The Company will utilize the proceeds of
the Offering and its revolving credit facility to fund future acquisitions and
its other commitments. The Company may incur additional indebtedness or
refinance existing 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 governing real estate
investment trusts.
S-12
<PAGE> 13
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 two medical office buildings. The Company has separated
its business and properties into two distinct business units (i) the Core Group,
which includes the Company's investments in acute care hospitals, rehabilitation
hospitals, assisted living facilities, long-term acute care facilities, skilled
nursing facilities, medical office buildings 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, 3 rehabilitation hospitals, 4 assisted living facilities, 1 mortgage
loan secured by a long-term acute care hospital, 1 long-term acute care hospital
(currently under construction), 6 skilled nursing facilities (2 of which are
under construction), 2 medical office buildings, 2 Alzheimer's care facilities
and a psychiatric hospital portfolio that includes 3 owned facilities and 2
mortgage loans. As of September 30, 1997, the net book value of the Company's
total assets was $579.6 million. As of September 30, 1997, 91% of the net book
value of the Company's real estate assets was held in fee and 9% 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
mortgage loan secured by a long-term acute care hospital, one long-term acute
care hospital (currently under construction), six skilled nursing facilities
(two of which are under construction), two medical office buildings and two
Alzheimer's care facilities. As of September 30, 1997, the net book value of the
Core Group's total assets was $541.1 million. Of the Core Group's real estate
assets at that date, 81% in net book value represented the acute care segment,
6% represented the rehabilitation segment, 5% represented the skilled nursing
segment, 4% represented the medical office building segment, 3% represented the
assisted living segment and 1% represented the Alzheimer's care segment. As of
September 30, 1997, 98% of the net book value of the Core Group's real estate
assets was held in fee and 2% was held as mortgage or construction financing.
As of September 30, 1997, the Company had funded $5.4 million of a $6.2
million commitment to finance the acquisition and renovation of a long-term
acute care facility in Amarillo, Texas to be operated by an experienced
operator. In addition, the Company had funded $3.7 million of a $4.4 million
mortgage loan to this same operator, which is secured by a long-term acute care
facility in Houston, Texas. As of September 30, 1997, the Company had funded
$2.7 million of a $17 million commitment to provide construction and lease
financing for two skilled nursing properties in Las Vegas, Nevada to be operated
by an experienced operator of skilled nursing facilities.
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, Pinehaven
Health Care, Inc., Spectrum Comprehensive Care, Inc. and Covenant Care, Inc.
Facilities operated by Tenet represented 52% of the Core Group's total revenues
for the nine months ended September 30, 1997.
Approximately 72% of the Core Group's property revenues for the nine months
ended September 30, 1997 were secured by corporate guarantees of these operating
companies or their
S-13
<PAGE> 14
subsidiaries. Also, as of September 30, 1997, letters of credit from commercial
banks and cash deposits aggregating $15 million were available to the Core Group
as security for lease financings. Leases for 16 of the Core Group's facilities,
representing 60% of the Core Group's property revenues for the nine months ended
September 30, 1997, contain cross-default provisions.
The Core Group Facilities
The Company's 32 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 mortgage loan secured by a long-term acute care
hospital and one long-term acute care hospital (currently under construction)
(the "Long-Term Acute Care Hospitals"), six skilled nursing facilities (two of
which are under construction) (the "Skilled Nursing Facilities"), two medical
office buildings and two Alzheimer's care facilities (the "Alzheimer's Care
Facilities" and together, the "Core Group Facilities"). Except for the long-term
acute care hospital securing a mortgage loan, 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 Hospitals. The Long-Term Acute Care Hospitals provide
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.
Skilled Nursing Facilities. The Skilled Nursing 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.
S-14
<PAGE> 15
Medical Office Buildings. 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. In addition, the Company owns a 71,000 square foot, multi-tenant medical
office building located on the campus of Parkway Regional Medical Center in
North Miami Beach, Florida. LaSalle Partners Management Limited provides
property management and leasing services. Parkway Regional Medical Center is
owned and operated by Tenet.
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, 1997.
CORE GROUP FACILITIES
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL 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>
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 26,405 2,895 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 49,466 7,024 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 $498,389 $59,291
======== =======
</TABLE>
S-15
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL 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>
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
======== =======
LONG-TERM ACUTE CARE HOSPITAL
Comprehensive Care Hospital Spectrum Comprehensive Care, Inc. 1996 $ 6,200 $ 620 2007
of Amarillo(4)
Amarillo, Texas
Total Life Care Hospital(5) Spectrum Comprehensive Care, Inc. 1997 4,400 462 2007
Houston, Texas
-------- -------
Total Long-Term Acute Care
Hospitals $ 10,600 $ 1,082
======== =======
SKILLED NURSING FACILITIES
Arkansas Manor Unison HealthCare Corporation 1995 $ 4,066 $ 406 2005
Denver, Colorado
Buffalo Drive(4) Covenant Care, Inc. 1997 7,500 788 2008
Las Vegas, Nevada
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
Torrey Pines(4) Covenant Care, Inc. 1997 9,500 998 2008
Las Vegas, Nevada
-------- -------
Total Skilled Nursing Facilities $ 33,477 $ 3,409
======== =======
</TABLE>
S-16
<PAGE> 17
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL 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>
MEDICAL OFFICE BUILDINGS
Northpark Professional Building LaSalle Partners Management
North Miami Beach, Florida Limited(6) 1997 10,628 1,135 (7)
Walsh Medical Arts Center CDM/WestMar(6) 1994 $ 8,800 $ 981 2003
-------- -------
Murrieta, California
Total Medical Office
Buildings $ 19,428 $ 2,116
======== =======
ALZHEIMER'S CARE FACILITIES
Pinehaven I Alzheimer's Community Pinehaven Health Care, Inc.(8) 1995 $ 3,700 $ 353 2005
Houston, Texas
Pinehaven II Alzheimer's Pinehaven Health Care, Inc.(8) 1996 4,024 423 2007
Community
Sugarland, Texas
-------- -------
Total Alzheimer's Care Facilities $ 7,724 $ 776
======== =======
CORE GROUP PORTFOLIO TOTAL $623,883 $72,692
======== =======
</TABLE>
- ---------------
(1) Reflects gross investment or total investment commitment.
(2) Reflects contract rate of annual base rent or interest received or estimated
to be received upon completion of construction or investment.
(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) Currently under construction.
(5) Investment held in the form of a mortgage rather than owned by the Company.
(6) Property manager.
(7) Multi-tenant facility.
(8) Pinehaven Health Care, Inc. 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-17
<PAGE> 18
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, 1997, the net book value of the Psychiatric Group total assets was
$51.4 million. Of the Psychiatric Group's real estate assets at that date, 22%
in net book value were held in fee and 78% 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, 1997.
PSYCHIATRIC GROUP HOSPITALS
<TABLE>
<CAPTION>
YEAR ANNUAL INITIAL 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 $3,808 2002
Katonah, New York
Four Winds Psychiatric Hospital(4) FW of Saratoga, Inc. 1989 18,085 2,249 1999
Saratoga Springs, New York
Less: Mortgage note
receivable impairment
reserve (7,950)
Northpointe Behavioral Health (6) 1990 2,000 (6) (6)
System(5)
Tarpon Springs, Florida
The Retreat(5)(7) Quorum Health Resources, Inc. 1990 3,402 420 2000
Sunrise, Florida
Rock Creek Center(5) DHP, L.P. 1989 6,505 1,000 1997
Lemont, Illinois
------- ------
Total Psychiatric Hospitals $49,642 $7,477
======= ======
</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) Actual rent received for the nine months ended September 30, 1997 for
Northpointe Behavioral Health System, The Retreat and Rock Creek Center was
$50,000, $472,000 and $750,000, respectively.
(6) The owner of the Northpointe hospital ceased operations during the second
quarter of 1997. The Company is currently exploring a range of options for
the property, including the conversion of the facility to an alternative use
or sale of the property. Due to the complexity and time involved in
evaluating its options, the Company has not yet reached a decision as to its
ultimate course of action. The Psychiatric Group will incur costs of
approximately $75,000 per quarter to protect and maintain the property until
a resolution is reached.
(7) Quorum is the operator and The Retreat Psychiatric Hospital, Ltd. is the
lessee of The Retreat.
S-18
<PAGE> 19
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 of the Long-Term Acute Care Hospitals (currently under
construction), the six Skilled Nursing Facilities (two of which are under
construction), the Medical Office Buildings and the two Alzheimer's Care
Facilities, 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 65% of the Company's
property revenues for the nine months ended September 30, 1997 were secured by
corporate guarantees. Also, as of September 30, 1997, letters of credit from
commercial banks and cash deposits aggregating $16 million were available to the
Company as security for lease and construction development obligations.
All but one of 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 52% of the Core Group's total revenues
for the nine months ended September 30, 1997. AMI has guaranteed certain
obligations of its subsidiaries under such leases and each such lease is cross-
S-19
<PAGE> 20
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, 1997.
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 Hospitals. The Company has 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 and the
S-20
<PAGE> 21
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.
The Company holds a mortgage on one of the Long-Term Acute Care Hospitals.
The mortgage provides for an initial term of ten years and two renewal terms of
ten years each. An affiliate of Spectrum owns and operates the Long-Term Acute
Care Hospital. Spectrum has guaranteed the obligations under the mortgage and
has pledged to the Company the stock of the affiliate owning the Long-Term Acute
Care Hospital in order to secure its guaranty. The mortgage sets forth monthly
payments of principal plus base interest as well as quarterly payments of
additional interest in an amount equal to (i) net revenues (as defined) for the
current year, minus (ii) net revenues for the base year (as defined), multiplied
by (iii) a specified percentage.
Skilled Nursing Facilities. Each of the Skilled Nursing Facility leases
establishes an initial term of ten years and an option for three renewal terms
of ten years each. Four of the Skilled Nursing Facilities are operated by an
affiliate of Unison Healthcare Group, Inc. (formerly Signature Health Care
Corporation) ("Unison") and all of the Unison facilities are cross-defaulted.
Additionally, the obligations under each Unison lease are guaranteed by Unison
and an affiliate of Unison. The Unison leases provide for monthly base rent,
which is automatically increased by a specified percentage each year. Each of
the Unison Skilled Nursing 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 Skilled Nursing Facilities operated by the tenant. The
Unison 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. Upon completion of construction, two of the Skilled Nursing
Facilities will be operated by an affiliate of Covenant Care, Inc. ("Covenant
Care") and the two facilities will be cross-defaulted. The obligations under
each of the Covenant Care leases will be guaranteed by Covenant Care. The
Covenant Care leases set forth monthly base rent payments plus quarterly
additional rent payments in an amount equal to (i) net revenues (as defined) for
the current year, minus (ii) net revenues for the base year (as defined),
multiplied by (iii) a specified percentage. The Covenant Care leases will
provide the tenant with a right of first refusal to purchase the properties at a
purchase price equal to the greater of fair market value or the total investment
cost (as defined) for unsolicited offers to sell by the Company or equal to the
greater of the total investment cost or the purchase price contained in any
offer to purchase received by and acceptable to the Company.
Medical Office Buildings. One of the medical office buildings is
master-leased for a seven-year remaining term to a partnership consisting of 22
physicians who are the primary tenants of the building. The second medical
office building is leased to multiple tenants for remaining terms ranging from
one to six years.
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
leases relating to the Alzheimer's Care Facilities are cross-defaulted to each
other. The Alzheimer's Care Facility leases 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 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 lease for one of the owned Psychiatric
Hospitals provides for an initial term expiring in 2000 with three renewal
periods for ten years each. The lease for the second
S-21
<PAGE> 22
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 1997 and 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 operator of these facilities.
Adverse consequences from this lawsuit have had and are likely to continue to
have a negative impact on the Psychiatric Group's results of operations and cash
flows as well as its quarterly dividend payment. The owner of the Northpointe
hospital ceased operations during the second quarter of 1997. The Company is
currently exploring a range of options for the property, including the
conversion of the facility to an alternative use or sale of the property. Due to
the complexity and time involved in evaluating its options, the Company has not
yet reached a decision as to its ultimate course of action with respect to the
Northpointe hospital. The Psychiatric Group will incur costs of approximately
$75,000 per quarter to protect and maintain the property until a resolution is
reached.
For a fuller discussion of the restructuring of the Company's Psychiatric
Group investments during 1996 and 1997 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 six months ended June 30, 1997
incorporated by reference in the accompanying Prospectus.
S-22
<PAGE> 23
DESCRIPTION OF SERIES B PREFERRED STOCK
The following summary sets forth the material terms and provisions of the
Series B Preferred Stock represented by the Depositary Shares offered hereby,
and is qualified in its entirety by reference to the provisions of the
Certificate of Designation for the Series B Preferred Stock and the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation), which
are incorporated by reference in the accompanying Prospectus. The following
description of the particular terms of the Series B Preferred Stock supplements,
and to the extent inconsistent therewith, replaces, the description of the
general terms of the Preferred Stock set forth in the accompanying Prospectus,
to which description reference is hereby made. Unless the context otherwise
requires, all references to a holder of Series B Preferred Stock shall refer to
a holder of the Depositary Shares.
As referred to elsewhere herein, each Depositary Share will represent a
one-one-hundredth (1/100) interest in a share of Series B Preferred Stock. The
shares of Series B Preferred Stock underlying the Depositary Shares will be
deposited with ChaseMellon Shareholder Services, LLC, as depositary (the
"Depositary"), located at 300 S. Grand Avenue, Los Angeles, California, under a
Deposit Agreement (the "Deposit Agreement") among the Company, the Depositary
and the Holders from time to time of the depositary receipts issued by the
Depositary thereunder (the "Depositary Receipts"). The Depositary Receipts so
issued will evidence the Depositary Shares. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Share will be entitled through the
Depositary, in proportion to the one-one-hundredth interest in a share of Series
B Preferred Stock underlying such Depositary Share, to all rights and
preferences of a share of Series B Preferred Stock (including dividend, voting,
redemption and liquidation rights). Since each share of Series B Preferred Stock
entitles the Holder thereof to one vote on matters on which the Series B
Preferred Stock is entitled to vote, each Depositary Share will, in effect,
entitle the Holder thereof to one-one-hundredth of a vote thereon, rather than
one full vote.
GENERAL
Subject to limitations prescribed by Delaware law and the Certificate of
Incorporation, the Board of Directors is authorized to issue, from the
authorized but unissued capital stock of the Company, Preferred Stock in such
classes or Series as the Board of Directors may determine and to establish from
time to time the number of shares of Preferred Stock to be included in any such
Series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of each such series. The
Board of Directors has authorized the Company to designate and issue the Series
B Preferred Stock.
When issued, the Series B Preferred Stock will be validly issued, fully
paid and nonassessable. The holders of the Series B Preferred Stock will have no
preemptive rights with respect to any shares of the capital stock of the Company
or any other securities of the Company convertible into or carrying rights or
options to purchase any such shares. The Series B Preferred Stock will not be
subject to any sinking fund or other obligation of the Company to redeem or
retire the Series B Preferred Stock.
The transfer agent, registrar and dividend disbursing agent for the Series
B Preferred Stock will be ChaseMellon Shareholder Services, L.L.C.
RANKING
With respect to payment of dividends and amounts upon liquidation,
dissolution or winding up, the Series B Preferred Stock will rank senior to the
Common Stock, the Series A Preferred Stock (if and when issued), and the
Psychiatric Group Stock.
While any Series B Preferred Stock is outstanding, the Company may not
authorize, create or increase the authorized amount of any class of security
that ranks senior to the Series B Preferred Stock with respect to the payment of
dividends or amounts payable upon liquidation, dissolution or
S-23
<PAGE> 24
winding up, or any class of security convertible into shares of such a class,
without the consent of the holders of two thirds of the outstanding Series B
Preferred Stock and Parity Shares (as defined below), voting as a single class.
However, the Company may create additional classes of other stock, increase the
authorized number of shares of Preferred Stock, issue series of Junior Shares
(as defined below) or issue series of Preferred Stock ranking on a parity with
the Series B Preferred Stock with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up (a "Parity
Share") without the consent of any holder of Series B Preferred Stock. See
"Voting Rights" below.
DIVIDENDS
Holders of the Series B Preferred Stock will be entitled to receive, when
and as declared by the Board of Directors, out of funds legally available for
the payment of dividends, cumulative preferential annual cash dividends of
$215.00 per share (equivalent to $2.15 per Depositary Share per annum). Such
dividends will be cumulative from the date of original issue and payable
quarterly in arrears on the last calendar day (or, if such day is not a business
day, the next business day) of each February, May, August and November (each, a
"Quarterly Dividend Date"). The first dividend, which will be paid in November
1997, will be for less than a full quarter. Such first dividend and any
dividends payable on the Series B Preferred Stock for any partial dividend
period will be computed on the basis of the actual number of days in such
period. Dividends will be payable to holders of record as they appear in the
records of the Company at the close of business on the applicable record date,
which will be the 15th day of the calendar month in which the Quarterly Dividend
Date falls or such other date designated as such by the Board of Directors of
the Company that is not more than 50 nor less than 10 days prior to such
Quarterly Dividend Date (each, a "Record Date"). Accrued and unpaid dividends
for any past dividend periods may be declared and paid at any time and for such
interim periods to holders of record on the applicable Record Date. Any dividend
payment made on the Series B Preferred Stock will first be credited against the
earliest accrued but unpaid dividend due with respect to the Series B Preferred
Stock that remains payable.
No dividends will be authorized by the Board of Directors or paid or set
aside for payment if any agreement of the Company prohibits such authorization,
payment or setting apart for payment or provides that such authorization,
payment or setting aside of payment would constitute a breach thereof or a
default thereunder, or if such authorization or payment is restricted or
prohibited by law. Dividends on Series B Preferred Stock will accrue whether or
not the Company has earnings, whether or not there are funds legally available
for the payment of such dividends and whether or not such dividends are
declared. No interest, or sum of money in lieu of interest, will be payable in
respect of any dividend payment or payments on the Series B Preferred Stock that
may be in arrears. Holders of Series B Preferred Stock will not be entitled to
any dividends, whether payable in cash, property or shares of stock, in excess
of the full cumulative dividends, as described herein, on the Series B Preferred
Stock.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that will be allocable
to holders of Series B Preferred Stock will be in the same portion that the
Total Dividends paid or made available to the holders of Series B Preferred
Stock for the year bears to the Total Dividends.
Except as provided in the next sentence, no dividends will be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the payment
thereof set aside for such payment on the Series B Preferred Stock for all prior
dividend periods. If accrued dividends on the Series B Preferred Stock for all
prior dividend periods have not been paid in full, then any dividend declared on
the Series B
S-24
<PAGE> 25
Preferred Stock and on any Parity Shares for any dividend period will be
declared ratably in proportion to accrued and unpaid dividends on the Series B
Preferred Stock and such Parity Shares.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Shares (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Shares through a sinking fund or otherwise (other than a redemption or
purchase or other acquisition of Common Stock made for purposes of any employee
incentive or benefit plan of the Company or any subsidiary), unless (A) all
cumulative dividends with respect to the Series B Preferred Stock and any Parity
Shares at the time such dividends are payable have been paid or declared and
funds have been set apart for payment of such dividends and (B) sufficient funds
have been paid or declared and set apart for the payment of the dividend for the
current dividend period with respect to the Series B Preferred Stock and any
Parity Shares.
As used herein, (i) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares (as defined below), or in
options, warrants or rights to subscribe for or purchase any Fully Junior
Shares, (ii) the term "Junior Shares" means the Common Stock, the Series A
Preferred Stock, the Psychiatric Group Stock and any other class or series of
shares of capital stock of the Company now or hereafter issued and outstanding
that ranks junior to the Series B Preferred Stock as to the payment of dividends
or in the distribution of assets or amounts upon liquidation, dissolution and
winding up and (iii) the term "Fully Junior Shares" means Junior Shares
(including the Common Stock) that rank junior to the Series B Preferred Stock
both as to the payment of dividends and distribution of assets upon liquidation,
dissolution and winding up.
In general, dividends on the Company's capital stock are limited by the
Company's unsecured revolving credit agreement to 95% of cash flow available for
debt service, less interest expense, plus gains on asset dispositions and
certain proceeds from the disposition of Psychiatric Group assets after the
repayment of Psychiatric Group indebtedness ("PG Excess Proceeds"). Dividends or
other distributions on the Psychiatric Group Preferred Stock may also be made
out of PG Excess Proceeds, subject to a limitation of $30 million in the
aggregate and $15 million in any calendar year.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of Series B Preferred Stock will be entitled to receive
out of assets of the Company legally available for distribution to stockholders
a liquidation preference of $2,500.00 per share of Series B Preferred Stock
($25.00 per Depositary Share), plus an amount per share of Series B Preferred
Stock equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders, and no more.
Until the holders of Series B Preferred Stock and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of the Company.
If upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the holders of the Series
B Preferred Stock are insufficient to pay in full the amount payable upon
liquidation with respect to the Series B Preferred Stock and any other Parity
Shares, then such assets, or the proceeds thereof, will be distributed among the
holders of Series B Preferred Stock and any such Parity Shares ratably in
accordance with the respective amounts which would be payable on such Series B
Preferred Stock and any such Parity Shares if all amounts payable thereon were
paid in full. Neither a consolidation nor a merger of the Company with another
entity, a statutory share exchange by the Company or a sale, lease or transfer
of all or substantially all of the Company's assets will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
S-25
<PAGE> 26
REDEMPTION
The Series B Preferred Stock are not redeemable by the Company prior to
October 27, 2002. On and after October 27, 2002, the Company, at its option,
upon publication in a newspaper of general circulation in New York, New York at
least once a week for two successive weeks and written notice to the holders of
Series B Preferred Stock, may redeem the Series B Preferred Stock, in whole or
in part, at any time or from time to time, for cash at a redemption price of
$2,500.00 per share of Series B Preferred Stock ($25.00 per Depositary Share),
plus accumulated, accrued and unpaid dividends thereon to the date fixed for
redemption, without interest. The redemption price of the Series B Preferred
Stock (other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of proceeds from the sale of other capital
stock of the Company, which may include Common Stock, Preferred Stock,
depositary shares, interests, participations or other ownership interests in the
Company however designated (other than debt securities convertible into or
exchangeable for equity securities), and any rights, warrants or options to
purchase any thereof. If fewer than all of the outstanding Series B Preferred
Stock are to be redeemed, the number of shares to be redeemed will be determined
by the Company and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares), by lot or
by any other method determined by the Company in its sole discretion to be
equitable.
Unless full cumulative dividends on all Series B Preferred Stock and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no Series B Preferred
Stock or Parity Shares may be redeemed or purchased by the Company except
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Series B Preferred Stock or Parity Shares, as the case may be.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date by the registrar to each holder of record of
Series B Preferred Stock to be redeemed at the address shown on the stock
transfer books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of Series B Preferred Stock to be redeemed; (iii) the redemption
price per share; (iv) the place or places where certificates for Series B
Preferred Stock are to be surrendered for payment of the redemption price; and
(v) that dividends on the Series B Preferred Stock will cease to accrue on such
redemption date. If fewer than all Series B Preferred Stock are to be redeemed,
the notice mailed to each such holder thereof shall also specify the number of
Series B Preferred Stock to be redeemed from such holder. If notice of
redemption of any Series B Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of Series B Preferred Stock so called for redemption,
then from and after the redemption date, dividends will cease to accrue on the
Series B Preferred Stock, such Series B Preferred Stock shall no longer be
deemed outstanding and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
The holders of Depositary Shares at the close of business on a Record Date
will be entitled to receive the dividends payable with respect to the Series B
Preferred Stock represented by such Depositary Shares on the corresponding
Quarterly Dividend Date notwithstanding the redemption thereof between such
Record Date and the corresponding Quarterly Dividend Date or the Company's
default in the payment of the dividend due. Except as provided above, the
Company will make no payment or allowance for unpaid dividends, whether or not
in arrears, on Series B Preferred Stock which have been called for redemption.
The Series B Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption.
S-26
<PAGE> 27
VOTING RIGHTS
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series B Preferred Stock will have no
voting rights.
If six consecutive quarterly dividends payable on the Series B Preferred
Stock or any Parity Shares are in arrears, whether or not earned or declared,
the number of directors then constituting the Board of Directors of the Company
will be increased by two, and the holders of Series B Preferred Stock, voting
together as a class with the holders of any other series of Parity Shares, will
have the right to elect two additional directors to serve on the Company's Board
of Directors at any annual meeting of shareholders or a properly called special
meeting of the holders of the voting Parity Shares until all such dividends and
dividends for the current quarterly period on the Series B Preferred Stock and
such other voting Parity Shares have been declared and paid or set aside for
payment. Such voting rights will terminate when all such accrued and unpaid
dividends have been declared and paid or set aside for payment. The term of
office of all directors so elected will terminate with the termination of such
voting rights.
The approval of two thirds of the outstanding Series B Preferred Stock and
all other Parity Shares similarly affected, voting as a single class, is
required in order to (i) amend the Certificate of Incorporation to affect
materially and adversely the rights, preferences or voting power of the holders
of the Series B Preferred Stock or the Parity Shares (except that if such
amendment would materially and adversely affect any right, preference, privilege
or voting power of the Series B Preferred Stock or another series of Parity
Shares that is not enjoyed by the other, then the approval of two thirds of the
holders of all series similarly affected shall be required); (ii) enter into a
share exchange that affects the Series B Preferred Stock, or consolidate the
Company with or merge the Company with another entity, unless in each such case
each share of Series B Preferred Stock remains outstanding without a material
adverse change to its terms and rights or is converted into or exchanged for
preferred stock of the surviving entity having preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption thereof identical to that of the Series B
Preferred Stock (except for changes that do not materially and adversely affect
the holders of Series B Preferred Stock); or (iii) authorize, reclassify, create
or increase the authorized or issued amount of any shares of any class, or any
security convertible into shares of any class, having rights senior to the
Series B Preferred Stock with respect to the payment of dividends or the
distribution of assets or amounts upon liquidation, dissolution or winding up of
the Company. However, the Company may create additional classes of Parity Shares
and Junior Shares, increase the authorized number of Parity Shares and Junior
Shares and issue additional series of Parity Shares and Junior Shares without
the consent of any holder of Series B Preferred Stock.
Except as provided above and as required by applicable law, the holders of
Series B Preferred Stock are not entitled to vote on any merger or consolidation
involving the Company, on any share exchange or on a sale of all or
substantially all of the assets of the Company.
RETIREMENT
Except as otherwise provided in the Certificate of Incorporation, all
Series B Preferred Stock issued and reacquired by the Company shall be restored
to the status of authorized but unissued shares of Preferred Stock, without
designation as to class or series.
CONVERSION
The Series B Preferred Stock is not convertible into or exchangeable for
any other property or securities of the Company at the option of the holder.
S-27
<PAGE> 28
RECORD HOLDERS
The Company and its transfer agent may deem and treat the record holder of
any Depositary Share as the true and lawful owner thereof for all purposes, and
neither the Company nor its transfer agent shall be affected by any notice to
the contrary.
RESTRICTIONS ON TRANSFER
For information regarding restrictions on ownership of the Series B
Preferred Stock, see "Description of Common Stock and Psychiatric Group
Stock -- Limitations on Ownership" in the accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of the material federal income tax matters of
general application pertaining to REITs under the Internal Revenue Code of 1986,
as amended (the "Code"), and to investing in, holding and disposing of shares of
Series B Preferred Stock. The discussion is based on current provisions of the
Code, Treasury Regulations promulgated thereunder, rulings of the Internal
Revenue Service (the "Service") and judicial decisions in effect as of the date
hereof. Future legislation, regulatory, judicial or administrative changes or
interpretations, which may be retroactive, could affect the conclusions reached
below. This discussion does not deal with all aspects of federal income taxation
that may be of special relevance to investors subject to special treatment under
federal income tax laws, such as investors subject to the Employee Retirement
Income Security Act of 1974, as amended, other tax exempt investors or dealers
in securities. The provisions of the Code pertaining to REITs are highly
technical and complex and sometimes involve mixed questions of fact and law, and
may be affected by matters of value. In addition, the discussion does not cover
foreign, state or local taxation. The Company has not requested and will not
request a ruling from the Service with respect to any of the federal income tax
issues discussed below. All prospective investors should consult, and must
depend on, their own tax advisors regarding the federal, state, local, foreign,
withholding and other tax consequences of investing in, holding and disposing of
the shares of Series B Preferred Stock.
TAXATION OF THE COMPANY
General
The Company believes that it has been organized and operated, and it
intends to continue to operate, in a manner qualifying it as a REIT under
Sections 856 through 860 of the Code, but no assurance can be given that it will
at all times so qualify. The Company's ability to qualify as a REIT under the
requirements of the Code and the regulations promulgated thereunder depends upon
actual operating results. In addition, the treatment of the Company as a REIT
depends upon the tax treatment of the Psychiatric Group Preferred Stock, with
respect to which there exists limited authority.
Qualification Requirements
To qualify as a REIT under the Code for a taxable year, the Company must
meet certain organizational and operational requirements and must avoid
excessive concentration of ownership of its shares. First, its principal
activities must be real estate related. Generally, at least 75% of the value of
the total assets of the Company at the end of each calendar quarter must consist
of real estate assets, cash, receivables or governmental securities. The Company
may not own more than 10% of the outstanding voting securities of any
corporation, except for shares of other REITs and of certain "Qualified REIT
Subsidiaries." In addition, no more than 5% in value of the assets of the
Company may be invested in securities of any one issuer except for securities
that qualify as real estate assets. A REIT may, however, own without limit
shares of other qualifying REITs and of
S-28
<PAGE> 29
"Qualified REIT Subsidiaries." The Company holds some of its assets through
wholly-owned subsidiary corporations that it believes qualify as Qualified REIT
Subsidiaries. A Qualified REIT Subsidiary is not separately taxable under the
Code; rather, all of the assets, liabilities and income tax items of each
Qualified REIT Subsidiary are treated as assets, liabilities and income tax
items of the Company.
Second, for each taxable year, at least 75% of a REIT's gross income must
be derived from specific real estate sources or the qualified temporary
investment of new capital and 95% must be derived from such real estate sources
plus certain other permitted sources. Real estate income for purposes of those
requirements includes gains from the sale of real property not held primarily
for sale to customers in the ordinary course of business, dividends on REIT
shares, interest on loans to the extent secured by mortgages on real property,
certain rents from real property and income from foreclosure property. For rents
to qualify, they may not be based on the income or profits of any person, except
that they may be based on a percentage or percentages of gross sales or
receipts, and, subject to certain limited exceptions, the REIT may not manage
the property or furnish services to tenants except through an independent
contractor that is paid an arm's-length fee and from which the REIT derives no
income. Additionally, for each taxable year ending on or before December 31,
1997, gain from the sale or other disposition of stock and securities held for
less than one year and of real property, including mortgages on real property,
held for less than four years must represent less than 30% of the gross income
of a REIT.
Third, the Company must satisfy certain ownership restrictions that limit
(i) concentration of ownership of its shares by a few individuals and certain
organizations and (ii) ownership by the Company of its tenants. The shares of
the Company must be beneficially owned by at least 100 shareholders and no more
than 50% in value of the outstanding shares of the Company, including in some
circumstances shares into which outstanding securities might be converted, may
be owned actually or constructively by five or fewer individuals or certain
other entities at any time during the last half of the Company's taxable year.
The Company must seek information from certain of its shareholders to verify
compliance with this provision. To assist the Company in continuing to satisfy
the share ownership requirements, the Company's Certificate of Incorporation
restricts the transfer of the Company's shares and outstanding securities
convertible into shares when necessary to maintain the Company's qualification
as a REIT under the Code, and also sets forth certain other provisions designed
to avoid violations of the REIT ownership requirements. However, no assurances
can be given that the restrictions of the Certificate of Incorporation will be
effective in maintaining the Company's REIT status.
So long as the Company qualifies for taxation as a REIT and distributes at
least 95% of its REIT taxable income (computed without regard to net capital
gains or the dividends paid deduction) for its taxable year to its shareholders
annually (the 95% distribution requirement), the Company itself will not be
subject to federal income tax on that portion of its REIT taxable income
(computed without regard to net capital gains or the dividends paid deduction)
distributed to shareholders. The required dividend distributions must be made
either in the taxable year to which they relate or, subject to certain
limitations, in the following year. The Company will be taxed at regular
corporate rates on all income not distributed to shareholders. If the Company is
not treated as having distributed a designated portion of its income and gains
within a taxable year, it will be subject to a special tax. The Company intends
to make sufficient distributions each year so as to satisfy the 95% distribution
requirement. REITs may also incur taxes, including certain nondeductible excise
taxes, for certain other activities or to the extent distributions do not
satisfy certain other requirements.
The Company's ability to satisfy the 95% distribution requirement in the
current year or in future years depends in part upon whether dividends paid with
respect to the Psychiatric Group Preferred Stock or the Common Stock are treated
as "preferential" with respect to the other class of stock under Section 562(c)
of the Code. The Company believes that dividends on the Psychiatric Group
Preferred Stock and on the Common Stock should not be treated as preferential as
long as the payment of such dividends is consistent with the rights of the
shareholders generally inherent in
S-29
<PAGE> 30
their stock holdings. If any dividends paid by the Company were treated as
preferential under Section 562(c) of the Code, the Company could not deduct such
dividends in computing its taxable income, and such dividends would not count
toward the 95% distribution requirement. If the Company were to fail the 95%
distribution requirement for a taxable year, it would be taxable on its net
taxable income for such year with no deduction for dividends paid.
In addition, the Company's ability to qualify as a REIT depends in part
upon the status of the Psychiatric Group Preferred Stock as stock of the Company
for federal income tax purposes. The Company believes that the Psychiatric Group
Preferred Stock should qualify as stock of the Company for tax purposes;
however, there are no Treasury Regulations, court decisions or published Service
rulings bearing directly on the tax treatment of the Psychiatric Group Preferred
Stock. In addition, the Service announced in 1987 that it is studying the
federal income tax consequences of similar stock (i.e., stock whose dividend
rights are determined by reference to the earnings from a certain portion of the
issuing corporation's assets), and would not issue any advance rulings regarding
such stock. It is possible, therefore, that the Service could assert that the
Psychiatric Group Preferred Stock represents property other than stock of the
Company. If the Service successfully asserted such a position, then, depending
on the characterization of the Psychiatric Group Preferred Stock and the
Psychiatric Group assets for tax purposes, the Company's qualification as a REIT
might be affected.
Consequences of Failure to Qualify
Failure of the Company to qualify during any taxable year as a REIT could,
unless certain relief provisions were available, have a material adverse effect
upon investors. If disqualified for taxation as a REIT for a taxable year, the
Company would also be disqualified for taxation as a REIT for the next four
taxable years, unless the failure was due to reasonable cause and not willful
neglect, and would not be able to requalify unless it were to distribute as a
dividend all current and accumulated earnings and profits. The Company would be
subject to federal income tax at corporate rates on all of its taxable income
and would not be able to deduct the dividends paid, which could result in a
discontinuation of or substantial reduction in dividends to shareholders.
Dividends would also be subject to the regular tax rules applicable to dividends
received by the shareholders of a corporation. Should the failure to qualify be
determined to have occurred in an earlier tax year of the Company, the
imposition of a substantial federal income tax liability on the Company
attributable to such nonqualifying tax years might adversely affect the
Company's ability to pay dividends. If the Company fails to meet certain income
tests of the tax law, it may, generally, retain its qualification as a REIT if
it pays a 100% tax on the amount by which it failed to meet the income tests,
reduced by a pro-rata share of deductions, so long as its failure was due to
reasonable cause and not willful neglect. Any such taxes would adversely affect
the Company's ability to pay dividends.
The following discussion assumes that the Company will at all times qualify
as a REIT.
TAXATION OF THE SHAREHOLDERS OF A REIT
Dividends and Other Distributions
Dividends paid to its domestic shareholders out of current or accumulated
earnings and profits of the Company (and not designated as capital gain
dividends) will generally be taxed to such shareholders as ordinary income in
the year of payment, or, with respect to distributions declared in the last
quarter of any year payable to shareholders of record in such quarter and paid
by January 31 of the following year, in the year of declaration. REIT dividends
are not eligible for the dividends-received deduction for corporations. A
dividend in excess of current and accumulated earnings and profits will
constitute a nontaxable return of capital to the extent of the shareholder's
basis in his shares and is applied to reduce such basis. To the extent a
dividend is greater than such basis, it will be treated as capital gain to those
shareholders holding their shares as capital assets.
S-30
<PAGE> 31
For purposes of determining whether distributions are out of earnings and
profits, the earnings and profits of the Company will be allocated first to the
Series B Preferred Stock. Distributions as to either the Common Stock or the
Psychiatric Group Preferred Stock will be considered to be out of the Company's
current earnings and profits not allocable to the Series B Preferred Stock in an
amount equal to the proportion that distributions on that class of stock bears
to total distribution by the Company for the taxable year multiplied by the
Company's earnings and profits for the taxable year. Thus, the treatment of
distributions as dividends with respect to the Common Stock may depend in part
upon the economic performance of the Psychiatric Group assets and vice versa.
A distribution of net capital gain by the Company will generally be treated
as a long-term capital gain to shareholders to the extent properly designated by
the Company as a capital gain dividend and regardless of the length of time a
shareholder has held his shares. Although there is no authority on how capital
gains dividends of the Company should be allocated among the Common Stock, the
Psychiatric Group Preferred Stock and the Series B Preferred Stock, in Revenue
Ruling 89-81 (dealing with regulated investment companies ("RICs")) the Service
held that the designation of distributions by a RIC among two or more classes of
stock must be made in proportion to each class's share of the total dividends
paid by the company in the taxable year. If the principles of Revenue Ruling
89-81 apply to a REIT, some portion of any capital gains realized on the Core
Group assets and the Psychiatric Group assets would be allocable to
distributions paid on the Series B Preferred Stock.
Any loss on a sale of shares of a REIT that were held for six months or
less and with respect to which a capital gain dividend was received will be
treated as a long-term capital loss, up to the amount of the capital gain
dividend received with respect to such shares. Under Section 291 of the Code,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Section 291 of the Code provides, in general,
that if a corporation sells or disposes of depreciable real property in a
taxable transaction, it must, to the extent of gain, include as ordinary income
up to 20% of the depreciation previously taken on such property. Corporate
shareholders of a REIT are required to treat the portion of a capital gain
dividend attributable to the gain from the REIT's sale or exchange of
depreciable real property as subject to the 20% ordinary income rules. Capital
gains distributions are not eligible for the dividends-received deduction for
corporations. The Company will notify its shareholder as to the portions of each
dividend, that, in its judgment, constitute ordinary income or capital gain
dividends. Should the Company incur an ordinary or capital net loss,
shareholders will not be entitled to include such losses in their own income tax
returns. The income realized by shareholders as a result of distributions will
constitute portfolio income to shareholders for purposes of the passive loss
rules. Generally, a shareholder may not use losses from passive activities to
offset such portfolio income.
Capital Gains under the 1997 Act
In general, under the Taxpayer Relief Act of 1997 (the "1997 Act"), the
maximum tax rate on an individual's net capital gain is reduced from 28% to 20%.
In addition, any net capital gain which otherwise would be taxed at a 15% rate
is taxed at a 10% rate. However, the rates applicable to ordinary income
continue to apply to the sale or exchange of capital assets held for one year or
less, and the applicable tax rate under prior law, rather than the new 20% and
10% rates, will continue to apply to the sale or exchange of capital assets held
for more than one year but not more than 18 months. It is unclear how the
applicable rate is determined in the case of capital gain dividends paid by a
REIT, which, under Section 857 of the Code, are required to be treated as "gain
from the sale or exchange of a capital asset held for more than one year." The
Treasury Department is authorized to issue regulations that address the
application of the new capital gains rates to sales and exchanges by REITs and
to sales and exchanges of interest in REITs, but no such regulations have been
issued.
Under the 1997 Act, generally effective for tax years of the Company
beginning on or after January 1, 1998, the Company may elect to retain, rather
than distribute, its net long-term capital
S-31
<PAGE> 32
gains and pay the tax on such gains. If such an election is made, the Company
will specifically designate in respect of each stockholder's shares an amount of
such undistributed capital gains, but such amount shall not exceed the amount
such stockholder would have received if the capital gains had been distributed
as dividends. Stockholders must include, in computing their long-term capital
gains for their tax year, the amount that the Company designates as
undistributed capital gains allocable to such stockholder and are deemed to have
paid their pro rata share of the Company's tax liability with respect to such
undistributed capital gain. Such stockholders shall be allowed a credit or
refund, as the case may be, for the tax so deemed to have been paid by it. The
stockholder's adjusted tax basis will be increased by the amount of its
designated undistributed capital gains, if any, and reduced by the amount of tax
deemed paid by the stockholder with respect to such gains.
Alternative Minimum Tax.
Taxpayers are subject to the alternative minimum tax to the extent that it
exceeds the regular tax. In the case of shareholders of the Company, items of
tax preference and other items that are treated differently for regular tax and
alternative minimum tax purposes are determined at the Company level. The Tax
Reform Act of 1986 directs the Secretary of the Treasury to promulgate
regulations determining how such items are to be allocated between the
shareholders and the Company for purposes of the alternative minimum tax;
however, no regulations have been issued as of the date hereof. Therefore, it is
unclear how the alternative minimum tax provisions will be applied to the
shareholders of a REIT.
Sale or Exchange of Series B Preferred Stock.
Upon the sale or exchange of Series B Preferred Stock to a party other than
the Company, a holder of Series B Preferred Stock will realize a capital gain or
loss measured by the difference between the amount realized on the sale or other
disposition and the holder's adjusted tax basis in the Series B Preferred Stock
(provided the Series B Preferred Stock is held as a capital asset by the
holder). Under the 1997 Act, if the Series B Preferred Stock has been held by an
individual for more than one year but not more than 18 months at the time of
disposition, the maximum capital gains rate will be 28%. If the Series B
Preferred Stock has been held by an individual for more than 18 months, the
maximum capital gains rate will be 20%. Any loss on a sale of Series B Preferred
Stock that was held by the holder for six months or less and with respect to
which capital gain dividends have been received will be treated as a long term
capital loss, up to the amount of the capital gain dividends received with
respect to such shares.
Redemption of Series B Preferred Stock.
The treatment to be accorded to any redemption by the Company of Series B
Preferred Stock can be determined only on the basis of particular facts as to
each holder of Series B Preferred Stock at the time of redemption. In general, a
holder of Series B Preferred Stock will recognize capital gain or loss (provided
the Series B Preferred Stock is held as a capital asset) measured by the
difference between the amount realized by the holder upon the redemption and
such holder's adjusted tax basis in the Series B Preferred Stock redeemed if
such redemption (i) results in a "complete termination" of the holder's interest
in the Company under Section 302(b)(3) of the Code, (ii) is "substantially
disproportionate" with respect to the holder's interest in the Company under
Section 302(b)(2) of the Code (which will not be the case if only Series B
Preferred Stock is redeemed, since the Series B Preferred Stock generally will
have no voting rights), or (iii) is "not essentially equivalent to a dividend"
with respect to the holder of Series B Preferred Stock under Section 302(b)(1)
of the Code. In determining whether any of these tests have been met, shares
considered to be owned by the holder by reason of certain constructive ownership
rules set forth in the Code, as well as shares actually owned, generally must be
taken into account. If the aforementioned tests are not met, the redemption will
be treated as a distribution with respect to the Series B Preferred Stock.
Because the determination as to whether any of the alternative tests of Section
302(b) of the Code will be satisfied with respect to any particular holder of
Series B
S-32
<PAGE> 33
Preferred Stock depends upon the facts and circumstances of such holder at the
time the determination must be made, prospective investors are advised to
consult their own tax advisors to determine such tax treatment.
FOREIGN SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Foreign Shareholders") are complex, and no attempt
is made herein to provide more than a limited summary of such rules. Prospective
Foreign Shareholders should consult with their own tax advisors to determine the
impact of U.S. federal, state, and local income tax laws with regard to an
investment in Series B Preferred Stock, including any reporting requirements.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), a Foreign
Shareholder will be taxable at normal capital gain rates on capital gain
distributions attributable to U.S. real property interests. Such distributions
may be subject to a withholding tax of up to 35% of the amount of the gross
capital gains distribution. In addition, a foreign corporation may be subject to
the "branch profits tax" on the after-tax amount of a capital gains distribution
at the rate of 30% (unless an applicable tax treaty reduces that rate). If,
after the end of a year, the Company designates a distribution during the year
as a capital gain distribution, FIRPTA withholding will not apply to the
designated distribution, but will apply instead to subsequent distributions in
the same amount (subject also to any other required withholding).
A Foreign Shareholder subject to tax on capital gain distributions must
file a tax return that reports the distribution as effectively connected income,
and may claim any tax withheld as a credit against the tax shown as due on such
return. If the actual tax owed differs from the amount withheld, the difference
will be payable with the return or refunded to the taxpayer as appropriate.
Generally, other dividend distributions to a Foreign Shareholder out of current
or accumulated earnings and profits will be subject to withholding tax at a rate
of 30% (unless an applicable tax treaty reduces that rate). The United States
has announced its intention to renegotiate treaties so that most Foreign
Shareholders will be taxed at a 15% withholding rate on REIT dividends.
Under recently released Treasury regulations that are effective for
distributions declared and paid after December 31, 1998, a Foreign Shareholder
who wishes to claim the benefit of an applicable treaty rate will be required to
satisfy applicable certification requirements. Special rules apply to
distributions to foreign partnerships.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Foreign Shareholder to the extent that they
do not exceed the adjusted basis of the shareholder's shares, but rather will
reduce the adjusted basis of such shareholder's shares. To the extent that such
distributions exceed the adjusted basis of a Foreign Shareholder's shares, the
distributions will give rise to a gain on the sale or exchange of the shares.
Gain on the sale of shares of the Company by a Foreign Shareholder will not
be subject to federal income taxation unless (a) the Company fails to qualify as
a "domestically-controlled REIT" (i.e., a REIT less than 50% of the stock of
which has been owned directly or indirectly by foreign persons throughout the
prior five years) and, if the stock is regularly traded on an established
securities market, the Foreign Shareholder has owned (at any time during the
five-year period ending on the date of the sale), actually or constructively,
more than 5% of such class of stock, or (b) the selling Foreign Shareholder is a
nonresident alien individual present in the United States for more than 182 days
in the taxable year of the sale and the Foreign Shareholder's "tax home" is in
the United States or the gain is attributable to a U.S. office.
In general, a Foreign Shareholder's dividends and gains with respect to
stock of the Company which are considered effectively connected with a U.S.
trade or business will be taxed in the same manner as income and gain of U.S.
stockholders instead of as described above, and, in the case of
S-33
<PAGE> 34
a corporation, the after-tax amount thereof may also be subject to the "branch
profits tax" at a rate of 30% (unless an applicable tax treaty reduces that
rate). A Foreign Shareholder may claim exemption from dividend withholding (but
not FIRPTA withholding) under the effectively connected exception by filing an
IRS Form 4224 with the Company or its paying agent.
Stock of the Company owned by individuals will be subject to U.S. estate
taxes unless exempted by treaty.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the Service the amount
of distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates that fact; or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the Service. Any amount paid as backup withholding will be creditable against
the shareholder's income tax liability. In addition, the Company may be required
to withhold a portion of dividends and capital gain distributions to any
shareholders who do not certify under penalties of perjury their nonforeign
status to the Company.
RECENTLY ENACTED LEGISLATION
On August 5, 1997, President Clinton signed into law the 1997 Act, which
modifies certain REIT-related Code provisions for tax years of the Company
beginning on or after January 1, 1998. The following list sets forth the
significant changes contained in this legislation: (i) the rule disqualifying a
REIT for any year in which it fails to comply with certain regulations requiring
the REIT to monitor its stock ownership is replaced with an intermediate
financial penalty; (ii) the rule disqualifying a REIT that is "closely held"
(i.e., during the last half of each taxable year, more than 50% in value of a
REIT's outstanding stock is owned by five or fewer individuals) does not apply
if during such year the REIT complied with certain regulations which require the
REIT to monitor its stock ownership, and the REIT did not know or have reason to
know that it was closely held; (iii) a REIT is permitted to render a de minimis
amount of impermissible services to tenants in connection with the management of
property and still treat amounts received with respect to such property (other
than certain amounts relating to such services) as qualified rent; (iv) the
rules regarding attribution to partnerships for purposes of defining qualified
rent and independent contractors are modified so that attribution occurs only
when a partner owns a 25% or greater interest in the partnership; (v) the 30%
gross income test is repealed; (vi) any corporation wholly-owned by a REIT is
permitted to be treated as a qualified REIT subsidiary regardless of whether
such subsidiary has always been owned by the REIT; (vii) the class of excess
noncash items for purposes of the REIT distribution requirements is expanded;
(viii) property that is involuntarily converted is excluded from the prohibited
transaction rules; (ix) the rules relating to shared appreciation mortgages are
modified; (x) income from all hedges that reduce the interest rate risk of REIT
liabilities, including rate swap or cap agreements, options, futures and forward
rate contracts, is included in qualifying income for purposes of the 95% income
test; (xi) a REIT is able to elect to retain and pay income tax on its net
long-term capital gains, and if such election is made, the REIT's shareholders
include in income their proportionate share of the undistributed long-term
capital gain and are deemed to have paid their proportionate share of tax paid
by the REIT; (xii) the rules relating to the grace period for foreclosure
property are modified and (xiii) certain other Code provisions relating to REITs
are amended.
S-34
<PAGE> 35
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and the
related Pricing Agreement, the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Goldman, Sachs
& Co., BT Alex. Brown Incorporated, EVEREN Securities, Inc., Morgan Stanley &
Co. Incorporated and PaineWebber Incorporated are acting as representatives, has
severally agreed to purchase from the Company, the respective number of
Depositary Shares set forth opposite its name below:
<TABLE>
<CAPTION>
DEPOSITARY
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Goldman, Sachs & Co. ....................................... 560,000
BT Alex. Brown Incorporated................................. 560,000
EVEREN Securities, Inc. .................................... 560,000
Morgan Stanley & Co. Incorporated........................... 560,000
PaineWebber Incorporated.................................... 560,000
Bear, Stearns & Co. Inc. ................................... 60,000
Donaldson, Lufkin & Jenrette Securities..................... 60,000
A.G. Edwards & Sons, Inc. .................................. 60,000
Legg Mason Wood Walker Incorporated......................... 60,000
NationsBanc Montgomery Securites, Inc. ..................... 60,000
Oppenheimer & Co., Inc. .................................... 60,000
Prudential Securities Incorporated.......................... 60,000
Schroder & Co. Inc. ........................................ 60,000
Wheat First Butcher Singer.................................. 60,000
Advest, Inc. ............................................... 30,000
J.C. Bradford & Co. ........................................ 30,000
Cowen & Company............................................. 30,000
Crowell, Weedon & Co. ...................................... 30,000
Dain Bosworth Incorporated.................................. 30,000
Fahnestock & Co. Inc. ...................................... 30,000
Interstate/Johnson Lane Corporation......................... 30,000
McDonald & Company Securities, Inc. ........................ 30,000
McGinn, Smith & Co., Inc.................................... 30,000
Morgan Keegan & Company, Inc................................ 30,000
The Ohio Company............................................ 30,000
Piper Jaffray Inc. ......................................... 30,000
Principal Financial Securities, Inc. ....................... 30,000
Rauscher Pierce Refsnes, Inc. .............................. 30,000
Raymond James & Associates, Inc. ........................... 30,000
The Robinson-Humphrey Company, LLC.......................... 30,000
Roney & Co., L.L.C. ........................................ 30,000
Sutro & Co. Incorporated.................................... 30,000
Trilon International Inc. .................................. 30,000
Tucker Anthony Incoporated.................................. 30,000
U.S. Clearing Corp. ........................................ 30,000
Wedbush Morgan Securities Inc. ............................. 30,000
---------
Total............................................. 4,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the
related Pricing Agreement, the Underwriters are committed to take all of the
Depositary Shares, if any are taken.
The Underwriters propose to offer the Depositary Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less a concession of $.50 per Depositary Share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.40 per
Depositary Share to certain brokers and dealers. After the Depositary Shares are
released for sale
S-35
<PAGE> 36
to the public, the offering price and other selling terms may from time to time
be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
600,000 additional Depositary Shares solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Depositary Shares to be purchased by
each of them, as shown in the foregoing table, bears to the 4,000,000 Depositary
Shares offered by this Prospectus Supplement.
Prior to the Offering, there has been no public market for the Depositary
Shares. An application to list the Depositary Shares on The New York Stock
Exchange will be made, although there can be no assurance that the Depositary
Shares will be approved for listing.
Certain of the Underwriters have provided various investment banking
services to the Company and its affiliates from time to time, for which they
have received customary compensation.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
In connection with the Offering, the Underwriters may purchase and sell the
Depositary Shares in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the shares; and syndicate short
positions involve the sale by the Underwriters of a greater number of shares
than they are required to purchase from the Company in the Offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the Depositary Shares
sold in the Offering for their account may be reclaimed by the syndicate if such
shares are repurchased by the syndicate in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the Depositary Shares, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on The New York
Stock Exchange, in the over-the-counter market or otherwise.
VALIDITY OF THE SHARES
The validity of the Series B Preferred Stock 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, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996; the combined balance sheets
of the Core Group (a business unit of American Health Properties, Inc.) as of
December 31, 1996 and 1995 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, 1996; and the combined balance sheets of the Psychiatric
Group (a business unit of American Health Properties, Inc.) as of December 31,
1996 and 1995 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, 1996, 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.
S-36
<PAGE> 37
PROSPECTUS
American Health Properties, Inc.
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; (iv) depositary shares
("Depositary Shares") representing a fractional interest in a share of Preferred
Stock; or (v) 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. $300,000,000, 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 or Depositary Shares on a securities exchange, and any other terms in
connection with the offering and sale of such Preferred Stock and/or Depositary
Shares; 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.
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 October 14, 1997
<PAGE> 38
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 rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W. Plaza, Washington,
D.C. 20549. The Commission also maintains a website at http://www.sec.gov that
contains reports, proxy statements and other information of and concerning the
Company. 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.
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, 1996.
2. Quarterly Report on Form 10-Q for the three months ended March 31, 1997.
3. Quarterly Report on Form 10-Q for the six months ended June 30, 1997.
4. Current Report on Form 8-K, dated August 14, 1995.
5. 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.
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
2
<PAGE> 39
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> 40
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 medical office buildings.
As of June 30, 1997, the Company's portfolio of investments consisted 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 mortgage loan secured by a long-term acute
care hospital, one long-term acute care hospital (currently under construction),
six skilled nursing facilities (two of which are under construction), two
medical office buildings and two Alzheimer's care facilities. 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, skilled nursing
facilities, medical office buildings and Alzheimer's care facilities and (ii)
the Psychiatric Group, which includes all of the Company's investments in
psychiatric hospitals.
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.
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, Preferred Stock (and Depositary Shares
with respect thereto) 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.
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
$7,930,000 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.
4
<PAGE> 41
(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, including the Preferred Stock and any Depositary Shares with
respect thereto, 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 "Description of
Common Stock and Psychiatric Group Stock -- 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).
(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 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
5
<PAGE> 42
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.
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. Because
dividends payable on the Psychiatric Group Stock are not fixed, dividends paid
on the Psychiatric Group Stock are not included in the presentation of the ratio
of earnings to combined fixed charges and preferred stock dividends.
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.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------------------
1997 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed
charges (unaudited)...................... 2.16(a) 2.91 2.54 1.33(b) 2.81 (c)
</TABLE>
- ---------------
(a) Decrease in ratio was primarily due to an $11 million impairment loss on
Psychiatric Group real estate investments and other notes receivable.
(b) Decrease in ratio was primarily due to a $30 million write-down of
Psychiatric Group real estate investments.
(c) 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, 1997 and the years ended 1996, 1995, 1994, 1993 and 1992
were 4.05, 3.78, 3.04, 3.09, 2.58, and 2.29, respectively.
6
<PAGE> 43
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 June 30, 1997, the Company had issued and
outstanding 23,463,754 shares of Common Stock. As of June 30, 1997, the Company
had outstanding approximately 208,000 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 transaction in which the Company
distributed Depositary Shares representing Psychiatric Group Stock to the
holders of the Company's Common Stock (the "Distribution"). In addition, the
Company has authorized the issuance of approximately 257,000 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 is a holder of an issue of capital stock of the
entire Company and is 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, 1997, the Available Dividend Amount attributable to
the Core Group and the Psychiatric Group as of that date was at least $282.7
million and $36.9 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, 1997 the funds of the Company legally available for the payment
of dividends would have been at least $319.6 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.
7
<PAGE> 44
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.
8
<PAGE> 45
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 issued or issuable at June 30, 1997, including
Rights issuable in connection with Common Stock which
9
<PAGE> 46
may be issued under the Company's stock incentive plans and upon the conversion
of the Company's outstanding Swiss franc convertible bonds, was approximately
25,721,000. Approximately 257,000 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 does not include, or entitle the holders
thereof to receive, the Rights, which are 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
10
<PAGE> 47
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
11
<PAGE> 48
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
ChaseMellon Shareholder Services is the registrar and transfer agent for
the Common Stock and the Psychiatric Group Stock. ChaseMellon Shareholder
Services is also depositary for the depositary shares with respect to the
Psychiatric Group Stock.
12
<PAGE> 49
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 and/or Pricing 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 and/or Pricing
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, any Pricing 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 or any Pricing
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 that
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 and any
Pricing Supplement 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
13
<PAGE> 50
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 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 or Pricing 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 or any Pricing 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
14
<PAGE> 51
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.
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,
1997, the amount of Senior Indebtedness was approximately $219.0 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 or any
Pricing 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 or any
Pricing 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 registrable, 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 or Pricing 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
15
<PAGE> 52
successor Depositary and except in the circumstances described in the applicable
Prospectus Supplement or Pricing Supplement. (Sections 204 and 305)
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 or Pricing Supplement.
The Company expects that the following provisions will apply to depositary
arrangements.
Unless otherwise specified in the applicable Prospectus Supplement or
Pricing Supplement, Debt Securities that 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 or
Pricing 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 or any
Pricing Supplement.
CERTAIN COVENANTS OF THE COMPANY
If so indicated in the applicable Prospectus Supplement or any Pricing
Supplement with respect to a particular series of Debt Securities, the Company
will be subject to either or both of the following covenants, except as may be
indicated in the applicable Prospectus Supplement or any Pricing Supplement.
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
16
<PAGE> 53
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
17
<PAGE> 54
(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)
18
<PAGE> 55
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)
19
<PAGE> 56
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 or any Pricing
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
20
<PAGE> 57
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 or any Pricing Supplement.
If so indicated in a Prospectus Supplement or a Pricing 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 June 30, 1997, the Company had
outstanding approximately 208,000 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 257,000 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 assets, 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
21
<PAGE> 58
exchange 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 or any Pricing Supplement relating to a particular series of the
Preferred Stock. The applicable Prospectus Supplement or any Pricing 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 or any Pricing
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 or any Pricing 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
22
<PAGE> 59
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 or any Pricing 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 and any Pricing 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 and any Pricing 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 or
any Pricing 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 or any Pricing
Supplement.
LIQUIDATION
Unless otherwise specified in the applicable Prospectus Supplement or any
Pricing Supplement, in the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Company, the
23
<PAGE> 60
holders of a series of Preferred Stock will be entitled, subject to the rights
of creditors, but before any distribution or payment to the 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 or any Pricing
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 or any Pricing
Supplement and as required by applicable law. Unless otherwise specified in the
related Prospectus Supplement or any Pricing 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 or any Pricing
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
24
<PAGE> 61
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.
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 or
any Pricing 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 or any Pricing 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
25
<PAGE> 62
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 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
26
<PAGE> 63
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 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 or any Pricing 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 or any Pricing 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 or any
Pricing 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 or any
Pricing 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.
27
<PAGE> 64
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 or
any Pricing 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 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 or any Pricing
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 or any Pricing 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, Depositary Shares and Warrants are sold
by the Company for public offering and sale may make a market in such Debt
Securities, Preferred Stock, Depositary Shares 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, Depositary
Shares 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 or any Pricing Supplement.
VALIDITY OF SECURITIES
The validity of the Securities offered will be passed upon for the Company
by Davis, Graham & Stubbs, LLP, Denver, Colorado, and for the Underwriters or
agents, if any, by such counsel as may be named in the accompanying Prospectus
Supplement or any Pricing Supplement.
EXPERTS
The consolidated balance sheets of American Health Properties, Inc. and
subsidiaries as of December 31, 1996 and December 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996; the combined
balance sheets of the Core Group (a business unit of American Health Properties,
Inc.) as of December 31, 1996 and December 31, 1995 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, 1996; and the combined balance
sheets of the Psychiatric Group (a business unit of American Health Properties,
Inc.) as of December 31, 1996 and
28
<PAGE> 65
December 31, 1995 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, 1996, 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.
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
29
<PAGE> 66
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 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.
30
<PAGE> 67
======================================================
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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company.............................. S-3
Recent Financial Results................. S-3
The Offering............................. S-3
Use of Proceeds.......................... S-5
Capitalization........................... S-6
Selected Consolidated Financial
Information............................ S-7
Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations.................. S-8
Business and Properties.................. S-13
Description of Series B Preferred
Stock.................................. S-23
Certain Federal Income Tax
Considerations......................... S-28
Underwriting............................. S-35
Validity of the Shares................... S-36
Experts.................................. S-36
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
The Company.............................. 4
Management and Accounting Policies....... 4
Use of Proceeds.......................... 6
Ratios of Earnings to Fixed Charges...... 6
Description of Common Stock and
Psychiatric Group Stock................ 7
Description of Debt Securities........... 13
Description of Preferred Stock........... 21
Description of Depositary Shares......... 24
Description of Warrants.................. 27
Plan of Distribution..................... 27
Validity of Securities................... 28
Experts.................................. 28
Glossary................................. 29
</TABLE>
======================================================
======================================================
4,000,000 DEPOSITARY SHARES
AMERICAN HEALTH PROPERTIES, INC.
EACH REPRESENTING
1/100 OF A SHARE OF
8.60% CUMULATIVE REDEEMABLE
PREFERRED STOCK, SERIES B
------------------------
PROSPECTUS SUPPLEMENT
------------------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
EVEREN SECURITIES, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
======================================================
