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As filed with the Securities and Exchange Commission on April 10, 1997
Registration No. 333-20805
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
Amendment No. 1
to
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
(206) 298-2909
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Raymond R. Brandstrom
President and Chief Operating Officer
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
(206) 298-2909
(Name, address, including zip code and telephone number, including area
code, of agent for service)
_________________________
Copies to:
Michael E. Stansbury
Gregory Gorder
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
(206) 583-8888
_________________________
Approximate date of commencement of proposed sale to the public: FROM
TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE, DEPENDING
ON MARKET CONDITIONS.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. ( )
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. (X)
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( )
_________________________
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
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Subject to Completion, dated April 10, 1997
PROSPECTUS
$32,000,000
1,454,545 SHARES
EMERITUS CORPORATION
6.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
(INTEREST PAYABLE JANUARY 1 AND JULY 1)
COMMON STOCK, PAR VALUE $.0001 PER SHARE
This Prospectus relates to $32,000,000 aggregate principal amount of
6.25% Convertible Subordinated Debentures due 2006 (the "Debentures") of
Emeritus Corporation, a Washington corporation (the "Company"), originally
issued in a private placement on February 15, 1996 (the "Debenture
Offering") and the 1,454,545 shares of common stock, par value $.0001 per
share (the "Common Stock"), of the Company that are issuable upon
conversion of the Debentures. The Debentures or the shares of Common Stock
issued upon conversion of the Debentures may be offered from time to time
for the account of holders of Debentures named herein (the "Selling
Debentureholders"). See "Plan of Distribution." The Company will not
receive any proceeds from this offering.
The aggregate principal amount of Debentures that may be offered by
the Selling Debentureholders pursuant to this Prospectus is $32,000,000.
Information concerning such Selling Debentureholders may change from time
to time and will be set forth in Prospectus Supplements.
The Debentures are convertible into Common Stock at any time after the
effectiveness of the registration statement of which this Prospectus is a
part and at or prior to maturity, unless previously redeemed, at a
conversion price of $22.00 per share, subject to adjustment under certain
circumstances. Prior to this offering, there has not been any public
market for the Debentures, although the Debentures have been eligible for
trading in the Private Offerings Resales and Trading through Automated
Linkages ("PORTAL") Market. The Common Stock is traded on the American
Stock Exchange ("AMEX") under the symbol "ESC." On April 7,, 1997, the
last reported sale price of the Common Stock, as reported by AMEX, was
$11.50 per share.
The Debentures are redeemable, in whole or in part, at the option of
the Company, for cash, at any time on or after July 1, 1999 on at least 30
days' notice at the redemption prices set forth herein plus accrued
interest. See "Description of Debentures."
The Debentures are unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior
Indebtedness (as hereinafter defined) of the Company. The Indenture does
not restrict the incurrence of Senior Indebtedness or other Indebtedness
(as defined in the Indenture, dated as of February 15, 1996, executed by
the Company and Fleet National Bank) by the Company or any subsidiary. At
December 31, 1996, the Company had $66.1 million Senior Indebtedness.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE DEBENTURES.
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Company has been advised by the Selling Debentureholders that the
Selling Debentureholders, acting as principals for their own account,
directly, through agents designated from time to time, or through dealers
or underwriters also to be designated, may sell all or a portion of the
Debentures or shares of Common Stock offered hereby from time to time on
terms to be determined at the time of sale. The aggregate proceeds to the
Selling Debentureholders from the sale of Debentures and Common Stock
offered by the Selling Debentureholders hereby will be the purchase price
of such Debentures or Common Stock less any commissions. For information
concerning indemnification arrangements between the Company and the Selling
Debentureholders, see "Plan of Distribution."
The Selling Debentureholders and any broker-dealers, agents or
underwriters that participate with the Selling Debentureholders in the
distribution of the Debentures or shares of Common Stock may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), in which event any commissions received by
such broker-dealers, agents or underwriters and any profit on the resale of
the Debentures or shares of Common Stock purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.
__________________________
The date of this Prospectus is April __, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference
facilities of the Commission located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New
York Regional Office of the Commission, 7 World Trade Center,
Suite 1300, New York, New York 10048, and at the Chicago Regional
Office of the Commission, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information
regarding registrants that file electronically with the
Commission. Such reports and other information may also be
inspected at the offices of the National Association of
Securities Dealers, Inc., Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration
Statement on Form S-3 (the "Registration Statement") under the
Securities Act with respect to the registration of the Debentures
and Common Stock offered hereby. This Prospectus does not
contain all the information forth in the Registration Statement
and the exhibits thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus or in any
document incorporated by reference herein as to the contents of
any contract or other documents referred to herein or therein are
not necessarily complete and, in each instance, reference is made
to the copy of such documents filed as an exhibit to the
Registration Statement or such other documents, which may be
obtained from the Commission as indicated above upon payment of
the fees prescribed by the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the
Company with the Commission, are incorporated herein by
reference: (i) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996; (ii) the Company's Current
Report on Form 8-K dated February 1, 1996 , filed February 16,
1996, and Amendment No. 1 thereto on Form 8-K/A dated April 15,
1996 and Amendment No. 2 thereto on Form 8-K/A dated April 16,
1996; (iii) the Company's Current Report on Form 8-K dated
March 19, 1996, filed April 3, 1996, and Amendment No. 1 thereto
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on Form 8-K/A dated May 30, 1996; (v) the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1996; (vi) the Company's Proxy Statement dated
April 12, 1996 related to the Annual Meeting of Shareholders held
on May 23, 1996; (vii) the description of the Company's capital
stock contained in the Company's Registration Statement on
Form 8-A dated October 13, 1995. In addition, each document
filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to termination of the offering of Debentures
and the Common Stock shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date such document is filed with the Commission.
Any statement contained herein, or any document, all or a
portion of which is incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus to
the extent that the statements contained herein, or in any
subsequently filed document that also is or is deemed to be
incorporated by reference herein, or in any subsequently filed
document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the
information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (other
than exhibits thereto) are available without charge, upon written
or oral request by any person to whom this Prospectus has been
delivered, from Raymond R. Brandstrom, President and Chief
Operating Officer, Emeritus Corporation, 3131 Elliot Avenue,
Suite 500, Seattle, Washington 98121.
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THE COMPANY
Emeritus Corporation (the "Company") is a long-term-care
services company focused on operating residential-style assisted-
living communities. Since its organization in July 1993, the
Company has achieved significant growth in revenues, primarily
due to the acquisition and operation of residential communities.
The Company believes that it is one of the largest providers of
assisted-living services in the United States. The Company's
revenues are derived primarily from rents and service fees
charged to its residents.
As of December 31, 1996, the Company holds ownership,
leasehold or management interests in 74 residential communities,
consisting of approximately 6,150 units, located in 19 states.
The Company leases 57 of its residential communities, typically
from a financial institution such as a real estate investment
trust, owns 14 communities, manages one community and has a joint
venture interest in two communities.
The Company plans to grow through both acquisition and
development. The Company's growth strategy has focused, and will
continue to focus, on the acquisition of existing long-term-care
facilities that either are currently operated as assisted-living
communities or can be efficiently repositioned by the Company as
assisted-living communities. The Company plans to continue to
evaluate such opportunities and to acquire such existing
properties where senior demographics and location of the property
would allow for its effective operation by the Company as an
assisted-living community. Over the long-term, the Company
believes that the popularity of assisted living as a long-term-
care alternative will decrease the number of existing facilities
that are available at attractive prices and that its growth may
depend more on the successful development of new assisted-living
communities. As a result, the Company has instituted a
development program that is expected to result in its opening
approximately 15 to 20 newly developed assisted-living
communities per year through 1998.
The Company is a Washington corporation and its principal
executive offices are located at 3131 Elliot Avenue, Suite 500,
Seattle, Washington 98121, and its telephone number is (206) 298-
2909.
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RISK FACTORS
Prospective purchasers of the Common stock offered hereby
should consider carefully the risks associated with investing in
the Common Stock, including the principal risk factors set forth
below, as well as other information set forth in this Prospectus,
in evaluating an investment in the Common Stock.
RECENT ORGANIZATION; HISTORY OF LOSSES. The Company was
organized and began operations in July 1993 and has operated at a
loss since its inception. For the years ended December 31, 1995
and 1996, the Company recorded a net loss of $9.0 million and
$8.2 million, respectively. The majority of the Operating
Communities that have been acquired operated at a loss following
acquisition. The Company intends to continue to acquire long-
term-care facilities that are likely to operate at a loss for at
least 12 months to 18 months after the Company acquires its
interest in each facility. In addition, the Company is
developing new assisted-living communities, all of which are
expected to incur start-up losses for at least nine months after
commencing operations. As a result, the Company expects to
continue to incur losses at least through the end of 1997. There
can be no assurance, however, that the Company's operations will
become profitable at the rate currently expected by the Company,
if at all. The Company's inability to achieve profitability on a
timely basis could have an adverse effect on the Company's
business, operating results and financial condition and the
market price its Common Stock.
EMPHASIS ON ACQUISITIONS; DIFFICULTIES OF INTEGRATING
ACQUISITIONS. The Company's growth strategy has emphasized and
will continue to emphasize a program of acquiring existing
assisted-living communities and properties that it believes it
can efficiently reposition as assisted-living communities. The
Company currently plans to acquire ownership of or leasehold
interests in approximately 15 to 20 additional long-term-care
facilities in each of 1997 and 1998. Acquisitions of long-term-
care facilities are typically subject to a number of closing
conditions, including those regarding the status of title to real
property included in the acquisition, the results of
environmental investigations performed on the Company's behalf,
the transfer of applicable licenses or permits and the
availability of appropriate financing. There can be no assurance
that the Company's acquisition of long-term-care facilities will
occur at the rate currently expected by the Company or that
future acquisitions will be completed in a timely manner, if at
all. Due in part to management's industry experience and
contacts, the Company may be presented with many more attractive
acquisition proposals than currently expected and, as a result,
may attempt to purchase more long-term-care facilities than
currently expected, which could cause the Company to overextend
its management and financial resources. To the extent that
acquisitions are consummated, there can be no assurance that the
Company will, where appropriate, successfully reposition an
acquired facility or integrate a newly acquired or repositioned
community with its other operations. In addition, the Company
has from time to time acquired, and may under certain
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circumstances continue to acquire, independent-living or skilled-
nursing facilities that for various reasons it does not
reposition as assisted-living communities. There can be no
assurance that the Company will successfully operate such
independent-living or skilled-nursing facilities. Even if the
Company should determine to transfer ownership or operation of
such independent-living or skilled-nursing facilities, there can
be no assurance that it will be able to locate qualified
purchasers or operators of such facilities or that the terms on
which it transfers ownership or operation of such facilities will
be advantageous to the Company, either of which could adversely
affect the market price of the shares of Common Stock as well as
the Company's results of operations and financial position.
Furthermore, the acquisition of independent-living facilities and
the development of assisted-living communities by the Company may
exacerbate potential conflicts of interest between the Company
and Holiday and could expose management of the Company to claims
that duties to one or both companies have not been met. See
"Conflicts of Interest with Holiday" below. Finally, any failure
by the Company with respect to the repositioning, integration or
operation of any acquired facilities may have a material adverse
effect on the Company's business, operating results and financial
condition.
DIFFICULTIES IN DEVELOPING ADDITIONAL ASSISTED-LIVING
COMMUNITIES. The Company's prospects for growth are directly
affected by its ability to develop additional assisted-living
communities. The Company expects to open approximately 15 to 20
newly developed assisted-living communities in each of 1997 and
1998. Currently, the Company has 34 assisted-living communities
in various stages of development and it anticipates opening 15 to
20 assisted-living communities in 1997 in addition to the five
opened in the first quarter of 1997. In connection with the
development communities, the Company has construction commitments
of $37.1 million and $68.5 million on owned and leased
developments, respectively, of which the Company has $35.6
million in mortgage financing and $68.5 million in lease
financing in place at December 31, 1996. To date, the Company
has opened 16 newly developed communities, 13 developed by the
Company and three developed by others and acquired by the
Company. There can be no assurance that the Company will not
suffer delays in its development program, which could slow the
Company's growth. Development of assisted-living communities can
be delayed or precluded by various zoning, healthcare licensing
and other applicable governmental regulations and restrictions.
The nature of such licenses and approvals and the timing and
likelihood of obtaining them vary widely from state to state,
depending on the community, or its operation, and the type of
services to be provided. If the Company's development schedule
is delayed, the Company's business, operating results and
financial condition could be adversely affected.
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NEED FOR ADDITIONAL CAPITAL; NEGATIVE CASH FLOW AND
FINANCING REQUIREMENTS. The Company expects negative operating
cash flow to continue through at least 1997 as it continues to
develop and acquire assisted-living communities. The Company
does not expect any of its newly developed assisted-living
communities to generate positive cash flow for at least nine
months after commencing operations. In addition, the Company
expects that the properties it acquires for repositioning as
assisted-living communities will typically require at least 12
months to 18 months after acquisition to begin to generate
positive cash flows. There can be no assurance that any newly
developed or repositioned community will achieve a stabilized
occupancy rate and resident mix that meets the Company's
expectations, generates positive cash flow or is sufficient to
allow the Company to refinance outstanding indebtedness secured
by the community through sale/leaseback transactions. To
successfully continue its aggressive growth, the Company must
have sufficient financial resources to fund its development and
acquisition activities and anticipated operating losses.
Furthermore, the Company's future success depends in part on
arranging sale/leaseback financing or mortgage refinancing for
assisted-living communities that have achieved stabilized
occupancy rates, resident mix and operating margins after initial
development or repositioning. In addition, the Company will have
approximately $5.8 million and $25.4 million in principal amount
of debt repayment obligations that become due in 1997 and 1998,
respectively. The Company will from time to time seek additional
funding through public or private financing, including equity
financing. If additional funds are raised by issuing equity
securities, the Company's shareholders may experience dilution.
There can be no assurance, however, that adequate equity, debt or
sale/leaseback financing will be available as needed or on terms
acceptable to the Company. A lack of available funds may require
the Company to delay, scale back or eliminate all or some of its
development and acquisition projects.
CONFLICTS OF INTEREST WITH HOLIDAY. Daniel R. Baty, the
Company's Chief Executive Officer, and William E. Colson, a
director of the Company, are the principal shareholders,
directors and senior executive officers of Holiday Retirement
Corp. ("Holiday"), one of the largest operators of independent
living communities in the United States and substantially all the
independent-living facilities operated by Holiday are owned by
partnerships controlled by Messrs. Baty and Colson and in which
they have varying financial interests. In addition, Raymond R.
Brandstrom and Frank A. Ruffo, officers of the Company, have
management responsibilities with respect to Columbia-Pacific
Group, Inc., which is wholly owned by Mr. Baty, and its
subsidiary, Columbia Management, Inc., which is a general partner
of many of such partnerships. Messrs. Baty's and Colson's
responsibilities to Holiday and its affiliates include overseeing
the management of independent-living facilities, the acquisition,
financing and refinancing of existing facilities and the
development and construction of, and capital-raising activities
to finance, new facilities. Although the Company believes that
its relationship with Holiday is beneficial, the financial
interests and management and financing responsibilities of
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Messrs. Baty, Colson, Brandstrom and Ruffo with respect to
Holiday and its affiliated partnerships could present conflicts
of interest, including conflicts relating to the selection of
future development or acquisition sites, competition for
potential residents in markets where both companies operate and
the allocation of time and efforts of Messrs. Baty, Brandstrom
and Ruffo. Because Mr. Baty is the Chief Executive Officer of
both the Company and Holiday and Messrs. Baty, Brandstrom and
Ruffo have other responsibilities with respect to Holiday and the
related partnerships, circumstances could arise that would
distract them from the Company's operations, which distractions
could have an adverse effect on the Company's business, operating
results and financial condition. Moreover, there can be no
assurance that the Company's and Holiday's interests will remain
compatible.
SUBSTANTIAL DEBT AND LEASE OBLIGATIONS OF THE COMPANY. At
December 31, 1996, the Company had mortgage indebtedness in an
aggregate amount of $66.1 million, with minimum principal
payments estimated to be approximately $5.8 million in 1997. Of
the $66.1 million, approximately $15.7 million represents
borrowings under construction loans totaling $21.7 million in
connection with the Development Communities. As of December 31,
1996, approximately $43.3 million principal amount of the
Company's indebtedness bore interest at fluctuating rates
(including $21.7 million of construction loans); therefore,
increases in prevailing interest rates would increase the
Company's interest payment obligations and could have an adverse
effect on the Company's operating results and financial
condition. At December 31, 1996, the Company was also a party to
long-term operating leases for 53 of its residential communities,
which leases require minimum annual lease payments aggregating
$27.9 million, and generally provide for annual rent increases.
The Company intends to continue to finance its properties through
a combination of mortgage financing and operating leases,
including leases arising through sale/leaseback transactions,
and, accordingly, the amount of mortgage indebtedness and annual
lease payments is expected to increase as the Company pursues its
growth strategy. As a result of such mortgages and leases, a
substantial portion of the Company's cash flow will be devoted to
debt service and lease payments. There can be no assurance that
the Company will generate sufficient cash flow from operations to
cover required interest, principal and lease payments.
Furthermore, from time to time the Company has not been in
compliance with certain covenants in its financing agreements.
While to date the Company has been able to obtain waivers for
such noncompliance, there can be no assurance that in the future
it will be able to comply with such covenants, which generally
relate to matters such as cash flow and debt coverage ratios. If
the Company were unable to meet interest, principal or lease
payments, it could be required to seek renegotiation of such
payments or obtain additional equity or debt financing. There
can be no assurance, however, that such efforts would be
successful or timely or that the terms of any such financing or
refinancing would be acceptable to the Company. Furthermore,
because of cross-default and cross-collateralization provisions
in certain of the Company's mortgage and sale/leaseback
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agreements, a default by the Company on one of its payment
obligations could adversely affect a significant number of the
Company's properties. The Company's leverage may also adversely
affect the Company's ability to respond to changing business and
economic conditions or continue its development and acquisition
program.
DIFFICULTIES OF MANAGING RAPID EXPANSION. Since its
inception, the Company has pursued an aggressive expansion
program, and it expects that its growth will continue as it
implements its development program for new assisted-living
communities. The Company's success will depend in large part on
identifying suitable development and acquisition opportunities,
and its ability to pursue such opportunities, complete
developments, consummate acquisitions and effectively operate its
assisted-living communities. The Company's growth has placed a
significant burden on the Company's management and operating
personnel. In late 1996 and early 1997, the Company reorganized
its operating and marketing staffs with individuals having a
strong background in the senior housing industry. The Company's
ability to manage its growth effectively will require it to
continue to improve its operational, financial and management
information systems and to continue to attract, train, motivate,
manage and retain key employees. If the Company is unable to
manage its growth effectively, its business, operating results
and financial condition could be adversely affected.
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL. The
Company depends, and will continue to depend, on the services of
Daniel R. Baty, it's Chairman of the Board and Chief Executive
Officer, Raymond R. Brandstrom, its President and Chief Operating
Officer, and Frank A. Ruffo, Jr., its Vice President. The loss
of the services of Mr. Baty or either of Messrs. Brandstrom or
Ruffo would have a material adverse effect on the Company's
operating results and financial condition. In addition, Mr. Baty
has financial interests in and management responsibilities with
respect to Holiday and its related partnerships and Messrs.
Brandstrom and Ruffo have management responsibilities with
respect to Columbia and its subsidiary, Columbia Management,
which is a general partner of many of such partnerships. As a
result, they will not be devoting their full time and efforts to
the Company. Under certain circumstances, Messrs. Baty,
Brandstrom and Ruffo could have conflicts of interest in
allocating their time and efforts between the Company and Holiday
(and its related partnerships) or Columbia and Columbia
Management, as the case may be, and could have other conflicts of
interest. The Company has entered into noncompetition agreements
with Messrs. Baty, Brandstrom and Ruffo but these agreements do
not limit Mr. Baty's current role with Holiday or Messrs.
Brandstrom and Ruffo in their capacities as officers of Columbia,
which is wholly owned by Mr. Baty, and its subsidiary, Columbia
Management, which is a general partner of partnerships which own
or lease properties currently operated by Holiday, so long as
assisted living is an incidental component of Holiday's operation
or management of independent-living facilities. The Company has
obtained a key employee insurance policy covering the lives of
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each of Messrs. Baty and Brandstrom in the amounts of $5.0
million and $1.0 million, respectively. The Company also depends
on its ability to attract and retain management personnel who
will be responsible for the day-to-day operations of each of its
residential communities. If the Company is unable to hire
qualified management to operate its assisted-living communities,
the Company's business, operating results and financial condition
could be adversely affected.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal,
state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain
hazardous or toxic substances, including, without limitation,
asbestos-containing materials, that could be located on, in or
under such property. Such laws and regulations often impose
liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic
substances. The costs of any required remediation or removal of
these substances could be substantial and the liability of an
owner or operator as to any property is generally not limited
under such laws and regulations, and could exceed the property's
value and the aggregate assets of the owner or operator. The
presence of these substances or failure to remediate such
substances properly may also adversely affect the owner's ability
to sell or rent the property, or to borrow using the property as
collateral. Under these laws and regulations, an owner, operator
or any entity who arranges for the disposal of hazardous or toxic
substances such as asbestos-containing materials, at a disposal
site may also be liable for the costs of any required remediation
or removal of the hazardous or toxic substances at the disposal
site. In connection with the ownership or operation of its
properties, the Company could be liable for these costs, as well
as certain other costs, including governmental fines and injuries
to persons or properties. As a result, the presence, with or
without the Company's knowledge, of hazardous or toxic substances
at any property held or operated by the Company could have an
adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES
TO PAY. The Company currently, and for the foreseeable future,
expects to rely primarily on its residents' ability to pay the
Company's fees from their own or familial financial resources.
Generally only seniors with income or assets meeting or exceeding
the comparable median in the region where the Company's assisted-
living communities are located can afford the Company's fees.
Inflation or other circumstances that adversely affect the
ability of seniors to pay for the Company's services could have
an adverse effect on the Company. If the Company encounters
difficulty in attracting seniors with adequate resources to pay
for its services, its business, operating results and financial
condition could be adversely affected.
10
<PAGE>
STAFFING AND LABOR COSTS. The Company competes with other
long-term-care providers with respect to attracting and retaining
qualified or skilled personnel. The Company also depends on the
available labor pool of low-wage employees. A shortage of nurses
or other trained personnel or general inflationary pressures may
require the Company to enhance its wage and benefits package in
order to compete. There can be no assurance that the Company's
labor costs will not increase or, if they do, that they can be
matched by corresponding increases in private-payor revenues or
governmental reimbursement. Any significant failure by the
Company to attract and retain qualified employees, to control its
labor costs or to match increases in its labor expenses with
corresponding increases in revenues could have a material adverse
effect on the Company's business, operating results and financial
condition.
GOVERNMENTAL REGULATION. Healthcare is heavily regulated at
the federal, state and local levels and represents an area of
expensive and frequent regulatory change. A number of
legislative and regulatory initiatives relating to long-term care
are proposed or under study at both the federal and state levels
that, if enacted or adopted, could have an adverse effect on the
Company's business and operating results. The Company cannot
predict whether and to what extent any such legislative or
regulatory initiative will be enacted or adopted, and therefore
cannot assess what effect any current or future initiative would
have on the Company's business and operating results. Changes in
applicable laws and new interpretations of existing laws can
significantly affect the Company's operations, as well as its
revenues (particularly those from governmental sources) and
expenses. The Company's residential communities are subject to
varying degrees of regulation and licensing by local and state
health and social service agencies and other regulatory
authorities specific to their location. While regulations and
licensing requirements often vary significantly from state to
state, they typically relate to fire safety, sanitation, staff
training, staffing levels and living accommodations such as room
size, number of bathrooms and ventilation, as well as regulatory
requirements relating specifically to certain of the Company's
health-related services. The Company's success will depend in
part on its ability to satisfy such regulations and requirements
and to acquire and maintain any required licenses. In addition,
with respect to its residents who receive financial assistance
from governmental sources for their assisted-living services, the
Company is subject to certain federal and state regulations that
prohibit certain business practices and relationships that might
affect healthcare services reimbursable under Medicaid or similar
state reimbursements programs. The Company's failure to comply
with such regulations could jeopardize its reimbursement payments
for any affected residents and, if egregious, could result in
fines and the suspension or failure to renew the Company's
operating licenses. Federal, state and local governments
occasionally conduct unannounced investigations, audits and
reviews to determine whether violations of applicable rules and
regulations exist. Devoting management and staff time and legal
resources to such investigations, as well as any material
violation by the Company that is discovered in any such
investigation, audit or review, could have a material adverse
11
<PAGE>
effect on the Company's business and operating results. There
can be no assurance that regulatory oversight of construction
efforts associated with repositionings will not result in loss of
residents and disruption of community operations.
COMPETITION. The long-term-care industry is highly
competitive, and the Company believes that the assisting-living
segment, in particular, will become even more competitive in the
future. The Company will be competing with numerous other
companies providing similar long-term-care alternatives such as
home healthcare agencies, community-based service programs,
retirement communities and convalescent centers. The Company
expects that, as the provision of assisted-living services
receives increased attention and the number of states providing
reimbursement for assisted living rises, competition will
intensify as a result of new market entrants. The Company also
faces potential competition from skilled-nursing facilities that
provide long-term-care services. Moreover, in implementing its
growth strategy, the Company expects to face competition in its
efforts to develop and acquire assisted-living communities. Some
of the Company's present and potential competitors are
significantly larger and have, or may obtain, greater financial
resources than those of the Company. Consequently, there can be
no assurance that the Company will not encounter increased
competition in the future that could limit its ability to attract
residents or expand its business and therefore have a material
adverse effect on its business, operating results and financial
condition.
POTENTIAL ADVERSE IMPACT OF GOVERNMENTAL REIMBURSEMENT
PROGRAMS. Currently, the federal government does not provide any
reimbursement for the type of assisted-living services offered by
the Company. Although some states have reimbursement programs in
place, the level of reimbursement is generally insufficient to
cover the costs of the Company's assisted-living services.
Depending in part on the results of the Company's acquisition
program, net revenues from governmental reimbursement programs
could increase from time to time. In 1995 and 1996, less than
10% of the Company's revenues were from residents who receive
governmental assistance from a state medicaid program. There can
be no assurance that the Company will continue to meet the
requirements for participating in governmental reimbursement
programs. Furthermore, governmental reimbursement programs are
subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and governmental funding
restrictions, some of which could have a material adverse effect
on the future rate of payment to communities operated by the
Company. A substantial dependence on governmental reimbursement
programs, changes in the funding levels of such programs or the
failure of the Company's operations to qualify for governmental
reimbursement could have an adverse effect on the Company's
business, operating results and financial condition.
12
<PAGE>
LIABILITY AND INSURANCE. The Company's business entails an
inherent risk of liability. In recent years, participants in the
long-term-care industry have become subject to an increasing
number of lawsuits alleging malpractice or related legal
theories, many of which involve large claims and significant
legal costs. The Company expects that from time to time it will
be subject to such suits as a result of the nature of its
business. The Company currently maintains insurance policies in
amounts and with such coverage and deductibles as it deems
appropriate, based on the nature and risks of its business,
historical experience and industry standards. There can be no
assurance, however, that claims in excess of the Company's
insurance coverage or claims not covered by the Company's
insurance coverage will not arise. A successful claim against
the Company not covered by, or in excess of, the Company's
insurance could have a material adverse effect on the Company's
operating results and financial condition. Claims against the
Company, regardless of their merit or eventual outcome, may also
have a material adverse effect on the Company's ability to
attract residents or expand its business and would require
management to devote time to matters unrelated to the operation
of the Company's business. In addition, the Company's insurance
policies must be renewed annually, and there can be no assurance
that the Company will be able to obtain liability insurance
coverage in the future or, if available, that such coverage will
be on acceptable terms.
ABSENCE OF PUBLIC MARKET FOR DEBENTURES; POSSIBLE VOLATILITY
OF STOCK PRICE. There is no public market for the Debentures and
it is unlikely that an active or liquid trading market will
develop or be sustained. The market price of the Common Stock
into which the Debentures are convertible could be subject to
significant fluctuations in response to various factors and
events, including the liquidity of the market for the Common
Stock, variations in the Company's operating results, variations
from analysts expectations, new statutes or regulations or
changes in the interpretation of existing statutes or regulations
affecting the healthcare industry generally or the assisted-
living residence business in particular. In addition, the stock
market in recent years has experienced broad price and volume
fluctuations that often have been unrelated to the operating
performance of particular companies. These market fluctuations
also may adversely affect the market price of the Common Stock.
13
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is the ratio of earnings to fixed charges for the
Company for the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1993(1) 1994 1995 1996
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
-- (2) --(2) --(2) --(2)
</TABLE>
__________________
(1)Period from commencement of operations in July 1993 through
December 31, 1993.
(2)For the period from July 28, 1993 (inception) through December
31, 1993, and the fiscal years ended December 31, 1994, 1995
and 1996, fixed charges exceeded earnings by $30,000, $1.5
million, $9.8 million and $9.6 million, respectively.
USE OF PROCEEDS
The proceeds from the sale of the Debentures and shares of
Common Stock offered hereby are solely for the account of the
Selling Debentureholders. Accordingly, the Company will not
receive any proceeds from this offering.
SELLING DEBENTUREHOLDERS
The Debentures being offered hereby were acquired by the
Selling Debentureholders in connection with a private placement
of the Debentures by the Company on February 15, 1996 pursuant to
Rule 144A and Regulation D under the Securities Act or in
permitted resale transactions from the initial purchasers of the
Debentures (the "Initial Purchasers") or holders acquiring the
Debentures from prior holders thereof in further permitted resale
transactions. The following table sets forth information
concerning the principal amount of Debentures beneficially owned
by each Selling Debentureholder which may be offered from time to
time pursuant to this Prospectus. Other than as a result of the
ownership of Debentures or Common Stock, none of the Selling
Debentureholders has had any material relationship with the
Company within the past three years, except as noted herein. The
table has been prepared based on information furnished to the
Company by the Trustee (as hereinafter defined) for the
Debentures, by Depository Trust Company and by or on behalf of
the Selling Debentureholders.
<TABLE>
<CAPTION>
Principal Amount Principal Amount Percent of
of Debentures of Debentures That Outstanding
Name Beneficially Owned May Be Sold Debentures
- ------------------ ------------------ ------------------ -------------
--
<S> <C> <C> <C>
(to be supplied by amendment)
</TABLE>
14
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from this
offering. The Company has been advised by the Selling
Debentureholders that the Selling Debentureholders may sell all
or a portion of the Debentures and shares of Common Stock offered
hereby from time to time in the over-the-counter market on terms
to be determined at the times of such sales. The Selling
Debentureholders may also make private sales directly or through
a broker or brokers. Alternatively, any of the Selling
Debentureholders may from time to time offer the Debentures or
shares of Common Stock through underwriters, including any of the
Initial Purchasers, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions
or concessions from the Selling Debentureholders and the
purchasers of the Debentures or shares of Common Stock for whom
they may act as agent. To the extent required, the aggregate
principal amount of Debentures and the number of shares of Common
Stock to be sold, the names of the Selling Debentureholders, the
purchase price, the name of any such agent, dealer or underwriter
and any applicable commissions with respect to a particular offer
will be set forth in an accompanying Prospectus Supplement. The
aggregate proceeds to the Selling Debentureholders from the sale
of the Debentures and Common Stock offered by the Selling
Debentureholders hereby will be the purchase price of the
Debentures and Common Stock offered by the Selling
Debentureholders less any commissions. There can be no assurance
that the Selling Debentureholders will sell any or all of the
Debentures or shares of Common Stock offered hereby.
The Debentures and the shares of Common Stock issued upon
conversion of the Debentures may be sold from time to time in one
or more transactions at fixed offering prices, which may be
changed, or at varying prices determined at the time of sale or
at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders
and underwriters or dealers who may receive fees or commissions
in connection therewith.
The Company does not intend to list the Debentures on any
national securities exchange or on Nasdaq. It is unlikely that
an active market for the Debentures will develop.
To comply with the securities laws of certain states, if
applicable, the Debentures and shares of Common Stock will be
sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the
Debentures and shares of Common Stock may not be sold unless they
have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Debentureholders and any broker-dealers, agents or
underwriters that participate with the Selling Debentureholders
in the distribution of the Debentures or shares of Common Stock
may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions
received by such broker-dealers, agents or underwriters and any
15
<PAGE>
profit on the resale of the Debentures or shares of Common Stock
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Debentures were originally sold to the Initial
Purchasers on February 15, 1996 in a private placement at a
purchase price of 100% of their principal amount. The Company
agreed to indemnify and hold the Initial Purchasers and certain
subsequent holders of the Debentures harmless against certain
liabilities under the Securities Act that could arise in
connection with the sale of the Debentures by the Initial
Purchasers or such subsequent holders.
The Company will pay all expenses incident to the offering
and sale of the Debentures and Common Stock to the public other
than underwriting discounts and selling commissions and fees.
See "Selling Debentureholders."
DESCRIPTION OF DEBENTURES
The Debentures were issued under an Indenture dated as of
February 15, 1996 (the "Indenture") executed by the Company and
Fleet National Bank, as the trustee under the Indenture (the
"Trustee"). The terms of the Debentures include those stated in
the Indenture and those made a part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended.
The following is a summary of certain provisions of the
Indenture and does not purport to be complete and is qualified in
its entirety by reference to the detailed provisions of the
Indenture, including the definitions of certain terms therein to
which reference is hereby made, for a complete statement of such
provisions. Wherever particular provisions or sections of the
Indenture or terms defined therein are referred to herein, such
provisions or definitions are incorporated herein by reference.
GENERAL
The Debentures are unsecured general obligations of the
Company, subject to the rights of holders of Senior Indebtedness
of the Company, and will mature on January 1, 2006. The
Debentures are limited to $32,000,000 aggregate principal amount
and will bear interest semiannually on January 1 and July 1 of
each year, commencing July 1, 1996, at the rate per annum of
6.25%. The first payment was for the period from the date of
delivery to July 1, 1996. The Company will pay interest on the
Debentures to the persons who are registered holders of
Debentures at the close of business on the December 15 or June 15
preceding the interest payment date. Principal (and premium, if
any) and interest will be payable, the Debentures will be
convertible and exchangeable, and transfers thereof will be
registrable, at the office or agency of the Company maintained
for such purposes, initially at the offices of the Trustee. The
Company may pay principal and interest by check and may mail an
interest check to a holder's registered address. Holders must
surrender Debentures to a Paying Agent to collect principal
payments.
16
<PAGE>
In the event that the Company enters into a highly leveraged
transaction, reorganization, restructuring, merger or similar
transaction or otherwise substantially increases its indebtedness
for borrowed money, the Debentures could be adversely affected,
in part because the Debentures are subject to and subordinate to
Senior Indebtedness which could be substantially increased as a
result of any such transaction. See "Description of the
Debentures --Subordination of Debentures."
Initially, the Trustee is acting as Paying Agent, Registrar
and Conversion Agent. The Company may change any Paying Agent,
Registrar, Conversion Agent or co-registrar upon prior written
notice to the Trustee and may act in any such capacity itself.
DELIVERY AND FORM OF DEBENTURES
Those Debentures initially sold to qualified institutional
buyers (as defined in Rule 144A under the Securities Act) were
issued in global form (the "Rule 144A Global Debentures") and
were deposited on February 15, 1996 with The Depository Trust
Company (the "Depository") and registered in the name of Cede &
Co., as nominee of the Depository. The Rule 144A Global
Debentures to be resold as set forth herein will be initially
issued in global form (the "New Global Debentures") and will be
deposited on or about the date of effectiveness of this
Registration Statement on behalf of the Depository and registered
in the name of Cede & Co. Beneficial interests in the Rule 144A
Global Debentures and the New Global Debentures may be exchanged
for definitive securities in accordance with the terms of the
Indenture.
A holder may transfer or exchange Debentures in accordance
with the Indenture. No service charge will be made for any
registration of transfer, exchange or conversion of Debentures,
except for any tax or other governmental charges that may be
imposed in connection therewith. The Registrar need not transfer
or exchange any Debentures selected for redemption. Also, in the
event of a partial redemption, it need not transfer or exchange
any Debentures for a period of 15 days before selecting
Debentures to be redeemed. The Indenture does not contain any
provision requiring the Company to repurchase the Debentures at
the option of the holders thereof in the event of a leveraged
buyout, recapitalization or similar restructuring of the Company,
even though the Company's creditworthiness and the market value
of the Debentures may decline significantly as a result of such
transaction. The Indenture does not protect holders of the
Debentures against any decline in credit quality, whether
resulting from any such transaction or from any other cause. The
registered holder of a Debenture may be treated as its owner for
all purposes.
17
<PAGE>
CONVERSION RIGHTS
The holders of the Debentures are entitled at any time after
the Registration Date (as defined in the Indenture) and prior to
maturity, subject to prior redemption, to convert the Debentures
or portions thereof (which are $1,000 or multiples thereof) into
shares of Common Stock at the conversion price set forth in the
Debentures (subject to adjustments as described below). No
payment or adjustment will be made for accrued interest on a
converted Debenture. If any Debenture not called for redemption
is converted between a record date for the payment of interest
and the next succeeding interest payment date, such Debenture
must be accompanied by funds equal to the interest payable to the
registered holder on such interest payment date on the principal
amount so converted. The Company will not issue fractional
interest in shares of Common Stock upon conversion of the
Debentures but instead will deliver a check for the fractional
share based on the market value of the Common Stock on the last
trading day prior to the conversion date. If the Debentures are
called for redemption, conversion rights will expire, unless the
Company defaults in payment due upon such redemption.
The conversion price is subject to adjustments, as set forth
in the Indenture, in certain events, including the payment of
dividends or distributions on the Common Stock in shares of
capital stock; subdivisions or combinations of Common Stock into
a greater or smaller number of shares; reclassification of the
shares resulting in any issuance of any shares of the Company's
capital stock; distribution of rights or warrants to all holders
of Common Stock entitling them to purchase Common Stock at less
than the then current price at that time; and the distribution to
all holders of Common Stock of assets, excluding certain cash
dividends and distributions, or debt securities or any rights or
warrants to purchase securities of the Company; provided,
however, that no adjustment will be required if holders of the
Debentures received notice of and are allowed to participate in
such transactions. No adjustment will be required for rights to
purchase Common Stock pursuant to a Company plan for reinvestment
of dividends or interest, or for a change in the par value of the
Common Stock. To the extent that Debentures become convertible
into cash, no adjustment will be required thereafter as to cash.
No adjustment in the conversion price need be made unless such
adjustment would require a change of at least 1% in the
conversion price; however, any adjustment that would otherwise be
required to be made shall be carried forward and taken into
account in any subsequent adjustment. The Company may
voluntarily reduce the conversion price for a period of time.
If the Company pays dividends on the Common Stock in shares
of capital stock or subdivides or combines the Common Stock or
issues by reclassification of the Common Stock any shares of its
capital stock or merges with, or transfers or leases
substantially all of its assets to, another corporation or trust,
the holders of the Debentures then outstanding will be entitled
thereafter to convert such Debentures into the kind and amount of
shares of capital stock, other securities, cash or other assets
which they would have owned immediately after such event had such
Debentures been converted before the effective date of the
transaction.
18
<PAGE>
Any Debentures called for redemption, unless surrendered for
conversion on or before the close of business on the redemption
date, are subject to being purchased from the holder of such
Debentures at the redemption price by one or more investment
bankers or other purchasers who may agree with the Company to
purchase such Debentures and convert them into Common Stock.
In the event of a taxable distribution to holders of Common
Stock which results in an adjustment of the conversion price, the
holders of the Debentures may, in certain circumstances, be
deemed to have received a distribution subject to United States
federal income tax as a dividend.
SUBORDINATION OF DEBENTURES
The indebtedness evidenced by the Debentures will be
subordinated and junior in right of payment to the extent set
forth in the Indenture to the prior payment in full of amounts
then due on all Senior Indebtedness. No payment shall be made by
the Company on account of principal of (or premium, if any) or
interest on the Debentures or on account of the purchase or other
acquisition of Debentures, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness
permitting the holders to accelerate the maturity thereof, or
with respect to the payment of any Senior Indebtedness and such
default shall be the subject of a judicial proceeding or the
Company shall have received notice of such default from certain
authorized persons, unless and until such default or event of
default shall have been cured or waived or shall have ceased to
exist. By reason of these provisions, in the event of default on
any Senior Indebtedness, whether now outstanding or hereafter
issued, payments of principal of (and premium, if any) and
interest on the Debentures may not be permitted to be made until
such Senior Indebtedness is paid in full, or the event of default
on such Senior Indebtedness is cured or waived.
Upon any acceleration of the principal of the Debentures or
any distribution of assets of the Company upon any receivership,
dissolution, winding-up, liquidation, reorganization or similar
proceedings of the Company, whether voluntary or involuntary, or
in bankruptcy or insolvency, all amounts due or to become due
upon all Senior Indebtedness must be paid in full before the
holders of the Debentures or the Trustee is entitled to receive
or retain any assets so distributed in respect of the Debentures.
By reason of this provision, in the event of insolvency, holders
of the Debentures may recover less, ratably, than holders of
Senior Indebtedness.
"Senior Indebtedness" is defined to mean the principal,
premium, if any, unpaid interest on and all other amounts payable
under or in respect of Indebtedness of the Company for money
borrowed. There is no limit on the amount of Senior Indebtedness
that the Company may incur.
19
<PAGE>
OPTIONAL REDEMPTION
The Debentures are subject to redemption, as a whole or in
part, at any time or from time to time commencing after July 1,
1999 at the Company's option on at least 30 days' and not more
than 60 days' prior notice by mail. The redemption prices
(expressed as a percentage of principal amount) are as follows
for the 12-month period beginning after July 1 of the following
years:
<TABLE>
<CAPTION>
Redemption
Year Price
----- ----------
<S> <C>
1999 102%
2000 101%
2001 and thereafter 100%
</TABLE>
MODIFICATION OF THE INDENTURE
Under the Indenture, with certain exceptions, the Company's
rights and obligations with respect to the Debentures and the
rights of holders of the Debentures may only be modified by the
Company and the Trustee with the written consent of the holders
of not less than 66-2/3% in principal amount of the outstanding
Debentures. However, without the consent of each holder of any
Debenture affected, an amendment, waiver or supplement may not
(a) reduce the amount of Debentures whose holders must consent to
an amendment; (b) reduce the rate or change the time of payment
of interest on any Debenture; (c) reduce the principal of or
change the fixed maturity of any Debenture; (d) make any
Debenture payable in money other than that stated in the
Debenture; (e) change the provisions of the Indenture regarding
the right of a majority of the Debentureholders to waive defaults
under the Indenture or impair the right of any Debentureholder to
institute suit for the enforcement of any payment of principal
and interest on the Debentures on and after their respective due
dates; or (f) make any change that adversely affects the right to
convert any Debenture.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following is a summary of certain provisions of the
Indenture relating to events of default, notice and waiver.
The following are Events of Default under the Indenture with
respect to the Debentures: (a) default in the payment of
interest on the Debentures when due and payable which continues
for 30 days; (b) default in the payment of principal of (and
premium, if any) on the Debentures when due and payable, at
20
<PAGE>
maturity, upon redemption or otherwise, which continues for five
business days; (c) failure to perform any other covenant of the
Company contained in the Indenture or the Debentures which
continues for 60 days after notice as provided in the Indenture;
(d) acceleration of any indebtedness for money borrowed
(including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted
accounting principles but not including any indebtedness or
obligation for which recourse is limited to property purchased)
in an aggregate principal amount in excess of $1.0 million,
whether existing on the date of the execution of the Indenture or
thereafter created, if such acceleration is not annulled within
10 days after notice to the Company of such acceleration; and
(e) certain events of bankruptcy, insolvency or reorganization
relating to the Company.
If an Event of Default occurs and is continuing with respect
to the Debentures, either the Trustee or the holders of at least
a majority in principal amount of the Debentures may declare all
the Debentures to be due and payable immediately.
The Company will not (a) declare or pay any dividends or
make any distribution to holders of its capital stock or
(b) purchase, redeem or otherwise acquire or retire for value any
of the Common Stock, or any warrants, rights or options to
purchase or acquire any shares of the Common Stock (other than
the Debentures or any other convertible indebtedness of the
Company that is neither secured nor subordinated to the
Debentures) if at the time any of the aforementioned Events of
Default has occurred and is continuing or would exist immediately
after giving effect to such action.
The Trustee may require indemnity satisfactory to it before
it enforces the Indenture or the Debentures. Subject to certain
limitations, holders of a majority in principal amount of the
Debentures may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Debentureholders notice of
any default (except a default in payment of principal or
interest) if it determines that withholding notice is in their
interests. The Company is required to file with the Trustee
annually an officers' statement as to the absence of defaults in
fulfilling any of its obligations under the Indenture.
No consent of Debentureholders is required for the Company
to consolidate with or merge into or transfer or lease
substantially all of its assets to another corporation or trust
which assumes the obligations of the Company under the Indenture
and the Debentures or for any reorganization within the meaning
of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended, nor is any such consent of Debentureholders required for
any amendment of the Indenture or the Debentures by the Company
and the Trustee to cure any ambiguity, defect or inconsistency,
or to provide for uncertificated Debentures in addition to
certified Debentures, or to make any change that does not
adversely affect the right of any Debentureholder.
21
<PAGE>
The Debentures may not be sold or otherwise transferred
except in accordance with the provisions set forth in the
Purchase Agreement and the Indenture.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Indenture provides that the Company may not merge or
consolidate with, or sell or convey all, or substantially all, of
its assets to another person unless such person is a company or a
trust and such person assumes by supplemental indenture all the
obligations of the Company under the Debentures and the
Indenture, and that immediately after the transaction no default
or Event of Default shall exist.
MARKETABILITY
The Debentures are a new issue of securities with no
established trading market. The Company does not intend to list
the Debentures on any national securities exchange or on Nasdaq.
It is unlikely that an active market for the Debentures will
develop.
GOVERNING LAW
The Indenture and the Debentures will be governed by and
construed in accordance with the laws of the state of New York.
REGISTRATION RIGHTS AGREEMENT
The Company has agreed to use its best efforts, subject to
the receipt of necessary information from the holders of the
Debentures, to prepare and file with the Commission a
registration statement with respect to the resale of the
Debentures and the Common Stock offered hereby from time to time
in the over-the-counter market, in privately negotiated
transactions, or, with respect to the Common Stock only, on AMEX,
as the case may be, and to cause the Registration Statement to
become effective not later than January 31, 1997. The Company
has also agreed to prepare and file such amendments and
supplements to the Registration Statement as may be necessary to
keep the Registration Statement effective until all the
Debentures and the Common Stock have been sold thereby or until
the Debentures and the Common Stock are no longer, by reason of
Rule 144(k) promulgated under the Securities Act or any other
rule of similar effect, required to be registered for the sale
thereof by the holders of the Debentures.
22
<PAGE>
LEGAL MATTERS
The validity of the Debentures and the Common Stock will be
passed on for the Company by Perkins Coie, Seattle, Washington.
EXPERTS
The consolidated financial statements of Emeritus
Corporation and subsidiaries as of December 31, 1996 and 1995,
and for each of the years in the three-year period ended December
31, 1996, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
23
<PAGE>
No dealer, salesperson or other
person has been authorized to
give any information or to make
any representations other than
those contained in this
Prospectus and, if given or made, $32,000,000
such information or
representations in connection 1,454,545 SHARES
with this offering must not be
relied upon as having been EMERITUS CORPORATION
authorized by the Company or by
any Selling Debentureholder.
This Prospectus does not 6.25% CONVERTIBLE
constitute an offer to sell or a SUBORDINATED DEBENTURES
solicitation of an offer to buy DUE 2006
any of the securities offered
hereby by anyone in any COMMON STOCK
jurisdiction in which such offer
or solicitation is not authorized
or in which the person making PROSPECTUS
such offer or solicitation is not
qualified to do so or to any
person to whom it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstances, create an
implication that the information
contained herein is correct as of
any time subsequent to the date
of this Prospectus.
_________________________
TABLE OF CONTENTS
Page
Available Information.......2
Incorporation of Certain
Documents by
Reference..................2
The Company.................4
Risk Factors................5
Ratio of Earnings to
Fixed Charges..............11
Use of Proceeds.............11
Selling Debentureholders....12
Plan of Distribution........13
Description of
Debentures.................14
Legal Matters...............19
Experts.....................19
April __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in
connection with the issuance and distribution of the securities being
registered hereunder. All amounts are estimates except the SEC
registration fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 9,697
AMEX Additional Listing Fee 17,500
Printing and Engraving Expenses 1,000
Legal Fees and Expenses 15,000
Accounting Fees and Expenses 9,500
Blue Sky Fees and Expenses 1,000
Miscellaneous Expenses 1,303
-------
Total $55,000
=======
</TABLE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
-------- ----------------------
<S> <C>
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
__________________
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on April 10, 1997.
EMERITUS CORPORATION
By /s/ Daniel R. Baty
----------------------------------
Daniel R. Baty, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed by the following persons in the capacities
and as of the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------- ------ -----
<S> <C> <C>
/s/ Daniel R. Baty
- ------------------------- Chairman and Chief Executive Officer April 10, 1997
Daniel R. Baty (Principal Executive Officer)
/s/ Raymond R. Brandstrom
- ------------------------- Chief Operating Officer and Director April 10, 1997
Raymond R. Brandstrom
/s/ Kelly J. Price
- ------------------------- Chief Financial Officer April 10, 1997
Kelly J. Price
/s/ James S. Keller
- ------------------------- Controller and Director of Accounting April 10, 1997
James S. Keller (Principal Accounting Officer)
/s/ Tom A. Alberg *
- ------------------------- Director April 10, 1997
Tom A. Alberg
/s/ Patrick Carter *
- ------------------------- Director April 10, 1997
Patrick Carter
/s/ William E. Colson *
- ------------------------- Director April 10, 1997
William E. Colson
/s/ Motoharu Iue *
- ------------------------- Director April 10, 1997
Motoharu Iue
</TABLE>
* By: /s/ Raymond R. Brandstrom
----------------------------------
Raymond R. Brandstrom
Attorney-in-Fact
II-2
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
Period from
July 28,
1993
(inception) Year ended
through December 31,
December 31, -------------------------------
1993 1994 1995 1996
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Loss before income taxes $(30) $(1,432) $(8,954) $(8,202)
Add: Fixed charges, net 64 1,159 8,098 9,083
------------ --------- --------- ---------
Income (loss) before income
taxes and fixed charges, net $ 34 $ (273) $ (856) $ 881
------------ --------- --------- ---------
Fixed Charges:
Interest expense $ 63 $ 1,064 $ 6,332 $ 4,018
Capitalized interest - 110 880 1,442
Amortization of capitalized interest - - - -
Amortization of debt expense 1 39 1,450 241
Interest factor of rent expense - 56 316 4,824
------------ --------- --------- ---------
Total fixed charges $ 64 $ 1,269 $8,978 $10,525
------------ --------- --------- ---------
Ratio of earnings to fixed charges 0.5 (0.2) (0.1) (0.1)
</TABLE>
(1) For the period from July 28, 1993 (inception) through December 31,
1993, fiscal years ended December 31, 1994, 1995, and 1996, fixed charges
exceeded earnings by $30,000, $1.5 million, $9.8 million and $9.6 million,
respectively.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Emeritus Corporation
We consent to the use of our report incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Seattle, Washington
April 10, 1997
