<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 4, 1996)
$30,000,000
LTC PROPERTIES, INC.
8.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001
__________________________________________
LTC Properties, Inc. (the "Company") is hereby offering (the "Offering")
$30,000,000 aggregate principal amount of 8.25% Convertible Subordinated
Debentures Due 2001 (the "Debentures"). The Company is a health care real estate
investment trust ("REIT") which invests in long-term care and other health care
related facilities through mortgage loans, facility lease transactions and other
investments.
The Debentures will rank equally with other unsecured debt of the Company
but will be subordinated in right of payment to Senior Indebtedness (as defined
herein) and certain other debt. Upon completion of the Offering and the
application of the net proceeds therefrom, the Company will have outstanding
$99,675,000 of indebtedness that will rank senior to the Debentures. There is no
limitation on the amount of Senior Indebtedness which the Company may incur in
the future. The Debentures will be convertible at any time prior to maturity
into shares (the "Conversion Shares") of the Company's common stock, $.01 par
value per share ( the "Common Stock"), at a conversion price of $17.25 per
share, subject to adjustment under certain circumstances. The Debentures will
not be redeemable by the Company at any time except for certain reasons intended
to protect the Company's status as a REIT. Interest on the Debentures will be
payable semi-annually on January 1 and July 1 each year, commencing on January
1, 1997. See "Description of Debentures."
Prior to the Offering, there has been no public market for the Debentures.
Application will be made to have the Debentures and the Conversion Shares listed
on the New York Stock Exchange ("NYSE"). The Company's Common Stock is listed on
the NYSE under the symbol "LTC" and on August 19, 1996, the reported last sale
price on the NYSE of the Common Stock was $16.875 per share. In order to qualify
as a REIT, the Company has limited actual or constructive ownership to no more
than 9.8% of the Common Stock (including Conversion Shares and other Common
Stock into which the Company's outstanding debt is convertible or exchangeable)
by any holder, which may limit the ability of holders to convert their
Debentures. See "Description of Debt Securities" in the accompanying Prospectus.
_________________________________________
SEE "RISK FACTORS" BEGINNING ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS FOR
CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
__________________________________________
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.
<TABLE>
<CAPTION>
Price to Commissions Proceeds to
Public (1) and Fees (2) Company (3)
================================================================
<S> <C> <C> <C>
Per Debenture........ 100% 3.17% 96.83%
================================================================
Total Debentures..... $30,000,000 $950,000 $29,050,000
================================================================
</TABLE>
(1) Plus accrued interest, if any, on the Debentures from date of issuance to
date of delivery.
(2) The Debentures are being offered by the Company to selected institutional
investors. National Westminster Bank PLC, New York Branch ("NatWest"), 175
Water Street, New York, New York 10038, has been retained to act as
placement agent for the Company in connection with the arrangement of such
offers and sales on a best efforts, all or none, basis. The Company has
agreed (i) to pay NatWest a fee in connection with the arrangement of this
transaction and (ii) to indemnify NatWest against certain liabilities
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). It is anticipated that the Debentures will be delivered
against payment therefor on August 23, 1996; the Offering will not continue
after such date. See "Plan of Distribution."
(3) Before deducting estimated expenses of $100,000 payable by the Company.
The date of this Prospectus Supplement is August 20, 1996
<PAGE>
----------------------------------
For United Kingdom purchasers: The securities offered hereby may not be
offered or sold to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their business, or
otherwise in circumstances which will not result in an offer to the public in
the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995, and this Prospectus Supplement may not be passed on to any
person in the United Kingdom who does not fall within Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or who is not a person to whom the Prospectus Supplement may otherwise lawfully
be issued or passed on.
S-2
<PAGE>
THE COMPANY
The Company is a health care real estate investment trust (a "REIT") which
invests in long-term care and other health care related facilities through
mortgage loans, facility lease transactions and other investments. The primary
objective of the Company is to provide current income for distribution to
stockholders through real estate investments primarily in skilled nursing
facilities managed by experienced operators providing quality care. To meet this
objective, the Company attempts to invest in transactions that provide the
opportunity for additional returns to its stockholders and diversify its
investment portfolio by geographic location, operator and form of investment. At
June 30, 1996, the Company's portfolio included investments in 252 skilled
nursing facilities with a total of 29,241 beds and 23 assisted living facilities
with 1,015 units in 30 states.
RECENT DEVELOPMENTS
During the six months ended June 30, 1996, the Company completed
investments totaling approximately $153,631,000 which consisted of approximately
$57,010,000 of mortgage loans on 22 skilled nursing facilities with a total of
2,849 beds and one assisted living facility with a total of 35 units. The
Company also provided a $1,000,000 additional advance on a previously existing
loan. In addition to the mortgage loans, the Company invested approximately
$95,621,000 to acquire 20 skilled nursing facilities with a total of 2,650 beds
and 14 assisted living facilities with a total 509 units. The acquisition of
these facilities brings the Company's gross investment in owned properties to
approximately $212,890,000 at June 30, 1996. Subsequent to June 30, 1996, the
Company completed additional investments totaling approximately $3,000,000. At
August 19, 1996, the Company had outstanding commitments to provide mortgage
loans totaling approximately $27,912,000 and to acquire 30 long-term care
facilities for an aggregate purchase price of approximately $70,634,000. The
Company expects to fund at least $29,587,000 of these commitments by the end of
1996.
In 1996, the Company's Board of Directors authorized the Company to
increase its investment in assisted living facilities ("ALFs") from 10 percent
to 20 percent of Company's adjusted gross real estate investment portfolio
(adjusted to include approximately $254,815,000 of mortgage loans to third
parties underlying the Company's $92,731,000 investment in mortgage-backed
securities). In addition, the Company's Board of Directors authorized management
to increase its investment in properties operated by Assisted Living Concepts,
Inc. ("ALC"), an owner, operator and developer of assisted living residences
whose common stock is listed on the American Stock Exchange, from 5 percent to
10 percent of its adjusted gross real estate investment portfolio (which was
approximately $605,356,000 as of June 30, 1996). Currently, two of the Company's
executive officers serve as members of the Board of Directors of ALC. As of
August 1, 1996, three executive officers of the Company own approximately 6.5%
of ALC's common stock. As of June 30, 1996, the Company had investments in ALFs
and properties operated by ALC of approximately 7.4% and 4.9%, respectively of
the Company's total adjusted gross real estate investment portfolio.
On March 29, 1996, the Company securitized approximately $112,487,000 of
mortgage loans made by the Company by creating a real estate mortgage investment
conduit ("REMIC") which, in turn, issued mortgage pass-through certificates for
the same amount in the form of various classes of certificates (the
"Certificates"). As part of the securitization, the Company sold approximately
$90,552,000 of Certificates to third parties at an effective interest rate of
7.19%. The Company retained the remaining $21,935,000 face amount of such
Certificates which are effectively subordinated in right of payment to the
Certificates sold to third parties. The net proceeds from the REMIC transaction
were used to repay borrowings outstanding under the Company's lines of credit.
The mortgage loans represented by the Certificates consist of 34 mortgage loans
and are secured by 55 skilled nursing facilities in 17 states. The mortgage
loans in the REMIC pool have an initial weighted average mortgage interest rate
of 10.69% and a weighted average remaining term to stated maturity of
approximately 107 months. Concurrently with the closing of the REMIC
transaction, the Company's interest rate swap agreement entered into in May 1995
was terminated at a cost of approximately
S-3
<PAGE>
$1,500,000. Because the purpose of the interest rate swap agreement was to hedge
the interest rate on the mortgages underlying a portion of the Certificates sold
to third parties, the costs of terminating the swap, along with other costs of
the transaction are reflected in the carrying value of the retained
Certificates. The Certificates retained by the Company have a weighted average
effective yield of approximately 18.0%.
The Company also anticipates completing a securitization transaction within
the next year, the proceeds of which will be used to repay borrowings
outstanding under its repurchase agreement and its unsecured line of credit. In
anticipation of such securitization, the Company, in September 1995, entered
into a seven-year forward interest rate swap agreement (the "September 1995
Agreement"), which effectively locked-in the net interest margin on $60,000,000
principal amount of senior certificates that will be sold. The September 1995
Agreement will be terminated at the earlier of (i) the completion of the
securitization or (ii) February 28, 1997 and has been accounted for as a hedging
transaction. As of June 28, 1996, the Company had an unrealized gain of
approximately $1,080,000 on the September 1995 Agreement.
The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1996 was 2.13x.
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering (approximately
$28,950,000 after deducting the placement agent's fee and estimated expenses of
the Offering) will be used to repay borrowings outstanding under its two lines
of credit as described below.
In January 1995, the Company entered into a $25,000,000 unsecured revolving
credit agreement (the "Credit Agreement") with certain banks to provide the
Company with short-term borrowings. Borrowings under the Credit Agreement are
used to make real estate investments. In October 1995, the terms of the Credit
Agreement were amended to increase the amount of the line of credit from
$25,000,000 to $35,000,000 and to reduce the interest rate from LIBOR plus 1.75%
to LIBOR plus 1.5%. In May 1996, the terms of the Credit Agreement were amended,
including certain financial covenants, to increase the amount of the line from
$35,000,000 to $45,000,000 and to extend the expiration date from December 31,
1996 to May 31, 1998. As of August 19, 1996, the Company had $36,700,000
outstanding under the Credit Agreement bearing an interest rate of approximately
7.0%.
In May 1994, the Company entered into a $70,000,000 repurchase agreement
(the "Repurchase Agreement") with an institution to provide the Company with
short-term borrowings in an amount based on the Company's existing mortgage
loans with no additional commitment or unused fees. Borrowings under the
Repurchase Agreement are also used to make real estate investments and are
secured by substantially all of the outstanding mortgage loans of the Company
and mature on or before December 11, 1996. However, the Company has historically
been able to renew the Repurchase Agreement. In October 1995, the terms of the
Repurchase Agreement were also amended to increase the amount of the line of
credit from $70,000,000 to $84,000,000 and to reduce the interest rate from
LIBOR plus 2.5% to LIBOR plus 2.0%. As of August 19, 1996, the Company had
$20,000,000 outstanding under the Repurchase Agreement bearing an interest rate
of approximately 7.5%.
Although portions of the borrowings under the Company's lines of credit
will be paid down with the proceeds from the Offering, the Company expects to
incur additional indebtedness under both the Repurchase Agreement and the Credit
Agreement to finance future investments. In addition, the Company may incur
additional debt which would also be senior to the Debentures.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of June 30, 1996, (ii) pro forma to give effect to borrowings and
repayments under the Company's lines of credit and conversions of the Company's
outstanding convertible subordinated debentures through August 19, 1996 and
(iii) pro forma as adjusted to give effect to the sale of the $30,000,000
aggregate principal amount of Debentures offered hereby and the application of
the net proceeds therefrom as described in "Use of Proceeds." The capitalization
table should be read in conjunction with the Company's consolidated financial
statements and related notes thereto incorporated by reference into the
accompanying Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------
(In thousands)
Pro Forma
Actual Pro Forma As Adjusted
--------- ---------- ------------
<S> <C> <C> <C>
Borrowings under the Credit Agreement................................. $ 45,000 $ 36,700 $ 27,750
Borrowings under the Repurchase Agreement............................. 13,000 20,000 -
9.75% Convertible Subordinated Debentures Due 2004.................... 1,883 873 873
8.5% Convertible Subordinated Debentures Due 2000..................... 26,931 26,881 26,881
8.5% Convertible Subordinated Debentures Due 2001..................... 51,117 51,117 51,117
8.25% Convertible Subordinated Debentures Due 1999.................... 10,000 10,000 10,000
7.75% Convertible Subordinated Debentures Due 2002.................... 30,000 30,000 30,000
8.25% Convertible Subordinated Debentures Due 2001.................... - - 30,000
Mortgage loans payable................................................ 57,742 57,742 57,742
Bonds payable......................................................... 8,300 8,300 8,300
Capital lease obligations............................................. 5,883 5,883 5,883
-------- -------- --------
Total debt....................................................... 249,856 247,496 248,546
Stockholders' equity:
Preferred Stock, $.01 par value;
10,000,000 shares authorized;
none issued or outstanding................................... - - -
Common Stock, $.01 par value:
40,000,000 shares authorized;
18,535,361 actual issued and outstanding; and
18,639,694 pro forma and pro forma as adjusted (1)........... 185 186 186
Capital in excess of par value................................... 181,387 182,415 182,415
Cumulative net income............................................ 54,060 54,060 54,060
Cumulative cash distributions.................................... (63,290) (63,290) (63,290)
-------- -------- --------
Total stockholders' equity............................. 172,342 173,371 173,371
-------- -------- --------
Total capitalization.............................. $422,198 $420,867 $421,917
======== ======== ========
</TABLE>
- ------------
(1) Assuming 100% conversion of all convertible debt of the Company other than
the Debentures, there would be 26,280,275 shares issued and outstanding at
August 19, 1996.
S-6
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures are more fully described in the accompanying Prospectus and
will be limited to $30,000,000 aggregate principal amount and will be issued
pursuant to an indenture (the "Indenture") by and between the Company and Harris
Trust and Savings Bank, as trustee (the "Trustee"). Reference should be made to
the accompanying Prospectus for a detailed summary of additional provisions of
the Debentures and of the Indenture.
MATURITY
The Debentures will mature on July 1, 2001.
INTEREST
Except as otherwise provided in the Indenture, interest on the Debentures
will accrue from August 23, 1996 at the annual rate set forth on the cover page
of this Prospectus Supplement and will be payable semi-annually on January 1 and
July 1 beginning on January 1, 1997, to the persons in whose names the
Debentures are registered at the close of business on the next preceding
December 15 and June 15 and, unless other arrangements are made, will be paid by
checks mailed to such persons at their registered addresses. The interest
payable on January 1, 1997 will be $29.56 per $1,000 aggregate principal amount
of the Debentures and on each January 1 and July 1 thereafter will be $41.25 per
$1,000 aggregate principal amount of the Debentures.
CONVERSION RIGHTS
The Debentures are convertible into shares of Common Stock at a price of
$17.25 per share (subject to adjustments) at any time from the date of issuance
until maturity. See "Description of Debt Securities -- Conversion Rights" in the
accompanying Prospectus.
SUBORDINATION
The Debentures will be unsecured general obligations of the Company and
will be subordinated to all existing and future Senior Indebtedness (as defined
in the accompanying Prospectus) of the Company and will be structurally
subordinated to subsidiary indebtedness. Upon completion of the Offering and the
application of the net proceeds therefrom, the Company will have outstanding
$99,675,000 of indebtedness that will rank senior to the Debentures. There is no
limitation on the amount of Senior Indebtedness that the Company may incur in
the future. The Company may not pay principal of, premium, if any, or interest
on, the Debentures, or repurchase or redeem the Debentures, if any Senior
Indebtedness is in default unless, in each case, the default has been cured or
waived or shall have ceased to exist. Upon any payment or distribution of assets
of the Company upon liquidation, dissolution, reorganization or any similar
proceeding, the holders of Senior Indebtedness will be entitled to receive
payment in full before the holders of the Debentures are entitled to receive any
payment. See "Description of Debt Securities-Subordination" in the accompanying
Prospectus.
REDEMPTION
The Debentures will not be redeemable by the Company at any time, except if
such redemption is deemed by the Board of Directors to be necessary or
reasonably prudent for the Company to maintain its status as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). See "Description of Debt Securities -- Optional Redemption" in the
accompanying Prospectus.
S-7
<PAGE>
DISTRIBUTIONS
The Indenture generally does not restrict distributions to holders of the
Company's Common Stock. The Company anticipates distributing a substantial
portion of its cash flow to such holders of Common Stock. The Company's
quarterly dividend is currently $.34 per share of Common Stock, which is equal
to an annualized dividend of $1.36 per share of Common Stock. Notwithstanding a
default thereunder, the Indenture permits distributions to stockholders as the
Company determines necessary to maintain its status as a REIT. See "Description
of Debt Securities-Dividends, Distributions and Acquisitions of Common Stock" in
the accompanying Prospectus.
MARKETABILITY
At present there is no public market for the Debentures. An application
will be made to list the Debentures and the Conversion Shares on the NYSE.
S-8
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF CERTAIN MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS REGARDING THE DEBENTURES, AND IS BASED ON CURRENT LAW, IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. THIS DISCUSSION DOES NOT PURPORT
TO DEAL WITH ALL ASPECTS OF TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS
OF DEBENTURES IN LIGHT OF THEIR PERSONAL INVESTMENT OR TAX CIRCUMSTANCES, OR TO
CERTAIN TYPES OF HOLDERS OF DEBENTURES, INCLUDING INSURANCE COMPANIES, TAX-
EXEMPT ORGANIZATIONS FINANCIAL INSTITUTIONS OR BROKER-DEALERS.
This Prospectus Supplement does not address the taxation of the Company or
the impact on the Company of its election to be taxed as a REIT. Moreover, this
Prospectus Supplement does not address the material federal income tax
consequences to holders of Common Stock of the Company. The federal income tax
treatment of the Company, as well as the material federal income tax
consequences to holders of Common Stock of the Company are set forth in the
Prospectus under the heading "Federal Income Tax Considerations."
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE PROSPECTUS FOR
INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY OF ITS
ELECTION TO BE TAXED AS A REIT, AND REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF HOLDING COMMON STOCK OF THE COMPANY. EACH PROSPECTIVE PURCHASER
IS ALSO ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP, CONVERSION AND SALE OF THE
DEBENTURES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP, CONVERSION 0R SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF HOLDERS OF DEBENTURES
Stated Interest
Holders of Debentures will be required to include stated interest on the
Debentures in gross income for federal income tax purposes in accordance with
their methods of accounting for tax purposes. The Debentures will not be issued
with original issue discount.
Market Discount
Purchasers of Debentures should be aware that the holding and disposition
of Debentures may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily-defined de minimis
exception, if a holder of a debt instrument purchases it at a market discount
and thereafter recognizes gain on a disposition of the debt instrument
(including a gift or payment on maturity), the lesser of such gain (or
appreciation, in the case of a gift) or the portion of the market discount that
accrued while the debt instrument was held by such holder will be treated as
ordinary interest income at the time of the disposition. For this purpose, a
purchase at a market discount includes a purchase after original issuance at a
price below the debt instrument's stated principal amount. The market discount
rules also provide that a holder who acquires a debt instrument at a market
discount (and who does not elect to include such market discount in income on a
current basis) may be required to defer a portion of any interest expense that
may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such debt instrument until the holder disposes of the debt
instrument in a taxable transaction.
The Debentures provide that they may be redeemed, in whole or in part,
before maturity only for certain tax reasons relating to the Company's status as
a REIT under Sections 856 through 860 of the Code. If some or all of the
Debentures are redeemed in part, each holder of a Debenture acquired at a market
discount would be required to treat the principal payment as ordinary interest
income to the extent of any accrued market discount on such Debenture.
S-9
<PAGE>
A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service ("IRS"). If a holder of a Debenture
elects to include market discount in income in accordance with the preceding
sentence, the foregoing rules with respect to the recognition of ordinary income
on a sale or certain other dispositions of such Debenture and the deferral of
interest deductions on indebtedness related to such Debenture would not apply.
Amortizable Bond Premium
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess may
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
Disposition
In general, a holder of a Debenture will recognize gain or loss upon the
sale, exchange, redemption, payment upon maturity or other taxable disposition
of the Debenture measured by the difference between (i) the amount of cash and
the fair market value of property received (except to the extent that such cash
or other property is attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary income)
and (ii) the holder's tax basis in the Debenture (as increased by any market
discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the Debenture). Subject to
the market discount and amortizable bond premium rules above, any such gain or
loss will generally be long-term capital gain or loss, provided the Debenture
was a capital asset in the hands of the holder and had been held for more than
one year.
Conversion
A holder of a Debenture should not recognize gain or loss on the conversion
of a Debenture solely into Common Stock except with respect to cash in lieu of
fractional shares and except to the extent that the Common Stock issued upon
conversion is treated as attributable to accrued interest on the Debentures. To
the extent the Debentures converted are subject to accrued market discount, the
amount of the accrued market discount should (subject to Treasury Regulations
not yet issued) carry over to the Common Stock on conversion and will be treated
as ordinary income on disposition of the Common Stock. If Common Stock is
received by a holder of a Debenture without recognition of gain or loss, the
holding period of the Common Stock received upon conversion of the Debenture
will include the period during which the Debenture was held (provided the
Debenture was a capital asset in the hands of the holder prior to the
conversion), and the holder's aggregate basis in the Common Stock received upon
conversion of the Debenture will be equal to the holder's aggregate basis in the
Debenture exchanged therefor (less a portion thereof allocable to any fractional
share). A holder of a Debenture will recognize taxable gain or loss on cash
received in lieu of fractional shares of Common Stock in an amount equal to the
difference between the amount of cash received and the holder's basis in such
fractional share. Such gain or loss should be capital gain or loss if the
fractional share is a capital asset in the hands of the holder, and should be
long-term capital gain or loss if the fractional share has been deemed held for
the then requisite holding period. The fair market value of Common Stock
received which is attributable to accrued interest will be taxable as ordinary
interest income.
S-10
<PAGE>
The conversion price of the Debentures is subject to adjustment under
certain circumstances. See the discussion in the Prospectus under the heading
"Description of Debt Securities -- Conversion Rights." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Debentures as having received a constructive distribution, resulting in ordinary
income, to the extent of the Company's current and accumulated earnings and
profits if and to the extent that certain adjustments in the conversion price
that may occur in limited circumstances (particularly an adjustment to reflect a
taxable dividend to holders of Common Stock) increase the proportionate interest
of a holder of Debentures in the fully diluted Common Stock, whether or not such
holder ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Debentures to reflect a stock dividend
or other event increasing the proportionate interest of the holders of the
Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits.
Non-U.S. Debentureholders
The rules governing United States federal income taxation of the ownership
and disposition of Debentures by holders that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Debentureholders") are complex, and no attempt is made herein to provide more
than a brief summary of such rules. Accordingly, the discussion does not address
all aspects of United States federal income tax and does not address state,
local or foreign tax consequences that may be relevant to a Non-U.S.
Debentureholder in light of its particular circumstances. In addition, this
discussion is based on current law, which is subject to change. Prospective Non-
U.S. Debentureholders should consult with their own tax advisors to determine
the impact of federal, state, local and foreign income tax laws with regard to
the purchase of Debentures, including any reporting requirements.
The United States generally will impose a withholding tax at a 30% rate
(subject to reduction or elimination in the case of Non-U.S. Debentureholders
eligible for a lower treaty rate) on payments of interest received from sources
within the United States by a Non-U.S. Debentureholder, unless such income is
effectively connected with his conduct of a United States trade or business.
This tax does not apply to payments of "portfolio interest." Payments of
interest on the Debentures will qualify as portfolio interest, provided that (i)
the Non-U.S. Debentureholder does not own 10% or more (actually or
constructively) of the total combined voting power of all classes of stock of
the Company entitled to vote; (ii) the Non-U.S. Debentureholder is not a
"controlled foreign corporation" (generally, a foreign corporation controlled by
United States stockholders) related to the Company; (iii) the Non-U.S.
Debentureholder is not a bank receiving the interest on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course of its
trade or business; (iv) the interest is not "contingent interest" within the
meaning of Section 871(h)(4) of the Code; and (v) the beneficial owner of the
Debentures and, if relevant, a financial institution on the beneficial owner's
behalf, complies with certain certification requirements regarding the
beneficial owner's status as a foreign person. The certification requirement
referred to in (v) of the Debentures provides to the Company (or, if
appropriate, to the relevant financial institution which financial institution
then provides to the Company) a statement under penalties of perjury on IRS Form
W-8 (or a substantially similar substitute form) as to its status as a foreign
person.
Interest paid on Debentures should not constitute contingent interest
within the meaning of Section 871 (h)(4) of the Code. Thus, as long as the Non-
U.S. Debentureholder satisfies requirement (v) above and the Company has no
reason to believe that requirements (i), (ii) or (iii) above are not satisfied
or that such interest is effectively connected with the conduct of a United
States trade or business, the Company will treat the interest paid on the
Debentures as "portfolio interest" and will not withhold tax from such interest
paid to such Non-U.S. Debentureholder. In addition, if the interest paid on the
Debentures to a foreign holder is effectively connected with the conduct of a
United States trade or business and the Non-U.S. Debentureholder provides the
requisite statement to such effect, then the Company will not withhold tax from
such interest (and the Non-U.S. Debentureholder will be subject to United States
federal income tax as described below).
A Non-U.S. Debentureholder will not be subject to United States federal
income tax or withholding tax on gain realized on the sale, exchange or
redemption of a Debenture (including the
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<PAGE>
conversion of such Debenture for shares of Common Stock and the receipt of such
in lieu of fractional shares of Common Stock on such a conversion, but excluding
gain attributable to accrued and unpaid interest which will generally be treated
as interest), provided that (i) such gain is not effectively connected with the
conduct of a trade or business in the United States by such Non-U.S.
Debentureholder, (ii) such Non-U.S. Debentureholder is not an individual who is
present in the United States for 183 or more days during the taxable year in
which such gain is realized and (iii) the certification requirements referred to
in clause (v) of the second preceding paragraph are met with respect to such
Non-U.S. Debentureholder. This paragraph assumes that the Company is a
"domestically controlled REIT," which is defined generally as a REIT in which at
all times during a specified testing period less than 50% in value of the stock
was held directly or indirectly by foreign persons. It is currently anticipated
that the Company will be a domestically controlled REIT.
In general, a Non-U.S. Debentureholder will be subject to (i) United States
federal income tax on interest or gain on a Debenture that is effectively
connected with its conduct of a United States trade or business and (ii) a
United States branch profits tax equal to 30% of its "effectively connected
earnings and profits" (as adjusted) for the taxable year if the Non-U.S.
Debentureholder is a corporation, unless it qualifies for exemption from the
branch profits tax or a lower rate of such tax under an applicable treaty.
Alternatively, an individual Non-U.S. Debentureholder who is present in the
United States for 183 days or more in a taxable year and has a "tax home" in the
United States will generally be taxed at a rate of 30% on any United States
source capital gain (net of any United States source capital losses) recognized
during such year on the Debentures that is not effectively connected with its
conduct of a United States trade or business.
Adjustments in the conversion price of the Debentures made pursuant to the
anti-dilution provisions thereof to reflect distributions to holders of Common
Stock may result in constructive dividends to Non-U.S. Debentureholders. Such
deemed dividends would be taxable to a Non-U.S. Debentureholder in the same
manner as dividends paid on the Common Stock. Where such deemed dividends would
otherwise be subject to withholding taxes, such tax may be collected through
subsequent payments on the Debentures.
Backup Withholding
Domestic Holders of Debentures
Under the backup withholding rules, a domestic holder of Debentures may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, and gross proceeds from the sale of, the Debentures unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a correct 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 holder of Debentures who does not provide the Company with
his current taxpayer identification number may be subject to penalties imposed
by the Internal Revenue Service. Any amount paid as backup withholding will be
creditable against the holder's income tax liability.
The Company will report to holders of Debentures and the IRS the amount of
any "reportable payments" (including any interest or dividends paid) and any
amount withheld with respect to the Debentures during the calendar year.
Non-U.S. Debentureholders
Backup withholding tax and information reporting will generally not apply
to payments of principal and interest made to Non-U.S. Debentureholders if the
certification requirements referred to above are satisfied (see "Taxation of
Holders of Debentures") . As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Debentures by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Debentures by a foreign office of a broker that (a) is a
United States person, (b) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (c) is a
controlled foreign corporation for United
S-12
<PAGE>
States federal income tax purposes, unless the payee is an exempt recipient or
the broker has documentary evidence in its records that the payee is a Non-U.S.
Debentureholder and certain other conditions are met. Payment to or through a
United States office of a broker of the proceeds of a sale of Debentures is
subject to both backup withholdings and information reporting unless the payee
certifies under penalties of perjury that it is a Non-U.S. Debentureholder and
certain other requirements are met, or the payee otherwise establishes an
exemption. A Non-U.S. Debentureholder may obtain a refund of any amounts
withheld under the backup withholding rules by the appropriate claim for refund
with the IRS.
New Proposed Regulations. The United States Treasury has recently issued
proposed Treasury Regulations regarding the withholding and information
reporting rules discussed above. In general, the proposed Treasury Regulations
do not alter the substantive withholding and information reporting requirements
but unify current certification procedures and forms and clarify and modify
reliance standards. If finalized in their current form, the proposed regulations
would generally be effective for payments made after December 31, 1997, subject
to certain transition rules.
S-13
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PLAN OF DISTRIBUTION
The Debentures are being offered for sale by the Company principally to
selected unaffiliated institutional investors. Some of the Debentures may be
offered to institutional investors outside of the United States. NatWest has
been retained to act as placement agent for the Company in connection with the
arrangement of such offers and sales on a best efforts, all or nothing, basis.
It is anticipated that NatWest will obtain indications of interest from
potential investors for the amount of the Offering and that no investor funds
will be accepted until indications of interest have been received for the full
amount of the Offering. Confirmations and definitive prospectuses will be
distributed to all investors at the time of pricing, informing investors of the
closing date, which will be scheduled for three business days after pricing.
Prior to the closing date, all investor funds will promptly be placed in escrow
with Citibank, N.A., as escrow agent ("Citibank"), in an escrow account
established for the benefit of the investors. Citibank will invest such funds in
accordance with Rule 15c2-4 under the Securities Exchange Act of 1934, as
amended. Prior to the closing date, Citibank will advise the Company that
payments for the purchase of the Debentures have been affirmed by the investors
and that the investors have deposited the requisite funds in the escrow account.
Upon receipt of such notice, the Company will deposit with the Depository Trust
Company ("DTC"), as Depository, the Debentures to be credited to the respective
accounts of the investors. Investor funds together with interest thereon, if
any, will only be collected by the Company through the facilities of Citibank on
the scheduled closing date. The Offering will not continue after the closing
date. In the event that investor funds are not received in the full amount
necessary to satisfy the requirements of the Offering, Citibank will return all
escrowed investor funds to the respective investors as promptly as practicable.
The Company has agreed (i) to pay NatWest approximately 3.17% of the gross
proceeds to the Company from the Offering and (ii) to indemnify NatWest against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Debentures offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California. Certain legal matters will
be passed upon for NatWest by Stroock & Stroock & Lavan, New York, New York.
S-14
<PAGE>
PROSPECTUS
- ----------
LTC PROPERTIES, INC.
SECURITIES
LTC Properties, Inc. (the "Company") is a health care real estate investment
trust which may offer from time to time, in one or more series, its debt
securities (the "Debt Securities"), shares of its Preferred Stock, $.01 par
value per share (the "Preferred Stock"), and shares of its Common Stock, $.01
par value per share (the "Common Stock"). The Debt Securities, Preferred Stock
and Common Stock are collectively referred to herein as the "Securities." The
Securities will have an aggregate offering price of up to $125,000,000 and will
be offered on terms to be determined at the time of the offering.
In the case of Debt Securities, the specific title, the aggregate principal
amount, the ranking, the purchase price, the maturity, the rate and time of
payment of any interest, any redemption or sinking fund provisions, any
conversion provisions and any other specific term of the Debt Securities will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). In the case of Preferred Stock, the specific number of shares,
designation, stated value per share, liquidation preference per share, issuance
price, dividend rate (or method of calculation), dividend payment dates, any
redemption or sinking fund provisions, any conversion rights and other specific
terms of the series of Preferred Stock will be set forth in an accompanying
Prospectus Supplement. In the case of Common Stock, the specific number of
shares and issuance price per share will be set forth in an accompanying
Prospectus Supplement. The Prospectus Supplement will also disclose whether the
Securities will be listed on a national securities exchange and, if they are not
to be listed, the possible effects thereof on their marketability.
The Securities may be sold: (i) directly by the Company; (ii) through
underwriting syndicates represented by one or more managing underwriters, or
through one or more underwriters without a syndicate; and (iii) through agents
designated from time to time. The names of any underwriters or agents of the
Company involved in the sale of the Securities in respect of which this
Prospectus is being delivered and any applicable commissions or discounts will
be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." The net proceeds to the Company from such sale will be set forth
in the Prospectus Supplement.
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "LTC." On March 12, 1996, the closing sale price of
the Common Stock on the NYSE was $16.25 per share.
__________________
See "Risk Factors" commencing on page 4 for certain information that should be
considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
___________________
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is April 4, 1996.
<PAGE>
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 may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, reports, proxy material and other information concerning
the Company may be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. The Prospectus and any accompanying
Prospectus Supplement do not contain all of the information included in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Securities, reference is hereby made to the
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus and any accompanying Prospectus Supplement
concerning the provisions or contents of any contract, agreement or any other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference to the copy of the applicable document filed with the
Commission. The Registration Statement including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. and copies of it or any part thereof
may be obtained from such office, upon payment of the fees prescribed by the
Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference:
(1) The Annual Report of the Company on Form 10-K for its fiscal year ended
December 31, 1995 (the "1995 Form 10-K"); and
(2) All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Securities offered
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document that also is, or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents which have been incorporated by reference herein,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference therein). Requests for such copies should be directed
to the Company's principal executive offices, Attention: James J. Pieczynski,
Senior Vice President and Chief Financial Officer, LTC Properties, Inc., 300
Esplanade Drive, Suite 1860, Oxnard, California 93030, telephone number (805)
981-8655.
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<PAGE>
THE COMPANY
The Company is a health care real estate investment trust (a "REIT") which
invests in long-term care and other health care related facilities through
mortgage loans, facility lease transactions and other investments. The primary
objective of the Company is to provide current income for distribution to
stockholders through real estate investments primarily in skilled nursing
facilities managed by experienced operators providing quality care. To meet
this objective, the Company attempts to invest in transactions that provide the
opportunity for additional returns to its stockholders and diversify its
investment portfolio by geographic location, operator and form of investment.
The Company's operations commenced on August 25, 1992, the closing date for
the Company's initial public offering. On such date, the Company raised net
cash proceeds of approximately $142,000,000. Immediately following the initial
offering, the Company completed the placement of its initial loans totaling
approximately $75,000,000 to 15 different partnerships. The transaction
included 40 nursing homes, located in nine states.
At December 31, 1995, the Company had investments in 221 skilled nursing
facilities with a total of 24,882 beds and eight assisted living facilities with
a total of 645 units in 27 states. On such date, the Company's real estate
investment portfolio consisted of approximately $161,059,000 of net investments
in mortgage loans, approximately $67,384,000 in mortgage-backed securities and
approximately $111,782,000 of net investments in long-term care facilities owned
by the Company and leased to operators.
At December 31, 1995, the Company had 65 mortgage loans receivable secured by
first mortgages on 87 skilled nursing facilities with a total of 9,217 beds and
two assisted living residences with a total of 255 units located in 21 states.
The mortgage loans, which individually range from $587,700 to $9,334,000 in
principal amount, have current stated interest rates ranging from 9.83% to
13.10%. The mortgage loans generally have 25-year amortization schedules with
balloon payments due from 1998 to 2015 and provide for certain facility fees.
Almost all of the mortgage loans have prepayment fees and provide for specified
increases in the initial interest rate.
At December 31, 1995, the Company had investments in mortgage-backed pass-
through certificates which consist of two pools containing a total of 57
mortgage loans, all of which were originated by the Company, secured by 112
skilled nursing facilities. The mortgage loans represented by the mortgage-
backed securities have individual principal balances ranging from approximately
$715,000 to $13,848,000, have a weighted average interest rate of approximately
11.43%, have remaining terms to scheduled maturities ranging from 27 months to
190 months and generally have 25-year amortization schedules with balloon
payments due from 1998 to 2011.
At December 31, 1995, the Company owned and leased to health care operators 29
skilled nursing facilities with a total of 3,668 beds and six assisted-living
facilities with a total of 390 units in 11 states. These long-term care
facilities are leased pursuant to non-cancelable leases generally with an
initial term of ten years. Many of the leases contain renewal options and some
contain options to purchase the facilities. Most of the leases provide for
annual fixed rent increases over the term of the lease. In addition, some of
the leases provide for additional rent through revenue participation in
incremental revenues (as defined in the lease agreements), over a defined base
period, effective at various times during the term of the lease. In some cases,
rent increases are based on increases in consumer price indices.
The Company was incorporated in Maryland in May 1992. The principal executive
offices of the Company are located at 300 Esplanade Drive, Suite 1860, Oxnard,
California 93030; telephone number (805) 981-8655. Unless the context indicates
otherwise, references herein to the Company include the Company's subsidiary.
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<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to those discussed elsewhere in this Prospectus and in an accompanying
Prospectus Supplement:
Government Regulation
Health Care Reform. The health care industry is facing various challenges,
including increased government and private payor pressure on health care
providers to control costs, the migration of patients from acute care facilities
into extended care and home care settings and the vertical and horizontal
consolidation of health care providers. The pressure to control health care
costs intensified during 1993 and 1994 as a result of the national health care
reform debate and has continued into 1996 as Congress attempts to slow the rate
of growth of federal health care expenditures as part of its effort to balance
the federal budget. For example, bills have been passed by the House and the
Senate in the context of the federal budget reconciliation process which call
for reduced future reimbursement to hospitals under the existing Medicare
system, the establishment of a prospective payment system for Medicare
reimbursement of long-term care, reduced growth in future Medicaid reimbursement
and the establishment of a "block grant" program that would give states greater
discretion in designing and administering their Medicaid programs that presently
afforded under federal law.
The Company believes that government and private efforts to contain and reduce
health care costs will continue. These trends are likely to lead to reduced or
slower growth in reimbursement for certain services provided by some of the
Company's borrowers and lessees. The Company believes that the vast nature of
the health care industry, the financial strength and operating flexibility of
its operators and the diversity of its portfolio will mitigate against the
impact of any such diminution in reimbursement. However, the Company cannot
predict whether any of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the implementation of
such reforms will not have a material adverse effect on the Company's financial
condition or results of operations.
Potential Operator Loss of Licensure or Certification. The health care
industry is highly regulated by federal, state and local law, and is directly
affected by state and local licensure, fines, and loss of certification to
participate in the Medicare and Medicaid programs, as well as potential criminal
penalties. The failure of any borrower or lessee to comply with such laws,
requirements and regulations could affect its ability to operate the facility or
facilities and could adversely affect such borrower's or lessee's ability to
make debt or lease payments to the Company.
In the past several years, due to rising health care costs, there has been an
increased emphasis on detecting and eliminating fraud and abuse in the Medicare
and Medicaid programs. Payment of any consideration in exchange for referral of
Medicare and Medicaid patients is generally prohibited by federal statute, which
subjects violators to severe penalties, including exclusion from the Medicare
and Medicaid programs, fines, and even prison sentences. In recent years, both
federal and state governments have significantly increased investigation and
enforcement activity to detect and punish wrongdoers. In addition, legislation
has been adopted at both state and federal levels that severely restricts the
ability of physicians to refer patients to entities in which they have a
financial interest.
It is anticipated that the trend toward increased investigation and informant
activity in the area of fraud and abuse, as well as self-referral, will continue
in future years. In the event that any borrower or lessee were to be found in
violation of laws regarding fraud, abuse or self-referral, that borrower's or
lessee's ability to operate a health care facility could be jeopardized, which
could adversely affect the borrower's or lessee's ability to make debt or lease
payments to the Company and, thereby, adversely affect the Company.
Reliance on Government Reimbursement. A significant portion of the revenue of
the Company's borrowers and lessees is derived from governmentally-funded
reimbursement programs, such as Medicare and Medicaid. These programs are
highly regulated and subject to frequent and substantial changes resulting from
legislation, adoption of rules and regulations, and administrative and judicial
interpretations of existing law.
4
<PAGE>
In recent years, there have been fundamental changes in the Medicare program
which have resulted in reduced levels of payment for a substantial portion of
health care services. Moreover, health care facilities have experienced
increasing pressures from private payers attempting to control health care
costs, and reimbursement from private payers has in many cases effectively been
reduced to levels approaching those of government payers.
In many instances, revenues from Medicaid programs are already insufficient to
cover the actual costs incurred in providing care to those patients.
Governmental and popular concern regarding health care costs may result in
significant reductions in payment to health care facilities, and there can be no
assurance that future payment rates for either governmental or private health
care plans will be sufficient to cover cost increases in providing services to
patients. Any changes in reimbursement policies which reduce reimbursement to
levels that are insufficient to cover the cost of providing patient care could
adversely affect revenues of the Company's borrowers and lessees and thereby
adversely affect those borrowers' and lessees' abilities to make their debt or
lease payments to the Company. Failure of the borrowers or lessees to make
their debt or lease payments would have a direct and material adverse impact on
the Company.
Competition
The Company competes with other REITs, real estate partnerships, health care
providers and other investors, including but not limited to banks and insurance
companies, many of which will have greater financial resources than the Company,
in the acquisition, leasing and financing of health care facilities. There can
be no assurance that suitable investments will be identified or that investments
can be consummated on commercially reasonable terms.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property or a secured lender (such as the Company)
may be liable in certain circumstances for the costs of removal or remediation
of certain hazardous or toxic substances at, under or disposed of in connection
with such property, as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and damages for
injuries to persons and adjacent property). Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence or disposal of such substances and may be imposed on the owner in
connection with the activities of an operator of the property. The cost of any
required remediation, removal, fines or personal or property damages and the
owner's liability therefore could exceed the value of the property, and/or the
assets of the owner. In addition, the presence of such substances, or the
failure to properly dispose of or remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral which, in turn, would reduce the Company's revenues.
Although the Company's mortgage loans and leases require the borrower and the
lessee to indemnify the Company for certain environmental liabilities, the scope
of such obligations may be limited and there can be no assurance that any such
borrower or lessee would be able to fulfill its indemnification obligations.
Health Care Real Estate Investment Risks
The Company's investments in health care facilities are subject to various
real estate related risks.
Volatility of Value of Real Estate. Real property investments in the health
care industry are subject to varying degrees of risk. The economic performance
and values of health care real estate can be affected by many factors including
governmental regulation, economic conditions, and demand for health care
services. There can be no assurance that the value of any property acquired by
the Company will appreciate or that the value of property securing any of the
Company's mortgage loans or any property acquired by the Company will not
depreciate.
5
<PAGE>
Volatility of Income and Returns. The possibility that the health care
facilities will not generate income sufficient to meet operating expenses, will
generate income and capital appreciation, if any, at rates lower than those
anticipated or will yield returns lower than those available through investments
in comparable real estate or other investments are additional risks of investing
in health care related real estate. Income from properties and yields from
investments in such properties may be affected by many factors, including
changes in governmental regulation (such as zoning laws), general or local
economic conditions (such as fluctuations in interest rates and employment
conditions), the available local supply of and demand for improved real estate,
a reduction in rental income as the result of an inability to maintain occupancy
levels, natural disasters (such as earthquakes and floods) or similar factors.
Illiquidity of Real Estate Investments. Real estate investments are
relatively illiquid and, therefore, tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. All of the Company's properties are "special purpose" properties
that could not be readily converted to general residential, retail or office
use. Transfers of operations of nursing homes and other health care-related
facilities are subject to regulatory approvals not required for transfers of
other types of commercial operations and other types of real estate. Thus, if
the operation of any of the Company's properties becomes unprofitable due to
competition, age of improvements or other factors such that the borrower or
lessee becomes unable to meet its obligations on the debt or lease, the
liquidation value of the property may be substantially less -- relative to the
amount owing on the mortgage loan -- than would be the case if the property were
readily adaptable to other uses. The receipt of liquidation proceeds could be
delayed by the approval process of any state agency necessary for the transfer
of the property. In addition, certain significant expenditures associated with
real estate investment (such as real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in income from the
investment. Should such events occur, the Company's income and funds available
for distribution would be adversely affected.
Uninsured Loss. The Company currently requires, and it is the intention of
the Company to continue to require, all borrowers and lessees to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the borrower and/or lessee. Certain risks may, however, be uninsurable or
not economically insurable and there can be no assurance the Company or a lessee
will have adequate funds to cover all contingencies itself. Should such an
uninsured loss occur, the Company could lose its invested capital.
Dependence on Lease Income and Mortgage Payments from Real Property. Since a
substantial portion of the Company's income is derived from mortgage payments
and lease income from real property, the Company's income would be adversely
affected if a significant number of the Company's borrowers were unable to meet
their obligations to the Company or if the Company were unable to lease its
properties or make mortgage loans on economically favorable terms. There can be
no assurance that any lessee will exercise its option to renew its lease upon
the expiration of the initial term or that if such failure to renew were to
occur, the Company could lease the property to others on favorable terms.
Tax Risks Regarding Taxation of the Company and its Stockholders
The Company was organized and believes that it has conducted and intends to
conduct its operations so as to qualify for taxation as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
See "Federal Income Tax Considerations." The Company has not sought, nor will
it seek, a ruling from the Internal Revenue Service ("IRS") with respect to its
qualification as a REIT. Qualification as a REIT involves the satisfaction of
numerous requirements (some on an annual and quarterly basis) established under
highly technical and complex Code provisions for which there are only limited
judicial and administrative interpretations and involve the determination of
various factual matters and circumstances not entirely within the Company's
control. No assurances can be given that the Company will at all times satisfy
these rules and tests. Under certain circumstances, the failure of the Company
to meet the qualifications for REIT status could cause the Company to be taxed
as a regular corporation in which case dividends paid to the stockholders would
not be deductible by the Company in computing its taxable income. Furthermore,
the Company would not be eligible to elect to be taxed as a REIT for five
taxable years (including the year of disqualification). Under certain other
circumstances, if the Company failed to meet the
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qualifications for REIT status, the Company would continue to qualify as a REIT,
but the Company could be required to pay interest, taxes and/or certain
nondeductible penalties. The payment of any tax, interest or penalties by the
Company would reduce the funds available for distribution to stockholders or for
investment, and could necessitate that the Company borrow additional funds or
liquidate certain of its investments.
In order to minimize the chances that the Company will violate certain stock
ownership rules (see "Federal Income Tax Considerations - Requirements for
Qualification"), the Directors of the Company are given the power to redeem or
prohibit the transfer of any class of capital stock if such transfer would cause
the Company to violate any stock ownership rule. Stockholders are cautioned,
however, that because broad attribution rules are used in determining stock
ownership and a large percentage of capital stock may be held by nominees in
"street name," the Company may be unaware of a violation of these stock
ownership rules and therefore the qualification of the Company as a REIT may be
inadvertently lost.
Restrictions on Transfer and Limitation on Ownership of Stock; Business
Combinations
For the Company to continue to qualify as a REIT in any taxable year, no more
than 50% in value of its outstanding Common Stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the second half of the Company's taxable
year. Furthermore, if the Company, or an owner of 10% or more of the Company,
actually or constructively, owns 10% or more of a tenant of the Company (or a
tenant of any partnership in which the Company is a partner), the rent received
by the Company (either directly or through any such partnership) from such
tenant will not be qualifying income for purposes of the REIT gross income tests
of the Code. See "Federal Income Tax Considerations - Taxation of the Company."
In addition, the Common Stock must be owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate part
of a short taxable year.
In order to protect the Company against the risk of losing REIT status due to
a concentration of ownership among its stockholders, certain provisions of the
Amended and Restated Articles of Incorporation of the Company (the "Charter")
authorize the Company (i) to refuse to permit the transfer of Common Stock to
any person if such transfer could jeopardize the qualification of the Company as
a REIT and (ii) to redeem any shares of Common Stock in excess of 9.8% of the
outstanding Common Stock of the Company beneficially owned by any person
("Excess Shares"). Such provisions may inhibit market activity and the
resulting opportunity for stockholders to realize a premium for their Common
Stock that might otherwise exist if an individual were attempting to assemble a
block of Common Stock in excess of 9.8% of the outstanding Common Stock. Also,
there can be no assurance that such provisions will in fact prevent the Company
from failing to meet such ownership requirements.
Such provisions would also make the Securities an unsuitable investment for
any person seeking to obtain ownership of more than 9.8% of the outstanding
Common Stock of the Company. Although the Company does not anticipate that it
will redeem or otherwise reduce the number of shares of outstanding Common
Stock, except for Excess Shares, if the number of shares of outstanding Common
Stock were reduced, the 9.8% limitation might be exceeded by a stockholder
without any action on the part of the stockholder.
In addition, certain provisions of Maryland law regarding Business
Combinations (as defined) require approval of the holders of 80% of the
outstanding voting shares of the Company. See "Description of the Company's
Capital Stock."
Failure of a Partnership in Which the Company is a Partner to Qualify as a
Partnership for Federal Income Tax Purposes
The Company holds a number of properties, or proportionate interests in
properties, through certain partnerships (the "Partnerships"). If the IRS were
to successfully challenge the tax status of any of the Partnerships as
partnerships for federal income tax purposes, such Partnerships would be treated
as associations taxable as corporations. In such event, the character of the
Company's assets and income would change, which would preclude the Company from
satisfying the asset tests and possibly the income tests (as
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imposed by the Code) and, in turn, would prevent the Company from continuing to
qualify as a REIT. The imposition of a corporate tax on such Partnerships would
also reduce the amount of funds available for distribution to the Company and
its stockholders. See "Federal Income Tax Considerations - Tax Aspects of the
Partnerships."
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is the ratio of earnings to fixed charges for the Company for
the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED DECEMBER 31,
------------------
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges ............ 1.29x (1) 2.07x 3.34x 3.12x
</TABLE>
(1) From August 25, 1992 (commencement of operations) through December 31,
1992.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement which accompanies this
Prospectus, the net proceeds from the sale of the Securities offered from time
to time hereby will be used for repayment of outstanding amounts under the
Company's lines of credit, for funding outstanding commitments as described
below and for funding of additional mortgage loans and acquisitions of
additional health care facilities.
In January 1995, the Company entered into a $25,000,000 unsecured revolving
credit agreement (the "Credit Agreement") with certain banks to provide the
Company with short-term borrowings. Borrowings under the Credit Agreement are
used to make real estate investments and mature on December 31, 1996. In
October 1995, the terms of the Credit Agreement were amended to increase the
amount of the line of credit from $25,000,000 to $35,000,000 and to reduce
interest rate from LIBOR plus 1.75% to LIBOR plus 1.5%. As of March 1, 1996,
the Company had no borrowings outstanding under the Credit Agreement.
In May, 1994, the Company entered into an agreement with an institution to
provide the Company with short-term borrowings in an amount based upon the
Company's exsisting outstanding mortgage loans, bearing interest at LIBOR plus
2.5% with no commitment fees (the "Repurchase Agreement"). Borrowings under the
Repurchase Agreement are used to make mortgage loans and are secured by
substantially all of the outstanding mortgage loans of the Company. All
borrowings under the Repurchase Agreement mature on or before April 12, 1996.
However, the Company has historically been able to renew the Repurchase
Agreement. In October 1995, the terms of the Repurchase Agreement were also
amended to increase the amount of the line of credit from $70,000,000 to
$84,000,000 and to reduce the interest rate from LIBOR plus 2.5% to LIBOR plus
2.0%. As of March 1, 1996, the Company had approximately $82,490,000
outstanding under the Repurchase Agreement bearing an average interest rate of
approximately 7.3125%.
As of March 1, 1996, the Company had outstanding commitments to provide
mortgage loans of approximately $40,450,000. The closings of such transactions
will be subject to certain conditions. Pending such uses, the net proceeds of
the offering will be invested in short-term, interest-bearing accounts.
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
The summary of the terms of the capital stock of the Company set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Charter and bylaws of the Company, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. See "Available Information."
General
The Company's authorized capital stock consists of 40,000,000 shares of Common
Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par
value $.01 per share.
Common Stock
Of the 40,000,000 authorized shares of Common Stock, 18,422,054 shares were
issued and outstanding on March 1, 1996. Holders of the Common Stock are
entitled to receive, equally, dividends declared by the Board of Directors out
of funds legally available therefor. In the event of any liquidation or
dissolution of the Company, holders of Common Stock are entitled to share
equally in the net assets available for distribution to common stockholders.
There are no preference, exchange, preemptive or conversion rights with respect
to the Common Stock.
Each share of Common Stock is entitled to one vote on each matter submitted to
a vote of stockholders. There is no right of cumulative voting in connection
with the election of directors. Any shares of Common Stock issued and sold
hereunder will be, when issued, fully paid and nonassessable.
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "LTC."
Preferred Stock
No shares of Preferred Stock are presently outstanding. Preferred Stock may
be issued from time to time by the Board of Directors of the Company, without
stockholder approval, in such series and with such preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors
when designating any such series.
The Preferred Stock and the variety of characteristics available for it offers
the Company flexibility in financing and acquisition transactions. An issuance
of Preferred Stock could dilute the book value or adversely affect the relative
voting power of the Common Stock. The issuance of such shares could be used to
enable the holder to block such a transaction. Although the Board of Directors
is required when issuing such stock to act based on its judgment as to the best
interests of the stockholders of the Company, the Board could act in a manner
which would discourage or prevent a transaction some stockholders might believe
is in the Company's best interests or in which stockholders could or would
receive a premium for their shares of Common Stock over the market price.
The Company's Board of Directors has authority to classify or reclassify
authorized but unissued shares of Preferred Stock by setting or changing the
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications and terms and conditions of
redemption of stock.
Redemption and Ownership Limitation Provisions
The Company's Charter contains certain limitations on the number of shares of
the Company's Common Stock and Preferred Stock (collectively, the "Stock") that
any one stockholder may own, which limitations are designed to ensure that the
Company maintains its status as a REIT.
Upon demand of the Company's Board of Directors, each stockholder must
disclose to the Company such information with respect to actual or constructive
ownership of Stock owned (or deemed to be owned
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after applying the attribution rules applicable to REITs under the Code) as the
Board of Directors deems reasonably necessary in order that the Company may
fully comply with the REIT provisions of the Code. Proposed transferees of Stock
must also satisfy the Board, upon demand, that such transferees will not cause
the Company to fall out of compliance with such provisions.
The Code prevents a company from qualifying as a REIT if more than 50% in
value of its stock is owned (or deemed to be owned after applying the
attribution rules applicable to REITs under the Code) by five or fewer
individuals (as defined in the Code to include certain entities) (the "Closely-
held Rule"). The Charter prohibits a stockholder from owning more than 9.8% of
the total number of outstanding shares of the Company's Common Stock or any
class or series of Stock other than Common Stock. Stock that may be acquired by
an investor upon conversion of any securities convertible into Stock is deemed
to be outstanding for purposes of determining the percentage of ownership of
Stock by that investor. Any shares in excess of such limit are deemed to be
"Excess Shares." Excess Shares shall be deemed automatically to have been
converted into a class separate and distinct from the class from which converted
and from any other class of Excess Shares, each such class being designated
"Excess Shares of [stockholder's name]." No Excess Shares may be voted, nor
considered outstanding for the purpose of determining a quorum at any meeting of
stockholders. Any dividends or other distributions payable upon the Excess
Shares may, in the discretion of the Company, be paid into a non-interest
bearing account and released to the stockholder only at such time as he or she
ceases to be the holder of Excess Shares. The Company, upon authorization of
the Board of Directors, by notice to the holder thereof, may redeem any or all
Excess Shares, and from the date of the giving of notice of redemption such
shares shall cease to be outstanding and the stockholder shall cease to be
entitled to dividends, voting rights and other benefits with respect to such
shares. Subject to certain exceptions, the redemption price will be based on
the trading prices of the class of Stock from which the Excess Shares being
redeemed were converted and is payable, without interest, only upon the
liquidation of the Company. However, the Charter contains provisions under
which the holder of Excess Shares may cause the Company to rescind such
redemption by selling (and notifying the Company of such sale), within 30 days
after notice of the redemption, a number of the shares of Stock held by such
holder equal to the number of Excess Shares. In addition, Excess Shares held by
any holder may be converted back into shares of Stock if the holder sells such
shares prior to their being called for redemption.
Business Combinations
Under the Maryland General Corporation Law, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
corporation's stock (an "Interested Stockholder") must be: (a) recommended by
the corporation's board of directors; and (b) approved by the affirmative vote
of at least (i) 80% of the corporation's outstanding shares entitled to vote and
(ii) two-thirds of the outstanding shares entitled to vote which are not held by
the Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's common stockholders receive a
minimum price (as defined in the statute) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for his shares. In addition, an Interested Stockholder or any
affiliate thereof may not engage in a "business combination" with the
corporation for a period of five years following the date he becomes an
Interested Stockholder. These provisions of Maryland law do not apply, however,
to business combinations that are approved or exempted by the board of
directors of a Maryland corporation prior to a person's becoming an Interested
Stockholder.
Control Share Acquisitions
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" may not be voted
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast by stockholders excluding shares owned by the acquirer, officers and
directors who are employees of the corporation. "Control shares" are shares
which, if aggregated with all other shares previously acquired which the person
is entitled to vote, would entitle the acquirer to vote (i) 20% or more but
less than one-third, (ii) one-third or more but less than a majority, or (iii) a
majority of the outstanding shares. Control shares do not include shares the
acquiring person is entitled to vote because
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stockholder approval has previously been obtained. A "control share acquisition"
means the acquisition of control shares subject to certain exceptions.
A person who has made or proposes to make a control share acquisition and who
has obtained a definitive financing agreement with a responsible financial
institution providing for any amount of financing not to be provided by the
acquiring person may compel the corporation's board of directors to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
Subject to certain conditions and limitations, the corporation may redeem any
or all of the control shares, except those for which voting rights have
previously been approved, for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquirer is entitled to vote a majority of the shares entitled
to vote, all other stockholders may exercise appraisal rights. The fair value
of the shares as determined for purposes of such appraisal rights may not be
less than the highest price per share in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenter's rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or excepted by the charter or bylaws of
the corporation prior to a control share acquisition.
The limitation on ownership of Common Stock set forth in the Charter, as well
as the provisions of the Maryland Business Combination and Control Share
Acquisition statutes, could have the effect of discouraging offers to acquire
the Company and increasing the difficulty of consummating any such acquisition.
Transfer Agent and Registrar
Harris Trust and Savings Bank in Chicago acts as transfer agent and registrar
for the Common Stock.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an indenture (the "Indenture") to
be executed by the Company and Harris Trust and Savings Bank, as trustee (the
"Trustee"), a form of which has been previously filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Indenture and the Debt Securities do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
if the Indenture to which reference is hereby made for a full description of
such provisions, including the definitions therein of certain terms and for
other information regarding the Debt Securities. Whenever particular sections
or defined terms of the Indenture are referred to, it is intended that such
sections or defined terms shall be incorporated herein by reference. Copies of
the form of the Indenture are available for inspections during normal business
hours at the principal executive offices of the Company, 300 Esplanade Drive,
Suite 1860, Oxnard, CA 93030.
The following is a summary of certain provisions of the Indenture and does not
purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the Indenture, including the definitions of certain terms
therein to which reference is hereby made, for a complete statement of such
provisions. Wherever particular provisions or sections of the Indenture or
terms defined therein are referred to herein, such provisions or definitions are
incorporated herein by reference.
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General
The Indenture does not limit the aggregate principal amount of Debt Securities
that may be issued thereunder and provides that Debt Securities may be issued
from time to time in one or more series. The Prospectus Supplement will
describe certain terms of any Debt Securities offered thereby, including (i) the
title of such Debt Securities; (ii) any limit on the aggregate principal amount
of such Debt Securities and their purchase price; (iii) the date or dates on
which such Debt Securities will mature; (iv) the rate or rates per annum (or
manner in which interest is to be determined) at which such Debt Securities will
bear interest, if any, and the date from which such interest, if any, will
accrue; (v) the dates on which such interest, if any, on such Debt Securities
will be payable and the regular record dates for such interest payment dates;
(vi) any mandatory or optional sinking fund or analogous provisions; (vii)
additional provisions, if any, for the defeasance of such Debt Securities;
(viii) the date, if any, after which and the price or prices at which such Debt
Securities may, pursuant to any optional or mandatory redemption or repayment
provisions, be redeemed and the other detailed terms and provisions of any such
optional or mandatory redemption or repayment provisions; (ix) whether such Debt
Securities are to be issued in whole or in part in registered form represented
by one or more registered global securities (a "Registered Global Security")
and, if so, the identity of the depository for such Registered Global Security
or Debt Securities; (x) certain applicable United States federal income tax
consequences; (xi) any provisions relating to security for payments due under
such Debt Securities; (xii) any provisions relating to the conversion or
exchange of such Debt Securities into or for shares of Common Stock or Debt
Securities of another series; (xiii) any provisions relating to the ranking of
such Debt Securities in right of payment as compared to other obligations of the
Company; (xiv) the denominations in which such Debt Securities are authorized to
be issued; (xv) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; and (xvi) any
other specific term of such Debt Securities, including any additional events of
default or covenants provided for with respect to such Debt Securities, and any
terms that may be required by or advisable under applicable laws or regulations.
Conversion Rights
The terms, if any, on which Debt Securities of any series may be exchanged for
or converted into shares of Common Stock or Debt Securities of another series
will be set forth in the Prospectus Supplement relating thereto. To protect the
Company's status as a REIT, a holder of the Debt Securities of any series (the
"Holder") may not convert any Debt Security, and such Debt Security shall not be
convertible by any Holder, to the extent that as a result of such conversion,
any Person would then own or be deemed to beneficially own, directly or
indirectly, 9.8% or more of the then outstanding shares of Common Stock.
The conversion price will be subject to adjustment under certain conditions,
including (i) the payment of dividends (and other distributions) in shares of
Common Stock on any class of capital stock of the Company; (ii) subdivisions,
combinations and reclassifications of the Common Stock; (iii) the issuance to
all or substantially all holders of Common Stock of rights or warrants entitling
them to subscribe for or purchase shares of Common Stock at a price per share
(or having a conversion price per share) less than the then current market
price; and (iv) distributions to all or substantially all holders of shares of
Common Stock of evidences of indebtedness or assets (including securities, but
excluding those rights, warrants, dividends and distributions referred to above
and dividends and distributions not prohibited under the terms of the Indenture)
of the Company, subject to the limitation that all adjustments by reason of any
of the foregoing would not be made until they result in a cumulative change in
the conversion price of at least 1%. No adjustments in the conversion price of
the Debt Securities will be made for regular quarterly or other periodic or
recurring cash dividends or distributions. In the event the Company shall
effect any capital reorganization or reclassification of its shares of Common
Stock or shall consolidate or merge with or into any trust or corporation (other
than a consolidation or merger in which the Company is the surviving entity) or
shall sell or transfer substantially all of its assets to any other trust or
corporation, the holders of the Debt Securities of any series shall, if entitled
to convert such Debt Securities at any time after such transaction, receive upon
conversion thereof, in lieu of each share of Common Stock into which the Debt
Securities of such series would have been convertible prior to such transaction,
the same kind and amount of stock and other securities, cash or property as
shall have been issuable or distributable in connection with such transaction
with respect to each share of Common Stock.
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A conversion price adjustment made according to the provisions of the Debt
Securities of any series (or the absence of provisions for such an adjustment)
might result in a constructive distribution to the holders of Debt Securities of
such series or holders of shares of Common Stock that would be subject to
taxation as a dividend. The Company may, at its option, make such reductions in
the conversion price, in addition to those set forth above, as the Board of
Directors of the Company deems advisable to avoid or diminish any income tax to
holders of shares of Common Stock resulting from any dividend or distribution of
shares of Common Stock (or rights to acquire shares of Common Stock) or from any
event treated as such for income tax purposes or for any other reason. The
Board of Directors will also have the power to resolve any ambiguity or correct
any error in the adjustments made pursuant to these provisions and its actions
in so doing shall be final and conclusive.
Fractional shares of Common Stock will not be issued upon conversion but, in
lieu thereof, the Company will pay a cash adjustment based upon market price.
The Holders of Debt Securities of any series at the close of business on an
interest payment record date shall be entitled to receive the interest payable
on such Debt Securities on the corresponding interest payment date
notwithstanding the conversion thereof. However, Debt Securities surrendered
for conversion during the period from the close of business on any record date
for the payment of interest to the opening of business on the corresponding
interest payment date must be accompanied by payment of an amount equal to the
interest payable on such interest payment date. Holders of Debt Securities of
any series who convert Debt Securities of such series on an interest payment
date will receive the interest payable by the Company on such date and need not
include payment in the amount of such interest upon surrender of such Debt
Securities for conversion. Except as aforesaid, no payment or adjustment is to
be made on conversion for interest accrued on the Debt Securities of any series
or for dividends on shares of Common Stock.
Subordination
The indebtedness evidenced by the Debt Securities of any series may be
subordinated and junior in right of payment to the extent set forth in the
Indenture to the prior payment in full of amounts then due or thereafter created
on all Senior Indebtedness (as defined). The terms, if any, on which the Debt
Securities of any series may be subordinated and junior in right of payment to
the prior payment in full of amounts then due or thereafter created on all
Senior Indebtedness will be set forth in the Prospectus Supplement relating
thereto. No payment shall be made by the Company on account of principal of (or
premium, if any) or interest on the Debt Securities of any series or on account
of the purchase or other acquisition of Debt Securities of any series, if there
shall have occurred and be continuing a default with respect to any Senior
Indebtedness permitting the holders to accelerate the maturity thereof or with
respect to the payment of any Senior Indebtedness, and such default shall be the
subject of a judicial proceeding or the Company shall have received notice of
such default from any holder of Senior Indebtedness, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist. By reason of these provisions, in the event of default on any Senior
Indebtedness, whether now outstanding or hereafter issued, payment of principal
of (and premium, if any) and interest on the Debt Securities of any series may
not be permitted to be made until such Senior Indebtedness is paid in full, or
the event of default on such Senior Indebtedness is cured or waived.
Upon any acceleration of the principal of the Debt Securities or any
distribution of assets of the Company upon any receivership, dissolution,
winding-up, liquidation, reorganization, or similar proceedings of the Company,
whether voluntary or involuntary, or in bankruptcy or insolvency, all amounts
due or to become due upon all Senior Indebtedness must be paid in full before
the holders of the Debt Securities of any series or the Trustee are entitled to
receive or retain any assets so distributed in respect of the Debt Securities.
By reason of this provision, in the event of insolvency, holders of the Debt
Securities of any series may recover less, ratably, than holders of Senior
Indebtedness.
"Senior Indebtedness" is defined to mean the principal, premium, if any,
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges,
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expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness (as defined) of the Company for
money borrowed, whether any such Indebtedness exists as of the date of the
Indenture or is created, incurred, assumed or guaranteed after such date. There
is no limit on the amount of Senior Indebtedness that the Company may incur.
"Indebtedness" with respect to any Person is defined to mean:
(i) all indebtedness for money borrowed whether or not evidenced by a
promissory note, draft or similar instrument;
(ii) that portion of obligations with respect to leases that is properly
classified as a liability on a balance sheet in accordance with generally
accepted accounting principles;
(iii) notes payable and drafts accepted representing extensions of credit;
(iv) any balance owed for all or any part of the deferred purchase price or
services which purchase price is due more than six months from the date of
incurrence of the obligation in respect thereof (except any such balance that
constitutes (a) a trade payable or an accrued liability arising in the
ordinary course of business or (b) a trade draft or note payable issued in the
ordinary course of business in connection with the purchase of goods or
services), if and to the extent such debt would appear as a liability upon a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; and
(v) any deferral, amendment, renewal, extension, supplement or refunding of
any liability of the kind described in any of the preceding clauses (i)
through (iv);
provided, however, that, in computing the "Indebtedness" of any Person, there
shall be excluded any particular indebtedness if, upon or prior to the maturity
thereof, there shall have been deposited with a depositary in trust money (or
evidence of indebtedness if permitted by the instrument creating such
indebtedness) in the necessary amount to pay, redeem or satisfy such
indebtedness as it becomes due, and the amount so deposited shall not be
included in any computation of the assets of such Person.
Optional Redemption
The Debt Securities of any series will be subject to redemption, in whole or
from time to time in part, at any time for certain reasons intended to maintain
the Company's status as a REIT at the option of the Company and on at least 30
days' prior notice by mail at a redemption price equal to the lesser of (i) the
price paid by the holder of the Debt Securities of any series in the transaction
that caused such Debt Securities to exceed the amount necessary for the Company
to continue to qualify as a REIT, (ii) the last sale price of the Debt
Securities of any series reported on the NYSE on the trading day immediately
preceding the date the Company mails the notice of redemption or (iii) 100% of
the principal amount thereof, in each case together with accrued interest.
Except as otherwise set forth in the accompanying Prospectus Supplement, the
Company may exercise its redemption powers solely with respect to the securities
of the security holder or holders which pose a threat to the Company's REIT
status and only to the extent deemed necessary by the Company's Board of
Directors to preserve such status. The Indenture does not contain any provision
requiring the Company to repurchase the Debt Securities of any series at the
option of the Holders thereof in the event of a leveraged buyout,
recapitalization or similar restructuring of the Company, even though the
Company's creditworthiness and the market value of the Debt Securities may
decline significantly as a result of such transaction. The Indenture does not
protect Holders of the Debt Securities of any series against any decline in
credit quality, whether resulting from any such transaction or from any other
cause. The Company may at any time buy Debt Securities of any series on the
open market at prices which may be greater or less than the optional redemption
price listed above.
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Dividends, Distributions and Acquisitions of Common Stock
The Company will not (i) declare or pay any dividend, or make any distribution
on its Common Stock to its shareholders (other than dividends or distributions
payable in Common Stock of the Company) or (ii) purchase, redeem, or otherwise
acquire or retire for value any of its Common Stock, or any warrants, rights, or
options to purchase or acquire any Stock of its Common Stock (other than the
Debt Securities of any series or any other convertible indebtedness of the
Company that is neither secured nor subordinated to the Debt Securities of any
series and other than purchases, redemptions or acquisitions or retirements as
the Company determines necessary to protect its status as a REIT), if at the
time of such action an Event of Default has occurred and is continuing or would
exist immediately after such action. The foregoing, however, will not prevent
(i) the payment of any dividend or distribution necessary to maintain the
Company's status as a REIT; (ii) the payment of any dividend within 60 days
after the date of declaration when the payment would have complied with the
foregoing provision on the date of declaration; (iii) the Company's retirement
of any of its Common Stock by exchange for, or out of the proceeds of the
substantially concurrent sale of, other Common Stock; or (iv) the Company's
ability to call for purchase shares of its capital stock so as to prevent
concentration of ownership potentially disqualifying the Company as a REIT or
potentially disqualifying income as rents from real property.
Additional Covenants
Any additional covenants of the Company with respect to a series of the Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
Modification of the Indenture
Under the Indenture, with certain exceptions, the rights and obligations of
the Company with respect to any series of Debt Securities and the rights of
Holders of such series may only be modified by the Company and the Trustee with
the consent of the Holders of at least a majority in principal amount of the
outstanding Debt Securities of such series. However, without the consent of
each Holder of any Debt Securities affected, an amendment, waiver or supplement
may not (i) reduce the principal of, or rate of interest on, any Debt
Securities; (ii) change the stated maturity date of the principal of, or any
installment of interest on, any Debt Securities; (iii) waive a default in the
payment of the principal amount of, or the interest on, or any premium payable
on redemption of, any Debt Securities; (iv) change the currency for payment of
the principal of, or premium or interest on, any Debt Securities; (v) impair the
right to institute suit for the enforcement of any such payment when due; (vi)
adversely affect any right to convert any Debt Securities; (vii) reduce the
amount of outstanding Debt Securities necessary to consent to an amendment,
supplement or waiver provided for in the Indenture; or (viii) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or waivers of past defaults, except as otherwise specified.
Events of Default, Notice and Waiver
Except as otherwise set forth in the accompanying Prospectus Supplement, the
following is a summary of certain provisions of the Indenture relating to events
of default, notice and waiver.
The following are Events of Default under the Indenture with respect to any
series of Debt Securities: (i) default in the payment of interest on the Debt
Securities of such series when due and payable, which continues for 30 days;
(ii) default in the payment of principal of (and premium, if any) on the Debt
Securities when due and payable, at maturity, upon redemption or otherwise,
which continues for five Business Days; (iii) failure to perform any other
covenant of the Company contained in the Indenture or the Debt Securities of
such series which continues for 60 days after written notice as provided in the
Indenture; (iv) default under any bond, debenture or other Indebtedness (as
defined in the Indenture) of the Company or any subsidiary if (a) either (x)
such event of default results from the failure to pay any such Indebtedness at
maturity or (y) as a result of such event of default, the maturity of such
Indebtedness has been accelerated prior to its expressed maturity and such
acceleration shall not be rescinded or annulled or the accelerated amount paid
within 10 days after notice to the Company of such acceleration, or such
Indebtedness having been discharged, and (b)
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the principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness in default for failure to pay principal or interest
thereon, or the maturity of which has been so accelerated, aggregates $5,000,000
or more; and (v) certain events of bankruptcy, insolvency or reorganization
relating to the Company.
If an Event of Default occurs and is continuing with respect to the Debt
Securities of any series, either the Trustee or the Holders of a majority in
aggregate principal amount of the outstanding Debt Securities of such series may
declare the Debt Securities due and payable immediately.
The Company will not declare or pay any dividends or make any distribution to
holders of its capital stock (other than dividends or distributions payable in
capital stock of the Company) if at the time any of the aforementioned Events of
Default has occurred and is continuing or would exist immediately after giving
effect to such action, except for (i) the payment of any dividend within 60 days
after the date of declaration when the payment would have complied with the
foregoing provisions on the date of declaration; (ii) the retirement of any
share of the Company's capital stock by exchange for, or out of the proceeds of
the substantially concurrent sale (other than to a subsidiary) of, other shares
of its capital stock; or the payment of a dividend or distribution in such
amount as may be necessary to maintain the Company's status as a REIT.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any Default or Event of Default with respect to the Debt
Securities of any series, give to the Holders of Debt Securities notice of all
uncured Defaults and Events of Default known to it, but the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such Holders, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any of the Debt Securities of such series.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the Debt Securities of any series then outstanding may direct the
time, method and place of conducting any proceedings for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee with
respect to the Debt Securities of such series. The right of a Holder to
institute a proceeding with respect to the Indenture is subject to certain
conditions precedent including notice and indemnity to the Trustee, but the
Holder has an absolute right to receipt of principal of (and premium, if any)
and interest on such Holder's Debt Securities on or after the respective due
dates expressed in the Debt Securities, and to institute suit for the
enforcement of any such payments.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series then outstanding may on behalf of the Holders of all
Debt Securities of such series waive certain past defaults, except a default in
payment of the principal of (or premium, if any) or interest on any Debt
Securities of such series or in respect of certain provisions of the Indenture
which cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security of such series affected thereby.
The Company will be required to furnish to the Trustee annually a statement of
certain officers of the Company stating whether or not they know of any Default
or Events of Default (as defined in the Indenture) and, if they have knowledge
of a Default or Event of Default, a description of the efforts to remedy the
same.
Consolidation, Merger, Sale or Conveyance
The Indenture provides that the Company may merge or consolidate with, or sell
or convey all, or substantially all, of its assets to any other trust or
corporation, provided that (i) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) shall be any entity
organized and existing under the laws of the United States or a state thereof or
the District of Columbia (although it may, in truth, be owned by a foreign
entity) and such entity shall expressly assume by supplemental indenture all of
the obligations of the Company under the Debt Securities of any series and the
Indenture; (ii) immediately after giving effect to such transactions, no Default
or Event of Default shall have occurred and be continuing, and
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(iii) the Company shall have delivered to the Trustee an Officers' Certificate
and opinion of counsel, stating that the transaction and supplemental indenture
comply with the Indenture.
Global Securities
The Debt Securities may be issued in whole or in part in global form (the
"Global Securities"). The Global Securities will be deposited with a depository
(the "Depository"), or with a nominee for a Depository, identified in the
Prospectus Supplement. In such case, one or more Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding Debt Securities to be represented by
such Global Security or Securities. Unless and until it is exchanged in whole
or in part for Debt Securities in definitive form, a Global Security may not be
transferred except as a whole by the Depository for such Global Security to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by such Depository or any such nominee
to a successor for such Depository or a nominee of such successor.
The specific material terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Prospectus Supplement. The Company anticipates that
the following provisions will apply to all depository arrangements.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee as the
case may be, will be considered the sole owner or Holder of the Debt Securities
represented by such Global Security for all purposes under the Indenture;
provided, however, that for purposes of obtaining any consents or directions
required to be given by the Holders of the Debt Securities, the Company, the
Trustee and its agents will treat a person as the holder of such principal
amount of Debt Securities as specified in a written statement of the Depository.
Principal, premium, if any, and interest payments, if any on Debt Securities
represented by a Global Security registered in the name of a Depository or its
nominee will be made directly to the owners of beneficial interests of such
Global Security, except as may be limited by the terms of the resolution of the
board of directors of the Company that authorizes such series of Debt
Securities.
The Company expects that the depository for any Debt Securities represented by
a Global Security, upon receipt of any payment of principal, premium, if any, or
interest will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Security as shown on the records of such Depository. The Company
also expects that payments by participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names," and will be the
responsibility of such participants.
If the Depository for any Debt Securities represented by a Global Security is
at any time unwilling or unable to continue as Depository and a successor
Depository is not appointed by the Company within 90 days, the Company will
issue each Debt Security in definitive form to the beneficial owners thereof in
exchange for such Global Security. In addition, the Company may at any time and
in its sole discretion determine not to have any of the Debt Securities of a
series represented by one or more Global Securities and, in such event, will
issue Debt Securities of such series in definitive form in exchange for all of
the Global Security or Securities representing such Debt Securities.
Governing Law
The Indenture and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York.
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DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Charter and the Board of Directors' resolution or articles supplementary (the
"Articles Supplementary") relating to each series of the Preferred Stock which
will be filed with the Commission and incorporated by reference to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Preferred Stock.
General
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share. See "Description of the Company's Capital
Stock."
Under the Charter, the Board of Directors of the Company is authorized without
further stockholder action to establish and issue, from time to time, up to
10,000,000 shares of Preferred Stock, in one or more series, with such
designations, preferences, powers and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereon,
including, but not limited to, dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preference as shall be stated in the resolution providing for the issue of a
series of such stock, adopted, at any time or from time to time, by the Board of
Directors of the Company.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
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; (v) any redemption or sinking fund provisions; (vi) any conversion rights;
and (vii) any additional voting, dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions.
The Preferred Stock will, when issued, be fully paid and nonassessable and
will have no preemptive rights. Unless otherwise stated in a Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on a parity as to dividends and distributions
of assets with each other series of the Preferred Stock. The rights of the
holders of each series of the Preferred Stock will be subordinate to those of
the Company's general creditors.
Certain Provisions of the Charter
See "Description of the Company's Capital Stock" for a description of certain
provisions of the Charter, including provisions which may have certain anti-
takeover effects.
Dividend Rights
Holders of shares of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available therefor, cash dividends on such dates
and at such rates as will be set forth in, or as are determined by the method
described in the Prospectus Supplement relating to such series of the Preferred
Stock. Such rate may be fixed
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or variable or both. Each such dividend will be payable to the holders of record
as they appear on the stock books of the Company on such record dates, fixed by
the Board of Directors of the Company, as specified in the Prospectus Supplement
relating to such series of Preferred Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Preferred Stock. If the Board
of Directors of the Company fails to declare a dividend payable on a dividend
payment date on any series of Preferred Stock for which dividends are
noncumulative, then the holders of such series of Preferred Stock will have no
right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company shall have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series are
declared payable on any future dividend payment 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.
So long as the shares of any series of the Preferred Stock shall be
outstanding, unless (i) full dividends (including if such Preferred Stock is
cumulative, dividends for prior dividend periods) shall have been paid or
declared and set apart for payment on all outstanding shares of the Preferred
Stock of such series and all other classes and series of Preferred Stock (other
than Junior Stock, as defined below) and (ii) the Company is not in default or
in arrears with respect to the mandatory or optional redemption or mandatory
repurchase or other mandatory retirement of, or with respect to any sinking or
other analogous fund for, any shares of Preferred Stock of such series or any
shares of any other Preferred Stock of any class or series (other than Junior
Stock), the Company may not declare any dividends on any shares of Common Stock
or any other stock of the Company ranking as to dividends or distributions of
assets junior to such series of Preferred Stock (the Common Stock and any such
other stock being herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, the purchase, redemption or other retirement
of, or for a sinking or other analogous fund for, any shares of Junior Stock or
make any distribution in respect thereof, whether in cash or property or in
obligations or stock of the Company, other than Junior Stock which is neither
convertible into, nor exchangeable or exercisable for, any securities of the
Company other than Junior Stock.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
voluntary or involuntary, the holders of each series of the Preferred Stock will
be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets or payment is
made to the holders of Common Stock or any other shares of stock of the Company
ranking junior as to such distribution or payment to such series of Preferred
Stock, the amount set forth in the Prospectus Supplement relating to such series
of the Preferred Stock. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the Preferred Stock of such series and
such other shares of Preferred Stock will share ratably in any such distribution
of assets of the Company in proportion to the full respective preferential
amounts to which they are entitled. After payment to the holders of the
Preferred Stock of each series of the full preferential amounts of the
liquidating distribution to which they are entitled, the holders of each such
series of the Preferred Stock will be entitled to no further participation in
any distribution of assets by the Company.
If such payment shall have been made in full to all holders of shares of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes of stock ranking junior to the Preferred Stock
upon liquidation, dissolution or winding up, according to their respective
rights and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with or
into any other corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
Redemption
A series of the Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to
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such series. Shares of the Preferred Stock redeemed by the Company will be
restored to the status of authorized but unissued shares of preferred stock of
the Company.
In the event that fewer than all of the outstanding shares of a series of the
Preferred Stock are to be redeemed, whether by mandatory or optional redemption,
the number of shares to be redeemed will be determined by lot or pro rata
(subject to rounding to avoid fractional shares) as may be determined by the
Company or by any other method as may be determined by the Company in its sole
discretion to be equitable. From and after the redemption date (unless the
Company defaults in the payment of the redemption price plus accumulated and
unpaid dividends, if any), dividends shall cease to accumulate on the shares of
the Preferred Stock called for redemption and all rights of the holders thereof
(except the right to receive the redemption price plus accumulated and unpaid
dividends, if any) shall cease.
So long as any dividends on shares of any series of the Preferred Stock or any
other series of preferred stock of the Company ranking on a parity as to
dividends and distributions of assets with such series of the Preferred Stock
are in arrears, no shares of any such series of the Preferred Stock or such
other series of preferred stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares; provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares of Preferred Stock of such series or of shares of
such other series of preferred stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Preferred Stock
of such series and, unless the full cumulative dividends on all outstanding
shares of any cumulative Preferred Stock of such series and any other stock of
the Company ranking on a parity with such series as to dividends and upon
liquidation shall have been paid or contemporaneously are declared and paid for
all past dividend periods, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation).
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each holder of record of shares of Preferred Stock
to be redeemed at the address shown on the stock transfer books of the Company.
After the redemption date, dividends will cease to accrue on the shares of
Preferred Stock called for redemption and all rights of the holders of such
shares will terminate, except the right to receive the redemption price without
interest.
Conversion Rights
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 or another series of Preferred Stock will be set forth in the Prospectus
Supplement relating thereto.
Voting Rights
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, the holders of the Preferred Stock will not be entitled to vote for any
purpose.
So long as any shares of Preferred Stock remain outstanding, the Company shall
not, without the consent or the affirmative vote of the holders of a majority of
the shares of each series of Preferred Stock outstanding at the time given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class) (i) authorize, create or issue, or increase the
authorized or issued amount of, any class or series of stock ranking prior to
such series of Preferred Stock with respect to payment of dividends, or the
distribution of assets on liquidation, dissolution or winding up or
reclassifying any authorized stock of the Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares and (ii) to repeal, amend or
otherwise change any of the provisions applicable to the Preferred Stock of such
series in any manner which materially and adversely affects the powers,
preferences, voting power or other rights or privileges of such series of the
Preferred Stock
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or the holders thereof; provided, however, that any increase in the amount of
the authorized Preferred Stock or the creation or issuance of other series of
Preferred Stock, or any increase in the amount of authorized shares of such
series or of any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series, shall not be deemed
to materially and adversely affect such rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of the Preferred Stock shall have been
redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.
Transfer Agent and Registrar
The transfer agent, dividend and redemption price disbursement agent and
registrar for shares of each series of the Preferred Stock will be set forth in
the Prospectus Supplement relating thereto.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the material federal income tax
consequences regarding the Company, is based on current law, is for general
information only and is not tax advice. This summary does not address all
aspects of federal income taxation that may be relevant to a purchaser in light
of such purchaser's particular circumstances or to certain types of purchasers
subject to special treatment under the federal income tax laws (such as certain
financial institutions, tax-exempt organizations, life insurance companies,
dealers in securities or currencies, or purchasers holding stock as part of a
conversion transaction, as part of a hedging transaction, or as a position in a
straddle for tax purposes). In addition, the summary below does not consider
the effect of any foreign, state, local or other tax laws that may be applicable
to purchasers. This summary is based upon the provisions of the Code, Treasury
Regulations, IRS rulings and judicial decisions, all in effect as of the date
hereof and all of which are subject to change (possibly with retroactive effect)
by subsequent legislative, judicial or administrative action.
EACH PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL
INCOME TAX CONSEQUENCES TO SUCH PURCHASER OF THE PURCHASE, OWNERSHIP AND SALE OF
SECURITIES AND THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS AND OF ANY POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS AFTER THE
DATE HEREOF.
Taxation of the Company
General. The Company made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1992. The Company believes that, commencing with its taxable year ended
December 31, 1992, it has been organized and has operated in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. However, no assurance can be given that
the Company has operated or will be able to continue to operate in a manner to
so qualify or remain qualified.
In the opinion of Latham & Watkins, whose opinion has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part, the Company is
organized in conformity with the requirements for qualification as a REIT and
its proposed method of operation will permit it to meet the requirements for
qualification and taxation as a REIT. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. In addition, this opinion is based
upon the factual representations made by the Company concerning its business and
properties as set forth in this Prospectus. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity of stock
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ownership, the various qualification tests imposed under the Code discussed
below, the results of which have not and will not be reviewed by Latham &
Watkins. Accordingly, no assurance can be given that the actual results of the
Company's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. See "Failure to Qualify."
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, even if the Company
continues to qualify as a REIT, the Company will be subject to federal income
tax as follows. First, the Company will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains; provided, however, that if the Company has a net capital gain, it will be
taxed at regular corporate rates on its undistributed REIT taxable income,
computed without regard to net capital gain and the deduction for capital gains
dividends, plus a 35% tax on undistributed net capital gain, if its tax as thus
computed is less than the tax computed in the regular manner. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest regular corporate rate on such income. Fourth, if the Company has net
income from "prohibited transactions" (which are, in general, certain sales or
other dispositions of property (other than foreclosure property) held primarily
for sale to customers in the ordinary course of business by the Company, (i.e.,
when the Company is acting as a dealer)), such income will be subject to a 100%
tax. Fifth, if the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), but has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute by the end of
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset (a "Built-In
Gain Asset") from a C corporation (i.e. generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-In Gain
Asset in the Company's hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation, and the Company
recognizes gain on the disposition of such asset during the 10-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
the Company, then, to the extent of the Built-In Gain (i.e., the excess of (a)
the fair market value of such asset on the date such asset was acquired by the
Company over (b) the Company's adjusted basis in such asset on such date), such
gain will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations that have not yet been promulgated. The results described
above with respect to the recognition of Built-In Gain assume the Company will
make an election pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the
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nature of its income and assets. The Code provides that conditions (i) to (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. For purposes of
conditions (v) and (vi), pension funds and certain other tax-exempt entities are
treated as individuals, subject to a "look-through" exception in the case of
condition (vi).
The Company believes that it has issued sufficient shares of Common Stock with
sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the Company's Charter provides for restrictions regarding
the transfer and ownership of Common Stock, which restrictions are intended to
assist the Company in continuing to satisfy the share ownership requirements
described in (v) and (vi) above. Such ownership and transfer restrictions are
described in "Risk Factors - Restrictions on Transfer and Limitations on
Ownership of Stock; Business Combinations" and "Description of the Company's
Capital Stock - Redemption and Ownership Limitation Provisions." These
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described above. If the Company fails
to satisfy such share ownership requirements, the Company's status as a REIT
will terminate. See "Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company has a calendar taxable year.
Ownership of a Partnership Interest. In the case of a REIT which is a partner
in a partnership, Treasury Regulations provide that the REIT will be deemed to
own its proportionate share of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership will
retain the same character in the hands of the REIT for purposes of Section 856
of the Code, including satisfying the gross income tests and the asset tests.
Thus, the Company's proportionate share of the assets and items of income of the
Partnerships will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. A summary of the rules
governing the federal income taxation of partnerships and their partners is
provided below in "-- Tax Aspects of the Partnerships." The Company has direct
control of the Partnerships and intends to operate them consistent with the
requirements for qualification as a REIT.
Income Tests. In order to maintain its qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions
for each taxable year must be derived directly or indirectly from: (i) rents
from real property; (ii) interest on obligations secured by mortgages on real
property or interests in real property; (iii) gain from the sale or other
disposition of real property (including interests in real property and interests
in mortgages on real property) not held primarily for sale to customers in the
ordinary course of business; (iv) dividends or other distributions on, and gain
(other than gain from prohibited transactions) from the sale or other
disposition of, transferable shares in other real estate investment trusts; (v)
abatements and refunds of taxes on real property; (vi) income and gain derived
from foreclosure property (as defined in the Code); (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property (including
interests in real property and interests in mortgages on real property); (viii)
gain from the sale or other disposition of a real estate asset which is not a
prohibited transaction; and (ix) qualified temporary investment income.
Second, at least 95% of the Company's gross income (excluding gross income
from prohibited transactions for each taxable year must be derived from the
sources described above with respect to the 75% test, dividends, interest, and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing).
Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions, and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales or other disposition of foreclosure property)
must represent less than 30% of the Company's gross income (including gross
income from prohibited transactions) for each taxable year.
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Rents that may be received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent received must not
be based, in whole or in part, on the income or profits of any person. However,
an amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed percentage
or percentages of gross receipts or sales. Second, the Code provides that rents
received from a tenant will not qualify as "rents from real property" in
satisfying the gross`income tests if the REIT, or an owner of 10% or more of the
REIT, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). The results of this 10% ownership test are determined by
applying complex attribution rules which are provided in the Code. Third, for
rents received to qualify as "rent from real property," the Company generally
must not manage or operate the property or furnish or render services to the
tenants of such property other than through an independent contractor from whom
the Company derives no revenue. However, the Company may directly perform
certain services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Finally, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property."
The Company has represented that it does not and will not (i) charge rent for
any property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage of gross receipts or
sales, as described above), (ii) rent any property to a Related Party Tenant,
(iii) derive rental income (except for certain rentals not material in amount)
attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease except for rental income derived
pursuant to the lease of Rockwood Manor), or (iv) perform services considered to
be rendered to the occupant of the property, other than through an independent
contractor from whom the Company derives no revenue.
The term "interest" generally does not include any amount received or accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of gross receipts or sales.
Generally, if a loan is secured by both personal property and real property,
interest must be allocated between the personal property and the real property,
with only the interest allocable to the real property qualifying as mortgage
interest under the 75% gross income test. Treasury Regulations provide that if
a loan is secured by both personal and real property and the fair market value
of the real property as of the commitment date equals or exceeds the amount of
the loan, the entire interest amount will qualify under the 75% gross income
test. If the amount of the loan exceeds the fair market value of the real
property, the interest income is allocated between real property and personal
property based on the relative fair market value of each. Under certain
circumstances, income from shared appreciation mortgages may qualify under the
REIT gross income requirements.
The Company believes that interest received under the Company's mortgage loans
should qualify as "interest" for purposes of the REIT gross income requirements
and, except for certain interest receipts not material in amount, should qualify
as mortgage interest for purposes of the REIT 75% gross income requirement.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions are generally expected to be available if the Company can establish
that its failure to meet such tests was due to reasonable cause and not due to
willful neglect, the Company attaches a schedule of the sources of its income to
its federal income tax return, and any incorrect information was not due to
fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of these
relief provisions. If these relief provisions are inapplicable to a particular
set of circumstances involving the Company, the Company will not qualify as a
REIT. If these relief provisions apply, a special 100% tax is imposed (see
"General"). No similar mitigation provision provides relief if the Company fails
the 30% income test. In such case, the Company would cease to qualify as a
REIT.
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Asset Tests. At the close of each quarter of its taxable year, the Company
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including its allocable
share of the assets held by the Partnerships) must be represented by real estate
assets including (i) its allocable share of real estate assets held by the
Partnerships in which the Company owns an interest and (ii) stock of debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.
REMIC. A regular or residual interest in a REMIC will be treated as a real
estate asset for purposes of the REIT asset tests and income derived with
respect to such interest will be treated as interest on an obligation secured by
a mortgage on real property, assuming that at least 95% of the assets of the
REMIC are real estate assets. If less than 95% of the assets of the REMIC are
real estate assets, only a proportionate share of the assets of and income
derived from the REMIC will be treated as qualifying under the REIT asset and
income tests. The Company believes that its REMIC interests fully qualify for
purposes of the REIT income and asset tests.
After meeting the asset tests at the close of any quarter, the Company will
not lose its status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including as a result of the Company increasing its
interest in any of the Partnerships), the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
The Company intends to maintain adequate records of the value of its assets to
ensure compliance with the asset tests and to take such other actions within 30
days after the close of any quarter as may be required to cure any
noncompliance. If the Company fails to cure noncompliance with the asset tests
within such time period, it would cease to qualify as a REIT.
Distribution Requirements. The Company, in order to qualify as a REIT, is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to Treasury Regulations which have not yet been promulgated, to distribute at
least 95% of the Built-In-Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment date after such declaration and if the Company so
elects and specifies the dollar amount in its tax return. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
Tax Aspects of the Partnerships
In General. Some the Company's investments are held indirectly through the
Partnerships. In general, partnerships are "pass-through" entities which are
not subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. The Company
includes and will continue to include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income.
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Moreover, for purposes of the REIT asset tests, the Company will include its
proportionate share of assets held by the Partnerships. See "Taxation of the
Company."
Entity Classification. The Company's interests in the Partnerships involve
special tax considerations, including the possibility of a challenge by the IRS
of the status of any one of the Partnerships as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. If any
one of the Partnerships were treated as an association, such partnership would
be taxable as a corporation and therefore be subject to an entity-level tax on
its income. In such a situation, the character of the Company's assets and
items of gross income would change and preclude the Company from satisfying the
asset tests and possibly the income tests (see "Federal Income Tax
Considerations -- Taxation of the Company -- Asset Tests" and "-- Income
Tests"), and in turn would prevent the Company from qualifying as a REIT. See
"-Failure to Qualify" above for a discussion of the effect of the Company's
failure to meet such tests for a taxable year. In addition, a change in the any
one of the Partnerships' status for tax purposes might be treated as a taxable
event in which case the Company might incur a tax liability without any related
cash distributions.
An organization formed as a partnership will be treated as a partnership for
federal income tax purposes, rather than as a corporation, only if it has no
more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are (i) continuity of life, (ii)
centralization of management, (iii) limited liability and (iv) free
transferability of interests. The Company has not requested, and does not
intend to request, a ruling from the IRS that the Partnerships will be treated
as partnerships for federal income tax purposes. However, the Company believes
that the Partnerships have been and will continue to be treated as partnerships
for federal income tax purposes (and not as associations or a publicly traded
partnerships taxable as corporations).
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Partnerships' allocations of taxable
income and loss are intended to comply with the requirements of Section 704(b)
of the Code and the Treasury Regulations promulgated thereunder.
Basis in Partnership Interests. The Company's adjusted tax basis in its
interest in each of the Partnerships generally (i) will be equal to the amount
of cash and the basis of any other property contributed to the Partnership by
the Company, (ii) will be increased by (a) its allocable share of the
Partnership's income and (b) its allocable share of indebtedness of the
Partnership and (iii) will be reduced, but not below zero, by the Company's
allocable share of (a) losses suffered by the Partnership, (b) the amount of
cash distributed to the Company and (c) by constructive distributions resulting
from a reduction in the Company's share of indebtedness of the Partnership.
If the allocation of the Company's distributive share of a Partnership's loss
exceeds the adjusted tax basis of the Company's partnership interest in such
Partnership, the recognition of such excess loss will be deferred until such
time and to the extent that the Company has adjusted tax basis in its interest
in the Partnership. To the extent that a Partnership's distributions, or any
decrease in the Company's share of the indebtedness of such Partnership (such
decreases being considered a constructive cash distribution to the partners),
exceeds the Company's adjusted tax basis, such excess distributions (including
such constructive distributions) constitute taxable income to the Company. Such
taxable income will normally be characterized as a capital gain, and if the
Company's interest in the Partnership has been held for longer than the long-
term capital gain holding period (currently one year), such distributions and
constructive distributions will constitute long-term capital gain.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between (i) the actual receipt of income and
actual payment of deductible expenses on the one hand and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of the
Company on the other hand. The
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Company will closely monitor the interrelationship between its REIT taxable
income and cash flow to avoid problems with the distribution requirements. In
the event that timing differences occur, in order to meet the distribution
requirements, the Company might find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Failure to Qualify
If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions described above do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which the Company fails to qualify will not be deductible by the Company
nor will they be required to be made. As a result, the Company's failure to
qualify as a REIT would substantially reduce the cash available for distribution
by the Company to its stockholders. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company would
also be prohibited from electing REIT status for the four taxable years
following the year during which qualification is lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent borrowings are
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
Taxation Of Stockholders--general
As long as the Company qualifies as a REIT, distributions made to the
Company's stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income (which will not be eligible for the dividends received deduction
for corporations). Distributions that are properly designated as capital gain
dividends will be taxed as long-term capital gains to the extent they do not
exceed the Company's actual net capital gain for the taxable year, without
regard to the period for which a stockholder has held his stock, although
corporate stockholders may be required to treat up to 20% of any such capital
gain dividend as ordinary income. For purposes of computing the Company's
earnings and profits, depreciation on real estate will be computed on a
straight-line basis over a 40 year recovery period. Distributions (not
designated as capital gain dividends) in excess of current or accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares of stock, but
rather will reduce the adjusted basis of such shares of stock (but not below
zero). To the extent that such distributions exceed the adjusted basis of a
stockholder's shares of stock they will be included in income as long-term or
short-term capital gain assuming the shares are held as a capital asset in the
hands of the stockholder. The Company will notify stockholders at the end of
each year as to the portions of the distributions which constitute ordinary
income, net capital gain or return of capital.
In addition, any dividend declared by the Company in October, November or
December of any year payable to a stockholder of record on a specified date in
any such month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by the Company on or before January 31 of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company.
In general, any gain or loss upon a sale or exchange of shares by a
stockholder who has held such shares as a capital asset will be long-term or
short-term depending on whether the stock was held for more than one year;
provided, however, any loss on the sale or exchange of shares that have been
held by such
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stockholder for six months or less will be treated as a long-term capital loss
to the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gain.
Taxation of Tax-exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT do
not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling the dividend income from the Company
should not, subject to certain exceptions described below, be UBTI to a
qualified plan, IRA or other tax-exempt entity (a "Tax-Exempt Stockholder")
provided the Tax-Exempt Stockholder has not held its shares as "debt financed
property" within the meaning of the Code and the shares are not otherwise used
in an unrelated trade or business of the Tax-Exempt Stockholder. Similarly,
income from the sale of Common Stock should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Stockholder has held such
Common Stock as a dealer (under Section 512(b)(5)(B) of the Code) or as "debt
financed property" within the meaning of the Code or has used the shares in a
trade or business.
For Tax-Exempt Stockholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these "set-
aside" and reserve requirements.
Notwithstanding the above, however, the recently enacted Omnibus Budget
Reconciliation Act of 1993 (the "1993 Act") provides that, effective for taxable
years beginning in 1994, a portion of the dividends paid by a "pension held
REIT" shall be treated as UBTI as to any trust which (i) is described in Section
401 (a) of the Code, (ii) is tax-exempt under Section 501(a) of the Code, and
(iii) holds more than 10% (by value) of the interests in the REIT. Tax-exempt
pension funds that are described in Section 401(a) of the Code are referred to
below as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), and (ii) either (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(b) one or more such qualified trusts, each of whom owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The Company believes that it is not
currently a "pension held REIT" within the meaning of the Code.
Taxation of Non-U.S. Stockholders
The rules governing United States federal income taxation of the ownership and
disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Stockholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are
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made out of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to withholding of United States federal
income tax on a gross basis (that is, without allowance of deductions) at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty,
unless the dividends are treated as effectively connected with the conduct by
the Non-U.S. Stockholder of a United States trade or business. Dividends that
are effectively connected with such a trade or business will be subject to tax
on a net basis (that is, after allowance of deductions) at graduated rates, in
the same manner as domestic stockholders are taxed with respect to such
dividends and are generally not subject to withholding. Any such dividends
received by a Non-U.S. Stockholder that is a corporation may also be subject to
an additional branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of the
Company will not be taxable to a Non-U.S. Stockholder to the extent that they do
not exceed the adjusted basis of the stockholder's Common Stock, but rather will
reduce the adjusted basis of such Common Stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to gain from the sale or exchange of his Common
Stock, the tax treatment of which is described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current or accumulated earnings and profits, the
distribution will generally be treated as a dividend for withholding purposes.
However, amounts thus withheld are generally refundable if it is subsequently
determined that such distribution was, in fact, in excess of current or
accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company at
the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Common Stock is effectively connected with the Non-U.S. Stockholder's
United States trade or business, in which case the Non-U.S. Stockholder will be
subject to the same treatment as domestic stockholders with respect to such gain
(except that a stockholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as
income effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability.
Sales of Common Stock. Gain recognized by a Non-U.S. Stockholder upon a sale
or other disposition of Common Stock generally will not be subject to United
States federal income tax, unless (i) the Company is not a "domestically
controlled REIT" or (ii) investment in the Common Stock is effectively connected
with the Non-Stockholder's United States trade or business or (iii) in the case
of a Non-U.S. Stockholder who is a nonresident alien individual, the individual
is present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States. A domestically controlled REIT is defined
generally as
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a REIT in which at all times during a specified testing period less than 50% in
value of the stock was held directly or indirectly by foreign persons. The
Company believes that it is a domestically controlled REIT. In the circumstances
described above in clauses (i) and (ii), the Non-U.S. Stockholders will
generally be subject to the same treatment as domestic stockholders with respect
to such gain (subject to a special alternative minimum tax in the case of
nonresident alien individuals in the circumstances described above in clause (i)
and, in the case of foreign corporations, subject to the possible applications
of the 30% branch profits tax, as discussed above). In the circumstances
described above in clause (iii), the nonresident alien individual will be
subject to a 30% tax on the individual's capital gain.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States reporting requirements) and information reporting will generally not
apply to distributions paid to Non-U. S. Stockholders outside the United States
that are treated as (i) dividends subject to the 30% (or lower treaty rate)
withholding tax discussed above, or (ii) capital gains dividends or (iii)
distributions attributable to gain from the sale or exchange by the Company of
United States real property interest. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Common Stock by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Common Stock by a foreign office of a broker that (a) is a
United States person, or (b) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (c) is a
"controlled foreign corporation" (generally, a foreign corporation controlled by
United States stockholders) for United States tax purposes, unless the broker
has documentary evidence in its records that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of sale of Common Stock is subject to both backup
withholding and information reporting unless the stockholder certifies under
penalties of perjury that the stockholder is a Non-U.S. Stockholder, or
otherwise establishes an exemption. A Non-U.S. Stockholder may obtain a refund
of any amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
The backup withholding and information reporting rules are under review by the
United States Treasury, and their application to the Common Stock could be
changed prospectively by future Treasury Regulations.
Backup Withholding
The Company will report to its domestic stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and when
required, demonstrates this fact, or (b) provides a correct 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 stockholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against
the stockholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions to any stockholders
who fail to certify their non-foreign status to the Company.
Other Tax Consequences
The Company and its investors may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside.
There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular investor. Prospective investors
are urged to consult their own tax advisors with respect to such matters.
30
<PAGE>
ERISA CONSIDERATIONS
THE FOLLOWING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL PLANNING WITH A PROFESSIONAL. EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA
AND THE CODE ("Plans") CONSIDERING PURCHASING THE SECURITIES SHOULD CONSULT WITH
THEIR OWN TAX OR OTHER APPROPRIATE COUNSEL REGARDING THE APPLICATION OF ERISA
AND THE CODE TO THEIR PURCHASE OF THE SECURITIES. PLANS SHOULD ALSO CONSIDER
THE ENTIRE DISCUSSION UNDER THE HEADING OF "FEDERAL INCOME TAX CONSIDERATIONS"
AS MATERIAL CONTAINED THEREIN IS RELEVANT TO ANY DECISION BY A PLAN TO PURCHASE
THE SECURITIES.
Fiduciary Considerations
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans"), are subject to
various provisions of the Employee Retirement Income Security Act 1974, as
amended ("ERISA") and the Code. Before investing in the Securities of the
Company, a Plan fiduciary should ensure that such investment is in accordance
with ERISA's general fiduciary standards. In making such a determination, a
Plan fiduciary should ensure that the investment is in accordance with the
governing instruments and the overall policy of the Plan, and that the
investment will comply with the diversification and composition requirements of
ERISA. In addition, provisions of ERISA and the Code prohibit certain
transactions using Plan assets that involve persons who have specified
relationships with a Plan. The consequences of such prohibited transactions
include excise taxes, disqualifications of IRAs and other liabilities. A Plan
fiduciary should ensure that any investment in the Securities will not
constitute such a prohibited transaction.
Plan Assets Issue
A prohibited transaction may occur if the assets of the Company are deemed to
be Plan assets. In certain circumstances where a Plan holds an interest in an
entity, the assets of the entity are deemed to be Plan assets (the "look-through
rule"). Under such circumstances, any person that exercises authority or control
with respect to the management or disposition of such assets is a Plan
fiduciary. Plan assets are not defined in ERISA or the Code, but the United
States Department of Labor has issued Regulations, effective March 13, 1987 (the
"Regulations"), that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations provide that the look-through rule applies only to the
purchase by a Plan of an "equity interest" in an entity, such as common stock of
a REIT. The term "equity interest" means any interest in an entity other than an
instrument that is treated as indebtedness under applicable local law and that
has no substantial equity features. However, the Regulations provide an
exception to the look-through rule for equity interests that are "publicly-
offered securities" and certain other exceptions.
Under the Regulations a "publicly-offered security" is a security that is (1)
freely transferable, (2) part of a class of securities that is widely-held, and
(3) part of a class of securities that is registered under Section 12(b) or
12(g) of the Exchange Act or sold to a Plan as part of an offering of securities
to the public pursuant to an effective registration statement under the
Securities Act and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days after the end of the fiscal
year of the issuer during which the offering of such securities to the public
occurred. Whether a security is considered "freely transferable" depends on the
facts and circumstances of each case. Generally, if the security is part of an
offering in which the minimum investment is $10,000 or less and any restriction
on or prohibition against any transfer or assignment of such security is for the
purposes of preventing a termination or reclassification of the entity for
federal or state tax purposes, such restrictions will not prevent the security
from being considered freely transferable. A class of securities is considered
"widely-held" only if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another. A class of securities
will not
31
<PAGE>
fail to be widely held solely because subsequent to the initial offering the
number of independent investors falls below 100 as a result of events beyond the
control of the Company.
It is anticipated by the Company that the Common Stock will meet the criteria
of the publicly-offered securities exception to the look-through rule. First,
the Company anticipates that the Common Stock will be considered to be freely
transferable, as the only restriction upon its transfer are those required under
federal tax laws to maintain the Company's status as a REIT. Second, the
Company believes that the Common Stock will be held by 100 or more investors and
that at least 100 or more of these investors will be independent of the Company
and of one another. Third, the Common Stock will be part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act and will be registered under the Exchange Act within 120 days
after the end of the fiscal year of the Company during which the offering of
such securities to the public occurs. Accordingly, the Company believes that if
a Plan purchases the Common Stock, the Company's assets should not be deemed to
be Plan assets and, therefore, that any person who exercises authority or
control with respect to the Company's assets should not be a Plan fiduciary. If
the Company sells Preferred Stock and/or Debt Securities, the Prospectus
Supplement with respect to such offering will disclose whether the Company
believes that such Preferred Stock and/or Debt Securities would be Plan assets.
If the Preferred Stock and/or Debt Securities are considered Plan assets, the
Company will not sell such Preferred Stock and/or Debt Securities to Plans
unless an exception or exemption is applicable.
PLAN OF DISTRIBUTION
The Company may sell Securities in any of three ways: (i) through
underwriting syndicates represented by one or more managing underwriters, or by
one or more underwriters without a syndicate; (ii) through agents designated
from time to time; and (iii) directly to institutional investors. The names of
any underwriters or agents of the Company involved in the sale of the Securities
in respect of which this Prospectus is being delivered and any applicable
commissions or discounts will be set forth in the Prospectus Supplement. The
net proceeds to the Company from each such sale will also be set forth in the
Prospectus Supplement.
Agents and underwriters may be entitled under agreements entered into with the
Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may engage in transactions with or perform
services for the Company in the ordinary course of business.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Latham & Watkins, Los Angeles, California.
EXPERTS
The consolidated financial statements and financial statement schedules of LTC
Properties, Inc. appearing in the 1995 Annual Report on Form 10-K have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
32
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY, ANY OF THE SECURITIES IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
______________________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Prospectus Supplement
PAGE
----
<S> <C>
The Company............................... S-3
Recent Developments....................... S-3
Use of Proceeds........................... S-5
Capitalization............................ S-6
Description of Debentures................. S-7
Federal Income Tax Consideration.......... S-9
Plan of Distribution...................... S-14
Legal Matters............................. S-14
Prospectus
Available Information..................... 2
Documents Incorporated by
Reference................................ 2
The Company............................... 3
Risk Factors.............................. 4
Ratio of Earnings to Fixed
Charges.................................. 8
Use of Proceeds........................... 8
Description of the Company's
Capital Stock............................ 9
Description of Debt Securities............ 11
Description of Preferred
Stock.................................... 18
Federal Income Tax
Considerations........................... 21
Erisa Considerations...................... 31
Plan of Distribution...................... 32
Legal Matters............................. 32
Experts................................... 32
</TABLE>
LTC PROPERTIES, INC.
SECURITIES
___________________
_________________
PROSPECTUS SUPPLEMENT
_________________
August 20, 1996
================================================================================
