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As filed with the Securities and Exchange Commission on August 14, 1997
Registration No. 333-20805
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
Amendment No. 2
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
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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 August 14, 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 August 13, 1997, the last reported sale price of
the Common Stock, as reported by AMEX, was $15.0625 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 SECURIITES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR 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.
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The date of this Prospectus is August __, 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
description of the Company's capital stock contained in the Company's
Registration Statement on Form 8-A dated October 13, 1995; the Company's
Proxy Statement filed with the Commission on April 14, 1997; the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997; and the Company's Form 8-K filed May 16, 1997 and Amendment
No. 1 there to on Form 8-K/A file July 14, 1997. 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.
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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, 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.
3
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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 June 30, 1997, the Company holds ownership, leasehold or
management interests in 90 residential communities, consisting of
approximately 7,900 units, located in 24 states. The Company leases 67 of
its residential communities, typically from a financial institution such as a
real estate investment trust, owns 16 communities, manages three community
and has a joint venture and partnership interest in four 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
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.
5
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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 31 assisted-living communities
in various stages of development and it anticipates opening nine assisted-
living communities in 1997 in addition to the 11 opened in the first quarter
and second 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 22 newly developed
communities, 16 developed by the Company and six developed by others and
acquired by the Company three of which the Company has a joint venture
interest. 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; 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.
6
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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 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 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.
7
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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 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
8
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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.
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
9
<PAGE>
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 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.
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
10
<PAGE>
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.
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 1997(2)
- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
-- (3) --(3) -- (3) --(3) --(3)
- --------------------
</TABLE>
(1) Period from commencement of operations in July 1993 through December 31,
1993.
(2) Three months ended March 31, 1997.
(3) For the period from July 28, 1993 (inception) through December 31, 1993,
the fiscal years ended December 31, 1994, 1995 and 1996, and the three months
ended March 31, 1997, fixed charges exceeded earnings by $30,000, $1.5
million, $9.8 million, $9.6 million and $4.4 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.
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
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<PAGE>
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 Principal
Amount Amount
of Debentures of Debentures Percent of
Beneficially That May Be Outstanding
Name Owned Sold Debentures
- ------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
Alex Brown & Sons, Inc. 30,000 30,000 .1%
Bank of New York 7,150,000 7,150,000 22.3%
Bear Stearns Securities Corp. 600,000 600,000 1.9%
Boston Safe Deposit & Trust Co. 7,350,000 7,350,000 23.0%
Chase Manhattan Bank 100,000 100,000 3.%
Firstar Trust Company 15,726,000 15,726,000 49.1%
Lewco Securities Corp. 20,000 20,000 .1%
Merrill Lynch, Pierce, Fenner & Smith 100,000 100,000 .3%
Nat West Securities Corporation 100,000 100,000 .3%
Paine Webber, Inc. 150,000 150,000 .5%
Dean Witter Reynaolds, Inc. 150,000 150,000 .8%
TCW Convertible Strategy Fund 420,000 420,000 1.3%
</TABLE>
12
<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
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.
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<PAGE>
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.
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
14
<PAGE>
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.
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.
15
<PAGE>
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
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.
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.
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<PAGE>
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:
Redemption
Year Price
----- -----------
1999 102%
2000 101%
2001 and thereafter 100%
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 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
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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.
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
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<PAGE>
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.
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.
19
<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, such information or
representations in connection with $32,000,000
this offering must not be relied
upon as having been authorized by 1,454,545 Shares
the Company or by any Selling
Debentureholder. This Prospectus EMERITUS CORPORATION
does not constitute an offer to sell
or a solicitation of an offer to buy
any of the securities offered hereby 6.25% Convertible
by anyone in any jurisdiction in Subordinated Debentures
which such offer or solicitation is Due 2006
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 Common Stock
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. 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 August __, 1997
====================================
====================================
NOTE: The following text is from the scan of Assisted Living Concepts S-
3. The NeoRx format follows the scanned material and has been left in to
provide assistance for formatting only. Text should be deleted
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 First Amendment to Agreement to Provide Administrative
Services to an Adult Home dated January 1, 1997
between Painted Post Partners and the registrant.
10.2 Second Amendment to Agreement to Provide
Administrative Services to an Adult Home dated January
1, 1997 between Painted Post Partners and the
registrant.
10.3 Indemnity Agreement dated November 3, 1996 between the
registrant and Painted Post Partners.
10.4 First Amendment to Indemnity Agreement dated January
1, 1997 between the registrant and Painted Post
Partners.
10.5 Undertaking and Indemnity Agreement dated October 23,
1995 between the registrant, P. Jules Patt and Pamela
J. Patt and Painted Post Partnership
10.6 First Amendment to Undertaking and Indemnity Agreement
dated January 1, 1997 between Painted Post Partners
and the registrant.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
------------------
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 August 14, 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 August 14, 1997
Daniel R. Baty (Principal Executive Officer)
/s/ Raymond R. Brandstrom
- -------------------------- Chief Operating Officer and Director August 14, 1997
Raymond R. Brandstrom
/s/ Kelly J. Price Chief Financial Officer
- -------------------------- August 14, 1997
Kelly J. Price
/s/ James S. Keller Controller (Principal Accounting
- -------------------------- Officer) August 14, 1997
James S. Keller
/s/ Tom A. Alberg * Director
- -------------------------- August 14, 1997
Tom A. Alberg
/s/ Patrick Carter * Director
- -------------------------- August 14, 1997
Patrick Carter
/s/ William E. Colson * Director
- -------------------------- August 14, 1997
William E. Colson
/s/ Motoharu Iue * Director
- -------------------------- August 14, 1997
Motoharu Iue
</TABLE>
* By: /s/ Raymond R. Brandstrom
------------------------
Raymond R. Brandstrom
Attorney-in-Fact
II-2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 First Amendment to Agreement to Provide Administrative
Services to an Adult Home dated January 1, 1997
between Painted Post Partners and the registrant.
10.2 Second Amendment to Agreement to Provide
Administrative Services to an Adult Home dated January
1, 1997 between Painted Post Partners and the
registrant.
10.3 Indemnity Agreement dated November 3, 1996 between the
registrant and Painted Post Partners.
10.4 First Amendment to Indemnity Agreement dated January
1, 1997 between the registrant and Painted Post
Partners.
10.5 Undertaking and Indemnity Agreement dated October 23,
1995 between the registrant, P. Jules Patt and Pamela
J. Patt and Painted Post Partnership
10.6 First Amendment to Undertaking and Indemnity Agreement
dated January 1, 1997 between Painted Post Partners
and the registrant.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
<PAGE>
FIRST AMENDMENT TO INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into
effective as of the 1st day of January, 1997 (the
"Effective Date") by and between Painted Post
Partners (the "Partnership") and Emeritus
Corporation (the "Emeritus").
RECITALS
A. The Partnership and Emeritus are parties
to that Undertaking and Indemnity Agreement dated
November 3,1996 (the "Indemnity Agreement")
pursuant to which Emeritus agreed to provide
certain indemnities to the Partnership in
connection with the operation of those assisted
living facilities listed in Exhibit A to the
Indemnity Agreement (the "Facilities").
B. The Partnership has determined that it is
appropriate to provide Emeritus with certain
consideration in exchange for the risks and
obligations assumed by Emeritus under the
Indemnity Agreement.
C. The Indemnity Agreement provides that it
may be amended by written instrument signed by the
parties thereto.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
Paragraph 1 is hereby amended to insert
the following language at the end
thereof.
In consideration for the obligations assumed
by Emeritus hereunder, the Partnership does
hereby agree to remit to Emeritus from time
to time as and when determined appropriate by
the Partnership's partners an amount equal to
the net pro its (as determined in accordance
with generally accepted accounting
principles), if any, of the Facilities. The
Partnership and Emeritus acknowledge and
agree that nothing herein shall be construed
<PAGE>
as a representation or warranty by the
Partnership that the Facilities will generate
any or a specified amount of net profits at
any time during the term of this Agreement.
2. Except as specifically set forth herein,
the Indemnity Agreement shall remain in full force
and effect as originally executed by the parties
thereto.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
PAINTED POST PARTNERS
By: /s/ Raymond R. Brandstrom
--------------------------
Its: Partner
By: /s/ Daniel R. Baty
--------------------------
Its: Partner
EMERITUS CORPORATION
By: Raymond R. Brandstrom
-------------------------
Its: President
<PAGE>
SECOND AMENDMENT TO AGREEMENT TO PROVIDE
ADMINISTRATIVE
SERVICES TO AN ADULT HOME
THIS AGREEMENT is made and entered into as
effective of the 1st day of January, 1997 (the
"Effective Date") by and between Painted Post
Partners, as successor in interest to P. Jules
Patt and Pamela J. Patt (the "Operator") and
Emeritus Corporation ("Emeritus").
RECITALS
A. The Operator and Emeritus are parties to
that Agreement to Provide Administrative Services
to an Adult Home dated October 23,1995, as amended
by First Amendment to Agreement to Provide
Administrative Services to Adult Home dated , 1996
(the "Agreement") with respect to that assisted
living facility located at 120 Creekside Drive,
Painted Post, New York and commonly known as Green
Meadows--Painted Post (the
"Facility").
B. The Agreement provides for a term which
expires on October 19,1997.
C. The Operator and Emeritus are interested
in amending the Agreement in order to tie the term
of the Agreement to the term of the Lease under
which the Operator has possession of the Facility.
D. The Agreement provides that it can be
amended by written agreement signed by the
parties.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual
covenants of the parties set forth herein, IT IS
HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. Article IV of the Agreement is hereby
deleted in its entirety and the following inserted
in lieu thereof:
IV. TERM OF AGREEMENT: The term of this
Agreement shall commence on October 20, 1995
(the "Commencement Date") and shall terminate
upon the expiration or sooner termination of
<PAGE>
the term (which shall include the initial
term and any renewal terms which may be
exercised thereunder) of that Lease Agreement
dated as of September 1,1996 between Health
Care Property Investors, Inc., as lessor, and
Painted Post Partners, as successor in
interest to P. Jules Patt and Pamela J. Patt,
unless sooner terminated upon the occurrence
of an Event of Default.
2. The first full paragraph of Article IX is
hereby deleted in its entirety and the following
inserted in lieu thereof:
IX. Fee: Emeritus acknowledges and agrees
that from the Commencement Date to the date
of this Second Amendment to Agreement to
Provide Administrative Services to Adult
Homes, it has received a monthly fee equal to
$ 15,000. Owner and Emeritus agree that from
and after the Effective Date hereof, Emeritus
shall receive a monthly fee equal to $20,000
for the period from January 1,1997 to
December 31,1997 and thereafter the fee shall
be reviewed annually and shall be such amount
as may be agreed upon by Owner and Emeritus
during such annual review; provided, however,
that in the event Owner and Emeritus are
unable to agree upon a fee, the fee shall be
increased, but not decreased, on each
anniversary of the Effective Date (the
"Adjustment Date") by the percentage change
in the Consumer Price Index All Cities
(1984=100) (the "CPI") from the Effective
Date to the Adjustment Date. In the event of
a decrease in the CPI from the Effective Date
to the Adjustment Date, the fee shall remain
fixed at the amount in effect on the
Adjustment Date until the next Adjustment
Date on which an increase in the CPI occurs.
3. Article XI is hereby revised to provide
that the address for notices for each of Emeritus
and the Operator shall be as follows:
Emeritus Corporation 3131 Elliott Avenue
Suite 500
Seattle, WA 98121
Phone: 206-298-2909
Facsimile: 206-301-4500
<PAGE>
Attention: Director of Acquisitions
Painted Post Partners
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
Phone: 206-298-2909
Facsimile: 206-301-4500
Attention: Raymond R. Brandstrom,
General Partner
4. Except as specifically set forth herein,
the Agreement shall remain in full force and
effect as originally executed by the parties
thereto.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
PAINTED POST PARTNERS
By: /s/ Raymond R. Brandstrom
--------------------------
Its: Partner
By: /s/ Daniel R. Baty
--------------------------
Its: Partner
EMERITUS CORPORATION
By: Raymond R. Brandstrom
-------------------------
Its: President
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (the "Agreement") is
entered into as of November 3,1996, by and between
EMERITUS CORPORATION, a Washington corporation
("EMERITUS") and PAINTED POST PARTNERS, a
Washington general partnership (the
"PARTNERSHIP"), with reference to the following
facts:
A. The Partnership is the licensed
operator of the real property and the
improvements and the personal property
comprising those adult homes located in New
York and described in Exhibit A (the
"Facilities"). In addition, the Partnership is
the employer of certain persons associated
with, and is the holder of certain licenses
necessary for, the operation of the Facility
and has made the same available to Emeritus in
connection with its operation of the Facility.
B. By Agreement to Provide Administrative
Services of even date herewith (the
"Administrative Services Agreement"), Emeritus
has agreed to provide certain administrative
services to the Partnership in connection with
the day to day operations of the Facilities.
C. Emeritus has agreed to indemnify the
Partnership from and against any and all costs,
expenses, damages and liability which it or
they may incur with respect to the Facilities,
including under the terms of the Facilities
Leases (as defined in the Administrative
Services Agreement) from and after the
Effective Date hereof (as defined below).
D. The Administrative Services Agreement
contains certain indemnity provisions which the
Partnership and Emeritus are desirous of
expanding upon in order to ensure that the
intent of the parties is met.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of
the parties set forth herein, IT IS HEREBY
AGREED AS FOLLOWS:
<PAGE>
AGREEMENT
1. INDEMNITY.
Emeritus does hereby agree to indemnify,
defend and hold harmless the Partnership and
the partners thereof entirely from and against
any and all liabilities, losses, damages,
expenses, costs, suits, legal or administrative
proceedings, or expenses of whatsoever nature
(including, without limitation, sums paid in
settlement thereof, fines, penalties, operating
expenses incurred by Emeritus (or by the
Partnership, with the understanding and
approval of Emeritus) and not covered by the
revenues of the Facility, fees due and paid or
payable to Emeritus under the Administrative
Services Agreement, rent and any other sums due
under the Facilities Leases, including sums due
in connection with the performance by the
Partnership of its obligations under the
Facilities Leases, consequential damages,
attorney's fees including attorney's fees
incurred to enforce this Agreement or to
collect any sums due hereunder, and court
costs) incurred by the Partnership from and
after the Effective Date (as defined below) in
connection with the operation of the Facilities
or the performance by the Partnership of its
obligations under the Facilities Leases
(collectively, the Losses, Costs and
Expenses").
2. ATTORNEY'S FEES
In any action or arbitration brought to
enforce or interpret any part of this Agreement,
the prevailing party shall be entitled to recover
from the other the costs and expenses of
maintaining such an action, including without
limitation, reasonable attorney's fees and
expenses incurred before such action is commenced,
before trial, at trial, and on appeal, whether
such action is at law, in equity or in a
bankruptcy proceeding.
<PAGE>
3. AMENDMENT OR MODIFICATION
This Agreement may not be amended or modified
in any respect whatsoever except by instrument in
writing signed by the parties hereto. This
Agreement and the documents and agreements
delivered pursuant hereto or in connection
herewith constitute the entire agreement between
the parties hereto and supersede all prior
negotiations, discussions, writings and agreements
between them. In the event any of the provisions
of this Agreement conflict with any of the
provisions of the Administrative Services
Agreement, the provisions of this Agreement shall
control.
4. SUCCESSORS AND ASSIGNS
The terms of this Agreement shall be binding
upon and inure to the benefit of and be
enforceable by and against the heirs and
successors of the parties hereto; provided,
however, that Emeritus shall not have the right to
assign this Agreement other than in conjunction
with a permitted assignment of the Administrative
Services Agreement.
5. GOVERNING LAW
This Agreement shall be governed by and
construed in accordance with the laws of the State
of Washington.
6. SEVERABILITY
Should any one or more of the provisions
of this Agreement be determined to be invalid,
unlawful or unenforceable in any respect, the
validity, legality and enforceability of the
remaining provisions hereof shall not in any way
be affect or impaired thereby.
7. COUNTERPARTS
This Agreement may be executed in
counterparts, each of which shall be deemed to be
an original, but all of which taken together shall
constitute but one and the same instrument.
<PAGE>
8. EFFECTIVE DATE
This Agreement shall be effective as of
November 3,1996 (the "Effective Date")
IN WITNESS WHEREOF, this Agreement has been
executed by the parties as of the date first set
forth above.
EMERITUS CORPORATION
By: Frank Ruffo
-------------------------
Its: EVP
PAINTED POST PARTNERS
By: /s/ Raymond R. Brandstrom
--------------------------
Its: Partner
By: /s/ Daniel R. Baty
--------------------------
Its: Partner
<PAGE>
EXHIBIT A
FACILITIES
Colonie Manor Bassett Park Manor
626 Watervliet Shaker Road 111 St. Gregory
Court
Latham, New York 12110 Williamsville, New
York 14221
Bassett Manor Woodland Manor
245 Bassett Road 505 Clubhouse Road
Williamsville, New York 14221 Vestal, New York
13850
West Side manor East Side Manor
4055 Long Branch Road 7164 East Genessee
Street
Liverpool, New York 13090 Fayetteville, New
York 13066
Bellevue Manor West Side Manor
4330 Onondaga Boulevard 1404 Long Pond Road
Syracuse, New York 13219 Rochester, New York 14626
Perinton Park Manor
100 Chardonnay Drive
Fairport, New York 14450
<PAGE>
FIRST AMENDMENT TO AGREEMENT TO PROVIDE
ADMINISTRATIVE SERVICES TO AN ADULT HOME
THIS AGREEMENT is made and entered into
effective as of the 1st day of January, 1997 (the
"Effective Date") by and between Painted Post
Partners (the "Partnership") and Emeritus
Corporation ("Emeritus").
RECITALS
A. The Partnership and Emeritus are parties
to that Agreement to Provide Administrative
Services to an Adult Home dated September 2,1996
(the "Agreement") with respect to those adult
homes located in New York and listed in Exhibit A
to the Agreement (the "Facilities").
B. The Agreement provides for a term of two
years commencing on the
commencement date of each of the leases under
which the Partnership has possession of the
Facilities (the "Facility Leases").
C. The Partnership and Emeritus are
interested in amending the Agreement in order to
tie the term of the Agreement to the term of the
Facility Leases.
D. The Agreement provides that it can be
amended by written agreement signed by the
parties.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. Article IV of the Agreement is hereby
deleted in its entirety and the following inserted
in lieu thereof..
IV. TERM OF AGREEMENT: The term of this
Agreement shall commence on as to each of the
Facilities on the applicable Commencement
Date (as defined in the applicable Facilities
Lease (the "Commencement Date") and shall
<PAGE>
terminate upon the expiration or sooner
termination of the term (which shall include
the initial term and any renewal terms which
may be exercised thereunder) of each such
Facility Lease, unless sooner terminated upon
the occurrence of an Event of Default (the
"Termination Date"). Operator and Emeritus
acknowledge and agree that it is the intent
of the parties that the Commencement Date
shall be the same as to all of the Facilities
other than Perinton Park Manor, which is
under construction and the term of which
Facility Lease may accordingly commence later
than the term of the other Facilities Leases
commences but that the Termination Date shall
be the same as to all of the Facilities.
2. The first full paragraph of Article IX is
hereby deleted in its entirety and the following
inserted in lieu thereof:
IX. Fee: Emeritus acknowledges and agrees
that from the Commencement Date to the date
of this First Amendment to Agreement to
Provide Administrative Services to Adult
Homes, it has received a monthly fee equal to
$58,333. Owner and Emeritus agree that from
and after the Effective Date hereof, Emeritus
shall receive a monthly fee equal to $80,000
for the period from January 1,1997 to
December 31, I 997 and thereafter the fee
shall be reviewed annually and shall be such
amount as may be agreed upon by Owner and
Emeritus during such annual review; provided,
however, that in the event Owner and Emeritus
are unable to agree upon a fee, the fee shall
be increased, but not decreased, on each
anniversary of the Effective Date (the
"Adjustment Date") by the percentage change
in the Consumer Price Index All Cities
(1984=100) (the "CPI") from the Effective
Date to the Adjustment Date. In the event of
a decrease in the CPI from the Effective Date
to the Adjustment Date, the fee shall remain
fixed at the amount in effect on the
Adjustment Date until the next Adjustment
Date on which an increase in the CPI occurs.
3. Except as specifically set forth herein,
the Agreement shall remain in full force and
effect as originally executed by the parties
<PAGE>
thereto.
:IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
PAINTED POST PARTNERS
By: /s/ Raymond R. Brandstrom
--------------------------
Its: Partner
By: /s/ Daniel R. Baty
--------------------------
Its: Partner
EMERITUS CORPORATION
By: Raymond R. Brandstrom
-------------------------
Its: President
<PAGE>
UNDERTAKING AND INDEMNITY AGREEMENT
THIS UNDERTAKING AND INDEMNITY AGREEMENT (the
"Agreement") is entered into as of the 23rd day of
October,1995, by and between EMERITUS CORPORATION,
a Washington corporation ("EMERITUS"), P. JULES
PATT AND PAMELA J. PATT (collectively "PATT") and
PAINTED POST PARTNERSHIP, a Pennsylvania general
partnership (the "PARTNERSHIP"), with reference to
the following facts:
A. The Partnership is the owner, and Patt is
the licensed operator, of the real property and
the improvements and the personal property
comprising that adult home known as Green Meadows
Painted Post and located at 120 Creekside Drive,
Painted Post, New York (the "Facility"). In
addition, the Partnership is the employer of
certain persons associated with, and is the holder
of certain licenses necessary for, the operation
of the Facility and has made the same available to
Patt in connection with its operation of the
Facility.
B. By Asset Purchase Agreement dated July
31, I 995, as assigned and amended by Assignment
and Assumption Agreement dated August 31,1995 and
Consent To Assignment Of and First Amendment To
Asset Purchase Agreement dated September 1,1995,
Emeritus Corporation, a Washington corporation
("Emeritus") agreed to acquire the Facility from
the Partnership, which is the owner of the real
and personal property comprising the Facility.
C. In order to finance its acquisition of
the Facility and three other facilities in
Pennsylvania and Delaware owned by affiliates of
the Partnership (the "Other Facilities"), Emeritus
assigned its right to acquire the Facility and the
Other Facilities to Health Care Property
Investors, Inc. and to HCPI Trust (collectively,
"HCPI").
D. Under the terms of its agreement with
HCPI, HCPI will lease the Facility back to the
Partnership under the terms of a Lease Agreement
of even date herewith (the "Facility Lease"),
which in turn has agreed to assign the Facility
Lease to Patt, as the licensed operator of the
Facility, and HCPI will lease the Other Facilities
to Emeritus, all of which will occur concurrently
<PAGE>
with HCPI's acquisition of title thereto. Patt has
further agreed to assign the Facility Lease to
Emeritus' affiliate, Painted Post Partners, a
Washington general partnership ("Painted Post
Partners") at such time as it becomes the licensed
operator of the Facility.
E. By Agreement to Provide Administrative
Services of even date herewith (the
"Administrative Services Agreement"), Emeritus has
agreed to provide certain administrative services
to Patt in connection with the day to day
operations of the Facility pending an assignment
of the Lease to Painted Post Partners. In order to
facilitate the provision by Emeritus of the
services provided thereunder, the Partnership is
willing to continue to make the employees and the
licenses controlled by it available to Patt until
the Lease is assigned to Painted Post Partners and
to confirm that obligation in writing for the
benefit of Patt and Emeritus.
I. In light of the fact that the Partnership
and Patt agreed as an accommodation to Emeritus to
lease the Facility from HCPI, Emeritus has agreed
to indemnify Patt and the Partnership from and
against any and all costs, expenses, damages and
liability which it or they may incur with respect
to the Facility and the Facility Lease from and
after the Effective Date hereof(as defined below).
J. The Administrative Services Agreement
contains certain indemnity provisions which Patt
and Emeritus are desirous of expanding upon in
order to ensure that the intent of the parties is
met.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
INDEMNITY.
Emeritus does hereby agree to indemnify,
defend and hold harmless Patt and the Partnership
and the partners thereof entirely from and against
any and all liabilities, losses, damages,
expenses, costs, suits, legal or administrative
<PAGE>
proceedings, or expenses of whatsoever nature
(including, without limitation, sums paid in
settlement thereof, fines, penalties, operating
expenses incurred by Emeritus (or by the
Partnership and/or Patt, with the understanding
and approval of Emeritus) and not covered by the
revenues of the Facility, fees due and paid or
payable to Emeritus under the Administrative
Services Agreement, including fees accrued prior
to the date of the assignment of the
Administrative Services Agreement to Painted Post
Partners, rent and any other sums due under the
Facility Lease, including sums due in connection
with the performance by Patt or the Partnership of
its or their obligations under the Facility Lease,
consequential damages, attorney's fees including
attorney's fees incurred to enforce this Agreement
or to collect any sums due hereunder, and court
costs) incurred by Patt and the Partnership from
and after the Effective Date (as defined below) in
connection with the operation of the Facility or
the performance by the Partnership or Patt of its
or their obligations under the Facility Lease
(collectively, the "Losses, Costs and Expenses");
provided, however, that nothing herein shall be
construed as obligating Emeritus to indemnify Patt
or the Partnership from any Losses, Costs and
Expenses which result from an Event of Default by
Patt (as defined herein).
Patt does hereby agree to indemnify, defend
and hold harmless Emeritus entirely from and
against any Losses, Costs and Expenses which
Emeritus may incur as a result of the occurrence
of an Event of Default by Patt. For purposes
hereof, it shall be deemed to be an Event of
Default by Patt if Patt shall take any action in
exercising the rights granted to it or performing
the obligations imposed on it under the
Administrative Services Agreement which are not
otherwise the responsibility of Emeritus under the
provisions of this Indemnity Agreement and, as a
result thereof, Emeritus incurs any Losses, Costs
and Expenses as a result thereof unless (i) such
action was recommended, suggested or approved by
Emeritus, (ii) Emeritus, fails within ten (10)
days after receiving written notice of Patt's
intention to take any such action, to notify Patt
in writing of Emeritus' objections thereto or
(iii) Patt takes such action as a result of
Emeritus' failure to perform one or more of its
<PAGE>
obligations under the Administrative Services
Agreement as and when the same are to be performed
pursuant thereto or within any cure period
provided for therein. Notwithstanding anything to
the contrary contained herein or in the
Administrative Services Agreement, Patt shall not
be required to pay Emeritus any fee otherwise
required to be paid to Emeritus pursuant to the
Administrative Services Agreement other than from
revenues generated by the Facility.
The foregoing indemnity obligations of each
of Emeritus and Patt to the other shall terminate
upon the assignment of the Facility Lease and the
Administrative Services Agreement to Painted Post
Partners except with respect to any acts or
omissions occurring prior to the date of said
assignment with respect to which the indemnity
obligations of each party shall survive until a
full and final resolution of any matters related
thereto whether raised before or after the date of
said assignment. Except as specifically set forth
herein, each of Emeritus and Patt shall be
released from any further obligations to the other
hereunder upon the effective date of said
assignment.
2. UNDERTAKING
In order to facilitate the performance by
Patt of its obligations under the Lease and by
Emeritus of its obligations under the
Administrative Services Agreement, the Partnership
does hereby agree to continue to make available to
Patt the persons in its employ and the licenses
held by it in connection with the operation of the
Facility. This undertaking shall terminate upon
the assignment of the Facility Lease by Patt and
the Partnership to Painted Post Partners in
accordance with the terms thereof.
3. ATTORNEY'S FEES
In any action or arbitration brought to
enforce or interpret any part of this Agreement,
the prevailing party shall be entitled to recover
from the other the costs and expenses of
maintaining such an action, including without
limitation, reasonable attorney's fees and
expenses incurred before such action is commenced,
before trial, at trial, and on appeal, whether
<PAGE>
such action is at law, in equity or in a
bankruptcy proceeding.
4. AMENDMENT OR MODIFICATION
This Agreement may not be amended or modified
in any respect whatsoever except by instrument in
writing signed by the parties hereto. This
Agreement and the documents and agreements
delivered pursuant hereto or in connection
herewith constitute the entire agreement between
the parties hereto and supersede all prior
negotiations, discussions, writings and agreements
between them. In the event any of the provisions
of this Agreement conflict with any of the
provisions of the Administrative Services
Agreement, the provisions of this Agreement shall
control.
5. SUCCESSORS AND ASSIGNS
The terms of this Agreement shall be binding
upon and inure to the benefit of and be
enforceable by and against the heirs and
successors of the parties hereto, including, but
not limited to, Painted Post Partners and its
general partners, Raymond R. Brandstrom and Daniel
R. Baty, upon the assignment of the Facility Lease
to Painted Post Partners by the Partnership and
Patt.
6. GOVERNING LAW
This Agreement shall be governed by and
construed in accordance with the laws of the State
of Washington.
7. SEVERABILITY
Should any one or more of the provisions of
this Agreement be determined to be invalid,
unlawful or unenforceable in any respect, the
validity, legality and enforceability of the
remaining provisions hereof shall not in any way
be affected or impaired thereby.
8. COUNTERPARTS
This Agreement may be executed in
counterparts, each of which shall be deemed to be
an original, but all of which taken together shall
<PAGE>
constitute but one and the same instrument.
9. EFFECTIVE DATE
This Agreement shall be effective as of
October 23, I995 (the "Effective Date")
IN WITNESS WHEREOF, this Agreement has been
executed by the parties as of the date first set
forth above.
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
----------------------------
Its: President
PAINTED POST PARTNERSHIP
By: /s/
----------------------------
Its: G.P.
P. JULES PATT
/s/ P. Jules Patt
-------------------------------
PAMELA J. PATT
/s/ Pamela J. Patt
-------------------------------
<PAGE>
FIRST AMENDMENT TO UNDERTAHING AND INDEMNITY
AGREEMENT
THIS AGREEMENT is made and entered into
effective as of the 1st day of January, 1997 (the
"Effective Date") by and between Painted Post
Partners, as successor in interest to P. Jules
Patt and Pamela Patt (the "Partnership") and
Emeritus Corporation (the "Emeritus").
RECITALS
A. The Partnership and Emeritus are parties
to that Undertaking and Indemnity Agreement dated
October 23,1995 (the "Indemnity Agreement")
pursuant to which Emeritus agreed to provide
certain indemnities to the Partnership in
connection with the operation of that assisted
living facility located at I 20 Creekside Drive,
Painted Post, New York and known as Green Meadows-
Painted Post (the "Facility").
B. The Partnership has determined that it is
appropriate to provide Emeritus with certain
consideration in exchange for the risks and
obligations assumed by Emeritus under the
Indemnity Agreement.
C. The Indemnity Agreement provides that it
may be amended by written instrument signed by the
parties thereto.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. Paragraph I is hereby amended to insert
the following language at the end thereof:
In consideration for the obligations assumed
by Emeritus hereunder, the Partnership does
hereby agree to remit to Emeritus from time
to time as and when determined appropriate by
the Partnership's partners an amount equal to
the net profits (as determined in accordance
with generally accepted accounting
principles), if any, of the Facility. The
Partnership and Emeritus acknowledge and
<PAGE>
agree that nothing herein shall be construed
as a representation or warranty by the
Partnership that the Facility will generate
any or a specified amount of net profits at
any time during the term of this Agreement.
2. Except as specifically set forth herein,
the Indemnity Agreement shall remain in full force
and effect as originally executed by the parties
thereto.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
PAINTED POST PARTNERS
By: /s/ Raymond R. Brandstrom
--------------------------
Its: Partner
By: /s/ Daniel R. Baty
--------------------------
Its: Partner
EMERITUS CORPORATION
By: Raymond R. Brandstrom
-------------------------
Its: President
<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, Three Months Ended
December 31, ------------------------------- March 31,
1993 1994 1995 1996 1997
------------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Loss before income taxes $(30) $(1,432) $(8,954) $ (8,202) $(3,572)
Add: Fixed charges, net 64 1,159 8,098 9,083 3,254
------------- --------- --------- --------- -----------------
Income (loss) before income
taxes and fixed charges, net $34 $ (273) $ (856) $ 881 $ (318)
------------- --------- --------- --------- -----------------
Fixed Charges:
Interest expense $63 $ 1,064 $ 6,332 $ 4,018 $ 1,082
Capitalized interest - 110 880 1,442 853
Amortization of capitalized
interest - - - - -
Amortization of debt expense 1 39 1,450 241 94
Interest factor of rent expense - 56 316 4,824 2,078
------------- --------- --------- --------- -----------------
Total fixed charges $64 $ 1,269 $8,978 $10,525 $ 4,107
------------- --------- --------- --------- -----------------
Ratio of earnings to fixed charges 0.5 (0.2) (0.1) 0.1 (0.1)
(1) For the period from July 28, 1993 (inception) through December 31,
1993, fiscal years ended December 31, 1994, 1995, and 1996 and three months
ended March 31, 1997, fixed charges exceeded earnings by $30,000, $1.5
million, $9.8 million, $9.6 million and $4.4 million, respectively.
</TABLE>
<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.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Seattle, Washington
August 14, 1997
II-3
