<PAGE>
As filed with the Securities and Exchange Commission on
January 31, 1997
Registration No. 333-___
============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
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)
--------------------------
<PAGE>
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. ( )
------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================
Proposed
Title of Each Maximum Proposed
Class of Aggregate Maximum Amount of
Securities Amount to Be Price Per Aggregate Registration
to Be Registered Registered Unit Offering Price Fee
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.25% Debentures
Due 2006........ $32,000,000 100%(1) $32,000,000(1) $9,697
Common Stock, par
value $0.0001 1,454,545
per share (2)... shares(3) N/A N/A N/A
=============================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Represents shares issuable upon conversion of the
Debentures.
(3) Plus an indeterminate number of additional shares of
Common Stock which may be issuable upon conversion of the
Debentures as a result of the antidilution provisions
thereof.
-------------------------------
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.
==========================================================
<PAGE>
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.
<PAGE>
Subject to Completion, dated January 31, 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 January 30, 1997, the last reported sale
price of the Common Stock, as reported by AMEX, was $12.75
per share.
<PAGE>
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."
<PAGE>
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 February __, 1997.
<PAGE>
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
<PAGE>
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, 1995; (ii) the
Company's Current Report on Form 8-K dated February 1,
1996 and Amendment No. 1 thereto on Form 8-K/A dated March
19, 1996; (iii) the Company's Current Report on Form 8-K
dated 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; (iv) the Company's
Current Report on Form 8-K dated March 19, 1996 and
Amendment No. 1 thereto on Form 8-K/A dated March 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) Registration Statement on Form S-1
(File No. 33-97508) declared effective November 21, 1995;
and (viii) 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,
<PAGE>
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.
<PAGE>
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. For the nine
months ended September 30, 1995 and 1996, the Company
generated total operating revenues of $13.0 million and
$46.1 million respectively.
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 longterm-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. The Company believes that the terms on which
it has acquired its interests in the residential
communities have generally been favorable and below
estimated replacement costs. 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
<PAGE>
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.
<PAGE>
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 year
ended December 31, 1995, the Company recorded a net loss
of $9.0 million. For the nine months ended September 30,
1996, the Company incurred a net loss of $4.5 million, of
which $2.4 million was incurred in the third quarter. The
majority of the long-term care facilities 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 per year. Acquisitions of long-term-care
facilities are typically subject to a number of closing
conditions, including those
<PAGE>
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-termcare 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 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
independentliving 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 (as defined below under "Conflicts of
Interest With Holiday"), and could expose management of
the Company to claims that duties to one or both companies
have not been met. Finally, any failure by the Company
with
<PAGE>
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.
Ability to Develop 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 per year through 1998. Currently, the Company
has 20 assisted-living communities under construction.
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.
Need for Additional Capital. The Company expects
negative cash flow to continue for at least the next year
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
<PAGE>
secured by the community through sale/leaseback
transactions. To successfully continue its 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 $4.3 million and $10.2 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"), 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
<PAGE>
interests and management and financing responsibilities of
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 September 30, 1996, 13 residential communities
were subject to mortgage indebtedness in an aggregate
amount of $24.4 million, with minimum principal and
interest payments estimated to be approximately $5.2
million in 1997. In addition, as of September 30, 1996,
the Company has drawn $5.2 million of its available
construction loans of approximately $12.7 million in
connection with thecommunities under development. As of September 30, 1996,
approximately $20.4 million principal amount of the
Company's indebtedness bore interest at fluctuating rates;
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 September 30, 1996,
the Company was also a party to long-term operating leases
for 37 of its residential communities, which leases
require minimum annual lease payments aggregating $20.7
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
<PAGE>
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. As of
September 30, 1996 management believes that the Company is
in compliance with all material covenants. 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 will
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 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. The Company's ability to manage its
growth effectively will require it to continue to improve
its operational, financial and
<PAGE>
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,
although such 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 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
<PAGE>
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
<PAGE>
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.
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.
<PAGE>
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 assistedliving 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 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 assistingliving
segment, in particular, will become even more competitive in the
future. The Company will be competing with numerous other
companies providing similar long-termcare alternatives such as
home healthcare agencies, community-based service programs,
retirement communities and
<PAGE>
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. 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
<PAGE>
qualify for governmental reimbursement could have an adverse
effect on the Company's business, operating results and financial
condition.
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 <PAGE>
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.
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,
------------------------------------------ Nine months ended
1993(1) 1994 1995 September 30, 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,
fiscal years ended December 31, 1994, 1995 and the nine months ended September
30, 1996, fixed charges exceeded earnings by $30,000, $1.5 million, $9.8
million and $5.4 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.
<PAGE>
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
of Debentures of Debentures Percent of Outstanding
Name Beneficially Owned That May Be Sold Debentures
- --------------- ------------------ ----------------- --------------------
<S> <C> <C> <C>
(to be supplied by amendment)
</TABLE>
<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-
thecounter 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.
<PAGE>
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 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."
<PAGE>
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 will be 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
<PAGE>
surrender Debentures to a Paying Agent to collect
principal payments.
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
"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.
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
<PAGE>
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 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
<PAGE>
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.
<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
<PAGE>
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.
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, the financial statements of
The Arbor at Olive Grove, Villa Ocotillo, Belmont Towers
and Laurel Lake Estates; the combined financial statements
of the Florida Communities; the statements of operating
assets and liabilities, direct operating revenues and
expenses and direct operating cash flows of Summer Wind
Retirement, Inc. and Heritage Hills Retirement, Inc.; and the combined
statements of operating assets and liabilities, direct
operating revenues and expenses and direct operating cash
flows of the Green Meadows Communities and the Carolina
Facilities, all of which are incorporated by reference
herein, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in
their reports with respect thereto, and are incorporated
by reference herein in reliance upon the authority of such
firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the
combined statements of operating assets and liabilities,
direct operating revenues and expenses and direct
operating cash flows of the Green Meadows Communities
refers to uncertainties regarding the outcome of
litigation and the ability of the partnerships which owned
the Green Meadows Communities as of July 31, 1995 to
continue collectively or individually as a going concern.
<PAGE>
==================================================================
$32,000,000
1,454,545 Shares
EMERITUS CORPORATION
6.25% Convertible Subordinated Debentures Due 2006
Common Stock
====================================================================
PROSPECTUS
====================================================================
February __, 1997
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, such information or representations in
connection with this offering must not be relied upon as having been
authorized by the Company or by any Selling Debentureholder. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
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........................... 11
Plan of Distribution............................... 12
Description of Debentures.......................... 13
Legal Matters...................................... 17
Experts............................................ 18
</TABLE>
===========================================================
<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 7,000
Accounting Fees and Expenses 2,500
Blue Sky Fees and Expenses 1,000
Miscellaneous Expenses 1,303
----
Total $40,000
-------
</TABLE>
Item 15. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the
Washington Business Corporation Act authorize a court to
award, or a corporation's board of directors to grant,
indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain
circumstances for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"). Section
10 of the registrant's Amended and Restated Bylaws
provides for indemnification of the registrant's
directors, officers, employees and agents to the maximum
extent permitted by Washington law. Certain of the
directors of the registrant, who are affiliated with
principal shareholders of the registrant, also may be
indemnified by such shareholders
<PAGE>
against liability they may incur in their capacities as
directors of the registrant, including pursuant to a
liability insurance policy maintained by the Company for
such purpose.
Section 23B.08.320 of the Washington Business
Corporation Act authorizes a corporation to limit a
director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as
a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or
illegal corporate loans or distributions, or any
transaction from which the director personally receives a
benefit in money, property or services to which the
director is not legally entitled. Article 8 of the
registrant's Restated Articles of Incorporation contains
provisions implementing, to the fullest extent permitted
by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
The registrant has entered into an indemnification
agreement with each of its executive officers and
directors in which the registrant agrees to hold harmless
and indemnify the officer or director to the fullest
extent permitted by Washington law. The registrant agrees
to indemnify the officer or director against any and all
losses, claims, damages, liabilities or expenses incurred
in connection with any actual, pending or threatened
action, suit, claim or proceeding, whether civil,
criminal, administrative or investigative and whether
formal or informal, in which the officer or director is,
was or becomes involved by reason of the fact that the
officer or director is or was a director, officer,
employee, trustee or agent of the registrant or any
related company, partnership or enterprise, including
service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action (or
inaction) by the officer or director in an official
capacity and any action, suit, claim or proceeding
instituted by or at the direction of the officer or
director unless such action, suit, claim or proceeding is
or was authorized by the registrant's Board of Directors.
No indemnity pursuant to the indemnification agreements
shall be provided by the registrant on account of any suit
<PAGE>
in which a final, unappealable judgment is rendered
against the officer or director for an accounting of
profits made from the purchase or sale by the officer or
director of securities of the registrant in violation of
the provisions of Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and
amendments thereto, or for damages that have been paid
directly to the officer or director by an insurance
carrier under a policy of directors' and officers'
liability insurance maintained by the registrant.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
4.1 (1) Form of 6.25% Convertible Subordinated Debentures due
2006.
4.2 (1) Indenture, dated February 15, 1996, between the registrant
and Fleet National Bank.
4.3 (1) Registration Rights Agreement, dated February 8, 1996,
between the registrant and the initial purchasers of
the 6.25% Convertible Subordinated Debentures due 2006.
5.1 Opinion of Perkins Coie.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Perkins Coie (included in its opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (included on the signature page of this
Registration Statement).
</TABLE>
(1)Incorporated by reference to the registrant's Form 10-K
for the fiscal year ended December 31, 1995.
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant
pursuant to the provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection
with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
<PAGE>
(iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
(2) That, for the purpose of determining any
liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering
thereof.
(3) To remove from registration by means of a
posteffective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington, on January 31, 1997.
EMERITUS CORPORATION
By /s/ Daniel R. Baty
-----------------------------------------
Daniel R. Baty, Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Daniel R.
Baty and Raymond R. Brandstrom, and each of them, with full
power to act without the other, such person's true and
lawful attorneys-in-fact, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments hereto (including
posteffective amendments), and to file the same, with
exhibits and schedules thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform each
and every act and thing necessary or desirable to be done
in and about the premises, as fully to all intents and
purposes as he might or could do in person, thereby
ratifying and confirming all that said attorneys-in-fact,
or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the
<PAGE>
following persons in the capacities and as of the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------ ----- ----
<S> <C> <C>
/s/ Daniel R. Baty
------------------
Daniel R. Baty Chairman and Chief Executive January 31, 1997
Officer(Principal Executive
Officer)
/s/ Raymond R. Brandstrom
---------------------
Raymond R. Brandstrom Chief Operating Officer and January 31, 1997
Director
/s/ Kelly J. Price
----------------------
Kelly J. Price Chief Financial Officer January 31, 1997
/s/ James S. Keller
----------------------
James S. Keller Controller and Director of January 31, 1997
Accounting (Principal
Accounting Officer)
/s/ Tom A. Alberg
-----------------------
Tom A. Alberg Director January 31, 1997
/s/ Patrick Carter
-----------------------
Patrick Carter Director January 31, 1997
/s/ William E. Colson
-----------------------
William E. Colson Director January 31, 1997
<PAGE>
/s/ Motoharu Iue
-----------------------
Motoharu Iue Director January 31, 1997
</TABLE>
<PAGE>
January 29, 1997
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Re: Registration Statement
6.25% Convertible Subordinated
Debentures Due 2006
Gentlemen and Ladies:
We have acted as counsel to Emeritus Corporation
(the "Company") in connection with the preparation of the
Registration Statement on Form S-3 pursuant to Rule 462(b)
(the "Registration Statement") under the Securities Act of
1933, as amended (the "1933 Act"), that you will file with
the Securities and Exchange Commission under the 1933 Act
with respect to the proposed sale by holders of the
Company's $32,000,000 principal amount of 6.25% Convertible
Subordinated Debentures Due 2006 (the "Debentures") and the
1,454,545 shares of the Company's Common Stock into which
the Debentures are convertible (the "Shares").
We have examined the Registration Statement and
such certificates, documents and records of the Company and
other instruments as we have deemed necessary for the
purpose of this opinion. In giving this opinion, we are
assuming the authenticity of all instruments presented to us
as originals, the conformity with the originals of all
instruments presented to us as copies and the genuineness of
all signatures.
Based upon the foregoing, we are of the opinion
that, upon the filing of any amendments to the Registration
Statement and the effectiveness of the Registration
Statement, the Debentures have been validly issued and are
binding obligations of the Company (subject to the effects
of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors generally and the effect of
<PAGE>
general principles of equity, whether applied by a court of
law or equity) and the Shares, when issued upon conversion
of the Debentures in the manner described in the
Registration Statement, will be validly issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as
Exhibit 5.1 to the Registration Statement and any amendment
thereto, and to the reference to this firm under the heading
"LEGAL MATTERS."
Very truly yours,
PERKINS COIE
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
Period from
July 28,
1993
(inception) Nine months
through Year ended ended
December 31, December 31, September 30,
------------------
1993 1994 1995 1996
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Loss before income taxes $(30) $(1,432) $(8,955) $(4,466)
Add: Fixed charges, net 64 1,159 8,098 6,067
----------- -------- -------- -----------
Income (loss) before
income taxes and
fixed charges, net $34 $ (273) $ (857) $ 1,601
----------- -------- -------- -----------
Fixed Charges:
Interest expense $63 $ 1,064 $ 6,332 $ 2,896
Capitalized interest 110 880 937
Amortization of capitalized 4
interest
Amortization of debt expense 1 39 1,450 207
Interest factor of rent 56 316 2,960
expense
----------- -------- -------- -----------
Total fixed charges $64 $ 1,269 $ 8,978 $ 7,004
----------- -------- -------- -----------
Ratio of earnings to fixed charges 0.5 (0.2) (0.1) 0.2
</TABLE>
(1) For the period from July 28, 1993 (inception) through December 31,
1993, fiscal years ended December 31, 1994, 1995 and the nine months
ended September 30, 1996, fixed charges exceeded earnings by
$30,000, $1.5 million, $9.8 million and $5.4 million, respectively.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Emeritus Corporation
We consent to the use of our reports on the
consolidated financial statements of Emeritus Corporation
(Company) and subsidiaries dated February 23, 1996, except
as to note 12, which is as of March 19, 1996, incorporated
by reference herein and included in the Company's 1995 Form
10-K and the consolidated financial statements of the
Company dated September 19, 1995, except as to note 13,
which is as of October 31, 1995 and February 23, 1996, and
except as to note 12, which is as of March 19, 1996; the
financial statements of The Arbor at Olive Grove dated
August 25, 1995; the financial statements of Villa Ocotillo
dated September 1, 1995; the financial statements of Belmont
Towers dated August 25, 1995; the combined financial
statements of the Florida Communities dated September 20,
1995; the financial statements of Laurel Lake Estates dated
September 1, 1995; the statements of operating assets and
liabilities, direct operating revenues and expenses and
direct operating cash flows of Summer Wind Residence, Inc.
dated September 8, 1995; the combined statements of
operating assets and liabilities, direct operating revenues
and expenses and direct operating cash flows of the Green
Meadows Communities dated September 14, 1995, except as to
note 1, which is as of October 26, 1995; the combined
statements of operating assets and liabilities, direct
operating revenues and expenses and direct operating cash
flows of the Carolina Facilities dated September 15, 1995;
and the statements of operating assets and liabilities,
direct operating revenues and expenses and direct operating
cash flows of Heritage Hills Retirement, Inc. dated
September 15, 1995, incorporated by reference herein and
included in the Company's Form S-1 dated November 21, 1995;
and to the reference to our firm under the heading "Experts"
in the prospectus.
<PAGE>
Our report covering the combined statements of
operating assets and liabilities, direct operating revenues
and expenses and direct operating cash flows of the Green
Meadows Communities refers to uncertainties regarding the
outcome of litigation and the ability of the partnerships
which own the Green Meadows Communities to continue
collectively or individually as a going concern.
KPMG PEAT MARWICK LLP
Seattle, Washington
January 31, 1997
