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Filed Pursuant to Rule 424B5
Registration Number 333-34763
PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 3, 1997)
[OMEGA HEALTHCARE INVESTORS, INC. LOGO]
OMEGA HEALTHCARE INVESTORS, INC.
$125,000,000
6.95% Notes due 2002
Interest payable June 15 and December 15
ISSUE PRICE: 99.688%
Interest on the 6.95% Notes due 2002 (the "Notes") of Omega Healthcare
Investors, Inc. (the "Company") offered hereby is payable semiannually on June
15 and December 15, commencing December 15, 1998. The Notes will mature on June
15, 2002. The Notes are not redeemable prior to maturity.
The Notes will be represented by one or more Global Securities (as hereinafter
defined) registered in the name of The Depository Trust Company ("DTC") or its
nominee. Interests in the Global Securities will be shown on, and transfer
thereof will be effected only through, records maintained by DTC and its
participants. Except as provided herein, Notes in definitive form will not be
issued.
SEE "RISK FACTORS" COMMENCING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note 99.688% 0.500% 99.188%
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Total $124,610,000 $625,000 $123,985,000
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(1) Plus accrued interest, if any, from June 10, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $375,000 payable by the Company.
The Notes are offered subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Davis Polk &
Wardwell, counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about June 10, 1998 through the facilities of DTC,
against payment therefor in immediately available funds.
J.P. MORGAN & CO. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
June 5, 1998
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MAP
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS WHICH
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE NOTES. SPECIFICALLY,
THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR,
AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities to which they relate
or any offer to sell or the solicitation of any offer to buy such securities in
any jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus Supplement nor the accompanying Prospectus nor any
sale made hereunder or thereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained or incorporated by reference
herein or therein is correct as of any time subsequent to the date of such
information.
FORWARD-LOOKING INFORMATION
This Prospectus Supplement and the accompanying Prospectus contain certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and is including this statement
for purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies and expectations of the Company, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on the operations and future prospects of
the Company include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/ regulatory
changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
healthcare properties in the Company's current and proposed market areas and
general accounting principles, policies and guidelines applicable to REITs.
These risks and uncertainties, together with those stated under the caption
"Risk Factors" in the accompanying Prospectus, should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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Summary..................................................... S-4
Risk Factors................................................ S-8
The Company................................................. S-13
Properties.................................................. S-17
Use of Proceeds............................................. S-19
Capitalization.............................................. S-20
Selected Financial and Operating Data....................... S-21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-22
Description of Notes........................................ S-24
Certain Federal Income Tax Considerations................... S-30
Underwriting................................................ S-33
Legal Matters............................................... S-33
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PROSPECTUS
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Available Information....................................... 3
Documents Incorporated by Reference......................... 3
The Company................................................. 5
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 7
Use of Proceeds............................................. 7
Description of Securities................................... 7
Common Stock................................................ 7
Preferred Stock............................................. 9
Debt Securities............................................. 12
Securities Warrants......................................... 17
Plan of Distribution........................................ 19
Legal Matters............................................... 20
Experts..................................................... 20
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein or therein by reference.
Investors should consider carefully the risk factors related to the purchase of
the Notes of the Company. See "Risk Factors."
THE COMPANY
Omega Healthcare Investors, Inc. (the "Company") was incorporated in the State
of Maryland on March 31, 1992. It is a self-administered real estate investment
trust ("REIT") which invests primarily in income-producing healthcare
facilities, principally long-term care facilities located in the United States.
As of March 31, 1998, the Company's portfolio of domestic investments consisted
of 271 long-term care facilities, 3 medical office buildings and 2
rehabilitation hospitals. The Company owns and leases 189 long-term facilities,
3 medical office buildings and 2 rehabilitation hospitals, and provides
mortgages, including participating and convertible participating mortgages, on
82 long-term healthcare facilities. The facilities are located in 28 states and
operated by 29 unaffiliated operators. The Company's gross real estate
investments at March 31, 1998 totaled $887.6 million. During 1997, new
investments approximated $196 million as a result of entering into
sale/leaseback transactions and making mortgage loans and other investments.
During the first quarter of 1998, the Company acquired $97.8 million in real
estate properties and placed $12 million in real estate mortgages, for total
real estate investments for the quarter of $109.8 million.
The investment objectives of the Company are to pay regular cash dividends to
shareholders; to provide the opportunity for increased dividends from annual
increases in rental and interest income from revenue participations and from
portfolio growth; to preserve and protect shareholders' capital; and to provide
the opportunity to realize capital growth.
The Company intends to make and manage its investments (including the sale or
disposition of property or other investments) in such a manner as to be
consistent with the requirements of the Code (and regulations thereunder) to
qualify as a REIT, unless, because of changes in circumstances or changes in the
Code (or regulations thereunder), the Board of Directors determines that it is
no longer in the best interests of the Company to qualify as a REIT.
The executive offices of the Company are located at 905 West Eisenhower Circle,
Suite 110, Ann Arbor, Michigan 48103. Its telephone number is (734) 747-9790.
INVESTMENT STRATEGIES AND POLICIES
The Company maintains a diversified portfolio of income-producing healthcare
facilities or mortgages thereon, with a primary focus on long-term care
facilities located in the United States. In making investments, the Company
generally seeks established, creditworthy, middle market healthcare operators
which meet the Company's standards for quality and experience of management.
Although the Company has emphasized long-term care investments, it intends to
diversify prudently into other types of healthcare facilities or other
properties. The Company actively seeks to diversify its investments in terms of
geographic location, operators and facility types.
In evaluating potential investments, the Company considers such factors as: (i)
the quality and experience of management and the creditworthiness of the
operator of the facility; (ii) the adequacy of the facility's historical,
current and forecasted cash flow to meet operational needs, capital expenditures
and lease or debt service obligations, while providing a competitive return on
investment to the Company; (iii) the construction quality, condition and design
of the facility; (iv) the geographic area and type of facility; (v) the tax,
growth, regulatory and reimbursement environment of the community in which the
facility is located; (vi) the occupancy and demand for similar healthcare
facilities in the same or nearby communities; and (vii) the payor mix of
private, Medicare and Medicaid patients.
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The Company plans to maintain its percentage of equity and equity-linked
investments at approximately 65% to 75% of its portfolio and to increase the
number of operators and geographic diversity of the facilities in its portfolio
as well as to continue to expand its relationships with current operators.
The Company believes that a growing market exists for REITs focusing in the
long-term care industry. According to data from the U.S. Census Bureau, in 1995
there were approximately 3.6 million Americans over the age of 85, comprising
1.4% of the total U.S. population. From 1960 to 1994, the population within this
age group increased at more than five times the rate of the increase for the
total population. The Company believes that the fundamentals of the long-term
care and nursing home industry will continue to be strong and provide good
opportunity for additional investment in the foreseeable future. The long-term
care industry provides sub-acute medical and custodial care to the senior
population of the United States. The demand for long-term care comes principally
from those individuals over 85 years of age. Due to demographic trends,
regulation and government support, the Company believes that the long-term care
sector of the healthcare industry has been one of the less volatile segments of
the industry.
The Company continually assesses and reassesses investments in other healthcare
and senior medical services markets, including the assisted living market.
Assisted living units are designed for seniors who need assistance with basic
activities such as bathing, meal preparation and eating. While strong
demographic demands support this segment, low barriers to entry and the
unregulated nature of assisted living pose additional risks in this healthcare
segment. The Company believes that there may be selected opportunities to
participate in this sector, but to date has not made significant investments in
properties of this type.
Additionally, the Company believes that acute care hospitals presently represent
a substantial portion of healthcare expenditures in the United States. While the
Company has made limited investments in this segment, with a total of
approximately $50 million invested to date, the Company anticipates that future
investments will result from the need for capital and the evolving demand for
healthcare properties operated by acute care delivery systems.
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THE OFFERING
SECURITIES OFFERED......... $125,000,000 aggregate principal amount of the
6.95% Notes due 2002.
MATURITY................... The Notes will mature on June 15, 2002.
INTEREST PAYMENT DATES..... Semi-annually on June 15 and December 15,
commencing December 15, 1998.
RANKING.................... The Notes will be unsecured obligations of the
Company and will rank equally with the Company's
other unsecured and unsubordinated indebtedness.
The Notes will be effectively subordinated to
mortgages and other secured indebtedness of the
Company and to indebtedness and other liabilities
of the Company's subsidiaries.
USE OF PROCEEDS............ The net proceeds to the Company from the offering
of the Notes will be used to repay a portion of the
Company's revolving line of credit. See "Use of
Proceeds."
REDEMPTION................. The Notes are not redeemable prior to maturity.
LIMITATIONS ON INCURRENCE
OF INDEBTEDNESS............ The Notes contain various covenants including the
following:
(1) Neither the Company nor any Subsidiary (as
hereinafter defined) may incur any Debt (as
hereinafter defined) if, after giving effect
thereto, the aggregate principal amount of all
outstanding Debt of the Company and its
Subsidiaries on a consolidated basis is greater
than 60% of the sum ("Adjusted Total Assets") of
(i) the Total Assets (as hereinafter defined) of
the Company and its Subsidiaries as of the end of
the most recent calendar quarter and (ii) the
purchase price of any real estate assets or
mortgages receivable acquired, and the amount of
any securities offering proceeds received (to the
extent that such proceeds were not used to acquire
real estate assets or mortgages receivable or used
to reduce Debt), by the Company or any Subsidiary
since the end of such calendar quarter, including
those proceeds obtained in connection with the
incurrence of such additional Debt.
(2) Neither the Company nor any Subsidiary may
incur any Secured Debt (as hereinafter defined) if,
after giving effect thereto, the aggregate
principal amount of all outstanding Secured Debt of
the Company and its Subsidiaries on a consolidated
basis is greater than 40% of Adjusted Total Assets.
(3) The Company and its Subsidiaries will maintain
Total Unencumbered Assets (as hereinafter defined)
of not less than 200% of the aggregate outstanding
principal amount of the Unsecured Debt (as
hereinafter defined) of the Company and its
Subsidiaries on a consolidated basis.
(4) Neither the Company nor any Subsidiary may
incur any Debt if, after giving effect thereto, the
ratio of Consolidated Income Available for Debt
Service (as hereinafter defined) to the Annual
Service
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Charge (as hereinafter defined) for the four
consecutive fiscal quarters most recently ended
prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5x on a
pro forma basis after giving effect to certain
assumptions.
For a more complete description of the terms and
definitions used in the foregoing limitations, see
"Description of Notes -- Certain Covenants."
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RISK FACTORS
An investment in the Notes involves various risks, including those described
below. Investors should carefully consider these risk factors together with all
of the information set forth or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus in determining whether to purchase
any Notes. Information contained or incorporated by reference in this Prospectus
Supplement or in the accompanying Prospectus may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," or
"continue" or the negative thereof or other comparable terminology. The
following matters and certain other factors noted throughout this Prospectus
Supplement and the accompanying Prospectus, and any documents incorporated by
reference herein or therein and exhibits hereto and thereto, constitute
cautionary statements identifying important factors with respect to any such
forward-looking statements, including certain risks and uncertainties, that
could cause the Company's actual results to differ materially from those
contained in any such forward-looking statements.
GOVERNMENT REGULATION
Potential Reduction in Revenues of Lessees/Borrowers Due to Healthcare
Reform. Federal healthcare legislation enacted in 1996 focused on assuring
portability of employee healthcare benefits and increasing enforcement powers of
federal agencies that investigate and prosecute fraud and abuse in federally
funded healthcare programs. Ongoing federal budget constraints will continue to
place priority on the need to slow the growth rate in federal healthcare
expenditures. It is anticipated that further debate on overall structural reform
of federal healthcare programs will affect additional legislative action on
cost-containment. It also is anticipated that private payor efforts to contain
or reduce healthcare 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 lessees and borrowers. No assurance can be given that the
implementation of any reforms will not have a material adverse effect on the
Company's financial condition or results of operations.
Potential Loss of Licensure or Certification by Lessees/Borrowers. The
healthcare 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 lessee or borrower to comply with such
laws, requirements and regulations could adversely affect its ability to operate
its facilities and could affect such lessee's or borrower's ability to make debt
or lease payments to the Company.
Reliance on Government Reimbursement by Lessees/Borrowers. A significant portion
of the revenue of the Company's lessees and borrowers 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.
The levels of revenues and profitability of the Company's lessees and mortgagors
will continue to be affected by the ongoing efforts of third-party payors to
contain or reduce the costs of healthcare. Recent legislation changes the
Medicare payment methodology for skilled nursing facilities effective for cost
reporting years commencing after July 1, 1998. The cost-based system will be
replaced by a federal per diem rate that will be phased in over four years. The
new per diem rate will be the sole payment for both direct nursing care ("Part A
services") and ancillary services that were previously billed separately from
the cost-based reimbursement system ("Part B services"). Capital costs are also
to be included in the per diem rate. Many states have also converted to a system
based on prospectively determined fixed rates.
Until 1997, state Medicaid programs were required to reimburse nursing
facilities based on rates that were reasonable and adequate to meet the costs
that must be incurred by efficiently and economically operated facilities in
order to provide services in conformity with federal and state standards and to
assure reasonable access to patients. This law restricted the ability of the
states to reduce Medicaid payments. Congress repealed this requirement in 1997.
Under the new law, states need only publish the methodology
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used to develop the proposed rates, along with a justification for the
methodology, and allow public comment. Proposals have also been made to limit
Medicaid reimbursement for healthcare services in many of the states in which
the Company's facilities are located.
Any changes in reimbursement policies which reduce reimbursement levels could
adversely affect revenues of the Company's lessees and borrowers and thereby
adversely affect those lessees' and borrowers' abilities to make their monthly
lease or debt payments to the Company. Failure of the lessees or borrowers to
make their monthly payments would have a direct and material adverse impact on
the Company.
HEALTHCARE REAL ESTATE INVESTMENT RISKS
The Company's investments in healthcare facilities are subject to various real
estate related risks.
Volatility of Income and Returns. The possibility that the healthcare facilities
will not generate income sufficient to meet operating expenses or will yield
returns lower than those available through investments in comparable real estate
or other investments are additional risks of investing in healthcare 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.
There can be no assurance that the Medicaid reimbursement programs in each of
the states where the lessees' and mortgagors' facilities are located will
reimburse rent or interest costs of the lessees and mortgagors at increased
levels recognizing the initial sales to or borrowings from the Company. Failure
by these state Medicaid programs to provide reimbursement at current or
increased levels could have an adverse effect upon the cash flow of the
facilities and, hence, on the ability of the Company's lessees and mortgagors to
meet their respective payment obligations to the Company. Additionally, Medicare
regulations provide that effective December 1, 1997, when a facility changes
ownership (by sale or under certain lease transactions), reimbursement for
depreciation and interest will be based on the cost to the owner of record as of
August 5, 1997, less depreciation allowed. Previously, the buyer would use its
cost of purchase up to the original owner's historical cost before depreciation.
Such changes could adversely affect the resale value of the Company's healthcare
facilities.
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. Healthcare
facilities that participate in Medicare or Medicaid must meet extensive program
requirements, including physical plant and operational requirements, which are
revised from time to time. Such requirements may include a duty to admit
Medicare and Medicaid patients, limiting the ability of the facility to increase
its private pay census beyond certain limits. Medicare and Medicaid facilities
are regularly inspected to determine compliance, and may be excluded from the
programs -- in some cases without a prior hearing -- for failure to meet program
requirements. Transfers of operations of nursing homes and other
healthcare-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 lessee or borrower becomes unable to meet its obligations on the lease or
mortgage loan, the liquidation value of the property may be substantially less,
particularly relative to the amount owing on any related mortgage loan, than
would be the case if the property were readily adaptable to other uses. The
receipt of liquidation proceeds or the replacement of an operator that has
defaulted on its lease or loan could be delayed by the approval process of any
federal, state or local agency necessary for the transfer of the property or the
replacement of the operator licensed to manage the facility. In addition,
certain significant expenditures associated with real estate investment (such as
real estate taxes and maintenance costs) are generally not reduced when
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circumstances cause a reduction in income from the investment. Should such
events occur, the Company's income and cash flows from operations would be
adversely affected.
Uninsured Loss. The Company currently requires, and it is the intention of the
Company to continue to require, all lessees and borrowers to secure adequate
comprehensive property and liability insurance that covers the Company as well
as the lessee and borrower. 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.
RELIANCE ON OPERATORS OF HEALTHCARE FACILITIES
As of March 31, 1998, the Company's facilities are operated by 29 independent
healthcare operating companies. Approximately 67.6% of the Company's real estate
investments are operated by seven public companies, including Sun Healthcare
Group, Inc. (25.6%), Integrated Health Services, Inc. (13.4%), Advocat Inc.
(12.7%), Paragon Health Network, Inc. (6.6%) and three other public companies
(9.3%). Of the remaining independent operators, none operate investments in
facilities representing more than 5.4% of the total real estate investments. The
three largest states in which investments are located are Florida (13.4%),
Indiana (11.4%) and Texas (7.0%).
The financial position of the Company and its ability to service its debt may be
adversely affected by financial difficulties experienced by any of such
operators, or any other major operator of the Company. See
"Properties -- Operators of Properties." On May 28, 1998, Unison Healthcare
Corp. ("Unison"), which operates/manages 20 of the Company's facilities
representing approximately 4.9% (approximately $43.5 million) of the total of
the Company's real estate investments, filed for reorganization under the
bankruptcy code. Previously, two subsidiaries of Unison also filed for
reorganization under the bankruptcy code. See "The Company -- Recent
Developments -- Unison Healthcare Corp."
In early 1996, Emerald Healthcare, Inc. ("Emerald") and ExtendaCare, Inc.
("ExtendaCare") became the operators of certain facilities in Indiana owned by
the Company. Because ownership of the real property did not change, the State of
Indiana initially declined to adjust cost based Medicaid rates as is required
for a "new provider." The delays in receipt of such incremental reimbursement as
well as occupancy issues and a buildup of Medicare/Medicaid receivables have
created cash flow difficulties for each company. As a result, the Company agreed
to defer receipt of certain payments pending receipt of the incremental Medicaid
reimbursements. Emerald and ExtendaCare recently received Notice of New Medicaid
Rates effective April 1, 1997, and are now entitled to receive the incremental
reimbursement for paid Medicaid claims retroactive to April 1, 1997. While these
operators are not current in payments to the Company, the Company has determined
not to declare a default at the present time. The Company is continuing to
review issues with these operators and there can be no assurance that the
performance of these operators will be satisfactory over time. At March 31, 1998
the Indiana properties operated by Emerald represent investments of $28.5
million or 3.1% of investments; the Indiana properties operated by ExtendaCare
represent investments of $21.1 million or 2.3% of investments.
DEBT FINANCING RISKS
Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the cash provided by the Company's operating
activities will be insufficient to meet required payments of principal and
interest, the risk of rising interest rates on the Company's floating rate debt
that is not hedged, the risk that the Company will not be able to repay or
refinance existing indebtedness (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company, or to obtain financing at
unfavorable terms either of which might adversely affect the cash flow available
to meet debt service obligations. In addition, if a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
required mortgage payments, the mortgage securing the property could be
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foreclosed upon by, or the property could be otherwise transferred to, the
mortgagee with a consequent loss of income and asset value to the Company.
Degree of Leverage. At March 31, 1998, on a consolidated basis, the Company's
borrowings were $461 million, including $62.5 million related to convertible
subordinated debentures and the ratio of its borrowings to total assets was
48.9%, including 6.7% related to convertible subordinated debentures. On a
proforma basis at March 31, 1998, after giving effect to the Offering and the
application of the estimated net proceeds therefrom and certain other
adjustments, including proceeds from the Series B Preferred Stock issued on
April 28, 1998 and conversion of $13.5 million of subordinated debentures, the
Company would have had borrowings of $401 million and had a ratio of borrowings
to total assets of 43.2%. The degree to which the Company is leveraged could
have important consequences to holders of the Notes, including affecting the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, development or other general
corporate purposes and making the Company more vulnerable to a downturn in its
business or the economy generally. The Indenture (as hereinafter defined)
contains financial and operating covenants including, among other things,
limitations on the Company's ability to incur other indebtedness, sell assets
and engage in mergers and consolidations and certain acquisitions. If the
Company fails to comply with these covenants, the holders of the Notes will be
able to accelerate the maturity of the applicable indebtedness. See "Description
of Notes."
POSSIBLE ENVIRONMENTAL LIABILITIES
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 leases and mortgage loans require the lessee and the
borrower 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.
POTENTIAL RISKS FROM BANKRUPTCIES OF LESSEES
Generally, the Company's lease arrangements with a single operator who operates
more than one of the Company's Facilities is pursuant to a single master lease
(a "Master Lease" or collectively, the "Master Leases"). Although each lease or
Master Lease provides that the Company may terminate the Master Lease upon the
bankruptcy or insolvency of the tenant, the Bankruptcy Reform Act of 1978
("Bankruptcy Code") provides that a trustee in a bankruptcy or reorganization
proceeding under the Bankruptcy Code (or debtor-in-possession in a
reorganization under the Bankruptcy Code) has the power and the option to assume
or reject the unexpired lease obligations of a debtor-lessee. In the event that
the unexpired lease is assumed on behalf of the debtor-lessee, all the rental
obligations thereunder generally would be entitled to a priority over other
unsecured claims. However, the court also has the power to modify a lease if a
debtor-lessee in a reorganization were required to perform certain provisions of
a lease that the court determined to be unduly burdensome. It is not possible to
determine at this time whether or not any lease or Master Lease contains any
such provisions. If a lease is rejected, the lessor has a general unsecured
claim limited to any unpaid rent already due plus an amount equal to the rent
reserved under the lease, without acceleration, for the greater of one year or
15% of the remaining term of such lease, not to exceed
S-11
<PAGE> 12
three years. If any lease is rejected, the Company may also lose the benefit of
any participation interest or conversion right.
COMPETITION
The Company competes for additional healthcare facility investments with other
healthcare investors, including other real estate investment trusts. The
operators of the facilities compete with other regional or local nursing care
facilities for the support of the medical community, including physicians and
acute care hospitals, as well as the general public. Some significant
competitive factors for the placing of patients in skilled and intermediate care
nursing facilities include quality of care, reputation, physical appearance of
the facilities, services offered, family preferences, physician services and
price.
POSSIBLE CHANGE OF INVESTMENT STRATEGIES AND POLICIES AND CAPITAL STRUCTURE
The Board of Directors, without the approval of the shareholders, may alter the
Company's investment strategies and policies if they determine in the future
that such a change is in the best interests of the Company and its shareholders.
The methods of implementing the Company's investment strategies and policies may
vary as new investments and financing techniques are developed.
TAX RISKS
The Company was organized and believes that it has conducted and it intends to
conduct its operations so as to qualify for taxation as a REIT under Sections
856 through 860 of the Code. See "Certain Federal Income Tax Considerations."
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.
If the Company were to fail to qualify as a REIT in any taxable year, as a
result of a determination that it failed to meet the annual distribution
requirements or otherwise, the Company would be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Moreover, unless entitled to relief under certain
statutory provisions, the Company also would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This treatment would reduce the net earnings and cash flow of the Company
available for investment, debt service or distribution to shareholders because
of the additional tax liability to the Company for the years involved. In
addition, distributions to shareholders would no longer be required to be made.
See "Certain Federal Income Tax Considerations."
S-12
<PAGE> 13
THE COMPANY
The Company is a self administered REIT which invests primarily in
income-producing healthcare facilities, principally long-term care facilities
located in the United States. The Company's business objectives are to generate
stable and increasing cash flow and provide the opportunity for increased
dividends from annual increases in rental and interest revenue participation and
from portfolio growth and to preserve and protect shareholders' capital, pay
regular cash dividends and provide holders of common stock the opportunity to
realize capital growth.
The Company intends to make and manage its investments (including the sale or
disposition of property or other investments) in such a manner as to be
consistent with the requirement of the Code (and regulations thereunder) to
qualify as a REIT, unless, because of changes in circumstances or changes in the
Code (or regulations thereunder), the Board of Directors determines that it is
no longer in the best interest of the Company to qualify as a REIT.
As of March 31, 1998, the Company's portfolio of domestic investments consisted
of 271 long-term care facilities, 3 medical office buildings and 2
rehabilitation hospitals. The Company owns and leases 189 long-term facilities,
3 medical office buildings and 2 rehabilitation hospitals, and provides
mortgages, including participating and convertible participating mortgages, on
82 long-term healthcare facilities. The facilities are located in 28 states and
operated by 29 unaffiliated operators. The Company's gross real estate
investments at March 31, 1998 totaled $887.6 million. During 1997, new
investments approximated $196 million as a result of entering into
sale/leaseback transactions and making mortgage loans and other investments.
During the first quarter of 1998, the Company acquired $97.8 million in real
estate properties and placed $12 million in real estate mortgages, for total
real estate investments for the quarter of $109.8 million.
INVESTMENT STRATEGIES AND POLICIES
A fundamental investment strategy of the Company is to obtain contractual rent
escalations under long-term, non-cancelable triple net leases (whereby the
tenant is responsible for all maintenance, repairs, taxes and insurance on the
leased properties), revenue participations through participating mortgage loans
and substantial security deposits. Additional security is typically provided by
covenants regarding minimum working capital and net worth, liens on accounts
receivable and other operating assets, and various provisions for cross-default,
cross-collateralization and corporate/personal guarantees, when appropriate.
The Company prefers to invest in equity ownership of properties. Due to
regulatory, tax or other considerations, the Company sometimes pursues
alternative investment structures, including Convertible Participating and
Participating Mortgages, that achieve returns comparable to equity investments.
The following summarizes the four primary structures currently used by the
Company:
Purchase/Leaseback. The Company's owned properties are generally
leased under provisions of leases for terms ranging from 5 to 17 years,
plus renewal options. The leases originated by the Company generally
provide for minimum annual rentals which are subject to annual formula
increases (i.e., based upon such factors as increases in the Consumer Price
Index ("CPI") or increases in the revenues of the underlying properties),
with certain fixed minimum and maximum levels. Generally, the operator
holds an option to repurchase the property at set dates and at prices based
on specified formulas.
Convertible Participating Mortgage. Convertible Participating
Mortgages are secured by first mortgage liens on the underlying real estate
and personal property of the mortgagor. Interest rates are usually subject
to annual increases based upon increases in the CPI or increases in
revenues of the underlying long-term care facilities, with certain maximum
limits. Convertible Participating Mortgages afford the Company an option to
convert its mortgage into direct ownership of the property, generally
within six to nine years from inception; they are then subject to a
leaseback to the operator for the balance of the original agreed term and
for the original agreed participations in revenues or CPI adjustments. This
allows the Company to capture a portion of the potential appreciation in
value of
S-13
<PAGE> 14
the real estate. The operator has the right to purchase the Company's option at
prices based on specified formulas.
Participating Mortgage. Participating Mortgages of the Company are
secured by first mortgage liens on the underlying real estate and personal
property of the mortgagor. Interest rates are usually subject to annual
increases based upon increases in the CPI or increases in revenues of the
underlying long-term care facilities, with certain maximum limits.
Fixed-Rate Mortgage. These Mortgages of the Company, with a fixed
interest rate for the mortgage term, are also secured by first mortgage
liens on the underlying real estate and personal property of the mortgagor.
The Company may determine to finance acquisitions through the exchange of
properties or the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its common stock or any
other securities and may determine to do so in the future.
To the extent that the Company's Board of Directors determines to obtain
additional capital, the Company may raise such capital through additional equity
offerings, debt financings or retention of cash flow (subject to provisions of
the Code, as amended concerning the taxability of undistributed income of
REITs), or a combination of these methods.
The Board of Directors, without the approval of the shareholders, may alter the
Company's investment policies if the Board determines in the future that such a
change is in the best interests of the Company and its shareholders. The methods
of implementing the Company's investment policies may vary as new investments
and financing techniques are developed or otherwise employed.
RECENT DEVELOPMENTS
Principal Healthcare Finance Limited and Omega Worldwide, Inc.
In 1995 the Company sponsored the organization of Principal Healthcare Finance
Limited ("Principal"), an Isle of Jersey company, whose purpose is to invest in
nursing homes and long-term care facilities in the United Kingdom. The Company
had invested approximately $7 million for 4,327,500 ordinary shares of Principal
and owned approximately 43% of the outstanding ordinary shares at December 31,
1997 together with a L15 million principal amount subordinated debenture due
June 30, 2000 and warrants to purchase 10,555,000 ordinary shares. The Company
also provided investment advisory and management services to Principal and from
time to time had advanced temporary loans to Principal. At December 31, 1997
Principal owned and leased to operators 154 facilities representing
approximately 7,200 nursing homes beds in England, Scotland and Northern Ireland
for which it had invested approximately L215 million.
In November, 1997, the Company formed a separate company, Omega Worldwide, Inc.
("Worldwide") and determined to contribute substantially all of its Principal
assets to Worldwide in exchange for approximately 8.5 million shares of
Worldwide common stock, reserving in the Company only 990,000 ordinary shares of
Principal (approximately 9%). Of the 8,500,000 shares of Worldwide received by
the Company, approximately 5,200,000 were distributed on April 2, 1998 to the
shareholders of the Company on the basis of one Worldwide share for every 3.77
common shares of the Company held by shareholders of the Company on the record
date of February 1, 1998. Of the remaining 3,300,000 shares of Worldwide
received by the Company, approximately 1,000,000 shares or approximately 9% of
Worldwide are being held by the Company, and the other 2,300,000 shares were
sold by the Company on April 3, 1998 for net proceeds of approximately
$16,250,000 in a secondary offering pursuant to a registration statement of
Worldwide. The market value of the distribution to shareholders to be recorded
in the second quarter of 1998 approximates $39 million or $1.99 per share of the
Company's common stock. The proceeds from the secondary offering and other
consideration received by the Company in the exchange exceeded the
S-14
<PAGE> 15
carrying value of the interests transferred by approximately $32 million, which
will be included as a non-recurring gain in net earnings in the second quarter
of 1998.
Series B Preferred Stock
On April 28, 1998, the Company issued 2 million shares of 8.625% Series B
Cumulative Preferred Stock (the "Series B Preferred Stock") at $25 per share.
Dividends on the Series B Preferred Stock are cumulative from the date of
original issue and are payable quarterly commencing on August 15, 1998.
Unison Healthcare Corp.
In the ordinary course of its business activities, the Company periodically
evaluates investment opportunities and extends credit to customers. It also is
regularly engaged in lease and loan extensions and modifications and believes
its management has the experience and expertise to deal with such issues as may
arise from time to time. Through two subsidiaries (BritWill I and BritWill II)
and an affiliated partnership (BritWill Indiana Partnership) (the "BritWill
Entities") Unison Healthcare Corporation (the "Tenant") currently operates
twenty nursing homes representing approximately 2,000 licensed nursing beds with
a total Company investment of $43.5 million, or approximately 4.6% of the assets
of the Company at March 31, 1998. Fourteen of the facilities are leased in
Indiana and Texas and six facilities are subject to a mortgage loan of
approximately $9 million. At December 31, 1997 Unison was in default under
several provisions of its lease agreement and mortgage notes with the Company,
including non-payment of rents and interest totaling $1.5 million. Pursuant to
due notice, the Company as of January 2, 1998, terminated the leases with
respect to fourteen properties and accelerated the indebtedness with respect to
six properties. Subsequently in January 1998, the BritWill Entities filed for
protection under the bankruptcy code in order to stay the Company's recovery of
possession of the premises. At January 1, 1998, the Company held cash deposits
totaling approximately $3.9 million as security for the performance by the
BritWill Entities of their obligations and, in addition, held the guarantee of
the Tenant and the personal guarantee of its Chairman of the Board. In January
1998, the Company applied $1.6 million from the cash deposits held to reduce the
mortgage indebtedness and interest due thereunder; the Company continues to hold
approximately $2.3 million in liquidity and security deposits. The Company has
vigorously pursued its remedies under various agreements, guarantees and
undertakings, has applied to the bankruptcy court for relief from the automatic
bankruptcy stay and has also filed an action in Federal court and then refiled
in Texas court to enforce the guarantee of the Chairman of the Board of
Directors of the Tenant. The Company has also requested and been granted an
order compelling payment in an amount equal to the monthly rent which would have
been payable by the BritWill Entities under the leases. The BritWill Entities
have made rental payments on leases of properties owned by the Company of
approximately $363,000 monthly for each month to date in 1998 but they have not
made payments of interest (approximately $103,000 per month) during 1998.
Because the Company has been advised by bankruptcy counsel that BritWill
Entities lease certain Texas properties from an affiliated partnership to which
the automatic stay may be applicable, the Company has suspended its Texas state
foreclosure proceedings and its claim under the Tenant's guarantee, pending
action by the bankruptcy court to lift the automatic stay. The Tenant requested
that the Company enter into negotiations to reinstate or renew its leases and
reinstate the mortgage. While the Company has continued to pursue its legal
remedies in bankruptcy and in Texas state courts, it has also begun negotiations
with the Tenant and the holders of the Tenant's senior and subordinated bonds.
Such negotiations are in a preliminary stage and no assurance can be given that
such negotiations will achieve a result satisfactory to the Company. On May 28,
1998, the Tenant itself filed for reorganization under the bankruptcy code. The
Company believes that there will be no material adverse effect on its financial
condition or results of operations as a result of the several bankruptcy filings
and expects that it will either recover possession of its assets in order to
lease them to others or will come to agreement with respect to their continued
operation by the Tenant. However, there can be no assurance that further adverse
financial developments with the tenant or in the bankruptcy proceeding will not
occur.
S-15
<PAGE> 16
INDUSTRY
The Company believes that a growing market exists for REITs focusing in the
long-term care industry. According to data from the U.S. Census Bureau, in 1995
there were approximately 3.6 million Americans over the age of 85, comprising
1.4% of the total U.S. population. From 1960 to 1994, the population within this
age group increased at more than five times the rate of the increase for the
total population. The Company believes that the fundamentals of the long-term
care and nursing home industry will continue to be strong and provide good
opportunity for additional investment in the foreseeable future. The long-term
care industry provides sub-acute medical and custodial care to the senior
population of the United States. The demand for long-term care comes principally
from those individuals over 85 years of age. Due to demographic trends,
regulation and government support, the Company believes that the long-term care
sector of the healthcare industry has been one of the less volatile segments of
the industry.
The demand for long-term care will be met by several types of care providers,
including acute care hospitals, skilled nursing facilities and assisted living
facilities. The level of care required by the individual will be a significant
determinant of the type of facility that the individual chooses.
S-16
<PAGE> 17
PROPERTIES
The following is a summary of the Company's investments as of March 31, 1998:
OWNED PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF COST OF ANNUALIZED
LOCATION FACILITIES BEDS INVESTMENTS REVENUES(1)
-------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama............................ 9 1,121 $ 35,223,753 $ 4,231,493
Arkansas........................... 12 1,273 37,887,832 5,134,504
California......................... 18 1,453 56,012,510 5,465,963
Colorado........................... 1 56 750,000 97,920
Florida............................ 9 1,406 74,643,043 7,853,909
Idaho.............................. 1 40 600,000 64,260
Illinois........................... 10 1,460 57,530,232 6,129,498
Indiana............................ 68 3,327 101,391,238 12,851,633
Iowa............................... 7 568 15,877,299 1,698,153
Kansas............................. 1 173 2,500,000 219,304
Kentucky........................... 9 943 35,994,808 3,874,589
Louisiana.......................... 1 131 4,602,573 517,968
Massachusetts...................... 1 135 8,300,000 888,930
Missouri........................... 1 360 9,000,000 1,183,253
North Carolina..................... 7 891 29,745,741 3,146,659
New Hampshire...................... 1 62 5,800,000 580,000
Ohio............................... 5 554 31,953,638 3,255,797
Pennsylvania....................... 5 413 49,931,250 5,924,821
Tennessee.......................... 5 606 17,447,259 2,092,004
Texas.............................. 15 1,781 44,663,571 5,271,436
Washington......................... 2 319 15,900,000 1,761,287
West Virginia...................... 6 616 23,183,746 2,391,816
--- ------ ------------ -----------
Total.......................... 194 17,688 $658,938,493 $74,635,197
=== ====== ============ ===========
</TABLE>
- -------------------------
(1) Based upon contractual terms of leases and levels of investment at March 31,
1998.
MORTGAGES
<TABLE>
<CAPTION>
FACE AMOUNT OF AMOUNT OF
MORTGAGE NUMBER OF NUMBER OF MORTGAGE LOANS ANNUALIZED
LOCATION LOANS FACILITIES BEDS OUTSTANDING REVENUES(1)
-------- -------------- ---------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
California......................... $ 3,073,280 3 250 $ 2,821,064 $ 312,896
Florida............................ 43,953,750 12 1,370 43,887,297 5,282,611
Georgia............................ 12,000,000 2 304 12,000,000 1,152,000
Iowa............................... 3,799,546 2 250 3,714,205 392,399
Kentucky........................... 14,703,692 6 486 14,646,581 1,632,064
Maine.............................. 24,386,000 11 619 24,150,491 2,924,019
Massachusetts...................... 2,114,000 1 33 2,093,584 253,481
Michigan........................... 58,800,000 13 1,863 58,800,000 9,242,124
Missouri........................... 5,600,000 5 330 5,268,717 599,455
Nevada............................. 598,661 1 73 472,877 52,220
New Mexico......................... 1,623,692 2 156 1,579,650 167,060
Ohio............................... 20,031,888 7 735 19,044,860 2,088,101
Tennessee.......................... 18,232,000 4 546 18,232,000 2,583,155
Texas.............................. 20,570,450 12 1,793 17,819,644 2,236,095
Utah............................... 1,917,430 1 100 1,907,998 200,961
Other-- construction loans......... 2,181,597 -- -- 2,181,597 234,522
------------ --- ------ ------------ -----------
Total.......................... $233,585,986 82 8,908 $228,620,565 $29,353,163
============ === ====== ============ ===========
</TABLE>
- -------------------------
(1) Based upon contractual terms of the mortgages and principal outstanding at
March 31, 1998.
The mortgage notes are secured by first mortgage liens on the borrowers'
underlying real estate and personal property.
S-17
<PAGE> 18
OPERATORS OF PROPERTIES
The Company's strategy incorporates the expansion of its base of operators.
Since the initial public offering of the Company in 1992, the number of
operators has increased from 2 to 29 as of March 31, 1998. The following is a
summary of current operators that represent more than 4% of total real estate
investments.
<TABLE>
<CAPTION>
PERCENT OF INVESTMENT
OPERATOR/STATE TOTAL INVESTMENT AMOUNT
- -------------- ---------------- ----------
<S> <C> <C>
Sun Healthcare Group, Inc................................... 25.62% $227,434,724
Alabama, California, Florida, Idaho, Illinois, Indiana,
Iowa, Louisiana, Massachusetts, North Carolina, Ohio,
Tennessee, Texas, Washington, West Virginia
Integrated Health Services, Inc............................. 13.35 118,493,582
California, Florida, Georgia, Illinois, New Hampshire,
Ohio, Pennsylvania, Washington
Advocat Inc................................................. 12.70 112,744,497
Alabama, Arkansas, Florida, Kentucky, Ohio, Tennessee,
West Virginia
Paragon Health Network...................................... 6.62 58,800,000
Michigan
Unison Healthcare Corp...................................... 4.91 43,548,186
Indiana, Texas
Other Public Companies...................................... 4.39 38,873,647
------ ------------
Public Companies Total............................... 67.59% $599,894,636
------ ------------
Emerald Healthcare, Inc..................................... 5.39% $ 47,813,494
Florida, Illinois, Indiana
Extendacare, Inc............................................ 4.30 38,200,215
Indiana, Kentucky
Other Private Companies..................................... 22.72 201,650,714
------ ------------
Private Companies Total.............................. 32.41% $287,664,423
------ ------------
Grand Total.......................................... 100.00% $887,559,059
====== ============
</TABLE>
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<PAGE> 19
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Notes (after payment
of all underwriting discounts and commissions and expenses of the Offering) are
estimated to be approximately $124 million. The Company intends to use all such
net proceeds to pay down a portion of its borrowings under its revolving line of
credit (of which approximately $190 million was outstanding at March 31, 1998
and approximately $130 million was outstanding as of the date of this Prospectus
Supplement). Such borrowings bear interest at LIBOR plus 1.00% or, at the
Company's option, at the prime rate and the current agreement extends through
September 2000. As part of its investment strategies, the Company continually
assesses and reassesses investments and from time to time engages in discussions
concerning possible acquisitions, some of which may be material in size. The
Company expects to incur additional indebtedness under the revolving credit
facility to finance future investments.
S-19
<PAGE> 20
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of the
Company as of March 31, 1998, and the capitalization of the Company as of that
date as adjusted to give effect to (i) the conversion of convertible debentures
which occurred in April and (ii) the issuance of Series B Preferred Stock in
April. Additionally, the table reflects the pro forma effect of the issuance of
the $125,000,000 of Notes offered hereby (the "Offering") 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 Quarterly Report on Form
10-Q for the three-month period ended March 31, 1998 and related notes thereto
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------
AS
HISTORICAL ADJUSTED(1) PRO FORMA
---------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Acquisition line of credit............................... $ 189,833 $ 141,833 $ 18,223
6.95% Notes due 2002..................................... -- -- 125,000
Other unsecured borrowings............................... 186,705 186,705 186,705
Secured borrowings....................................... 22,208 22,208 22,208
Subordinated convertible debentures(2)................... 62,485 48,955 48,955
--------- --------- ---------
Total debt.......................................... 461,231 399,701 401,091
Shareholders' Equity:
Preferred stock $1.00 par value: 10,000 shares
authorized; 2,300 shares Series A issued and
outstanding (historical); 2,300 shares Series A and
2,000 Series B issued and outstanding (as adjusted and
pro forma)............................................ 57,500 107,500 107,500
Common stock $.10 par value; 50,000 shares authorized,
19,635 issued and outstanding (historical); 20,137
issued and outstanding (as adjusted and proforma)..... 1,964 2,014 2,014
Additional paid-in capital................................. 443,385 454,655 454,655
Stock option loans......................................... (3,162) (3,162) (3,162)
Cumulative net earnings.................................... 148,371 148,371 148,371
Cumulative dividends paid.................................. (180,311) (180,311) (180,311)
Unamortized restricted stock awards........................ (882) (882) (882)
--------- --------- ---------
Total shareholders' equity.......................... 466,865 528,185 528,185
--------- --------- ---------
Total capitalization................................ $ 928,096 $ 927,886 $ 929,276
========= ========= =========
</TABLE>
- -------------------------
(1) To adjust for the issuance of 2,000,000 shares of Series B Preferred Stock
by the Company on April 28, 1998 at a liquidation preference of $25 per
share, less underwriters discount of $1,575,000 and estimated expenses of
$425,000 and the conversion of $13,530,000 of Debentures for 501,809 shares
of common stock during April 1998. Net proceeds from the issuance of
preferred stock were used to reduce borrowings on the acquisition line of
credit.
(2) On January 24, 1996, the Company issued $95 million of 8.5% Subordinated
Convertible Debentures (the "Debentures") due 2001. The Debentures are
convertible at any time into shares of common stock at a conversion price of
$26.962 per share.
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<PAGE> 21
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth summary operating and financial information which
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, and the Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1998, which are incorporated by reference
into this Prospectus Supplement. This data also should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference herein and included elsewhere
in this Prospectus Supplement.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994(1) 1993
---- ---- ---- ---- ---- ------- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS, AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental income............................... $ 17,281 $ 11,420 $ 54,073 $ 42,688 $ 40,335 $ 22,142 $ 10,035
Mortgage interest income.................... 7,205 6,999 28,727 24,692 18,621 14,578 10,077
Other....................................... 1,782 1,593 8,020 5,747 2,474 1,027 638
-------- -------- -------- -------- -------- -------- --------
26,268 20,012 90,820 73,127 61,430 37,747 20,750
EXPENSES:
Depreciation and amortization............... 5,127 3,569 16,910 13,693 12,995 6,684 2,743
Interest.................................... 7,629 5,320 24,423 20,836 15,325 10,549 4,605
General and administrative.................. 1,365 1,134 4,636 4,008 3,620 2,737 1,829
-------- -------- -------- -------- -------- -------- --------
14,121 10,023 45,969 38,537 31,940 19,970 9,177
-------- -------- -------- -------- -------- -------- --------
Net earnings available to common before
extraordinary charge........................ 12,147 9,989 44,851 34,590 29,490 17,777 11,573
Extraordinary charge from prepayment of
debt........................................ -- -- -- -- 6,479 -- --
Preferred stock dividends..................... 1,330 -- 3,546 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings available to common
shareholders................................ $ 10,817 $ 9,989 $ 41,305 $ 34,590 $ 23,011 $ 17,777 $ 11,573
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE:
Net earnings before extraordinary charge.... $ 0.55 $ 0.53 $ 2.16 $ 2.01 $ 1.83 $ 1.70 $ 1.78
Net earnings, basic......................... $ 0.55 $ 0.53 $ 2.16 $ 2.01 $ 1.43 $ 1.70 $ 1.78
Net earnings, diluted....................... $ 0.55 $ 0.53 $ 2.16 $ 2.01 $ 1.43 $ 1.70 $ 1.78
Dividends per share(2)...................... $ 0.67 $ 0.645 $ 2.58 $ 2.48 $ 2.36 $ 2.20 $ 2.04
Weighted average number of common shares
outstanding (000's), basic................ 19,609 18,708 19,085 17,196 16,071 10,451 6,513
Weighted average number of common shares
outstanding (000's), diluted.............. 19,709 18,771 19,137 17,240 16,081 10,459 6,518
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate properties-- net.................. $606,100 $418,338 $512,907 $343,293 $336,720 $325,048 $123,753
Mortgage notes receivable..................... 228,621 216,586 218,353 217,474 158,290 141,360 104,641
Total investments............................. 910,225 701,769 791,780 610,377 527,609 466,408 228,394
Total assets.................................. 941,417 725,540 816,108 634,836 551,188 500,731 243,587
Acquisition line of credit.................... 189,833 98,425 58,300 6,000 74,690 20,000 14,500
Subordinated convertible debentures........... 62,485 73,225 62,485 94,810 -- -- --
OTHER BORROWINGS:
Secured borrowings.......................... 22,208 27,765 22,261 24,274 34,069 128,603 95,123
Unsecured borrowings........................ 186,705 86,381 186,705 111,384 86,384 5,000 8,450
Total liabilities............................. 474,552 322,249 347,887 251,829 204,059 162,188 120,873
Total shareholders' equity.................... 466,865 403,291 468,221 383,007 347,129 338,543 122,714
OTHER DATA:
Ratio of earnings to combined fixed charges
and preferred stock dividends(3)............ 2.21x 2.89x 2.48x 2.66x 2.92x 2.69x 3.51x
EBITDA/interest............................... 3.37x 3.70x 3.66x 3.41x 4.05x 3.68x 4.38x
EBITDA/fixed charges and preferred stock
dividends................................... 2.78x 3.56x 3.09x 3.33x 3.77x 3.32x 4.11x
Number of facilities.......................... 276 232 263 217 186 176 71
</TABLE>
- -------------------------
(1) The Company acquired Health Equity Properties Incorporated ("HEP") on
September 30, 1994.
(2) Dividends per share are those declared and paid during such period with
respect to common stock.
(3) For purposes of calculating the ratio set forth in the table of earnings to
combined fixed charges and preferred stock dividends, net earnings (before
extraordinary charge from prepayment of debt in 1995) has been added to
fixed charges and that sum has been divided by such fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and, starting with the period ended June 30, 1997, preferred stock
dividends for the Series A Cumulative Preferred Stock.
(4) For purposes of calculating the EBITDA ratios set forth in the table EBITDA
comprises the sum of earnings before extraordinary charges, interest income,
interest expense, income taxes, depreciation and amortization. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as an alternative to
net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. EBITDA should be considered
in conjunction with all of the information in the Selected Consolidated
Financial and Operating Data. The Company's Consolidated Financial
Statements and the Notes thereto prepared in accordance with generally
accepted accounting principles and included in the Company's Form 10-K for
the year ended December 31, 1997 and the Company's Form 10-Q for the
three-month period ended March 31, 1998 are incorporated herein by
reference. The Company has presented EBITDA because it is used by certain
investors to determine a company's ability to service debt.
S-21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements that are not based on historical fact are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include statements regarding the Company's
future development activities, the future condition and expansion of the
Company's markets, the Company's ability to meet its liquidity requirements and
the Company's growth strategies, as well as other statements which may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations of
those terms or the negative of those terms. Statements that are not historical
facts contained in Management's Discussion and Analysis involve risks and
uncertainties that could cause actual results to differ from projected results.
Some of the factors that could cause actual results to differ materially
include: the financial strength of the operators of the Company's facilities as
it affects their continuing ability to meet their obligations to the Company
under the terms of the Company's agreements with such operators; changes in the
reimbursement levels under the Medicare and Medicaid programs; operators'
continued eligibility to participate in the Medicare and Medicaid programs;
changes in reimbursement by other third party payors; occupancy levels at the
Company's facilities; the availability and cost of capital; possible
environmental liabilities; potential risks from bankruptcies of lessees; the
strength and financial resources of the Company's competitors; the Company's
ability to make additional real estate investments at attractive yields and
changes in tax laws and regulations affecting REITS.
Following is a discussion of the consolidated financial condition and results of
operations of the Company which should be read in conjunction with the
consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
Revenues for the three-month period ending March 31, 1998 totaled $26.3 million
an increase of $6.3 million over the period ending March 31, 1997. The 1998
revenue growth stems primarily from additional real estate investments of
approximately $216.6 million during the twelve-month period ending March 31,
1998. Total real estate investments of $888 million as of March 31, 1998 have an
average annualized yield of approximately 11.71%.
Expenses for the three-months ended March 31, 1998 totaled $14.1 million, an
increase of $4.1 million over expenses for 1997. The provision for depreciation
and amortization for the three-month period ended March 31, 1998 totaled
$5,127,000, increasing $1,558,000, over the same periods in 1997 as a result of
additional real estate investments.
Interest expense for the three-month period ended March 31, 1998 was $7.6
million, compared with $5.3 million for the same period in 1997. The increase in
1998 is primarily due to higher average outstanding borrowings during the 1997
period, offset partially by slightly lower interest rates.
General and administrative expenses for the three-month period ended March 31,
1998 totaled approximately $1,365,000. These expenses for the three-month period
were approximately 5.2% of revenues, as compared to 5.7% of revenues for the
1997 three-month period.
No provision for Federal income taxes has been made since the Company intends to
continue to qualify as a real estate investment trust under the provision of
Section 856 through 860 of the Code. Accordingly, the Company will not be
subject to Federal income taxes on amounts distributed to shareholders provided
it distributes at least 95% of its real estate investment trust taxable income
and meets certain other conditions.
Net earnings available to common shareholders were $10,817,000 for the
three-month period, an increase of approximately $828,000 over the 1997 period.
The increase stems from the various factors mentioned above, offset partially by
the payment of preferred stock dividends in the first quarter of 1998. Net
earnings per common share increased 3.8% to $.55 for the three-month period.
S-22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
In April, 1998, the Company received approximately $17,250,000 gross proceeds
from the sale of shares of Worldwide. It also raised approximately $48 million
from proceeds of the issuance of Series B Preferred Stock.
The Company continually seeks new investments in healthcare real estate
properties, primarily long-term care facilities, with the objective of
profitable growth and further diversification of the investment portfolio.
Permanent financing for future investments is expected to be provided through a
combination of both private placement and public offerings of debt and/or equity
securities. Management believes the Company's liquidity and various sources of
available capital are adequate to finance operations, fund future investments in
additional facilities, and meet debt service requirements.
The Company has demonstrated a strong capacity to access the capital markets by
raising more than the $1 billion in capital since it was organized in 1992. The
Company raised more than $500 million in equity, including $130 from the initial
public offering in 1992, $73 million from a follow-on common stock offering in
1994, $165 million from the Health Equity Properties acquisition in 1994 and
three additional offerings, the latest represented by the offering of preferred
stock completed in April 1998. Additionally, over $600 million of debt capital
has been raised, some of which has been used to retire secured borrowings with
higher interest rates. In 1996, the Company completed a placement of $95 million
of 8.5% Convertible Subordinated Debentures due 2001, and executed an agreement
to increase its current bank line of credit facility by $50 million and to
extend the term of the revolving credit agreement to July 1999. In August 1997
the Company completed a $100 million 10-year senior note offering priced to
yield 6.99%. In September 1997 the Company completed the second amended and
restated loan agreement. The new agreement provides for total permitted
borrowings of up to $200 million, reduces interest rates on borrowings, and
extends the term of the agreement to September 2000.
As of March 31, 1998, the Company has total assets of $941 million,
shareholders' equity of $467 million, and long-term borrowings of $271 million,
representing 29% of the total capitalization. The Company anticipates eventually
attaining and then expects to generally maintain a long-term
debt-to-capitalization ratio of approximately 40%. At March 31, 1998, the
Company had available permitted borrowings of $10,167,000 under its revolving
line of credit arrangement.
In February 1997, the Company filed a Form S-4 shelf registration statement with
the Securities and Exchange Commission registering common stock totaling $100
million to be issued in connection with future property acquisitions.
Additionally, on August 29, 1997 the Company filed a Form S-3 shelf registration
statement with the Securities and Exchange Commission permitting the issuance of
up to $200 million related to common stock, unspecified debt, preferred stock
and convertible securities. Following the issue of the Notes offered hereby,
approximately $25 million will remain available.
The Company distributes a large portion of the cash available from operations.
Cash dividends paid totaled $0.67 per share for the three-month period ending
March 31, 1998 compared with $0.645 per share for the same period in 1997. The
current $.67 per quarter rate represents an annualized rate of $2.68 per share.
Omega's Board of Directors has declared a regular quarterly dividend of $.67 per
share to be paid May 15, 1998 to common shareholders of record on April 30,
1998. Additionally, a regular quarterly preferred stock dividend of $.578 per
share was declared payable on May 15, 1998 to Series A (9.25%) Cumulative
Preferred shareholders of record on April 30, 1998.
New investments generally are funded from temporary borrowings on the revolving
line of credit facility. Interest cost incurred by the Company on borrowings
under the acquisition line will vary depending upon fluctuations in prime and/or
LIBOR rates, and upon changes in the Company's ratings by rating agencies. The
Company's borrowings under its revolving line of credit currently bear interest
at LIBOR plus 1.00% or, at the Company's option at the prime rate. The Company
expects to periodically replace funds drawn on the acquisition line through
fixed-rate long-term borrowings, the placement of convertible debentures, or the
issuance of additional shares of capital stock. Historically, the Company's
strategy has been to match the maturity of its indebtedness with the maturity of
its assets and to employ fixed-rate long-term debt to the extent practicable.
S-23
<PAGE> 24
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the "Debt Securities" set forth in the
accompanying Prospectus under "Securities -- Debt Securities," to which
reference is hereby made.
GENERAL
The Notes constitute a separate series of Debt Securities (which are more fully
described in the accompanying Prospectus) to be issued under an Indenture, dated
as of August 27, 1997 (the "Original Indenture"), as supplemented by
Supplemental Indenture No. 1, dated as of June 1, 1998 (the "Supplemental
Indenture" and together with the Original Indenture as supplemented, the
"Indenture") between the Company and NBD Bank, as trustee (the "Trustee"). The
form of the Indenture has been filed as an exhibit to (or incorporated by
reference into) the Registration Statement of which this Prospectus Supplement
is a part and is available for inspection at the offices of the Company. The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended (the "TIA"). The statements made hereunder relating to the Indenture and
the Notes are summaries of certain provisions thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and the Notes. All capitalized terms used
but not defined herein shall have the respective meanings set forth in the
Indenture.
The Notes will be limited to an aggregate principal amount of $125,000,000. The
Notes will be direct unsecured obligations of the Company and will rank equally
with all other unsecured and unsubordinated indebtedness of the Company from
time to time outstanding. The Notes will be effectively subordinated to
mortgages and other secured indebtedness of the Company and to indebtedness and
other liabilities of the Company's Subsidiaries. Accordingly, such prior
indebtedness will have to be satisfied in full before holders of the Notes will
be able to realize any value from encumbered or indirectly-held properties.
On March 31, 1998, on a pro forma basis after giving effect to the Offering and
the application of the estimated net proceeds therefrom and certain other
adjustments, including proceeds from the Series B Preferred Stock issued on
April 28, 1998 and conversion of $13.5 million of subordinated debentures, as
described under "Capitalization," the Company would have had approximately $401
million of indebtedness, of which approximately $22 million would have been
secured by 11 properties. The Company may incur additional indebtedness,
including secured debt, subject to the provisions described below under "--
Certain Covenants -- Limitations on Incurrence of Debt."
The Notes will be represented by one or more Global Securities registered in the
name of Depository Trust Company ("DTC") or its nominees. The Notes will only be
issued in fully registered form in denominations of $1,000 and integral
multiples thereof. The Notes will not be entitled to the benefit of any sinking
fund.
PRINCIPAL AND INTEREST
The Notes will mature on June 15, 2002 and are not redeemable prior to maturity.
The Notes will bear interest at 6.95% per annum from June 10, 1998 or from the
immediately preceding Interest Payment Date (as defined below) to which interest
has been paid, payable semi-annually in arrears on June 15 and December 15 of
each year, commencing December 15, 1998 (each, an "Interest Payment Date"), to
the Persons in whose name the Notes are registered in the Security Register on
the preceding June 1 or December 1, (whether or not a Business Day, as defined
below), as the case may be (each, a "Regular Record Date"). Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or Stated Maturity falls on a day that is not a
Business Day, the required payment shall be made on the next Business Day as if
it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment
S-24
<PAGE> 25
Date or the Maturity Date, as the case may be if such payment is timely made.
"Business Day" means any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banks in the City of New York, or in the City
of Detroit, are authorized or required by law, regulation or executive order to
close.
For so long as the Notes are represented by a Global Security registered in the
name of a Depositary, payments of principal, premium, if any, and interest will
be made in the manner set forth in the Section entitled "Securities -- Debt
Securities -- Global Securities" in the Prospectus accompanying this Prospectus
Supplement.
CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Company will not, and will not permit any
Subsidiary to, incur any Debt (as defined below) if, immediately after giving
effect to the incurrence of such additional Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of the
Company and its Subsidiaries on a consolidated basis determined in accordance
with GAAP is greater than 60% of the sum ("Adjusted Total Assets") of (without
duplication) (i) the Total Assets (as defined below) of the Company and its
Subsidiaries as of the end of the calendar quarter covered in the Company's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Securities and Exchange Commission (the
"Commission") (or, if such filing is not permitted under the Exchange Act, with
the Trustee) prior to the incurrence of such additional Debt and (ii) the
purchase price of any real estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds received (to the extent that such
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Debt), by the Company or any Subsidiary since the end of such
calendar quarter, including those proceeds obtained in connection with the
incurrence of such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the Company
will not, and will not permit any Subsidiary to, incur any Secured Debt (as
defined below) if, immediately after giving effect to the incurrence of such
additional Secured Debt and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Secured Debt of the Company and
its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total
Assets.
In addition to the foregoing limitations on the Incurrence of Debt, the Company
will not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Service Charge (as defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be incurred
shall have been less than 1.5x on a pro forma basis after giving effect thereto
and to the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the Company and its
Subsidiaries since the first day of such four-quarter period and the application
of the proceeds therefrom, including to refinance other Debt, had occurred at
the beginning of such period; (ii) the repayment or retirement of any other Debt
by the Company and its Subsidiaries since the first day of such four-quarter
period has been repaid or retired at the beginning of such period (except that,
in making such computation the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
since the first day of such four-quarter period); (iii) in the case of Acquired
Debt (as defined below) or Debt incurred in connection with any acquisition
since the first day of such four-quarter period, the related acquisition had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition being included in such pro forma calculation;
and (iv) in the case of any acquisition or disposition by the Company or its
Subsidiaries of any asset or group of assets since the first day of such
four-quarter period, whether by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation.
S-25
<PAGE> 26
Maintenance of Total Unencumbered Assets. The Company and its Subsidiaries will
maintain Total Unencumbered Assets (as defined below) of not less than 200% of
the aggregate outstanding principal amount of the Unsecured Debt (as defined
below) of the Company and its Subsidiaries on a consolidated basis.
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 and 15(d) if the Company
were so subject, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days after each Required Filing
Date (i) if the Company is not then subject to such Section 13 or 15(d),
transmit by mail to all Holders of Notes, as their names and addresses appear in
the Security Register, without cost to such Holders, copies of the annual
reports and quarterly reports that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections, (ii) file with the Trustee copies of the
annual reports, quarterly reports and other documents that the Company would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Company were subject to such Sections and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder.
Waiver of Certain Covenants. The Company may omit to comply with any term,
provision or condition of the foregoing covenants, and with any other term,
provision or condition with respect to the Notes (except any such term,
provision or condition which could not be amended without the consent of all
Holders of Notes), if before or after the time for such compliance the Holders
of at least a majority in principal amount of all the outstanding Notes, by Act
of such Holders, either waive such compliance in such instance or generally
waive compliance with such covenant or condition. Except to the extent so
expressly waived, and until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
Existence. Except as permitted under "-- Merger, Consolidation or Sale," the
Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any right or franchise if it determines that
the preservation thereof is no longer desirable in the conduct of its business.
As used herein, and in the Indenture:
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
expensed in any 12-month period for interest on Debt of the Company and its
Subsidiaries.
"Capital Stock" means, with respect to any Person, any capital stock (including
preferred stock), shares, interests, participation or other ownership interests
(however designated) of such Person and any rights (other than debt securities
convertible into or exchangeable for corporate stock), warrants or options to
purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means Earnings
from Operations (as defined below) of the Company and its Subsidiaries plus
amounts which have been deducted, and minus
S-26
<PAGE> 27
amounts which have been added, for the following (without duplication): (i)
interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes
of the Company and its Subsidiaries based on income, (iii) amortization of debt
discount and deferred financing costs, (iv) provisions for gains and losses on
properties and property depreciation and amortization, (v) the effect of any
noncash charge resulting from a change in accounting principles in determining
Earnings from Operations for such period and (vi) amortization of deferred
charges.
"Debt" of the Company or any Subsidiary means, without duplication, any
indebtedness of the Company or any Subsidiary, whether or not contingent, in
respect of (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (ii) indebtedness for borrowed money of a Person other than
the Company or a Subsidiary which is secured by any Encumbrance existing on
property owned by the Company or any Subsidiary, (iii) the reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued (other than letters of credit issued to provide credit
enhancement or support with respect to other indebtedness of the Company or any
Subsidiary otherwise reflected as Debt hereunder) or amounts representing the
balance deferred and unpaid of the purchase price of any property or services,
except any such balance that constitutes an accrued expense or trade payable, or
all conditional sale obligations or obligations under any title retention
agreement, (iv) the principal amount of all obligations of the Company or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock, or (v) any lease of property by the Company or any
Subsidiary as lessee which is reflected on the Company's consolidated balance
sheet as a capitalized lease in accordance with GAAP, to the extent, in the case
of items of indebtedness under (i) through (iii) above, that any such items
(other than letters of credit) would appear as a liability on the Company's
consolidated balance sheet in accordance with GAAP, and also includes, to the
extent not otherwise included, any obligation by the Company or any Subsidiary
to be liable for, or to pay, as obligor, guarantor or otherwise (other than for
purpose of collection in the ordinary course of business). Debt of another
Person (other than the Company or any Subsidiary), (it being understood that
Debt shall be deemed to be incurred by the Company or any Subsidiary whenever
the Company or such Subsidiary shall create, assume, guarantee or otherwise
become liable in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by the term of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock or shares), (ii) is convertible into or exchangeable or exercisable for
Debt or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part (other than Capital Stock which is redeemable
solely in exchange for common stock or shares), in each case on or prior to the
Stated Maturity of the Notes.
"Earnings from Operations" for any period means net earnings excluding gains and
losses on sales of investments, as reflected in the financial statements of the
Company and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.
"Encumbrance" means any mortgage, lien, charge, pledge or security interest of
any kind.
"Secured Debt" means Debt secured by an Encumbrance.
"Subsidiary" means, with respect to any Person, any corporation or other entity
of which a majority of (i) the voting power of the voting equity securities or
(ii) the outstanding equity interests of which are owned, directly or
indirectly, by such Person. For the purposes of this definition, "voting equity
securities" means equity securities having voting power for the election of
directors, whether at all times or only so long as no senior class of security
has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real Estate
Assets (as defined below) and (ii) all other assets of the Company and its
Subsidiaries determined in accordance with GAAP (but excluding accounts
receivable and intangibles).
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<PAGE> 28
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real Estate
Assets not subject to an Encumbrance for borrowed money and (ii) all other
assets of the Company and its Subsidiaries not subject to an Encumbrance for
borrowed money, determined in accordance with GAAP (but excluding accounts
receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original cost
plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, determined on a
consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt which is not secured by any Encumbrance upon any of
the properties of the Company or any Subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate with or merge into any other entity, or convey,
lease or transfer all or substantially all of its properties or assets to any
Person, unless (i) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance, lease or transfer
all or substantially all of the properties and assets of the Company shall be a
person organized and existing under the laws of the United States of America or
any State or the District of Columbia, and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and interest, if any, on all the Debt Securities and the performance of every
covenant of the Indenture on the part of the Company to be performed or
observed, (ii) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing and (iii) an
officer's certificate and legal opinion covering such conditions shall be
delivered to the Trustee.
EVENTS OF DEFAULT
The Indenture provides that the following events are "Events of Default" with
respect to the Notes: (a) default in the payment of any interest on any Notes
when such interest becomes due and payable that continues for a period of 30
days, (b) default in the payment of the principal of any Notes when due and
payable; (c) default in the performance, or breach, of any other covenant or
warranty of the Company in the Indenture with respect to the Notes and
continuance of such default or breach for a period of 60 days after written
notice as provided in the Indenture; (d) default under any bond, debenture,
note, mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by
the Company (or by any Subsidiary, the repayment of which the Company has
guaranteed or for which the Company is directly responsible or liable as obligor
or guarantor), having an aggregate principal amount outstanding of at least
$10,000,000, whether such indebtedness now exists or shall hereafter be created,
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled, within a period of 10 days
after written notice to the Company as provided in the Indenture; (e) the entry
by a court of competent jurisdiction of one or more judgments, orders or decrees
against the Company or any Subsidiary in an aggregate amount (excluding amounts
covered by insurance) in excess of $10,000,000 and such judgments, orders or
decrees remain undischarged, unstayed and unsatisfied in an aggregate amount
(excluding amounts covered by insurance) in excess of $10,000,000 for a period
of 30 consecutive days; and (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary. The term "Significant Subsidiary" has the
meaning ascribed to such term in Regulation S-X promulgated under the Securities
Act of 1933, as amended.
If an Event of Default specified in clause (f) above, relating to the Company or
any Significant Subsidiary occurs, the principal amount of all outstanding Notes
shall become due and payable without any declaration or other act on the part of
the Trust or of the Holders.
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<PAGE> 29
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of the Indenture relating to defeasance and covenant defeasance
will apply to the Notes. Each of the covenants described under "-- Certain
Covenants" herein will be subject to covenant defeasance.
BOOK-ENTRY SYSTEM
The provisions described under "Securities -- Debt Securities -- Global
Securities" in the accompanying Prospectus will apply to the Notes.
DTC has advised the Company of the following information regarding DTC: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants (as defined in the accompanying Prospectus) deposit with DTC.
DTC also facilitates the settlement among its participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in its participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its direct participants and by the
NYSE, the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct participant of DTC,
either directly or indirectly. The rules applicable to DTC and its participants
are on file with the Commission.
GOVERNING LAW
The Indenture will be governed by and shall be construed in accordance with the
laws of the State of New York.
NO PERSONAL LIABILITY
No past, present or future stockholder, employee, officer or director of the
Company or any successor thereof shall have any liability for any obligation,
covenant or agreement of the Company contained under the Notes or the Indenture.
Each Holder of Notes by accepting such Notes waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Notes.
S-29
<PAGE> 30
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE
NOTES INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT under Section 856 through
860 of the Code. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code
for its taxable years since inception and through and including December 31,
1997, and the Company intends to continue to operate in such a manner, but no
assurance can be given that the Company has operated or will be able to continue
to operate in a manner so as to qualify or remain qualified.
The sections of the Code that govern the federal income tax treatment of a REIT
are highly technical and complex. This summary is qualified in its entirety by
the applicable Code provisions, rules and regulations promulgated thereunder,
and the administrative and judicial interpretations thereof.
In the opinion of Argue Pearson Harbison & Myers, LLP as REIT counsel to the
Company, whose opinion has been filed as an Exhibit to the Registration
Statement of which the Prospectus Supplement is a part, the Company is organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT, and its proposed method of operation will enable it to
continue to meet the requirements for continued qualification and taxation as a
REIT under the Code. This opinion is based on various assumptions, and is
conditioned upon certain representations made by the Company concerning its
business and properties. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, and the various
qualification tests imposed under the Code including but not limited to the
source or its income and the nature and diversification of its assets.
Accordingly, no assurance can be given that the various results of the Company's
operation from any particular taxable year will satisfy such requirements.
Further, such requirements may be changed, perhaps retroactively, by legislative
or administrative actions at any time. The Company has neither sought nor
obtained any formal ruling from the Internal Revenue Service (the "IRS")
regarding its qualification as a REIT and presently has no plan to apply for any
such ruling. See "-- Failure to Qualify."
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 shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, 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 sales of foreclosure
property and sales that qualify for a statutory safe harbor) 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
S-30
<PAGE> 31
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 (other than capital
gain income the Company elects to retain and pay tax on), 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.
Failure to Qualify. If the Company fails to qualify as a REIT in any taxable
year, and certain relief provisions 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 shareholders in any year in which the
Company fails to qualify will not be deductible and the Company's failure to
qualify as a REIT would reduce the cash available for distribution by the
Company to its shareholders or to meet debt service obligations. Unless entitled
to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
Failure to qualify could result in the Company's incurring indebtedness or
liquidating investments in order to pay the resulting taxes.
TAXATION OF THE NOTES
Interest on the Notes. A holder of a Note will be required to report interest
earned on the Note as ordinary interest income for U.S. Federal income tax
purposes in accordance with such holder's method of tax accounting.
Disposition of the Notes. A holder's tax basis for a Note generally will be such
holder's purchase price for the Note. Upon the sale, exchange, redemption,
retirement or other disposition of a Note, a holder generally will recognize
capital gain or loss equal to the difference (if any) between the amount
realized (other than amounts attributable to accrued but unpaid stated interest
which will be taxable as ordinary income) and such holder's tax basis in the
Note. Such gain or loss shall be treated as long-term capital gain or loss if
the Note was held for more than one year. In the case of individuals, any such
gain will be subject to a maximum rate of 28% if the Note has been held for more
than one year but less than eighteen months and will be subject to a maximum tax
rate of 20% if the Note has been held for more than eighteen months.
NON-U.S. HOLDERS
Subject to the discussion of backup withholding below, a Non-U.S. Holder
generally will not be subject to U.S. Federal income or withholding tax on
payments of interest on a Note, provided that (i) the holder is not (A) a direct
or indirect owner of 10% or more of the total voting power of all voting stock
of the Company or (B) a controlled foreign corporation related to the Company
through stock ownership, (ii) such interest payments are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business within
the United States and (iii) the Company or its paying agent receives certain
S-31
<PAGE> 32
information from the holder (or a financial institution that holds the Notes in
the ordinary course of its trade or business) certifying that such holder is a
Non-U.S. Holder. See "-- Information Reporting and Backup Withholding" for
recent changes to the requirements described in (iii) above. Subject to the
discussion of backup withholding below, a Non-U.S. Holder generally will not be
subject to U.S. Federal income or withholding tax on gains from the sale or
other disposition of a Note, provided that (i) such gains are not effectively
connected with the conduct by the Non-U.S. Holder of a trade or business within
the United States and (ii) such Non-U.S. Holder is not an individual who is
present in the United States for 183 days or more in the taxable year of
disposition and meets certain other requirements.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Treasury Department issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations generally will be effective with respect to
payments made after December 31, 1999. Except as provided below, this section
describes rules applicable to payments made on or before December 31, 1999.
A holder of a Note may be subject to backup withholding at a rate of 31% with
respect to interest paid on the Note and proceeds from the sale, exchange,
redemption or retirement of the Note, unless such holder (i) is a corporation or
comes within with certain other exempt categories and, when required,
demonstrates that fact or (ii) provides a correct taxpayer identification number
(social security number or employer identification number), certifies as to its
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Certain penalties may be imposed
by the IRS on a holder that is required to supply information but does not do so
in the proper manner.
A Non-U.S. Holder generally will be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption from
backup withholding and information reporting.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's U.S. Federal income tax
(which might entitle such holder to a refund), provided that such holder
furnishes the required information to the IRS.
The Final Regulations impose certain certification and documentation
requirements on Non-U.S. Holders claiming an exemption from withholding,
information reporting and backup withholding on interest paid on the Notes and
proceeds of a sale of the Notes.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE EFFECT, IF ANY, OF THE FINAL REGULATIONS ON THEIR PURCHASE, OWNERSHIP
AND DISPOSITION OF THE NOTES.
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.
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 Notes 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 Notes will not constitute such a prohibited
transaction.
S-32
<PAGE> 33
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, dated the
date hereof (the "Underwriting Agreement"), the Company has agreed to sell to
each of the Underwriters named below (the "Underwriters"), and each of the
Underwriters has severally agreed to purchase, the respective principal amount
of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
J.P. Morgan Securities Inc. ................................ 93,750,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 31,250,000
------------
Total.................................................. $125,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
will be obligated to purchase all of the Notes if any are purchased.
The Underwriters have advised the Company that they propose initially to offer
the Notes directly to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at that price
less a concession not in excess of .30% of the principal amount of the Notes.
The Underwriters may allow, and the dealers may reallow, a concession not in
excess of .20% of the principal amount of the Notes to certain other dealers.
After the initial public offering, the public offering price and the concession
may be changed.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the prices of the Notes.
Specifically, the Underwriters may overallot the offering, creating a syndicate
short position. In addition, the Underwriters may bid for, and purchase, in the
open market to cover syndicate shorts or to stabilize the prices of the Notes.
Finally, the underwriting syndicate may reclaim selling concessions allowed for
distributing the Notes in the offering, if the syndicate repurchases previously
distributed Notes in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
prices of the Notes above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time. The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
intend to make a market in the Notes but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In the ordinary course of their respective businesses, affiliates of the
Underwriters have engaged, or may in the future engage, in commercial banking
and investment banking transactions with the Company and its affiliates.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Willkie Farr &
Gallagher, New York, New York, by Argue Pearson Harbison & Myers, LLP, Los
Angeles, California and by Venable, Baetjer and Howard, LLP, Baltimore,
Maryland. Certain legal matters will be passed upon for the Underwriters by
Davis Polk & Wardwell, New York, New York.
S-33
<PAGE> 34
PROSPECTUS
- -----------------
OMEGA HEALTHCARE INVESTORS, INC.
COMMON STOCK, PREFERRED STOCK,
DEBT SECURITIES AND SECURITIES WARRANTS
Omega Healthcare Investors, Inc., (the "Company") may from time to time
offer in one or more series (i) shares of its common stock, par value $.10 per
share (the "Common Stock"); (ii) shares of its preferred stock, par value $1.00
per share (the "Preferred Stock"); (iii) its unsecured debt securities (the
"Debt Securities"); or (iv) warrants to purchase Common Stock (the "Common Stock
Warrants"), warrants to purchase Debt Securities (the "Debt Securities
Warrants"), and warrants to purchase Preferred Stock (the "Preferred Stock
Warrants"), with an aggregate public offering price of up to $200,000,000, on
terms to be determined at the time of offering. The Common Stock Warrants, the
Debt Securities Warrants and the Preferred Stock Warrants shall be referred to
herein collectively as the "Securities Warrants." The Common Stock, Preferred
Stock, Debt Securities, and Securities Warrants (collectively, the "Securities")
may be offered, separately or together, in separate series amounts, at prices
and on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The terms of the Preferred Stock, including specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and all other specific terms of the Preferred Stock will be set
forth in the applicable Prospectus Supplement. In the case of the Debt
Securities, the specific title, aggregate principal amount, form (which may be
registered or global), maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the Company
or repayment at the option of the Holder, any sinking fund provisions and any
conversion provisions will be set forth in the applicable Prospectus Supplement.
In the case of the Securities Warrants, the duration, offering price, exercise
price and detachability, if applicable, will be set forth in the applicable
Prospectus Supplement. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the Securities
or redemption or conversion terms, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for United States federal income tax purposes. The applicable Prospectus
Supplement will also contain information, where applicable, about certain United
States federal income tax considerations relating to, and any listing on a
securities exchange of, the Offered Securities covered by such Prospectus
Supplement.
(continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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 SEPTEMBER 3, 1997
<PAGE> 35
Securities may be offered directly, through agents designated from time to time
by the Company, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
The net proceeds to the Company from the sale of any of the Securities will be
set forth in the applicable Prospectus Supplement.
2
<PAGE> 36
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. (Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549), and at the Commission's Regional Offices in Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois 60665) and New York City
(7 World Trade Center, 13th Floor, New York, New York 10048). Copies of such
material can be obtained from the Commission's Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The common stock
of the Company is listed on the New York Stock Exchange and reports, proxy
statements and other information concerning Omega Healthcare Investors, Inc. can
be inspected at 20 Broad Street, New York, New York. The Company has filed with
the Commission a Registration Statement on Form S-3 with respect to the
securities offered hereby. This Prospectus and any accompanying Prospectus
Supplement do not contain all information set forth in the Registration
Statement, in accordance with the rules and regulations of the Commission, and
exhibits thereto which the Company has filed with the Commission under the
Securities Act of 1933 and to which reference is hereto made.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are incorporated in
this Prospectus by reference:
- Annual Report of the Company on Form 10-K for the year ended
December 31, 1996;
- Quarterly Reports of the Company on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997;
- Current Reports of the Company on Form 8-K dated April 25, 1997 and
August 5, 1997;
- The description of the Company's Common Stock, $.10 par value,
contained in its Initial Registration Statement on Form 8-A, filed under
Section 12 of the Securities Exchange Act of 1934, and declared effective
by the Commission on August 7, 1992.
All documents filed by Omega Healthcare Investors, Inc. pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, subsequent to
the date hereof and prior to the termination of the offering made hereby, shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. All information appearing in this
Prospectus is qualified in its entirety by the detailed information and
financial statements (including the notes thereto) appearing in the documents
incorporated by reference. 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 which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
Omega Healthcare Investors, Inc. will provide without charge to each person to
whom this Prospectus is delivered, on written or oral request of such person, a
copy (without exhibits other than exhibits specifically incorporated by
reference therein) of any or all documents incorporated by reference into this
Prospectus within the meaning of Section 10(a) of the Securities Act of 1933.
Requests for such copies should be directed to Essel W. Bailey, Jr., President
of the Company, at the Company's principal executive offices at 905 West
Eisenhower Circle, Suite 110, Ann Arbor, Michigan 48103, telephone (734)
747-9790.
3
<PAGE> 37
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF THE
COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
4
<PAGE> 38
THE COMPANY
Omega Healthcare Investors, Inc. (the "Company") was incorporated in the State
of Maryland on March 31, 1992. It is a self administered real estate investment
trust which invests in income producing healthcare facilities, principally
long-term care facilities located primarily in the United States.
As of June 30, 1997, the Company's portfolio of investments in the United States
consisted of 232 long-term care facilities and 3 medical office buildings. The
Company owns and leases to healthcare operators 144 of such long-term care
facilities with a total of approximately 13,250 beds and the 3 medical office
buildings, and provides mortgages, including participating and convertible
mortgages, on 88 of such long-term care facilities with a total of approximately
9,200 beds. The Company's facilities are located in 26 states and operated by 34
unaffiliated operators. The Company also has an interest in and provides
management/advisory services to Principal Healthcare Finance Limited, a
partially-owned affiliate which owns and leases to healthcare operators 116
nursing homes in the United Kingdom. The net carrying amount of the Company's
investments at June 30, 1997 totaled $711 million.
The Company's business objectives are to generate stable and increasing cash
flow and provide the opportunity for increased dividends from annual increases
in rental and interest revenue participation and from portfolio growth and to
preserve and protect shareholders' capital, pay regular cash dividends and
provide holders of common stock the opportunity to realize capital growth.
The Company intends to make and manage its investments (including the sale or
disposition of property or other investments) in such a manner as to be
consistent with the requirements of the Code (or regulations thereunder) to
qualify as a real estate investment trust ("REIT"), unless, because of changes
in circumstances or changes in the Code (or regulations thereunder), the Board
of Directors determines that it is no longer in the best interests of the
Company to qualify as a REIT.
The executive offices of the Company are located at 905 West Eisenhower Circle,
Suite 110, Ann Arbor, Michigan 48103. Its telephone number is (734) 747-9790.
INVESTMENT STRATEGIES AND POLICIES
The Company maintains a diversified portfolio of income-producing healthcare
facilities or mortgages thereon, with a primary focus on long-term care
facilities located in the United States. In making investments, the Company
generally seeks established, creditworthy, middle market healthcare operators
which meet the Company's standards for quality and experience of management.
Although the Company has emphasized long-term care investments, it intends to
diversify prudently into other types of healthcare facilities or other
properties. The Company actively seeks to diversify its investments in terms of
geographic location, operators and facility types.
In evaluating potential investments, the Company considers such factors as: (i)
the quality and experience of management and the creditworthiness of the
operator of the facility; (ii) the adequacy of the facility's historical,
current and forecasted cash flow to meet operational needs, capital expenditures
and lease or debt service obligations; (iii) the construction quality, condition
and design of the facility; (iv) the geographic area and type of facility; (v)
the tax, growth, regulatory and reimbursement environment of the community in
which the facility is located; (vi) the occupancy and demand for similar
healthcare facilities in the same or nearby communities; and (vii) the payor mix
of private, Medicare and Medicaid patients.
The Company plans to maintain its percentage of equity and equity-linked
investments at approximately 70% of its portfolio and to increase the number of
operators and geographic diversity of the facilities in its portfolio as well as
to continue to expand its relationships with current operators.
The Company believes that a growing market exists for REITs focusing on the
long-term care industry. According to data from the U.S. Census Bureau, in 1995
there were approximately 3.6 million Americans over the age of 85, comprising
1.4% of the total U.S. population. From 1960 to 1994, the population within this
age group increased at more than five times the rate of the increase for the
total population. The Company believes that the fundamentals of the long-term
care and nursing home industry will continue to
5
<PAGE> 39
be strong and provide good opportunity for additional investment in the
foreseeable future. The long-term care industry provides sub-acute medical and
custodial care to the senior population of the United States. The demand for
long-term care comes principally from those individuals over 85 years of age.
Due to demographic trends, regulation and government support, the company
believes that the long-term care sector of the healthcare industry has been one
of the less volatile segments of the industry.
The Company continually assesses and reassesses investments in other healthcare
and senior medical services markets, including the assisted living market.
Assisted living units are designed for seniors who need assistance with basic
activities such as bathing, meal preparation and eating. While strong
demographic demands support this segment, low barriers to entry and the
unregulated nature of assisted living pose additional risks in this healthcare
segment. The Company believes that there may be selected opportunities to
participate in this sector, but to date has not made significant investments in
properties of this type.
Additionally, the Company believes that acute care hospitals presently represent
a substantial portion of healthcare expenditures in the United States. While the
Company has made limited investments in this segment, with a total of
approximately $30 million invested as of the date of this Prospectus, the
Company anticipates that future investments will result from the need for
capital and the evolving demand for healthcare properties operated by acute care
delivery systems.
A fundamental investment strategy of the Company is to obtain contractual rent
escalations under long-term, non-cancelable "triple net" leases and revenue
participations through participating mortgage loans, and to obtain substantial
security deposits. The Company may participate in mortgage loans through
ownership of collateralized mortgage obligations or other securitization of
mortgages.
The Company may determine to finance acquisitions through the exchange of
properties or the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its Common Stock or any
other securities and may determine to do so in the future.
To the extent that the Company's Board of Directors determines to obtain
additional capital, the Company may raise such capital through additional equity
offerings, debt financings or retention of cash flow (subject to provisions of
the Internal Revenue Code of 1986, as amended concerning the taxability of
undistributed income of "real estate investment trusts"), or a combination of
these methods.
BORROWING POLICIES
The Company may incur additional indebtedness, and anticipates eventually
attaining and then expects to generally maintain a long-term
debt-to-capitalization ratio of approximately 40%. The Company intends to review
periodically its policy with respect to its debt-to-capitalization ratio and to
adapt such policy as its management deems prudent in light of prevailing market
conditions. The Company's strategy generally has been to match the maturity of
its indebtedness with the maturity of its assets, and to employ long term, fixed
rate debt to the extent practicable.
The Company will use the proceeds of any additional indebtedness to provide
permanent financing for investments in additional healthcare facilities. The
Company may obtain either secured or unsecured indebtedness, which may be
convertible into capital stock or accompanied by warrants to purchase capital
stock. Where debt financing is present on terms deemed favorable, the Company
may invest in properties subject to existing loans, secured by mortgages, deeds
of trust or similar liens on the properties.
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<PAGE> 40
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to combined fixed charges and preferred stock dividends
are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
AUGUST 14, 1992 DECEMBER 31, JUNE 30,
(INCEPTION) TO -------------------------------- --------------
DECEMBER 31, 1992(1) 1993 1994 1995 1996 1996 1997
-------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(2).............. 15.45x 3.51x 2.69x 2.92x 2.66x 2.75x 2.63x
</TABLE>
- ---------------
(1) Operations of the Company commenced on August 14, 1992.
(2) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, net earnings (before extraordinary charge
from prepayment of debt in 1995) has been added to fixed charges and that
sum has been divided by such fixed charges. Fixed charges consist of
interest expense, amortization of deferred financing costs and, starting
with the period ended June 30, 1997, preferred stock dividends for the
Series A Cumulative Preferred Stock.
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 the repayment of the Company's revolving line of
credit, to fund additional investments and general corporate purposes.
DESCRIPTION OF SECURITIES
The Company may offer under this Prospectus one or more of the following
categories of its Securities: (i) shares of its Common Stock, par value $0.10
per share; (ii) shares of its Preferred Stock, par value $1.00 per share, in one
or more series; (iii) Debt Securities, in one or more series; (iv) Common Stock
Warrants; (v) Preferred Stock Warrants; (vi) Debt Warrants; and (vii) any
combination of the foregoing, either individually or as units consisting of one
or more of the types of Securities described in clauses (i) through (vi). The
terms of any specific offering of Securities, including the terms of any units
offered, will be set forth in a Prospectus Supplement relating to such offering.
The authorized capital stock of the Company currently consists of 50,000,000
shares of Common Stock, par value $0.10 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share. As of June 30, 1997, the Company had
19,065,324 shares of its Common Stock and 2,300,000 shares of its 9.25% Series A
Cumulative Preferred Stock issued and outstanding. The Common Stock and 9.25%
Series A Cumulative Preferred Stock are listed on the New York Stock Exchange.
The Company intends to apply to list any additional shares of its Common Stock
which are issued and sold hereunder. The Company may apply to list any
additional series of Preferred Stock which are offered and sold hereunder, as
described in the Prospectus Supplement relating to such Preferred Stock.
COMMON STOCK
All shares of Common Stock participate equally in dividends payable to
stockholders of Common Stock when and as declared by the Board of Directors and
in net assets available for distribution to stockholders of Common Stock on
liquidation or dissolution, have one vote per share on all matters submitted to
a vote of the stockholders and do not have cumulative voting rights in the
election of directors. All issued and outstanding shares of Common Stock are,
and the Common Stock offered hereby will be upon issuance, validly issued, fully
paid and nonassessable. Holders of the Common Stock do not have preference,
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<PAGE> 41
conversion, exchange or preemptive rights. The Common Stock is listed on the New
York Stock Exchange (NYSE Symbol "OHI").
REDEMPTION AND BUSINESS COMBINATION PROVISIONS
If the Board of Directors shall, at any time and in good faith, be of the
opinion that direct or indirect ownership of at least 9.9% or more of the voting
shares of capital stock has or may become concentrated in the hands of one
beneficial owner, the Board of Directors shall have the power (i) by lot or
other means deemed equitable by it to call for the purchase from any stockholder
of the Company a number of voting shares sufficient, in the opinion of the Board
of Directors, to maintain or bring the direct or indirect ownership of voting
shares of capital stock of such beneficial owner to a level of no more than 9.9%
of the outstanding voting shares of the Company's capital stock, and (ii) to
refuse to transfer or issue voting shares of capital stock to any person whose
acquisition of such voting shares would, in the opinion of the Board of
Directors, result in the direct or indirect ownership by that person of more
than 9.9% of the outstanding voting shares of capital stock of the Company.
Further, any transfer of shares, options, warrants, or other securities
convertible into voting shares that would create a beneficial owner of more than
9.9% of the outstanding voting shares shall be deemed void ab initio and the
intended transferee shall be deemed never to have had an interest therein. The
purchase price for any voting shares of capital stock so redeemed shall be equal
to the fair market value of the shares reflected in the closing sales prices for
the shares, if then listed on a national securities exchange, or the average of
the closing sales prices for the shares if then listed on more than one national
securities exchange, or if the shares are not then listed on a national
securities exchange, the latest bid quotation for the shares if then traded
over-the-counter, on the last business day immediately preceding the day on
which notices of such acquisitions are sent by the Company, or, if no such
closing sales prices or quotations are available, then the purchase price shall
be equal to the net asset value of such stock as determined by the Board of
Directors in accordance with the provisions of applicable law. From and after
the date fixed for purchase by the Board of Directors, the holder of any shares
so called for purchase shall cease to be entitled to distributions, voting
rights and other benefits with respect to such shares, except the right to
payment of the purchase price for the shares.
The Articles of Incorporation require that, except in certain circumstances,
Business Combinations (as defined) between the Company and a beneficial holder
of 10% or more of the Company's outstanding voting stock (a "Related Person") be
approved by the affirmative vote of at least 80% of the outstanding voting
shares of the Company.
A Business Combination is defined in the Articles of Incorporation as (a) any
merger or consolidation of the Company with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or any other security device, of all or any "Substantial
Part" (as defined) of the assets of the Company (including without limitation
any voting securities of a subsidiary) to a Related Person, (c) any merger or
consolidation of a Related Person with or into the Company, (d) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of the
assets of a Related Person to the Company, (e) the issuance of any securities
(other than by way of pro rata distribution to all stockholders) of the Company
to a Related Person, and (f) any agreement, contract or other arrangement
providing for any of the transactions described in the definition of Business
Combination. The term "Substantial Part" shall mean more than 10% of the book
value of the total assets of the Company as of the end of its most recent fiscal
year ending prior to the time the determination is being made.
Pursuant to the Articles of Incorporation, the Company's Board of Directors is
classified into three classes. Each class of directors serves for a term of
three years, with one class being elected each year. As of the date of this
Prospectus, there are seven directors, two in each of two classes of directors,
and three in one class.
The foregoing provisions of the Articles of Incorporation and certain other
matters may not be amended without the affirmative vote of at least 80% of the
outstanding voting shares of the Company.
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<PAGE> 42
The foregoing provisions may have the effect of discouraging unilateral tender
offers or other takeover proposals which certain stockholders might deem in
their interests or in which they might receive a substantial premium. The Board
of Directors' authority to issue and establish the terms of currently authorized
Preferred Stock, without stockholder approval, may also have the effect of
discouraging takeover attempts. See "Preferred Stock." The provisions could also
have the effect of insulating current management against the possibility of
removal and could, by possibly reducing temporary fluctuations in market price
caused by accumulation of shares, deprive stockholders of opportunities to sell
at a temporarily higher market price. However, the Board of Directors believes
that inclusion of the Business Combination provisions in the Articles of
Incorporation may help assure fair treatment of stockholders and preserve the
assets of the Company.
The foregoing summary of certain provisions of the Articles of Incorporation
does not purport to be complete or to give effect to provisions of statutory or
common law. The foregoing summary is subject to, and qualified in its entirety
by reference to, the provisions of applicable law and the Articles of
Incorporation, a copy of which is incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York is the transfer agent and registrar of
the Common Stock and Preferred Stock.
PREFERRED STOCK
The terms of any series of the Preferred Stock offered by any Prospectus
Supplement will be as described in such Prospectus Supplement. The following
description of the terms of the Preferred Stock, except as modified in a
Prospectus Supplement, sets forth certain general terms and provisions of the
Preferred Stock. 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 Company's
Articles of Incorporation (the "Articles of Incorporation"), 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 as an exhibit to the Registration
Statement of which this Prospectus is a part at or prior to the time of the
issuance of such series of the Preferred Stock.
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.10 par value per share, and 10,000,000 shares of preferred
stock, $1.00 par value per share ("preferred stock of the Company," which term,
as used herein, includes the Preferred Stock offered hereby).
Under the Articles of Incorporation, the Board of Directors of the Company is
authorized without further stockholder action to provide for the issuance of up
to an additional 7,700,000 shares of preferred stock of the Company, in one or
more series, with such designations, preferences, powers and relative
participating, optional or other special rights and 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 preferences 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 Company has outstanding
2,300,000 shares of its 9.25% Series A Cumulative Preferred Stock.
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
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<PAGE> 43
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; (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 ARTICLES OF INCORPORATION
See "Common Stock -- Redemption and Business Combination Provisions" for a
description of certain provisions of the Articles of Incorporation, including
provisions relating to redemption rights and provisions which may have certain
anti-takeover effects.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive, when
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 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.
Dividends on any series of Preferred Stock may be cumulative or noncumulative,
as provided in the applicable Prospectus Supplement. 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 of the Company (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 the Company of any class or series (other
than Junior Stock), the Company may not declare any dividends on any shares of
Common Stock of the Company 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.
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<PAGE> 44
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 is made to the
holders of Common Stock or any other shares of stock of the Company ranking
junior as to such distribution to such series of Preferred Stock, the amount set
forth in the Prospectus Supplement relating to such series of the Preferred
Stock. If, upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the amounts payable with respect to the Preferred Stock of
any series and any other shares of preferred stock of the Company (including any
other series of the Preferred Stock) ranking as to any such distribution on a
parity with such series of the Preferred Stock are not paid in full, the holders
of the Preferred Stock of such series and of such other shares of preferred
stock of the Company 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 liquidating distributions 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 Junior Stock, 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 time and at the redemption prices set forth in the Prospectus Supplement
relating to 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 default
shall be made by the Company in providing for 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 distribution 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 pursuant to a purchase or exchange offer made on the same terms to
holders of all such shares outstanding.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of Preferred
Stock are convertible into Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will
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<PAGE> 45
include the number of shares of Common Stock into which the Preferred Stock is
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion.
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 the Preferred Stock of a series remain outstanding, the
consent or the affirmative vote of the holders of at least 80% of the votes
entitled to be cast with respect to the then outstanding shares of such series
of the Preferred Stock together with any Parity Preferred (as defined below),
voting as one class, either expressed in writing or at a meeting called for that
purpose, will be necessary (i) to permit, effect or validate the authorization,
or any increase in the authorized amount, of any class or series of shares of
the Company ranking prior to the Preferred Stock of such series as to dividends,
voting or distribution of assets and (ii) to repeal, amend or otherwise change
any of the provisions applicable to the Preferred Stock of such series in any
manner which adversely affects the powers, preferences, voting power or other
rights or privileges of such series of the Preferred Stock. In case any series
of the Preferred Stock would be so affected by any such action referred to in
clause (ii) above in a different manner than one or more series of the Parity
Preferred then outstanding, the holders of shares of the Preferred Stock of such
series, together with any series of the Parity Preferred which will be similarly
affected, will be entitled to vote as a class, and the Company will not take
such action without the consent or affirmative vote, as above provided, of at
least 80% of the total number of votes entitled to be cast with respect to each
such series of the Preferred Stock and the Parity Preferred, then outstanding,
in lieu of the consent or affirmative vote hereinabove otherwise required.
With respect to any matter as to which the Preferred Stock of any series is
entitled to vote, holders of the Preferred Stock of such series and any other
series of preferred stock of the Company ranking on a parity with such series of
the Preferred Stock as to dividends and distributions of assets and which by its
terms provides for similar voting rights (the "Parity Preferred") will be
entitled to cast the number of votes set forth in the Prospectus Supplement with
respect to that series of Preferred Stock. As a result of the provisions
described in the preceding paragraph requiring the holders of shares of a series
of the Preferred Stock to vote together as a class with the holders of shares of
one or more series of Parity Preferred, it is possible that the holders of such
shares of Parity Preferred could approve action that would adversely affect such
series of Preferred Stock, including the creation of a class of capital stock
ranking prior to such series of Preferred Stock as to dividends, voting or
distributions of assets.
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
Unless otherwise indicated in a Prospectus Supplement relating thereto, First
Chicago Trust Company of New York will be the transfer agent, dividend and
redemption price disbursement agent and registrar for shares of each series of
the Preferred Stock.
DEBT SECURITIES
Debt Securities may be issued from time to time in series under an Indenture
(the "Indenture") dated August 27, 1997 between the Company and NBD Bank, as
Trustee (the "Trustee"). As used under this caption, unless the context
otherwise requires, Offered Debt Securities shall mean the Debt Securities
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<PAGE> 46
offered by this Prospectus and the accompanying Prospectus Supplement. The
statements under this caption are brief summaries of certain provisions
contained in the Indenture, do not purport to be complete and are qualified in
their entirety by reference to the Indenture, including the definition therein
of certain terms, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following sets forth certain
general terms and provisions of the Debt Securities. Further terms of the
Offered Debt Securities will be set forth in the Prospectus Supplement.
GENERAL
The Indenture provides for the issuance of Debt Securities in series, and does
not limit the principal amount of Debt Securities which may be issued
thereunder.
Reference is made to the Prospectus Supplement for the following terms of the
Offered Debt Securities: (i) the specific title of the Offered Debt Securities;
(ii) the aggregate principal amount of the Offered Debt Securities; (iii) the
percentage of the principal amount at which the Offered Debt Securities will be
issued; (iv) the date on which the Offered Debt Securities will mature; (v) the
rate or rates per annum or the method for determining such rate or rates, if
any, at which the Offered Debt Securities will bear interest; (vi) the times at
which any such interest will be payable; (vii) any provisions relating to
optional or mandatory redemption of the Offered Debt Securities at the option of
the Company or pursuant to sinking fund or analogous provisions; (viii) the
denominations in which the Offered Debt Securities are authorized to be issued
if other than $100,000; (ix) any provisions relating to the conversion or
exchange of the Offered Debt Securities into Common Stock or into Debt
Securities of another series; (x) the portion of the principal amount, if less
than the principal amount, payable on acceleration; (xi) the place or places at
which the Company will make payments of principal (and premiums, if any) and
interest, if any, and the method of payment; (xii) whether the Offered Debt
Securities will be issued in whole or in part in global form; (xiii) any
additional covenants and Events of Default and the remedies with respect thereto
not currently set forth in the Indenture; (xiv) the identity of the Trustee for
the Debt Securities, and if not the Trustee, the identity of each paying agent
and the Debt Securities Registrar; (xv) the currency or currencies other than
United States Dollars in which any series of Debt Securities will be issued; and
(xvi) any other specific terms of the Offered Debt Securities.
One or more series of the Debt Securities may be issued as discounted Debt
Securities (bearing no interest or bearing interest at a rate which at the time
of issuance is below market rates) to be sold at a substantial discount below
their stated principal amount. Tax and other special considerations applicable
to any such discounted Debt Securities will be described in the Prospectus
Supplement relating thereto.
STATUS OF DEBT SECURITIES
The Debt Securities will be unsecured obligations of the Company and may be
ranking on a parity with all other unsecured and unsubordinated indebtedness, or
may be subordinated to certain other indebtedness of the Company.
CONVERSION RIGHTS
The terms, if any, on which Debt Securities of a 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 beneficial Holder may not convert any Debt
Security, and such Debt Security shall not be convertible by any Holder, if as a
result of such conversion any person would then be deemed to beneficially own,
directly or indirectly, 9.9% or more of the Company's shares of Common Stock.
ABSENCE OF RESTRICTIVE COVENANTS
Except as noted below under "Dividends, Distributions and Acquisitions of
Capital Stock," the Company is not restricted by the Indenture from paying
dividends or from incurring, assuming or becoming liable for any type of debt or
other obligations or from creating liens on its property for any purpose. The
Indenture
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<PAGE> 47
does not require the maintenance of any financial ratios or specified levels of
net worth or liquidity. Except as may be set forth in the Prospectus Supplement,
there are no provisions of the Indenture which afford holders of the Debt
Securities protection in the event of a highly leveraged transaction involving
the Company.
OPTIONAL REDEMPTION
The Debt Securities will be subject to redemption, in whole or from time to time
in part, at any time for certain reasons intended to protect the Company's
status as a REIT, at the option of the Company in the manner specified in the
Indenture at a redemption price equal to 100% of the principal amount, premium,
if any, plus interest accrued to the date of redemption. The Indenture does not
contain any provision requiring the Company to repurchase the Debt Securities at
the option of the Holders thereof in the event of a leveraged buyout,
recapitalization or similar restructuring of the Company.
DIVIDENDS, DISTRIBUTIONS AND ACQUISITIONS OF CAPITAL STOCK
The Indenture provides that the Company will not (i) declare or pay any dividend
or make any distribution on its capital stock or to holders of its capital stock
(other than dividends or distributions payable in its capital stock or other
than as the Company determines is necessary to maintain its status as a REIT) or
(ii) purchase, redeem or otherwise acquire or retire for value any of its
capital stock, or any warrants, rights or options or other securities to
purchase or acquire any Shares of its capital stock (other than the Debt
Securities) or permit any subsidiary to do so, if at the time of such action an
Event of Default (as defined in the Indenture) has occurred and is continuing or
would exist immediately after giving effect to such action.
EVENTS OF DEFAULT
An Event of Default with respect to Debt Securities of any series is defined in
the Indenture as being (a) failure to pay principal of or any premium on any
Debt Security of that series when due; (b) failure to pay any interest on any
Debt Security of that series when due, continued for 30 days; (c) failure to
deposit any sinking fund payment when due, in respect of any Debt Security of
that series; (d) failure to perform any other covenant of the Company in the
Indenture (other than a covenant included in the Indenture solely for the
benefit of one or more series of Debt Securities other than that series),
continued for 60 days after written notice as provided in the Indenture; (e)
certain events of bankruptcy, insolvency, conservatorship, receivership or
reorganization; and (f) any other Event of Default provided with respect to the
Debt Securities of that series.
If an Event of Default with respect to the outstanding Debt Securities of any
series occurs and is continuing, either the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are original issue discount Debt Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
outstanding Debt Securities of that series to be due and payable immediately. At
any time after the declaration of acceleration with respect to the Debt
Securities of any series has been made, but before a judgment or decree based on
acceleration has been obtained, the Holders of a majority in aggregate principal
amount of the outstanding Debt Securities of that series may, under certain
circumstances, rescind and annul such acceleration.
The Indenture provides that, subject to the duty of the Trustee during default
to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee and subject to certain limitations, the Holders
of a majority in aggregate principal amount of the outstanding Debt Securities
of any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the Debt Securities
of that series.
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The Company is required to furnish to the Trustee annually a statement as to the
performance by the Company of certain of its obligations under the Indenture and
as to any default in such performance.
MODIFICATIONS AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and the
Trustee without the consent of any Holders to, among other things, (a) evidence
the succession of another corporation to the Company, (b) add to the covenants
of the Company or surrender any right or power conferred upon the Company, (c)
establish the form or terms of Debt Securities, including any subordination
provisions, (d) cure any ambiguity, correct or supplement any provision which
may be defective or inconsistent or make any other provisions with respect to
matters or questions arising under the Indenture, provided that such action does
not adversely affect the interests of the Holders of Debt Securities of any
series in any material respect, (e) add to, delete, or revise conditions,
limitations and restrictions on the authorized amounts, terms or purpose of Debt
Securities, as set forth in the Indenture, or (f) evidence and provide for a
successor Trustee.
Modifications and amendments of the Indenture may be made by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the outstanding Debt Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Debt
Security affected thereby, (a) change the stated maturity date of the principal
of, or any installment of principal of or interest , if any, on any Debt
Security , (b) reduce the principal amount of, or premium or interest if any, on
any Debt Security, (c) reduce the amount of principal of an original issue
discount Debt Security payable upon acceleration of the maturity thereof, (d)
change the currency of payment of the principal of, or premium or interest, if
any, on any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f) modify
the conversion provisions, if any, of any Debt Security in a manner adverse to
the Holder of that Debt Security, or (g) reduce the percentage in principal
amount of the outstanding Debt Security of any series, the consent of whose
Holders is required for modification or amendment of that Indenture or for
waiver of compliance with certain provisions of that Indenture or for waiver of
certain defaults.
The Holders of a majority in aggregate principal amount of the outstanding Debt
Security of each series may, on behalf of all Holders of the Debt Securities of
that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the Indenture. The Holders of a
majority in aggregate principal amount of the outstanding Debt Securities of
each series may, on behalf of all Holders of the Debt Securities of that series,
waive any past default under the Indenture with respect to the Debt Securities
of that series, except a default in the payment of principal or premium or
interest, if any, or a default in respect of a covenant or provision which under
the terms of the Indenture cannot be modified or amended without the consent of
the Holder of each outstanding Debt Security of the series affected.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company, without the consent of the Holders of
any of the Debt Securities, may consolidate or merge with or into or transfer
its assets substantially as an entirety to, any entity organized under the laws
of the United States or any state, provided that the successor entity assumes
the Company's obligations under the Indenture, that after giving effect to the
transaction no Event of Default, and no event which, after notice or lapse of
time, would become an Event of Default, shall have occurred and be continuing,
and that certain other conditions are met.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in global form
(the "Global Securities"). Except as set forth in a Prospectus Supplement, the
terms and provisions with respect to any Global Securities will be as set forth
in this Section captioned "Global Securities." The Global Securities
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will be deposited with a depositary (the "Depositary"), or with a nominee for a
Depositary, identified in the Prospectus Supplement. In such case, one or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the portion of the aggregate principal amount of outstanding Debt
Securities of the series to be represented by such Global Security or
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive form, a Global Security may not be transferred except
as a whole by the Depositary for such Global Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific material terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Prospectus Supplement. The Company anticipates that the
following provisions will apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global Security
will credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Global Security to
the accounts of persons that have accounts with such Depositary
("participants"). The accounts to be credited shall be designated by any
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depositary for such Global Security (with respect to interests of
participants) or by participants or persons that hold through participants (with
respect to interests of persons other than participant). So long as the
Depositary for a Global Security, or its nominee, is the registered owner of
such Global Security, such Depositary or such nominee, as the case may be, will
be considered the sole owner or Holder of the Debt Securities represented by
such Global Security for all purposes under the Indenture; provided, however,
that the 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 Depositary. Except as set forth herein
or otherwise provided in the Prospectus Supplement, owners of beneficial
interests in a Global Security will not be entitled to have the Debt Securities
represented by such Global Security registered in their names, will not receive
physical delivery of such Debt Securities in definitive form and will not be
considered the registered owners or Holders thereof under the Indenture, but the
beneficial owners and Holders only.
Principal, premium, if any, and interest payments on Debt Securities represented
by a Global Security registered in the name of a Depositary or its nominee will
be made to such Depositary or its nominee, as the case may be, as the registered
owner of such Global Security. None of the Company, the Trustee or any Paying
Agent for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary 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 Depositary. 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 Depositary for any Debt Securities represented by a Global Security is at
any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by the Company within 90 days, the Company will
issue such Debt Securities in definitive form 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
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Debt Securities of such series in definitive form in exchange for all of the
Global Security or Securities representing such Debt Securities.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in Debt Securities represented by
Global Securities.
SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Common Stock,
Preferred Stock or Debt Securities. Securities Warrants may be issued
independently or together with Common Stock, Preferred Stock or Debt Securities
offered by any Prospectus Supplement and may be attached to or separate from
such Common Stock, Preferred Stock, or Debt Securities. Each series of
Securities Warrants will be issued under a separate warrant agreement (a
"Securities Warrant Agreement") to be entered into between the Company and a
bank or trust company, as Securities Warrant agent, all as set forth in the
Prospectus Supplement relating to the particular issue of offered Securities
Warrants. The Securities Warrant agent will act solely as an agent of the
Company in connection with the Securities Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreement and Securities Warrants do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Securities Warrant Agreement and the
Securities Warrants relating to each series of Securities Warrants which will be
filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
In the case of Securities Warrants for the purchase of Common Stock or Preferred
Stock, the applicable Prospectus Supplement will describe the terms of such
Securities Warrants, including the following where applicable: (i) the offering
price; (ii) the aggregate number of shares purchasable upon exercise of such
Securities Warrants, the exercise price, and in the case of Securities Warrants
for Preferred Stock the designation, aggregate number and terms of the series of
Preferred Stock purchasable upon exercise of such Securities Warrants; (iii) the
designation and terms of any series of Preferred Stock with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Preferred Stock; (iv) the date, if any, on and after
which such Securities Warrants and the related series of Preferred Stock or
Common Stock will be transferable separately; (v) the date on which the right to
exercise such Securities Warrants shall commence and the Expiration Date; (vi)
any special United States Federal income tax consequences; and (vii) any other
terms of such Securities Warrants.
If Securities Warrants for the purchase of Debt Securities are offered, the
applicable Prospectus Supplement will describe the terms of such Securities
Warrants, including the following where applicable: (i) the offering price; (ii)
the denominations and terms of the series of Debt Securities purchasable upon
exercise of such Securities Warrants; (iii) the designation and terms of any
series of Debt Securities, with which such Securities Warrants are being offered
with each such Debt Securities; (iv) the date, if any, on and after which such
Securities Warrants and the related series of Debt Securities will be
transferable separately; (v) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Securities Warrant and the
price at which such principal amount of Debt Securities of such series may be
purchased upon such exercise; (vi) the date on which the right shall expire (the
"Expiration Date"); (vii) whether the Securities Warrants will be issued in
registered or bearer form; (viii) any special United States Federal income tax
consequences; (ix) the terms, if any, on which the Company may accelerate the
date by which the Securities Warrants must be exercised; and (x) any other terms
of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities,
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holders of such Securities Warrants will not have any of the rights of holders
of the Debt Securities purchasable upon such exercise, including the right to
receive payments of principal or premium, if any, or interest, if any, on such
Debt Securities or to enforce covenants in the applicable indenture. Prior to
the exercise of any Securities Warrants to purchase Common Stock or Preferred
Stock, holders of such Securities Warrants will not have any rights of holders
of such Common Stock or Preferred Stock, including the right to receive payments
of dividends, if any, on such Common Stock or Preferred Stock, or to exercise
any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase a number of
shares of Common Stock, Preferred Stock or such principal amount of Debt
Securities, as the case may be, at such exercise price as shall in each case be
set forth in, or calculable from, the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration Date
(or such later date to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
agent payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Stock, Preferred Stock or Debt Securities, as
the case may be, purchasable upon such exercise together with certain
information set forth on the reverse side of the Securities Warrant certificate.
Securities Warrants will be deemed to have been exercised upon receipt of
payment of the exercise price, subject to the receipt within five (5) business
days, of the Securities Warrant certificate evidencing such Securities Warrants.
Upon receipt of such payment and the Securities Warrant certificate properly
completed and duly executed at the corporate trust office of the Securities
Warrant agent or any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, issue and deliver the
Common Stock, Preferred Stock or Debt Securities, as the case may be,
purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENT
The Securities Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities Warrants
and that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the exercise
price of, and the number of shares of Common Stock covered by a Common Stock
Warrant are subject to adjustment in certain events, including (i) payment of a
dividend on the Common Stock payable in capital stock and stock splits,
combinations or reclassifications of the Common Stock, (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Securities Warrant Agreement for such series of Common Stock Warrants), and
(iii) certain distributions of evidences of indebtedness or assets (including
cash dividends or distributions paid out of consolidated earnings or retained
earnings or dividends payable in Common Stock) or of subscription rights and
warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of Common Stock
covered by a Common Stock Warrant will be made for regular quarterly or other
periods of recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of shares of Common Stock covered
by, a Common Stock Warrant will not be adjusted for the issuance of Common
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Stock or any securities convertible into or exchangeable for Common Stock, or
carrying the right or option to purchase or otherwise acquire the foregoing in
exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into any
entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock), (ii) sale, transfer, lease or conveyance of all or substantially
all of the assets of the Company or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in par
value or from par value to no par value), then any holder of a Common Stock
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Stock Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Stock Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Stock Warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such Common
Stock Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
Securities will be named in the applicable Prospectus Supplement. The Company
has reserved the right to sell Securities directly to investors on its own
behalf in those jurisdictions where and in such manner as it is authorized to do
so.
Underwriters may offer and sell Securities at a fixed price or prices, which may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Company also may,
from time to time, authorize underwriters or dealers, acting as the Company's
agents, to offer and sell Securities upon the terms and conditions as are set
forth in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the Securities for whom they may act as
agent. Underwriters may sell Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents in
connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Dealers and agents participating in the
distribution of Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the Securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act.
The net proceeds to the Company from the sale of the Securities will be the
purchase price of the Securities less any such discounts or commissions and the
other attributable expenses of issuance and distribution.
Certain of the underwriters and their affiliates may be customers of, engage in
transactions with and perform services for the Company and its subsidiaries in
the ordinary course of business.
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LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon for the Company by Argue Pearson Harbison & Myers, LLP, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Omega Healthcare Investors, Inc. (the
Company), incorporated by reference from the Company's Annual Report on Form
10-K, for the year ended December 31, 1996, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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OMEGA HEALTHCARE INVESTORS, INC. LOGO
