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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997.
REGISTRATION NO. 333- ____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
8361
(Primary Standard Industrial
Classification Code Number)
54-1746596
(I.R.S. Employer
Identification No.)
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9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(703) 273-7500
(Address, including zip code, and telephone
number, including area code of registrant's principal executive offices)
PAUL J. KLAASSEN
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
SUNRISE ASSISTED LIVING, INC.
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(703) 273-7500
(Name and address including zip code, and telephone number, including area code
of agent for service)
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COPY TO:
GEORGE P. BARSNESS, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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 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.
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITY TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER NOTE(1) PRICE(1) REGISTRATION FEES
<S> <C> <C> <C> <C>
5 1/2% Convertible Subordinated Notes due
2002........................................ $150,000,000 100% $150,000,000 $45,455
Common Stock, par value $0.01 per share..... (2) (2) (2) None
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such indeterminate number of shares of Common Stock as shall be issuable
upon conversion of the Notes being registered hereunder. No additional
consideration will be received for the Common Stock and therefore no
registration fee is required pursuant to Rule 457(i).
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 3
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.
SUBJECT TO COMPLETION DATED AUGUST 26, 1997
PROSPECTUS
$150,000,000
SUNRISE ASSISTED LIVING, INC.
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2002
This Prospectus relates to the offering by the selling securityholders (the
"Selling Securityholders") of up to an aggregate of $150,000,000 of 5 1/2%
Convertible Subordinated Notes due 2002 (the "Notes") of Sunrise Assisted
Living, Inc., a Delaware corporation (the "Company"), and the 4,033,613 shares
of common stock, par value $0.01 per share (the "Common Stock"), that are
issuable upon conversion of the Notes at the initial conversion price (the
"Conversion Price") of $37.1875 per share (equivalent to a conversion rate of
26.89 shares per $1,000 principal amount of Notes), subject to adjustment in
certain events. The Notes will be convertible at the option of the holder into
shares of Common Stock at any time on or after the 90th day following the
latest date of initial issuance of the Notes and prior to the close of business
on the Stated Maturity of the Notes, unless previously redeemed or repurchased.
See "Description of Notes -- Conversion Rights." The Notes offered hereby were
originally offered by the Company in an underwritten private placement.
Interest on the Notes is payable semi-annually on June 15 and December 15
of each year, commencing on December 15, 1997. The Notes are redeemable, in
whole or in part, at the option of the Company, at any time on or after June
15, 2000, at the redemption prices set forth herein, plus accrued and unpaid
interest and liquidated damages, if any, to the date of redemption. The Company
will be required to offer to purchase the Notes upon a Change of Control (as
defined) at 100% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase. There can be
no assurance that the Company will have available financial resources necessary
to repurchase the Notes in such circumstances.
The Notes are unsecured, general obligations of the Company, subordinated
in right of payment to all existing and future Senior Indebtedness (as defined)
of the Company. The Indenture (as defined) will not restrict the incurrence of
Senior Indebtedness or other indebtedness by the Company and its subsidiaries.
At June 30, 1997, the Company had $121.1 million of Senior Indebtedness
outstanding. See "Description of Notes."
The Notes may be sold from time to time pursuant to this Prospectus by the
Selling Securityholders. The Notes may be sold by the Selling Securityholders
in ordinary brokerage transactions, in transactions in which brokers solicit
purchases, in negotiated transactions, or in a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices. See "Plan of
Distribution." The distribution of the Notes is not subject to any underwriting
agreement. The Company will receive no part of the proceeds of sales from the
offering by the Selling Securityholders. All expenses of registration incurred
in connection with this offering are being borne by the Company, but all
selling and other expenses incurred by the Selling Securityholders will be
borne by such Selling Securityholders. None of the securities offered pursuant
to this Prospectus have been registered prior to the filing of the Registration
Statement of which this Prospectus is a part.
On August 19, 1997, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market (where it trades under the symbol "SNRZ")
was $33.375 per share.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE PROSPECTUS FOR
CERTAIN INFORMATION RELATING TO THE SALE OF THE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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August __, 1997
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC" or the "Commission").
Reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, NW, Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission at 450 West Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates. The reports, proxy statements
and other information may also be obtained from the Web site that the
Commission maintains at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Any statements contained herein
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
<TABLE>
<S> <C>
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Current Report on Form 8-K dated February 5, 1997;
3. The Company's Current Report on Form 8-K dated March 5, 1997;
4. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997;
5. The Company's Current Report on Form 8-K dated June 2, 1997;
6. The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997; and
7. The description of the Company's Common Stock contained in
the Registrant's Form 8-A filed with the Commission on May
30, 1996, including any amendment or report filed for the
purpose of updating such description filed with the
Commission pursuant to Section 13 of the Exchange Act.
</TABLE>
All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing such documents.
Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all information that
has been incorporated by reference in the Prospectus not including exhibits to
the information that is incorporated by reference (unless such exhibits are
specifically
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incorporated by reference into such documents). Requests should be directed to
Teresa M. Klaassen, the Company's Executive Vice President and Secretary at the
Company's principal executive offices located at 9401 Lee Highway, Suite 300,
Fairfax, Virginia 22031. The telephone number is (703) 273-7500.
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Notes. This Prospectus contains certain forward
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors, including those set forth below and
elsewhere in the Prospectus.
RECENT NET LOSSES
The Company incurred a net loss of $4.8 million in 1996, compared to a net
loss of $10.1 million in 1995 and net income (after a $0.9 million
extraordinary gain) of $1.4 million in 1994. For the six months ended June 30,
1997, the Company had net income of $0.5 million compared to a net loss of $4.1
million for the six months ended June 30, 1996. As a result of expenses
incurred to support its growth strategy, the Company may incur losses in the
future if the Company does not achieve its development objectives, a
significant number of newly developed assisted living facilities do not achieve
break-even operating results within the time expected or development,
construction or operating expenses exceed expectations.
DEVELOPMENT AND CONSTRUCTION RISKS
The Company's growth objectives include developing at least 55 new Sunrise
model assisted living facilities with an additional resident capacity of more
than 4,500 by the end of 1999. The Company has completed development of 14 of
such 55 new model facilities, with a resident capacity of 1,276. The Company is
pursuing additional development opportunities as market conditions warrant. The
Company's ability to achieve its development plans will depend upon a variety
of factors, many of which are beyond the Company's control. There can be no
assurance that the Company will not suffer delays in its development program,
which could slow the Company's growth. The successful development of additional
assisted living facilities will involve a number of risks, including the
possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates, may not complete
construction projects on schedule and may experience competition in the search
for suitable development sites. The Company relies on third-party general
contractors to construct its new assisted living facilities. There can be no
assurance that the Company will not experience difficulties in working with
general contractors and subcontractors, which could result in increased
construction costs and delays. Further, facility development is subject to a
number of contingencies over which the Company will have little control and
that may adversely affect project cost and completion time, including shortages
of, or the inability to obtain, labor or materials, the inability of the
general contractor or subcontractors to perform under their contracts, strikes,
adverse weather conditions and changes in applicable laws or regulations or in
the method of applying such laws and regulations. Accordingly, if the Company
is unable to achieve its development plans, its business, financial condition
and results of operations could be adversely affected.
ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION
In addition to developing additional assisted living facilities, the
Company also plans by the end of 1999 as market conditions warrant to acquire
up to eight additional assisted living facilities or facilities that can be
repositioned as Sunrise assisted living facilities. The Company is actively
pursuing acquisition opportunities and has had discussions with a number of
potential sellers regarding potential acquisition transactions. Possible
acquisition transactions are in the early stage of review by the Company. With
the exception of the contingent purchase and sale agreements for two California
facilities, the Company is not a party to any agreements with respect to any
material acquisitions. There can be no assurance that the Company's acquisition
of assisted living facilities will be completed at the rate currently expected,
if at all. The success of the Company's acquisitions will be determined by
numerous factors, including the Company's ability to identify suitable
acquisition candidates, competition for such acquisitions, the purchase price,
the financial performance of the facilities after acquisition and the ability
of the Company to integrate effectively the operations of acquired facilities.
Any failure by the Company to integrate or operate acquired facilities
effectively may have a material adverse effect on the Company's business,
financial condition and results of operations.
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NEED FOR ADDITIONAL FINANCING
To achieve its growth objectives, the Company will need to obtain
sufficient financial resources to fund its development, construction and
acquisition activities. The estimated cost to complete and lease up the 41
remaining new Sunrise model facilities targeted for completion by the end of
1999 is between $305 million and $410 million Accordingly, the Company's future
growth will depend on its ability to obtain additional financing on acceptable
terms. The Company currently estimates that the net proceeds to the Company
from the sale of the Notes, together with the net proceeds to the Company from
its initial and follow-on public offerings completed in 1996, existing working
capital and financing commitments and financing expected to be available, will
be sufficient to fund its development and acquisition programs for at least the
next 18 months. The Company will from time to time seek additional funding
through public or private financing sources, including equity or debt
financing. If additional funds are raised by issuing equity securities, the
Company's stockholders may experience dilution. There can be no assurance that
adequate funding will be available as needed or on terms acceptable to the
Company. A lack of funds may require the Company to delay or eliminate all or
some of its development projects and acquisition plans.
SUBORDINATION
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness, and are structurally subordinated to all liabilities
including trade payables of the Company's subsidiaries. As of June 30, 1997,
the Company had $121.1 million of Senior Indebtedness outstanding. The
Indenture does not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its subsidiaries. By reason of such
subordination, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of the Company, the
assets of the Company will be available to pay the amounts due on the Notes
only after all Senior Indebtedness has been paid in full and, therefore, there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. See "Description of Notes -- Subordination."
The Company's ability to meet its cash obligations in the future will be
dependent upon the ability of its subsidiaries to make cash distributions to
the Company. The ability of its subsidiaries to make distributions to the
Company is and will continue to be restricted by, among other limitations,
applicable provisions of state law and contractual provisions. The Indenture
does not limit the ability of the Company's subsidiaries to incur such
restrictions in the future. The right of the Company to participate in the
assets of any subsidiary (and thus the ability of holders of the Notes to
benefit indirectly from such assets) is generally subject to the prior claims
of creditors, including trade creditors, of that subsidiary except to the
extent that the Company is recognized as a creditor of such subsidiary, in
which case the Company's claim would still be subject to any security interest
of other creditors of such subsidiary. The Notes, therefore, are structurally
subordinated to creditors, including trade creditors, of subsidiaries of the
Company with respect to the assets of the subsidiaries against which such
creditors have a claim.
ADVERSE CONSEQUENCES OF INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY
LEVERAGE. The Company was subject to mortgage, construction and other
indebtedness in an aggregate principal amount of approximately $121.1 million
(excluding notes payable to affiliates) at June 30, 1997. After giving effect
to the sale of the Notes, indebtedness totaled $271.1 million at June 30, 1997.
The Company intends to continue financing its properties through mortgage
financing and possibly operating leases or other financing vehicles, including
lines of credit. The amount of mortgage indebtedness and other debt and debt
related payments is expected to increase substantially as the Company pursues
its growth strategy. As a result, an increasing portion of the Company's cash
flow will be devoted to debt service and related payments and the Company will
continue to be subject to risks normally associated with leverage. The
consequences of such leverage include, but are not limited to, compliance with
financial covenants and other restrictions that (i) require the Company to meet
certain financial tests and maintain certain escrows of funds, (ii) require
that the Company's founders, Paul Klaassen and Teresa Klaassen, maintain
ownership of at least 15% of the Common Stock and that one of them serve as
Chairman of the Board and Chief Executive Officer of the Company, (iii) require
consent for changes in management or control of the Company, (iv) limit, among
other things, the ability of the Company and certain Company subsidiaries to
borrow additional funds, dispose of assets and engage in mergers or other
business combinations, and (v) prohibit the Company from operating competing
facilities within certain distances from mortgaged facilities.
RISK OF RISING INTEREST RATES. At June 30, 1997, approximately $42.1
million in principal amount of the Company's indebtedness bore interest at
floating rates. In addition, indebtedness that the Company may incur in the
future may also bear interest at a floating rate. Therefore, increases in
prevailing interest rates could increase the Company's interest payment
obligations and could have an
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adverse effect on the Company's business, financial condition and results of
operations. For example, a one-eighth of one percent increase in interest rates
would increase the Company's annual interest expense by approximately $53,000.
CONSEQUENCES OF DEFAULT. There can be no assurance that the Company will
generate sufficient cash flow from operations to cover required interest,
principal and any operating lease payments. Any payment or other default could
cause the lender to foreclose upon the facilities securing such indebtedness
or, in the case of an operating lease, could terminate the lease, with a
consequent loss of income and asset value to the Company. In certain cases,
indebtedness secured by a facility is also secured by a pledge of the Company's
interests in the facility. In the event of a default with respect to any such
indebtedness, the lender could avoid the judicial procedures required to
foreclose on real property by foreclosing on the pledge instead, thus
accelerating the lender's acquisition of the facility. Further, because of
cross-default and cross-collateralization provisions in certain of the
Company's mortgages, a default by the Company on one of its payment obligations
could adversely affect a significant number of the Company's other properties.
BOND FINANCING. Two facilities have been financed by bonds. In order to
continue to qualify for favorable tax treatment of the interest payable on
these bonds, the facilities must comply with certain federal income tax
requirements, principally pertaining to the maximum income level of a specified
portion of the residents. Failure to satisfy these requirements constitutes an
event of default under the bonds, thereby accelerating their maturity.
COMPETITION
The long-term care industry is highly competitive and the Company believes
that the assisted 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 health
care agencies, facility-based service programs, retirement communities and
convalescent centers. In general, regulatory and other barriers to competitive
entry in the assisted living industry are not substantial. In pursuing its
growth strategy, the Company expects to face competition in its efforts to
develop and acquire assisted living facilities. Some of the Company's present
and potential competitors are significantly larger and have, or may obtain,
greater financial resources than the Company. Consequently, there can be no
assurance that the Company will not encounter increased competition that could
limit its ability to attract residents or expand its business and that could
have a material adverse effect on its business, financial condition and results
of operations. Moreover, if the development of new assisted living facilities
outpaces demand for those facilities in certain markets, such markets may
become saturated. Such an oversupply of facilities could cause the Company to
experience decreased occupancy, depressed margins and lower operating results.
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company expects that the number of owned and operated facilities will
increase substantially as it pursues its development and acquisition programs
for new assisted living facilities. This rapid growth will place significant
demands on the Company's management resources. The Company's ability to manage
its growth effectively will require it to continue to expand 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, financial condition and results of
operations could be adversely affected.
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends on the services of Paul J. Klaassen, its Chairman of
the Board, Chief Executive Officer and co-founder; Teresa M. Klaassen, its
Executive Vice President, Secretary and co-founder; and David W. Faeder, its
President and Chief Financial Officer. The loss of the services of any such
officers could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company also depends on its
ability to continue to attract and retain management personnel who will be
responsible for the day-to-day operations of its assisted living facilities. If
the Company is unable to hire qualified management personnel to operate its
assisted living facilities, the Company's business, financial condition and
results of operations could be adversely affected.
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STAFFING AND LABOR COSTS
The Company competes with various health care services providers, including
other elderly care providers, in attracting and retaining qualified or skilled
personnel. A shortage of nurses or other trained personnel or general
inflationary pressures may require the Company to enhance its wage and benefits
package to compete effectively for personnel. In anticipation of the Company's
growth plans, the Company's general and administrative expenses (which consist
primarily of staffing and labor expenses, including hiring additional staff and
increasing the salary and benefits of existing staff) have increased from 12.3%
of operating revenue for 1994 to 18.5% and 21.2% of operating revenue for 1995
and 1996, respectively. General and administrative expenses were 15.2% of
operating revenue for the six months ended June 30, 1997. There can be no
assurance that the Company's labor costs will not continue to increase as a
percentage of operating revenue. 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, financial condition
and results of operations.
GOVERNMENT REGULATION
The Company's facilities are subject to regulation and licensing by state
and local health and social service agencies and other regulatory authorities,
although requirements vary from state to state. In general, these requirements
address, among other things: personnel education, training, and records;
facility services, including administration of medication, assistance with
self-administration of medication, and limited nursing services; monitoring of
resident wellness; physical plant specifications; furnishing of resident units;
food and housekeeping services; emergency evacuation plans; and resident rights
and responsibilities, including in some states the right to receive certain
health care services from providers of a resident's choice. Certain of the
Company's facilities are also licensed to provide independent living services
which generally involve lower levels of resident assistance. In several states
in which the Company operates or intends to operate, assisted living facilities
also require a certificate of need before the facility can be opened. In most
states, assisted living facilities also are subject to state or local building
code, fire code and food service licensure or certification requirements. Like
other health care facilities, assisted living facilities are subject to
periodic survey or inspection by governmental authorities. From time to time in
the ordinary course of business, the Company receives deficiency reports. The
Company reviews such reports and seeks to take appropriate corrective action.
Although most inspection deficiencies are resolved through a plan of
correction, the reviewing agency typically is authorized to take action against
a licensed facility where deficiencies are noted in the inspection process.
Such action may include imposition of fines, imposition of a provisional or
conditional license or suspension or revocation of a license or other
sanctions.
Any failure by the Company to comply with applicable requirements could
have a material and adverse effect on the Company's business, financial
condition and results of operations. Regulation of the assisted living industry
is evolving and the Company's operations could also be adversely affected by,
among other things, future regulatory developments such as mandatory increases
in scope and quality of care to be afforded residents and revisions to
licensing and certification standards. Increased regulatory requirements could
increase costs of compliance with such requirements.
Virginia state and local authorities initiated actions in 1995 alleging
that the Company permitted non-ambulatory residents to reside at the Company's
Gunston and Countryside facilities in violation of state licensure requirements
and the state building code. The Company entered into consent decrees, pursuant
to which it agreed to permit only ambulatory residents to reside at the
facilities until the buildings had been upgraded to meet more stringent fire
code requirements for non-ambulatory residents. During 1995, the Company made
capital improvements to these two facilities at an aggregate cost of
approximately $1.1 million. The Company recently has received the issuance of
new licenses that would enable non-ambulatory residents to reside at these
facilities.
The Company also is subject to Federal and state anti-remuneration laws,
such as the Medicare/ Medicaid anti-kickback laws which govern certain
financial arrangements among health care providers and others who may be in a
position to refer or recommend patients to such providers. These laws prohibit,
among other things, certain direct and indirect payments that are intended to
induce the referral of patients to, the arranging for services by, or the
recommending of, a particular provider of health care items or services. The
Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to
certain contractual relationships between health care providers and sources of
patient referral, including agreements like the Company's agreement with
Jefferson Health System. Similar state laws vary from state to state, are
sometimes vague and seldom have been interpreted by courts or regulatory
agencies. Violation of these laws can result in loss of licensure, civil and
criminal penalties, and exclusion of health care providers or suppliers from
participation in (i.e., furnishing covered items or services to beneficiaries
of) the Medicare and Medicaid programs. There can be no assurance that such
laws will be interpreted in a manner consistent with the practices of the
Company.
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ENVIRONMENTAL RISKS
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 cost of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs
of any required remediation or removal of these substances could be substantial
and the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
an entity that 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, or acquired or operated by the Company in the future, could have an
adverse effect on the Company's business, financial condition and results of
operations. Environmental audits performed on the Company's properties have not
revealed any significant environmental liability that management believes would
have a material adverse effect on the Company's business, financial condition
or results of operations. No assurance can be given that existing environmental
audits with respect to any of the Company's properties reveal all environmental
liabilities.
LIABILITY AND INSURANCE
The Company's business entails an inherent risk of liability. In recent
years, participants in the long-term care industry, including the Company, have
become subject to an increasing number of lawsuits alleging negligence or
related legal theories, many of which involve large claims and significant
legal costs. The Company is from time to time 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 believes are
adequate, based on the nature and risks of its business, historical experience
and industry standards. The Company currently maintains professional liability
insurance and general liability insurance. The Company's medical professional
liability coverage is limited to $1,000,000 per occurrence and $3,000,000 in
the aggregate for all claims per annual policy period. The non-medical
professional liability insurance coverage is limited to $5,000,000 per wrongful
act and $7,000,000 in the aggregate. The general liability insurance is limited
to $1,000,000 per facility/per event, with additional specific limitations of
$100,000 per event (premises damage), $5,000 per event (medical expenses) and
$1,000 per event (resident's property damage). The Company also has an umbrella
excess liability protection policy in the total amount of $25,000,000. There
can be no assurance that claims will not arise which are in excess of the
Company's insurance coverage or are not covered by the Company's insurance
coverage. A successful claim against the Company not covered by, or in excess
of, the Company's insurance could have a material adverse effect on the
Company's financial condition and results of operations. 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 continue to obtain liability insurance coverage in
the future or, if available, that such coverage will be available on acceptable
terms.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including the liquidity
of the market for the shares of Common Stock, variations in the Company's
operating results, changes in earnings estimates by securities analysts or the
Company's ability to meet those estimates, publicity regarding the industry or
the Company and the adoption of new statutes or regulations (or changes in the
interpretation of existing statutes or regulations) affecting the health care
industry in general or the assisted living industry 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 may adversely affect the market
price of the shares of Common Stock.
7
<PAGE> 10
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes may
require the Company to repurchase all or a portion of such holder's Notes. If a
Change of Control were to occur, there can be no assurance that the Company
would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all Notes tendered by holders
thereof. In addition, the Company's repurchase of the Notes as a result of a
Change of Control may be prohibited or limited by, or create an event of
default under, the terms of agreements related to borrowings which the Company
may enter into from time to time. Failure of the Company to purchase tendered
Notes would constitute an Event of Default under the Indenture. See
"Description of Notes -- Repurchase of Notes at the Option of the Holder Upon a
Change of Control."
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
The Klaassens beneficially own approximately 25.3% of the outstanding
Common Stock as of July 31, 1997. Executive officers and directors as a group
(including the Klaassens) beneficially own approximately 31.8% of the
outstanding Common Stock at that date. As a result, the Klaassens and the
Company's other executive officers and directors have significant influence
over all matters requiring approval by the Company's stockholders, including
business combinations and the election of directors.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and the Company's
Amended and Restated Bylaws, as well as Delaware corporate law, contain certain
provisions that could have the effect of making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire,
control of the Company. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
Certain of these provisions allow the Company to issue, without stockholder
approval, preferred stock having rights senior to those of the Common Stock.
Other provisions impose various procedural and other requirements, including
advance notice and super-majority voting provisions, that could make it more
difficult for stockholders to effect certain corporate actions. In addition,
the Company's Board of Directors is divided into three classes, each of which
serves for a staggered three-year term, which may make it more difficult for a
third party to gain control of the Board of Directors. As a Delaware
corporation, the Company is subject to Section 203 of the Delaware General
Corporation Law which, in general, prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as
defined) for three years following the date such person became an interested
stockholder unless certain conditions are satisfied. Pursuant to a Board
resolution adopted at the time of formation of the Company, the Section 203
limits do not apply to any "business combination" between the Company and the
Klaassens, their respective "affiliates" or their respective estates. The
Company also has adopted a Stockholder Rights Agreement.
In addition, the Notes may require prepayment upon a change of control of
the Company and, therefore, may have an anti-takeover effect. See "Description
of Notes -- Change of Control."
ABSENCE OF EXISTING MARKET FOR NOTES
The Notes constitute a new issue of securities with no established trading
market. Although the Company intends to seek the listing of the Notes on the
Nasdaq SmallCap Market concurrently with the effectiveness of the Registration
Statement, there can be no assurance that the Notes will be approved for
listing thereon or on any national securities exchange or that they will be
admitted to trading in an inter-dealer automated quotation system. The Company
was advised by Donaldson, Lufkin & Jenrette Securities Corporation and Alex.
Brown & Sons Incorporated (the "Initial Purchasers") that, following completion
of the sale of the Notes, they intended to make a market in the Notes and the
underlying Common Stock. Such market-making, however, may be suspended at any
time without notice.
Although the Notes have been designated for trading through PORTAL upon
issuance, no assurance can be given that an active trading market for the Notes
will develop or, if such market develops, as to the liquidity or sustainability
of such market. In addition, if the Notes are listed on the Nasdaq SmallCap
Market, they thereafter will cease to be eligible for trading in the PORTAL
Market or pursuant to Rule 144A. If a trading market does not develop or is not
maintained, holders of the Notes may experience difficulty in reselling, or an
inability to sell, the Notes. If a market for the Notes develops, any such
market may be discontinued at any time. If a public trading market develops for
the Notes, future trading prices of the Notes will depend on many factors,
including, among other
8
<PAGE> 11
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Notes may trade at a discount from their
principal amount.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------------------------------------------------ -------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges (1).................. -- -- 1.03X -- -- -- --
</TABLE>
- ----------------
(1) Computed by dividing earnings by total fixed charges. Earnings
consist of earnings from continuing operations excluding unusual
charges or extraordinary items, plus fixed charges, reduced by the
amount of unamortized interest capitalized. Fixed charges consist of
interest on debt, including amortization of debt issuance costs, and
a portion of rent expense estimated by management to be the interest
component of such rentals. Earnings were not sufficient to cover
fixed charges as follows: for the years ended December 31, 1992,
1993, 1995 and 1996, $0.2 million, $0.8 million, $10.7 million and
$6.9 million, respectively; and for the six months ended June 30,
1996 and 1997, $4.6 million and $1.4 million, respectively.
9
<PAGE> 12
DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
were issued pursuant to an indenture (the "Indenture") dated as of June 6,
1997, by and between the Company and First Union National Bank (formerly First
Union National Bank of Virginia), as trustee (the "Trustee"). The following
summary of the Notes, the Indenture and the registration rights agreement among
the Company and the Initial Purchasers (the "Registration Rights Agreement")
does not purport to be complete and is subject to, and is qualified in its
entirety by, reference to all of the provisions of the Indenture and the
Registration Rights Agreement, including the definitions therein of certain
terms. Copies of the Indenture and the Registration Rights Agreement have been
filed as exhibits to the Registration Statement. Capitalized terms used herein
without definition have the meanings ascribed to them in the Indenture or the
Registration Rights Agreement, as appropriate. As used in this section, the
"Company" refers to Sunrise Assisted Living, Inc., exclusive of its
subsidiaries. Wherever particular provisions or defined terms of the Indenture
(or the form of Note which is part thereof) or the Registration Rights
Agreement are referred to in this summary, such provisions or defined terms are
incorporated by reference as a part of the statements made and such statements
are qualified in their entirety by such reference. Certain definitions of terms
used in the following summary are set forth under "-- Certain Definitions"
below.
GENERAL
The Notes are unsecured, subordinated, general obligations of the Company,
limited in aggregate principal amount to $150,000,000. The Notes are
subordinated in right of payment to all Senior Indebtedness of the Company, as
described under "-- Subordination" below. The Notes have been issued only in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
The Notes will mature on June 15, 2002. The Notes bear interest at the rate
per annum stated on the cover page of this Prospectus from June 6, 1997 or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on June 15 and December 15 of each year,
commencing December 15, 1997, to the persons in whose names such Notes are
registered at the close of business on the June 1 and December 1 immediately
preceding such Interest Payment Date. Principal of, premium, if any, and
interest on, and liquidated damages with respect to, the Notes will be payable,
the Notes will be convertible and the Notes may be presented for registration
of transfer or exchange, at the office or agency of the Company maintained for
such purpose, which office or agency shall be maintained in the Borough of
Manhattan, The City of New York (which initially will be the office of the
Trustee). Interest will be calculated on the basis of a 360-day year consisting
of twelve 30-day months.
At the option of the Company, payment of interest and liquidated damages
may be made by check mailed to the Holders of the Notes at the addresses set
forth upon the registry books of the Company. No service charge will be made
for any registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of Senior Indebtedness. The Indenture contains no covenants or other
provisions to afford protection to holders of Notes in the event of a highly
leveraged transaction or a change of control of the Company, except to the
limited extent described under "-- Repurchase of Notes at the Option of the
Holder Upon a Change of Control" below.
CONVERSION RIGHTS
Each Holder of Notes will have the right at any time on or after the 90th
day following the latest date of initial issuance of the Notes and prior to the
close of business on the Stated Maturity of the Notes, unless previously
redeemed or repurchased, at the Holder's option, to convert any portion of the
principal amount thereof that is an integral multiple of $1,000 into shares of
Common Stock at any time at the Conversion Price set forth on the cover page of
this Prospectus (subject to adjustment as described below). The right to
convert a Note called for redemption or delivered for repurchase and not
withdrawn will terminate at the close of business on the Business Day,
respectively, immediately prior to the Redemption Date or Repurchase Date for
such Note, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
In the case of any Note that has been converted after any Record Date, but
on or before the next Interest Payment Date, interest, the stated due date of
which is on such Interest Payment Date, shall be payable on such Interest
Payment Date notwithstanding such
10
<PAGE> 13
conversion, and such interest shall be paid to the Holder of such Note who is a
Holder on such Record Date. Any Note converted after any Record Date but before
the next Interest Payment Date must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of Notes being surrendered for conversion; provided no such payment
shall be required with respect to interest payable on June 15, 2000. No
fractional shares will be issued upon conversion but, in lieu thereof, an
appropriate amount will be paid in cash by the Company based on the market
price of Common Stock (determined in accordance with the Indenture) at the
close of business on the day of conversion. As a result of the foregoing
provisions, Holders that surrender Notes for conversion on a date that is not
an Interest Payment Date will not receive any interest for the period from the
Interest Payment Date next preceding the date of conversion to the date of
conversion or for any later period.
The Conversion Price will be subject to adjustment in certain events,
including (a) any payment of a dividend (or other distribution) payable in
Common Stock on any class of Capital Stock of the Company, (b) any issuance to
all or substantially all holders of Common Stock of rights, options or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price of Common Stock (determined in accordance with the
Indenture), provided, however, that if such rights, options or warrants are
only exercisable upon the occurrence of certain triggering events, then the
Conversion Price will not be adjusted until such triggering events occur, (c)
certain subdivisions, combinations or reclassifications of Common Stock, (d)
any distribution to all or substantially all holders of Common Stock of
evidences of indebtedness, shares of Capital Stock other than Common Stock,
cash or other assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to above and excluding
dividends and distributions paid exclusively in cash and in mergers and
consolidations to which the third succeeding paragraph applies), (e) any
distribution consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above, or cash distributed upon a merger or
consolidation to which the third succeeding paragraph applies) to all or
substantially all holders of Common Stock in an aggregate amount that, combined
together with (i) all other such all-cash distributions made within the then
preceding 12 months in respect of which no adjustment has been made and (ii)
any cash and the fair market value of other consideration paid or payable in
respect of any tender or exchange offer by the Company or any of its
subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 15% of the Company's
market capitalization (defined as being the product of the then current market
price of the Common Stock times the number of shares of Common Stock then
outstanding) on the record date of such distribution, and (f) the completion of
a tender or exchange offer made by the Company or any of its subsidiaries for
Common Stock that involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender or exchange offer by the
Company or any of its subsidiaries for Common Stock expiring within the 12
months preceding the expiration of such tender or exchange offer in respect of
which no adjustment has been made and (ii) the aggregate amount of any such
all-cash distributions referred to in (e) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender or exchange offer
in respect of which no adjustments have been made, exceeds 15% of the Company's
market capitalization on the expiration of such tender offer. No adjustment of
the Conversion Price will be required to be made until the cumulative
adjustments amount to 1.0% or more of the Conversion Price as last adjusted.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the Conversion Price, the
Holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock.
The Company, from time to time and to the extent permitted by law, may
reduce the Conversion Price by any amount for any period of at least 20
Business Days, in which case the Company shall give at least 15 days notice of
such reduction, if the Board of Directors has made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for United States federal
income tax purposes. See "Certain United States Federal Income Tax
Consequences."
In case of any reclassification or change of outstanding shares of Common
Stock issuable upon conversion (other than certain changes in par value) or
consolidation or merger of the Company with or into another Person or any
merger of another Person with or into the Company (other than a merger which
does not result in any reclassification, change, conversion, exchange or
cancellation of outstanding shares of Common Stock), or in case of any sale,
transfer or conveyance of all or substantially all of the assets of the Company
(except in connection with a Permitted Sale/Leaseback), each Note then
outstanding will, without the consent of any Holder of Notes, become
convertible only into the kind and amount of securities, cash and other
property receivable upon such
11
<PAGE> 14
reclassification, change, consolidation, merger, sale, transfer or conveyance
by a holder of the number of shares of Common Stock into which such Note was
convertible immediately prior thereto, after giving effect to any adjustment
event; provided, that if the kind or amount of securities, cash and other
property is not the same for each share of Common Stock held immediately prior
to such reclassification, change, consolidation, merger, sale, transfer or
conveyance, any Holder who fails to exercise any right of election shall
receive per share the kind and amount of securities, cash or other property
received per share by a plurality of non-electing shares.
The Company will cause all registrations to be made with, and will obtain
any approvals by, any governmental authority under any Federal or state law of
the United States that may be required in connection with the conversion of the
Notes into Common Stock.
SUBORDINATION
The Notes are general, unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Indebtedness of the
Company. The Notes are structurally subordinated in right of payment to all
liabilities (including trade payables) of the Company's subsidiaries. At June
30, 1997, the Company had $121.1 million of Senior Indebtedness outstanding.
The Indenture does not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its subsidiaries or the ability of the Company
to transfer assets or business operations to its subsidiaries, subject to the
provisions described under "-- Repurchase of Notes at the Option of the Holder
Upon a Change of Control" and "-- Limitation on Merger, Sale or Consolidation"
below.
The Indenture provides that no payment may be made by the Company on
account of the principal of, premium, if any, interest on, or liquidated
damages with respect to, the Notes, or to acquire any of the Notes (including
repurchases of Notes at the option of the Holder) for cash or property (other
than Junior Securities), or on account of the redemption provisions of the
Notes, (i) upon the maturity of any Senior Indebtedness of the Company by lapse
of time, acceleration (unless waived) or otherwise, unless and until all
principal of, premium, if any, and interest on such Senior Indebtedness are
first paid in full (or such payment is duly provided for), or (ii) in the event
of default in the payment of any principal of, premium, if any, or interest on
any Senior Indebtedness of the Company when it becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or otherwise
(collectively, a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist. The payment of cash,
property or securities (other than Junior Securities) upon conversion of a Note
will constitute payment on a Note and therefore will be subject to the
subordination provisions in the Indenture.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits, or would permit with (a) the passage of time, (b) the
giving of notice, (c) the making of any payment of the Notes then required to
be made or (d) any combination thereof (collectively, a "Non-Payment Default"),
the holders of Senior Indebtedness having a principal amount then outstanding
in excess of $3 million (or with respect to which Senior Indebtedness the
holders are obligated to lend in excess of $3 million principal amount) or
their representative immediately to accelerate its maturity and (ii) written
notice of such Non-Payment Default given to the Company and the Trustee by the
holders of an aggregate of at least $3 million outstanding principal amount (or
commitments to lend up to $3 million in Senior Indebtedness) of such Senior
Indebtedness or their representative (a "Payment Notice"), then, unless and
until such Non-Payment Default has been cured or waived or otherwise has ceased
to exist, no payment (by setoff or otherwise) may be made by or on behalf of
the Company on account of the principal of, premium, if any, interest on, or
liquidated damages with respect to, the Notes, or to acquire or repurchase any
of the Notes for cash or property, or on account of the redemption provisions
of the Notes, in any such case other than payments made with Junior Securities.
Notwithstanding the foregoing, unless (i) the Senior Indebtedness in respect of
which such Non-Payment Default exists has been declared due and payable in its
entirety within 179 days after the Payment Notice is delivered as set forth
above (the "Payment Blockage Period"), and (ii) such declaration has not been
rescinded or waived, at the end of the Payment Blockage Period, the Company
shall be required to pay all sums not paid to the Holders of the Notes during
the Payment Blockage Period due to the foregoing prohibitions and to resume all
other payments as and when due on the Notes. Not more than one Payment Notice
may be given in any consecutive 365-day period, irrespective of the number of
defaults with respect to Senior Indebtedness during such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Payment Blockage Periods are in effect exceed 179 days in the aggregate
during any consecutive 365-day period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the Holders or any Paying Agent (as defined therein)
at a time when such payment or distribution is prohibited by the foregoing
provisions, such payment or distribution shall be held in trust for the benefit
of the holders of Senior Indebtedness of the Company, and shall be paid or
delivered by the Trustee or such Holders or such Paying Agent, as the case may
be, to the holders of the Senior Indebtedness of the Company remaining unpaid
or unprovided for or their representative or
12
<PAGE> 15
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the Company
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness of the Company held or represented
by each, for application to the payment of all Senior Indebtedness of the
Company remaining unpaid, to the extent necessary to pay or to provide for the
payment of all such Senior Indebtedness in full after giving effect to any
concurrent payment and distribution, or provision therefor, to the holders of
such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshaling of assets or liabilities (i) the holders of all Senior Indebtedness
of the Company will first be entitled to receive payment in full (or have such
payment duly provided for) before the Holders are entitled to receive any
payment on account of the principal of, premium, if any, interest on, and
liquidated damages with respect to, the Notes (other than Junior Securities)
and (ii) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than Junior
Securities) to which the Holders or the Trustee on behalf of the Holders would
be entitled (by setoff or otherwise), except for the subordination provisions
contained in the Indenture, will be paid by the liquidating trustee or agent or
other person making such a payment or distribution directly to the holders of
Senior Indebtedness of the Company or their representative to the extent
necessary to make payment in full of all such Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to the holders of such Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, interest on, and liquidated damages with
respect, to the Notes. The subordination provisions of the Indenture and the
Notes will not prevent the occurrence of any Default or Event of Default under
the Indenture or limit the rights of the Trustee or any Holder, subject to the
preceding paragraphs, to pursue any other rights or remedies with respect to
the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshaling of assets or liabilities of the Company
and its subsidiaries, Holders of Notes may receive ratably less than other
creditors.
The Company's ability to meet its cash obligations in the future will be
dependent upon the ability of its subsidiaries to make cash distributions to
the Company. The ability of its subsidiaries to make distributions to the
Company is and will continue to be restricted by, among other limitations,
applicable provisions of state law and contractual provisions. The Indenture
will not limit the ability of the Company's subsidiaries to incur such
contractual restrictions in the future. The right of the Company to participate
in the assets of any subsidiary (and thus the ability of holders of the Notes
to benefit indirectly from such assets) is generally subject to the prior
claims of creditors, including trade creditors, of that subsidiary except to
the extent that the Company is recognized as a creditor of such subsidiary, in
which case the Company's claims would still be subject to any security interest
of other creditors of such subsidiary. The Notes, therefore, will be
structurally subordinated to creditors, including trade creditors, of
subsidiaries of the Company with respect to the assets of the subsidiaries
against which such creditors have a claim.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will not be subject to redemption prior to June 15, 2000 and will
be redeemable thereafter at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice to each Holder, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period commencing June 15 of the years
indicated below, in each case (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest and
liquidated damages, if any, to, but excluding, the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2000...... 102.2%
2001...... 101.1
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
13
<PAGE> 16
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first-class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption, to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. The notice of redemption must state
the Redemption Date, the Redemption Price and the amount of accrued interest
and liquidated damages, if any, to be paid. Any notice that relates to a Note
to be redeemed in part only must state the portion of the principal amount
equal to the unredeemed portion thereof and must state that on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof will be issued. On and after the
Redemption Date, interest will cease to accrue on the Notes or portions thereof
called for redemption, unless the Company defaults in its obligations with
respect thereto.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional (except as set forth below) offer
by the Company (the "Repurchase Offer"), to require the Company to repurchase
all or any part of such Holder's Notes (provided that the principal amount of
such Notes must be $1,000 or an integral multiple thereof) on the date (the
"Repurchase Date") that is no later than 50 Business Days after the occurrence
of such Change of Control at a cash price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest
and liquidated damages, if any, to (but excluding) the Repurchase Date. The
Repurchase Offer shall be made within 25 Business Days following a Change of
Control and shall remain open for 20 Business Days following its commencement
except to the extent that a longer period is required by applicable law (the
"Repurchase Offer Period"). Upon expiration of the Repurchase Offer Period, the
Company shall purchase all Notes tendered in response to the Repurchase Offer.
If required by applicable law, the Repurchase Date and the Repurchase Offer
Period may be extended as so required; however, if so extended, it shall
nevertheless constitute an Event of Default if the Repurchase Date does not
occur within 60 Business Days of the Change of Control.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
(together with accrued and unpaid interest and liquidated damages, if any) of
all Notes so tendered and (iii) deliver to the Trustee the Notes so accepted,
together with an officers' Certificate listing the Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to the
Holders of Notes so accepted payment in an amount equal to the Repurchase Price
(together with accrued and unpaid interest and liquidated damages, if any), and
the Trustee will promptly authenticate and mail or deliver to such Holders a
new Note or Notes equal in principal amount to any unpurchased portion of the
Notes surrendered. Any Notes not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Repurchase Offer on or as soon as practicable after
the Repurchase Date.
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change of Control, is likely to be interpreted by
reference to applicable state law at the relevant time, and will be dependent
on the facts and circumstances existing at such time. As a result, there may be
a degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Initial Purchasers.
The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that may
adversely affect Holders, if such transaction does not constitute a Change of
Control. Moreover, certain events with respect to the Company which may involve
an actual change of control of the Company may not constitute a Change of
Control for purposes of the Indenture.
The Company may not have sufficient financial resources available to
fulfill its obligation to repurchase the Notes upon a Change of Control or to
repurchase other debt securities of the Company or its subsidiaries providing
similar rights to the holders thereof. The right to require the Company to
repurchase Notes as a result of the occurrence of a Change of Control could
create an event of default under Senior Indebtedness as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provision of
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<PAGE> 17
the Notes. Failure of the Company to repurchase the Notes when required would
result in an Event of Default with respect to the Notes whether or not such
repurchase is permitted by the subordination provisions. Any such default may,
in turn, cause a default under Senior Indebtedness of the Company. Moreover,
the Change of Control may cause an event of default under Senior Indebtedness
of the Company. As a result, in each case, any repurchase of the Notes could,
absent a waiver, be blocked by the subordination provisions of the Notes. See
"-- Subordination" above.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes at the option of the Holders upon a Change of
Control.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (other than to its wholly-owned
subsidiaries), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) in the case of a merger or consolidation the Company is the
surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and the Indenture;
and (ii) no Default or Event of Default shall occur immediately after giving
effect to such transaction; provided that the foregoing limitations do not
apply to a Permitted Sale/Leaseback.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the
successor corporation formed by such consolidation or into which the Company is
merged or to which such transfer is made, shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein as
the Company, and the Company will be released from its obligations under the
Indenture and the Notes, except as to any obligations that arise from or as a
result of such transaction.
REPORTS
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company shall deliver to the Trustee, within 15 days after
it is or would have been required to file such with the SEC, annual and
quarterly consolidated financial statements substantially equivalent to
financial statements that would have been included in reports filed with the
SEC if the Company were subject to the requirements of Section 13 or 15(d) of
the Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such would
be required in such reports to the SEC and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations as such would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on, or liquidated damages with respect to,
the Notes as and when due and payable and the continuance of any such failure
for 30 days, (ii) the failure by the Company to pay all or any part of the
principal of, or premium, if any on the Notes when and as the same become due
and payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, pursuant to any Repurchase Offer or otherwise, (iii) the
failure of the Company to perform any conversion of Notes required under the
Indenture and the continuance of any such failure for 30 days, (iv) the failure
by the Company to observe or perform any other covenant or agreement contained
in the Notes or the Indenture and subject to certain exceptions, the
continuance of such failure for a period of 60 days after written notice is
given to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Notes outstanding,
(v) certain events of bankruptcy, insolvency or reorganization in respect of
the Company or any of its Significant Subsidiaries (as defined), (vi) failure
of the Company or any Significant Subsidiary to make any payment at maturity,
including any applicable grace period, in respect of Indebtedness (other than
nonrecourse obligations) in an amount in excess of $10 million and continuance
of such failure for 30 days after written notice is given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of Notes outstanding, (vii) default by the Company
or any Significant Subsidiary with respect to any Indebtedness (other than
non-recourse obligations), which default results in the acceleration of
Indebtedness in an amount in excess of $10 million without such Indebtedness
having been discharged or such acceleration having
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<PAGE> 18
been rescinded or annulled for 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of Notes outstanding and (viii) final
unsatisfied judgments not covered by insurance aggregating in excess of $10
million, at any one time rendered against the Company or any of its Significant
Subsidiaries and not stayed, bonded or discharged within 60 days. The Indenture
provides that if a default occurs and is continuing, the Trustee must, within
90 days after the occurrence of such default, give to the Holders notice of
such default, but the Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the best
interest of the Holders, except in the case of a default in the payment of the
principal of, premium, if any, or interest on or liquidated damages with
respect to, any of the Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture provides that if an Event of Default occurs and is continuing
(other than an Event of Default specified in clause (v) above with respect to
the Company), then in every such case, unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the Holders of
25% in aggregate principal amount of the Notes then outstanding, by notice in
writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest and
liquidated damages, if any, thereon to be due and payable immediately. If an
Event of Default specified in clause (v) above with respect to the Company
occurs, all principal and accrued interest and liquidated damages, if any, will
be immediately due and payable on all outstanding Notes without any declaration
or other act on the part of the Trustee or the Holders. The Holders of no less
than a majority in aggregate principal amount of Notes generally are authorized
to rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on, and
liquidated damages with respect to, the Notes that have become due solely by
such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in principal amount of the Notes at the time outstanding
may waive on behalf of all the Holders any default, except a default in the
payment of principal of or interest on, or liquidated damages with respect to,
any Note not yet cured, or a default with respect to any covenant or provision
that cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee.
The Indenture provides that no Holder may pursue any remedy under the
Indenture, except for a default in the payment of principal, premium, if any,
or interest or liquidated damages, if any, on the Notes, unless the Holder
gives to the Trustee written notice of a continuing Event of Default, the
Holders of at least 25% in principal amount of the outstanding Notes make a
written request to the Trustee to pursue the remedy, such Holders offer to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense, the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity, and the Trustee shall not
have received a contrary direction from the Holders of a majority in principal
amount of the outstanding Notes.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the Holders; provided,
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity of any Note or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
conversion of any Note or the enforcement of any such payment on or after the
due date thereof (including, in the case of redemption, on or after the
Redemption Date), or reduce the Repurchase Price, or alter the Repurchase Offer
(other than as set forth herein) or redemption provisions in a manner adverse
to the Holders, or (ii) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture, or
(iii) adversely affect the right of such Holder to convert Notes. A
supplemental indenture entered into in compliance with the "Limitation on
Merger, Sale or Consolidation" covenant would not require the consent of the
Noteholders.
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NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
The Indenture provides that no stockholder, employee, officer, director or
partner, as such, past, present or future of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his, her or its
status as such stockholder, employee, officer, director or partner.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Company or Trustee may require a Holder, among other things, to
furnish appropriate endorsements, legal opinions and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Notes selected for
redemption. Also, the Company is not required to transfer or exchange any Notes
for a period of 15 days before (i) the mailing of a notice of an offer to
repurchase as a result of a Change of Control or (ii) a selection of Notes to
be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
Notes initially held by "qualified institutional buyers," as defined in
Rule 144A under the Securities Act ("QIBs"), and Notes initially held by
institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, were evidenced by one or more global Notes (the
"U.S. Global Note") which were deposited on the date of the closing of the sale
of the Notes to the Initial Purchasers (the "Closing Date") with, or on behalf
of, The Depository Trust Company, New York, New York (the "Depositary") and
registered in the name of Cede & Co. ("Cede") as the Depositary's nominee.
Notes held by persons who acquired such Notes in compliance with Regulation S
under the Securities Act (a "Non-U.S. Person") were initially evidenced by one
or more global Notes (the "Regulation S Global Note"), which were deposited on
the Closing Date with, or on behalf of, the Depositary and registered in the
name of Cede as the Depositary's nominee, for the accounts of the Euroclear
System ("Euroclear") and Cedel, S.A. ("Cedel"). Beneficial interests in the
Regulation S Global Note may only be held through Euroclear or Cedel, and any
resale or transfer of such interests to U.S. persons shall only be permitted as
described below. The U.S. Global Note and the Regulation S Global Note are
hereinafter collectively referred to as the "Global Note". Except as set forth
below, the Global Note may be transferred, in whole or in part, only to another
nominee of the Depositary or to a successor of the Depositary or its nominee.
QIBs and institutional "accredited investors" may hold their interests in
the U.S. Global Note directly through the Depositary if such holder is a
participant in the Depositary, or indirectly through organizations which are
participants in the Depositary (the "Participants"). Transfers between
Participants will be effected in the ordinary way in accordance with the
Depositary's rules and will be settled in Federal funds.
Non-U.S. Persons may hold their interest in the Regulation S Global Note
directly through Cedel or Euroclear, or indirectly through organizations that
are participants in Cedel or Euroclear. Cedel and Euroclear will hold interests
in the Regulation S Global Note on behalf of their participants through the
Depositary. Transfers between participants in Euroclear and Cedel will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
The Depositary has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants (including
Euroclear and Cedel). The Depositary's Participants include securities brokers
and dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, "Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly. QIBs and institutional "accredited investors" may elect
to hold Notes purchased by them through the Depositary. QIBs and institutional
"accredited investors" who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through Participants or Indirect
Participants.
Pursuant to procedures established by the Depositary, (i) upon deposit of
the Global Note, the Depositary credited the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of the Notes evidenced by the Global Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the
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Depositary (with respect to the interests of Participants), the Participants
and the Indirect Participants. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own
and that security interests in negotiable instruments can only be perfected by
delivery of certificates representing the instruments. Consequently, the
ability to transfer Notes evidenced by the Global Note will be limited to such
extent.
So long as the Depositary or its nominee is the registered owner of a Note,
the Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the Global Note for all purposes
under the Indenture. Except as provided below, owners of beneficial interests
in a Global Note will not be entitled to have Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Notes, and will not be considered the owners
or holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. As a result, the ability of a person having a beneficial interest
in Notes represented by a Global Note to pledge such interest to persons or
entities that do not participate in the Depositary's system, or to otherwise
take actions with respect to such interest, may be affected by the lack of a
physical certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Note represented by a Global Note registered in the name of the Depositary
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depositary or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company
nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes (including, principal,
premium, if any, and interest) or to immediately credit the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Note as shown on the records of the Depositary. Payments by the Participants
and the Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants.
Holders who desire to convert their Notes into Common Stock pursuant to the
terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form under the Indenture, then, upon surrender by the Depositary
of the Global Note, Certificated Notes will be issued to each person that the
Depositary identifies as the beneficial owner of the Notes represented by the
Global Note. In addition, subject to certain conditions, any person having a
beneficial interest in a Global Note may, upon request to the Trustee, exchange
such beneficial interest for Notes in the form of Certificated Notes. Upon any
such issuance, the Trustee is required to register such Certificated Notes in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
CERTAIN DEFINITIONS
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
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"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is
a party that is required to be classified and accounted for as a capital lease
obligation under GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Change of Control" means (i) an event or series of events as a result of
which any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d) of the Exchange Act) (excluding the Company or any wholly-owned
subsidiary thereof) is or becomes, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, whether or
not applicable) of more than 50% of the combined voting power of the then
outstanding securities entitled to vote generally in elections of directors,
managers or trustees, as applicable, of the Company or any successor entity
("Voting Stock"), (ii) the completion of any consolidation with or merger of
the Company into any other Person, or conveyance, transfer or lease by the
Company of all or substantially all of its assets to any Person, or any merger
of any other Person into the Company in a single transaction or series of
related transactions, and, in the case of any such transaction or series of
related transactions, the outstanding Common Stock of the Company is changed or
exchanged as a result, as to any such consolidation, merger, conveyance,
transfer or lease unless the stockholders of the Company immediately before
such transaction own, directly or indirectly, immediately following such
transaction, at least a majority of the combined voting power of the
outstanding voting securities of the Person resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (iii) such time as the Continuing
Directors (as defined) do not constitute a majority of the Board of Directors
of the Company (or, if applicable, a successor corporation to the Company);
provided that a Change of Control shall not be deemed to have occurred if
either (x) the last sale price of the Common Stock for any five trading days
during the 10 trading days immediately preceding the Change of Control is at
least equal to 105% of the Conversion Price in effect on such day, or (y) with
respect to a merger or consolidation otherwise constituting a Change of Control
described in clause (ii) above, at least 90% of the consideration in such
transaction or transactions consists of common stock or securities convertible
into common stock that are, or upon issuance will be, traded on a United States
national securities exchange or approved for quotation on the Nasdaq National
Market.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on the date of initial issuance of
the Notes or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was recommended
or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election.
"Disqualified Capital Stock" means, with respect to the Company, Capital
Stock of the Company that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by the Company, in
whole or in part, on or prior to the Stated Maturity of the Notes, provided
that only the portion of such Capital Stock which is so convertible,
exercisable, exchangeable or redeemable or subject to repurchase prior to such
Stated Maturity shall be deemed to be Disqualified Capital Stock.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i)
in respect of borrowed money (whether or not the lender has recourse to all or
any portion of the assets of such person), (ii) evidenced by credit or loan
agreements, bonds, notes, debentures or similar instruments (including, without
limitation, notes or similar instruments given in connection with the
acquisition of any business, properties or assets of any kind), (iii) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks,
(iv) for the payment of money relating to a Capitalized Lease Obligation, or
(v) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit; (b) all obligations of such person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business); (c) all net obligations of such person under Interest Swap
and Hedging Obligations; (d) all liabilities of others of the kind described in
the preceding clauses (a), (b) or (c) that such person has guaranteed or that
is otherwise its legal liability, or which is secured by a lien on property of
such person, and all obligations to purchase, redeem or acquire any Capital
Stock; and (e) any and all deferrals, renewals, extensions, modifications,
replacements, restatements, refinancings and refundings (whether direct or
indirect) of, or any indebtedness or obligation issued in exchange for, any
liability of the kind described in any of the preceding clauses (a), (b), (c)
or (d), or this clause (e), whether or not between or among the same parties.
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"Interest Swap and Hedging Obligations" means the obligations of any Person
under any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement or other interest rate hedge agreement, interest rate collar
agreement or other similar agreement or arrangement to which such Person is a
party or beneficiary.
"Junior Securities" means any Qualified Capital Stock (as defined) and any
Indebtedness of the Company that is fully subordinated in right of payment to
the Notes and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Notes.
"Permitted Sale/Leaseback" means any sale by the Company or any Subsidiary
or Subsidiaries for fair value, as determined in good faith by the Board of
Directors of the Company, of all or substantially all of its assets if the
Company or any such Subsidiary simultaneously enters into an agreement to
operate such assets under a lease, management contract or similar agreement
with a term of at least 10 years.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Senior Indebtedness" means all obligations of the Company to pay the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) and rent payable on or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, any
Indebtedness of the Company, whether outstanding on the date of the Indenture
or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by
the Company, unless the instrument creating or evidencing such Indebtedness
provides that such Indebtedness is not senior or superior in right of payment
to the Notes or which is pari passu with, or subordinated to, the Notes;
provided that in no event shall Senior Indebtedness include (a) Indebtedness of
the Company owed or owing to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness representing or with respect to any account payable or other
accrued current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services or (c) any
liability for taxes owed or owing by the Company or any Subsidiary of the
Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-X
promulgated by the Commission as in effect as of the date of the Indenture.
"Stated Maturity" when used with respect to any Note, means June 15, 2002.
"Subsidiary" with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power normally entitled to vote in the
election of directors is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) a partnership in which such person or a
Subsidiary of such person is, at the time, a general partner and owns alone or
together with one or more Subsidiaries of such person a majority of the
partnership interests, or (iii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof, has at least a majority ownership interest.
20
<PAGE> 23
SELLING SECURITYHOLDERS
The following table sets forth the name of each Selling Securityholder
and relationship, if any, with the Company and (i) the amount of Notes owned by
each Selling Securityholder as of July 31, 1997, (ii) the maximum amount of
Notes which may be offered for the account of such Selling Securityholder under
this Prospectus, (iii) the amount of Common Stock owned by each Selling
Securityholder as of July 31, 1997, and (iv) the maximum amount of Common Stock
which may be offered for the account of such Selling Securityholder under this
Prospectus.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL COMMON STOCK
AMOUNT OF AMOUNT OF NOTES OWNED PRIOR COMMON STOCK
NAME OF SELLING SECURITYHOLDER NOTES OWNED OFFERED HEREBY TO OFFERING (1) OFFERED HEREBY (2)
- ------------------------------ ----------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
AIM Balanced Fund................... $2,000,000 $2,000,000 53,781 53,781
Argent Classic Convertible
Arbitrage Fund, L.P................. 1,000,000 1,000,000 26,890 26,890
Argent Classic Convertible
Arbitrage Fund (Bermuda) L.P........ 1,900,000 1,900,000 51,092 51,092
Castle Convertible Fund, Inc........ 500,000 500,000 13,445 13,445
Colonial Penn Insurance Co.......... 750,000 750,000 20,168 20,168
Colonial Penn Life Insurance........ 625,000 625,000 16,806 16,806
Custodial Trust Company............. 2,630,000 2,630,000 70,722 70,722
Declaration of Trust for the
Defined Benefit Plan of ICI
American Holdings, Inc.............. 555,000 555,000 14,924 14,924
Declaration of Trust for the
Defined Benefit Plan of
ZENECA Holdings, Inc................ 375,000 375,000 10,084 10,084
Delaware State Employees
Retirement Fund..................... 1,825,000 1,825,000 49,075 49,075
Delta Air Lines Master Trust........ 1,445,000 1,445,000 38,857 38,857
Donaldson, Lufkin & Jenrette
Securities Corporation.............. 15,395,000 15,395,000 413,983 413,983
Fiduciary Trust Company International 1,000,000 1,000,000 26,890 26,890
General Motors Employees
Domestic Group Trust................ 6,685,000 6,685,000 179,764 179,764
GlenEagles Fund..................... 925,000 925,000 24,873 24,873
Global Series Fund II -
Prudential Inconvertible Fund I..... 2,000,000 2,000,000 53,781 53,781
Highbridge Capital Corporation...... 250,000 250,000 6,722 6,722
Hillside Capital Incorporated
Corporate Account................... 165,000 165,000 4,436 4,436
HSBC James Capel Inc................ 1,514,000 1,514,000 40,712 40,712
Hughes Aircraft Company
Master Retirement Trust............. 730,000 730,000 19,630 19,630
Investors Bank & Trust Co........... 2,023,000 2,023,000 54,400 54,400
Lipper Convertibles, L.P............ 3,600,000 3,600,000 96,806 96,806
Lipper Offshore Convertibles, L.P... 2,000,000 2,000,000 53,781 53,781
LLT Limited......................... 1,000,000 1,000,000 26,890 26,890
Massachusetts Mutual Life Insurance
Company............................. 1,000,000 1,000,000 26,890 26,890
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL COMMON STOCK
AMOUNT OF AMOUNT OF NOTES OWNED PRIOR COMMON STOCK
NAME OF SELLING SECURITYHOLDER NOTES OWNED OFFERED HEREBY TO OFFERING (1) OFFERED HEREBY (2)
- ------------------------------ ----------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Mass Mutual Corporate Investors..... 250,000 250,000 6,722 6,722
Mass Mutual Participation Investors. 125,000 125,000 3,361 3,361
Mass Mutual High Yield
Partners LLC....................... 625,000 625,000 16,806 16,806
Mass Mutual Corporate Value
Partners Limited.................... 500,000 500,000 13,445 13,445
Merrill Lynch Pierce Fenner &
Smith Inc........................... 1,700,000 1,700,000 45,714 45,714
OCM Convertible Trust............... 2,390,000 2,390,000 64,268 64,268
OCM Convertible Limited
Partnership......................... 140,000 140,000 3,764 3,764
Pacific Mutual Life Insurance
Company............................. 1,000,000 1,000,000 26,890 26,890
Palladin Partners................... 700,000 700,000 18,828 18,828
Paloma Securities L.L.C............. 50,000 50,000 1,344 1,344
Partner Reinsurance Company Ltd..... 135,000 135,000 3,630 3,630
Provident Life and Accident Insurance
Company............................. 1,000,000 1,000,000 26,890 26,890
Q Investments, L.P.................. 750,000 750,000 20,168 20,168
Salomon Brothers Inc................ 250,000 250,000 6,722 6,722
Shepard Investments International, Ltd 1,200,000 1,200,000 32,268 32,268
Societe Generale Securities Corporation 1,500,000 1,500,000 40,336 40,336
Southport Management Partners L.P... 1,000,000 1,000,000 26,890 26,890
Southport Partners International Ltd. 1,000,000 1,000,000 26,890 26,890
Spear, Leeds & Kellogg.............. 1,000,000 1,000,000 26,890 26,890
Stark International................. 1,200,000 1,200,000 32,268 32,268
State Employees Retirement
Fund of the State of Delaware....... 575,000 575,000 15,462 15,462
State of Connecticut
Combined Investment Funds........... 2,300,000 2,300,000 61,848 61,848
State of Oregon Equity.............. 3,000,000 3,000,000 80,667 80,667
State of Oregon/SAIF Corporation.... 2,500,000 2,500,000 67,226 67,226
Starvest Discretionary.............. 300,000 300,000 8,067 8,067
Summer Hill Global Partners, L.P.... 45,000 45,000 1,210 1,210
Sunrise Partners, C.V............... 1,200,000 1,200,000 32,268 32,268
The JW McConnell Family Foundation.. 370,000 370,000 9,949 9,949
The TCW Group, Inc.................. 3,285,000 3,285,000 88,336 88,336
Thermo Electron Balanced
Investment Fund..................... 480,000 480,000 12,907 12,907
Vanguard Convertible
Securities Fund, Inc................ 1,285,000 1,285,000 34,554 34,554
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL COMMON STOCK
AMOUNT OF AMOUNT OF NOTES OWNED PRIOR COMMON STOCK
NAME OF SELLING SECURITYHOLDER NOTES OWNED OFFERED HEREBY TO OFFERING (1) OFFERED HEREBY (2)
- ------------------------------ ----------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Van Kampen American
Capital Harbor Fund................. 2,500,000 2,500,000 67,226 67,226
Van Kampen Capital Convertible
Securities Fund..................... 500,000 500,000 13,445 13,445
------------- ------------- ------------- -------------
SUBTOTAL .......................... $ 86,747,000 $ 86,747,000 2,332,692 2,332,692
------------- ------------- ------------- -------------
Unnamed holders of Notes or any
future transferees, pledgees, donees
or successors of or from any such
unnamed holders (3)................ $ 63,253,000 $ 63,253,000 1,700,921 (4) 1,700,921
------------- ------------- ------------- -------------
TOTAL...................... $ 150,000,000 $ 150,000,000 4,033,613 4,033,613
============= ============= ============= =============
</TABLE>
- -----------------
(1) Comprises the shares of Common Stock into which the Notes held by such
Selling Securityholder are convertible at the initial conversion rate,
excluding fractional shares. Fractional shares will not be issued upon
conversion of the Notes; rather, cash will be paid in lieu of fractional
shares, if any. The Conversion Rate and the number of shares of Common
Stock issuable upon conversion of the Notes are subject to adjustment under
certain circumstances. See "Description of Notes--Conversion Rights."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Notes may increase or decrease from time to time.
(2) Assumes conversion into Common Stock of the full amount of Notes held by
the Selling Securityholder at the initial conversion rate and the offering
of such shares by such Selling Securityholder pursuant to this Prospectus.
The Conversion Rate and the number of shares of Common Stock issuable upon
conversion of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion Rights." Accordingly,
the number of shares of Common Stock issuable upon conversion of the Notes
may increase or decrease from time to time. Fractional shares will not be
issued upon conversion of the Notes; rather, cash will be paid in lieu of
fractional shares, if any.
(3) No such holder may offer Notes pursuant to this Prospectus until such
holder is included as a Selling Securityholder in a supplement to this
Prospectus in accordance with the Registration Rights Agreement.
(4) Assumes that the unnamed holders of Notes or any future transferees,
pledgees, donees or successors of or from any such unnamed holder do not
beneficially own any Common Stock other than the Common Stock issuable upon
conversion of the Notes at the initial conversion rate.
Because the Selling Securityholders may, pursuant to this Prospectus,
offer all or some portion of the Notes and Common Stock they presently hold or,
with respect to Common Stock, have the right to acquire upon conversion of such
Notes, no estimate can be given as to the amount of the Notes and Common Stock
that will be held by the Selling Securityholders upon termination of any such
sales. In addition, the Selling Securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of their Notes and Common
Stock since the date on which they provided the information regarding their
Notes and Common Stock, in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the
Notes and Common Stock set forth opposite each such Selling Securityholder's
name in the foregoing table on the effective date of the Registration Statement
may sell such Notes and Common Stock pursuant to this Prospectus. The Company
may from time to time, in accordance with the Registration Rights Agreement,
include additional Selling Securityholders in supplements to this Prospectus.
The Company will pay the expenses of registering the Notes and Common
Stock being sold hereunder.
23
<PAGE> 26
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal income
and estate tax considerations relating to the purchase, ownership and
disposition of the Notes and of Common Stock into which Notes may be converted,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury
Regulations promulgated or proposed thereunder ("Treasury Regulations"),
judicial authority and current administrative rulings and practice, all of
which are subject to change, possibly on a retroactive basis. This summary
deals only with holders that will holds Notes and Common Stock into which Notes
may be converted as "capital assets" (within the meaning of Section 1221). This
summary does not purport to deal with all aspects of U.S. federal income
taxation that might be relevant to particular holders in light of their
personal investment circumstances or status, nor does it address tax
considerations applicable to investors that may be subject to special tax
rules, such as certain financial institutions, tax-exempt organizations,
insurance companies, dealers in securities or currencies, persons that will
hold Notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes, or persons that have a "functional currency"
other than the U.S. dollar. Moreover, the effect of any applicable state, local
or foreign tax laws is not discussed. The Company has not sought any ruling
from the Internal Revenue Service with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance
that the Internal Revenue Service will agree with such statements and
conclusions. THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a Note or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) treated as a domestic
corporation or domestic partnership, or (iii) an estate or trust that is
subject to United States federal income taxation on a net income basis in
respect of the Notes or Common Stock. A trust will be a "United States Holder"
of a Note only if the trust is subject to the supervision of a court within the
United States and the control of a United States fiduciary as described in
Section 7701(a)(30) of the Code.
PAYMENT OF INTEREST
Interest on a Note generally will be included in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United
States federal income tax purposes. The Notes will not have original issue
discount.
AMORTIZABLE BOND PREMIUM
If a United States Holder of a Note acquires the Note at a cost that is in
excess of the amount payable at maturity, the United States Holder may elect
under Section 171 of the Code to amortize the excess cost (as an offset to
interest income) on a constant interest rate basis over the term of such Note.
However, because the Notes may be redeemed at the option of the Company at a
price in excess of their principal amount, a United States holder may be
required to amortize any bond premium based on the earlier call date and the
call price payable at that time. If the United States Holder makes an election
to amortize bond premium, the tax basis of all such United States Holder's
Notes will be reduced by the allowable bond premium amortization. The
amortization election would apply to all debt instruments held or subsequently
acquired by the electing purchaser and cannot be revoked without permission
from the Service. On conversion of a Note into shares of Common Stock, no
additional amortization of any bond premium would be allowed, and any remaining
premium would be added to the United States Holder's basis in the Common Stock
received.
MARKET DISCOUNT
Investors acquiring Notes pursuant to this Prospectus should consider that
the resale of those Notes may be adversely affected by the market discount
provisions of Sections 1276 through 1278 of the Code. Except as described
below, gain recognized on the disposition of a Note that has accrued market
discount will be treated as ordinary income, and not capital gain, to the
extent of the
24
<PAGE> 27
accrued market discount. "Market discount" is defined generally as the excess,
if any, of (i) the principal amount of the Note over (ii) the tax basis of the
Note in the hands of the United States Holder immediately after its
acquisition.
Under a de minimis exception, there is no market discount if the excess of
the principal amount of the obligation over the United States Holder's tax
basis in the obligation is less than 0.25% of the principal amount multiplied
by the number of complete years after the acquisition date to the obligation's
date of maturity. Unless the United States Holder elects to accrue market
discount on a constant yield basis, the accrued market discount generally would
be the amount calculated by multiplying the market discount by a fraction, the
numerator of which is the number of days the obligation has been held by the
United States Holder and the denominator of which is the number of days after
the United States Holder's acquisition of the obligation up to and including
its maturity date.
If a United States Holder of a Note acquired with market discount disposes
of such Note in any transaction other than a sale, exchange or involuntary
conversion, such United States Holder will be deemed to have realized an amount
equal to the fair market value of the Note and will be required to recognize as
ordinary income any accrued market discount. See the discussion below under "--
Sale, Exchange or Redemption of the Notes" for the tax consequences of a sale
or exchange. A partial principal payment (if any) on a Note will be includable
as ordinary income upon receipt to the extent of any accrued market discount
thereon. Although it is not free from doubt, any accrued market discount not
previously taken into income prior to a conversion of a Note into shares of
Common Stock should carry over to the Common Stock received on conversion and
be treated as ordinary income upon a subsequent disposition of such Common
Stock, to the extent of any gain recognized on such disposition. A United
States Holder of a Note acquired at a market discount also may be required to
defer the deduction of all or a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the Note until the maturity of the
Note or the earlier disposition of the Note in a taxable transaction.
A United States Holder of a Note acquired at a market discount may elect to
include the market discount in income as it accrues (on either a straight-line
basis or a constant yield basis). This election would apply to all market
discount obligations as acquired by the electing United States Holder on or
after the first day of the first year to which the election applies. The
election may be revoked only with the consent of the Service. If a United
States Holder of a Note elects to include market discount in income currently,
the rules discussed above regarding (i) ordinary income recognition resulting
from a sale and certain other disposition transactions and (ii) deferral of
interest deductions would not apply.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, subject to the market
discount rules discussed above, a United States Holder generally will recognize
capital gain or loss equal to the difference between (i) the amount of cash
proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued and unpaid interest not previously recognized by such Holder, which is
taxable as ordinary income) and (ii) such Holder's adjusted tax basis in the
Note. A United States Holder's adjusted tax basis in a Note generally will
equal the cost of the Note to such Holder, less any principal payments received
by such Holder and increased by any market discount previously included in
income by such Holder. Such capital gain or loss will be long-term capital gain
or loss if the United States Holder's holding period in the Note is more than
one year at the time of sale, exchange or redemption.
CONVERSION OF THE NOTES
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Note into Common Stock, except with respect to cash
received in lieu of a fractional share of Common Stock. Such Holder's tax basis
in the Common Stock received on conversion of a Note will be the same as such
Holder's adjusted tax basis in the Note at the time of conversion (reduced by
any basis allocable to a fractional share interest), and the holding period for
the Common Stock received on conversion will generally include the holding
period of the Note converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
should be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally should result in capital gain or loss (measured by the
difference between the cash received for the fractional share and the United
States Holder's adjusted tax basis in the fractional share).
25
<PAGE> 28
DIVIDENDS ON THE COMMON STOCK
The amount of any distribution by the Company in respect of the Common
Stock will be equal to the amount of cash and the fair market value, on the
date of distribution, of any property distributed. Generally, distributions
will be treated as a dividend, subject to a tax as ordinary income, to the
extent of the Company's current or accumulated earnings and profits, then as a
tax-free return of capital to the extent of the Holder's tax basis in the
Common Stock and thereafter as gain from the sale or exchange of such stock.
In general, a dividend distribution to a corporate United States Holder
will qualify for the 70% dividends received deduction if the Holder owns less
than 20% of the voting power and value of the Company's stock (other than any
non-voting, non-convertible, non-participating preferred stock). A corporate
United States Holder that owns 20% or more of the voting power and value of the
Company's stock (other than any non-voting, non-convertible, non-participating
preferred stock) generally will qualify for an 80% dividends received
deduction. The dividends received deduction is subject, however, to certain
holding period, taxable income and other limitations.
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture,
the conversion price of the Notes is decreased, or (ii) the conversion price of
the Notes is decreased at the discretion of the Company, such decrease in
conversion price may be deemed to be the payment of a taxable dividend to
United States Holders of Notes (pursuant to Section 305 of the Code) to the
extent of the Company's current or accumulated earnings and profits. Such
Holders of Notes could therefore have taxable income as a result of an event
pursuant to which they received no cash or property.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term if the United States Holder's holding
period in the Common Stock is more than one year at the time of the sale or
exchange. A United States Holder's basis and holding period in Common Stock
received upon conversion of a Note are determined as discussed above under "--
Conversion of the Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, certain information is required to be reported by the payor to
the IRS with respect to payments of principal, premium, if any, and interest on
a Note, payments of dividends on Common Stock, payments of the proceeds of the
sale of a Note and payments of the proceeds of the sale of Common Stock to
certain noncorporate United States Holders. The payor will be required to
withhold backup withholding tax at the rate of 31% if (a) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor or establish an
exemption from backup withholding, (b) the IRS notifies the payor that the TIN
furnished by the payee is incorrect, (c) there has been a notified payee
underreporting with respect to interest, dividends or original issue discount
described in Section 3406(c) of the Code or (d) there has been a failure of the
payee to certify under the penalty of perjury that the payee is not subject to
backup withholding under the Code. Any amounts withheld under the backup
withholding rules from a payment to a United States Holder will be allowed as a
credit against such Holder's United States federal income tax and may entitle
the Holder to a refund, provided that the required information is furnished to
the IRS.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder.
PAYMENT OF INTEREST
Generally, interest income of a Non-United States Holder that is not
effectively connected with a United States trade or business will be subject to
a withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
However, interest paid on a Note by the Company or any Paying Agent to a
Non-United States Holder will qualify for the "portfolio interest exemption"
and therefore, subject
26
<PAGE> 29
to the discussion of backup withholding below, will not be subject to United
States federal income tax or withholding tax, provided that such interest
income is not effectively connected with a United States trade or business of
the Non-United States Holder and provided that the Non-United States Holder (i)
does not actually or constructively own (pursuant to the conversion feature of
the Notes or otherwise) 10% or more of the combined voting power of all classes
of stock of the Company entitled to vote, (ii) is not a controlled foreign
corporation related to the Company actually or constructively through stock
ownership, (iii) is not a bank which acquired the Notes in consideration for an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business and (iv) either (a) provides a Form W-8 (or a
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in compliance
with applicable law and regulations, or (b) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business holds the Note and provides a
statement to the Company or its agent under penalties of perjury in which it
certifies that such a Form W-8 (or a suitable substitute) has been received by
it from the Non-United States Holder or qualifying intermediary and furnishes
the Company or its agent with a copy thereof.
Proposed Treasury Regulations would provide alternative methods for
satisfying the certification requirement described in clause (iv) above. The
proposed Treasury Regulations also would require, in the case of Notes held by
a foreign partnership, that (i) the certification described in clause (iv)
above be provided by the partners rather than by the foreign partnership and
(ii) the partnership provide certain information, including a United States
taxpayer identification number. A look-through rule would apply in the case of
tiered partnerships. The proposed Treasury Regulations are proposed to be
effective for payments made after December 31, 1997. There can be no assurance
that the proposed Treasury Regulations will be adopted or as to the provisions
that they will include if and when adopted in temporary or final form.
Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United
States Holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate (or, if applicable, a lower
treaty rate). Even though such effectively connected interest is subject to
income tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the Holder delivers a properly executed IRS Form 4224 to the
payor.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
A Non-United States Holder of a Note will generally not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange or redemption of the Note (including the receipt of cash in lieu
of fractional shares upon conversion of a Note into Common Stock but not
including any amount representing interest or accrued market discount) unless
(1) the gain is effectively connected with a United States trade or business of
the Non-United States Holder, (2) in the case of a Non-United States Holder who
is an individual, such Holder is present in the United States for a period or
periods aggregating 183 days or more during the taxable year of the disposition
and certain other requirements are met, or (3) the Holder is subject to tax
pursuant to the provisions of the Code applicable to certain United States
expatriates.
CONVERSION OF THE NOTES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder except with respect to the receipt of cash in lieu of fractional shares
by Non-United States Holders upon conversion of a Note where any of the
conditions described above under "Non-United States Holders -- Sale, Exchange
or Redemption of the Notes" is satisfied.
SALE OR EXCHANGE OF COMMON STOCK
Subject to the discussion below under "FIRPTA Treatment of Non-United
States Holders," a Non-United States Holder generally will not be subject to
United States federal income tax or withholding tax on the sale or exchange of
Common Stock unless any of the conditions described above under "Non-United
States Holders -- Sale, Exchange or Redemption of the Notes" is satisfied.
27
<PAGE> 30
FIRPTA TREATMENT OF NON-UNITED STATES HOLDERS
Under the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"), foreign persons generally are subject to United States federal
income tax on capital gain realized on the disposition of any interest (other
than solely as a creditor) in a corporation that is a United States real
property holding corporation (a "USRPHC"). For this purpose, a foreign person
is defined as any holder who is a foreign corporation (other than certain
foreign corporations that elect to be treated as domestic corporations), a non-
resident alien individual, a non-resident fiduciary of a foreign estate or
trust, or a foreign partnership. Under FIRPTA, a corporation is a USRPHC if the
fair market value of the United States real property interests held by the
corporation is 50 percent or more of the aggregate fair market value of certain
assets of the corporation.
The Company does not currently believe that it is a USRPHC. Thus, a foreign
person that holds shares of the Common Stock of the Company generally will not
be subject to the U.S. federal income tax on a sale or other disposition of the
shares of Common Stock. Even if a corporation meets the test for a USRPHC, a
foreign person would generally not be subject to tax, or withholding in respect
to such tax, on gain from a sale or other disposition of such corporation's
stock solely by reason of the corporation's USRPHC status if the stock is
regularly traded on an established securities market ("regularly traded")
during the calendar year in which such sale or disposition occurs, provided
that such holder does not own, actually or constructively, stock with a fair
market value in excess of 5 percent of the fair market value of all such stock
outstanding at any time during the shorter of the five-year period preceding
such disposition or the holder's holding period. The Company believes that the
Common Stock will be treated as regularly traded.
DIVIDENDS
Distributions by the Company with respect to the Common Stock that are
treated as Dividends paid (or deemed paid), as described above under "United
States Holders -- Dividends" to a Non-United States Holder (excluding dividends
that are effectively connected with the conduct of a trade or business in the
United States by such Holder and are taxable as described below) will be
subject to United States federal withholding tax at a 30% rate (or lower rate
provided under any applicable income tax treaty). Except to the extent that an
applicable tax treaty otherwise provides, a Non-United States Holder will be
taxed in the same manner as a United States Holder on dividends paid (or deemed
paid) that are effectively connected with the conduct of a trade or business in
the United States by the Non-United States Holder. If such Non-United States
Holder is a foreign corporation, it may also be subject to a United States
branch profits tax on such effectively connected income at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Even though
such effectively connected dividends are subject to income tax, and may be
subject to the branch profits tax, they will not be subject to U.S. withholding
tax if the Holder delivers IRS Form 4224 to the payor.
Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of the
Treasury Regulations, for purposes of determining the applicability of a tax
treaty rate. Under Treasury Regulations that are proposed to be effective for
distributions after 1997, however, a non-U.S. holder of Common Stock who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements. In addition, under the
proposed Treasury Regulations, in the case of common stock held by a foreign
partnership, the certification requirement would generally be applied to the
partners of the partnership and the partnership would be required to provide
certain information, including a United States taxpayer identification number.
The proposed Treasury Regulations also provide look-through rules for tiered
partnership. It is not certain whether, or in what form, the proposed Treasury
Regulations will be adopted as final regulations.
DEATH OF A NON-UNITED STATES HOLDER
A Note held by an individual who is a Non-United States Holder at the time
of his or her death will not be includable in the decedent's gross estate for
United States estate tax purposes, provided that such Holder or beneficial
owner did not at the time of death actually or constructively own 10% or more
of the combined voting power of all classes of stock of the Company entitled to
vote, and provided that, at the time of death, payments with respect to such
Notes would not have been effectively connected with the conduct by such
Non-United States Holder of a trade or business within the United States.
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-United States Holder at the time of his or her death (or
previously transferred subject to certain retained rights or powers) will be
subject to United States federal estate tax unless otherwise provided by an
applicable estate tax treaty.
28
<PAGE> 31
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to payments on a Note to a Non-United States Holder if the
statement described in "Non-United States Holders -- Payment of Interest" is
duly provided by such Holder, provided that the payor does not have actual
knowledge that the Holder is a United States person.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a Note or any payment of
the proceeds of the sale of Common Stock effected outside the United States by
a foreign office of a "broker" (as defined in applicable Treasury Regulations),
unless such broker is (i) a United States person, (ii) a foreign person that
derives 50% of more of its gross income for certain periods from activities
that are effectively connected with the conduct of a trade or business in the
United States or (iii) a controlled foreign corporation for United States
federal income tax purposes. Payment of the proceeds of any such sale effected
outside the United States by a foreign office of any broker that is described
in (i), (ii) or (iii) of the preceding sentence will not be subject to backup
withholding tax, but will be subject to information reporting requirements
unless such broker has documentary evidence in its records that the beneficial
owner is a Non-United States Holder and certain other conditions are met, or
the beneficial owner otherwise establishes an exemption. Payment of the
proceeds of any such sale to or through the United States office of a broker is
subject to information reporting and backup withholding requirements, unless
the beneficial owner of the Note provides the statement described in
"Non-United States Holders -- Payment of Interest" or otherwise establishes an
exemption.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-United States Holder will generally not be subject to the
information reporting and backup withholding requirements described in this
section, provided that the payor does not have actual knowledge that the Holder
is a United States person. However, under the proposed Treasury Regulations,
dividend payments will be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied. See the
discussion above with respect to rules applicable to foreign partnerships under
the proposed Treasury Regulations.
THE COMPANY
Under Section 279 of the Code, interest paid or incurred by a corporation
with respect to certain convertible, subordinated indebtedness that is utilized
to provide consideration for the acquisition of stock in another corporation
(or a substantial portion of the assets of another corporation) is not
deductible for federal income tax purposes to the extent interest on such
"corporate acquisition indebtedness" as defined in Section 279 exceeds $5
million per year, reduced by the interest paid on certain other indebtedness
that does not constitute "corporate acquisition indebtedness" for purposes of
Section 279, but is used to fund corporate acquisitions. The Notes may
constitute "corporate acquisition indebtedness" for purposes of Section 279 of
the Code, which could result in all or a portion of the interest payments under
the Notes not being deductible for federal income tax purposes. Although there
can be no assurance, the Company does not anticipate that any significant
portion of the interest deductions with respect to the Notes will be disallowed
pursuant to Section 279.
29
<PAGE> 32
PLAN OF DISTRIBUTION
The Notes were issued to the Selling Securityholders in connection
with an underwritten private placement and are convertible into Common Stock as
described in "Description of Notes--Conversion Rights." The Company entered
into the Registration Rights Agreement with the Initial Purchasers for the
benefit of holders of the Notes to register their Notes and such Common Stock
under the Securities Act under certain circumstances and at certain times. The
Registration Rights Agreement provides for cross-indemnification of the Selling
Securityholders and the Company for losses, claims, damages, liabilities and
expenses arising, under certain circumstances, out of the registration of the
Notes and such Common Stock.
The Notes and such Common Stock may be sold from time to time by the
Selling Securityholders. The Selling Securityholders may from time to time sell
all or a portion of the Notes and such Common Stock in transactions on the
Nasdaq SmallCap Market or National Market, as the case may be, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Notes and
such Common Stock may be sold directly or through underwriters or
broker-dealers. If the Notes or shares of Common Stock are sold through
underwriters or broker-dealers, the Selling Securityholders may pay
underwriting discounts or brokerage commissions and charges. The methods by
which the Notes and such Common Stock may be sold include (i) a block trade in
which the broker or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction, (ii) purchases by a broker or dealer as principal
and resale by such broker or dealer for its own account pursuant to this
Prospectus, (iii) exchange distributions and/or secondary distributions in
accordance with the rules of the Nasdaq SmallCap Market or National Market, as
the case may be, (iv) ordinary brokerage transactions and transactions in which
the broker solicits purchasers, and (v) privately negotiated transactions.
Pursuant to the provisions of the Registration Rights Agreement, the
Company will pay the costs and expenses incident to its registration and
qualification of the Notes and Common Stock offered hereby, including
registration and filing fees. In addition, the Company has agreed to indemnify
the Selling Securityholders against certain liabilities, including liabilities
arising under the Securities Act.
Any securities covered by this Prospectus that qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule
144 or Rule 144A rather than pursuant to this Prospectus. There can be no
assurance that any Selling Securityholder will sell any or all of the Notes or
Common Stock described herein, and any Selling Securityholder may transfer,
devise or gift such securities by other means not described herein.
30
<PAGE> 33
LEGAL MATTERS
The validity of the Notes and Common Stock offered hereby will be passed
upon by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of Sunrise Assisted Living, Inc.
as of December 31, 1996 and 1995, and for the years then ended, and the
combined financial statements of Sunrise Entities for the year ended December
31, 1994, incorporated by reference in Sunrise Assisted Living, Inc.'s Annual
Report (Form 10-K) for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference. Such
consolidated and combined financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
31
<PAGE> 34
================================================================================
NO DEALER, SALESPERSON OR ANY 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 MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SECURITYHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK OFFERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Available Information................ 2
Incorporation of Certain Information
by Reference......................... 2
Risk Factors......................... 3
Ratio of Earnings to Fixed Charges... 9
Description of Notes................. 10
Selling Securityholders.............. 21
Certain United States Federal Income
Tax Consequences................... 24
Plan of Distribution................. 30
Legal Matters........................ 31
Experts.............................. 31
</TABLE>
================================================================================
32
<PAGE> 35
===============================================================================
$150,000,000
SUNRISE ASSISTED LIVING, INC.
5 1/2% CONVERTIBLE
SUBORDINATED NOTES
DUE 2002
----------------
PROSPECTUS
----------------
_______ __, 1997
===============================================================================
33
<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
registration of the Notes and Common Stock offered hereby. The Company will
bear all of such expenses. All amounts are estimated except for the Securities
and Exchange Commission registration fee and Nasdaq SmallCap entry fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
-----------
<S> <C>
SEC registration fee................... $ 45,455
Nasdaq SmallCap entry fee.............. 5,000
Accounting fees and expenses........... 15,000
Legal fees and expenses................ 25,000
Fees and expenses of Transfer Agent.... 3,500
Miscellaneous fees and expenses........ 10,000
-----------
Total............................. $ 103,955
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and
agents and its former directors, officers, employees and agents and those who
serve, at the corporation's request, in such capacities with another
enterprise, against expenses (including attorneys' fees), as well as judgments,
fines and settlements in nonderivative lawsuits, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. The
Delaware Law provides, however, that such person must have acted in good faith
and in a manner he or she reasonably believed to be in (or not opposed to) the
best interests of the corporation and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware Law does not permit indemnification in an
action or suit by or in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person fairly and reasonably is entitled to
indemnity for expenses the court deems proper in light of liability
adjudication. With respect to present or former directors and officers,
indemnity is mandatory to the extent a claim, issue or matter has been
successfully defended.
The Company's Amended and Restated Bylaws (the "Bylaws") provide for
mandatory indemnification of directors and officers generally to the same
extent authorized by the Delaware Law. Under the Bylaws, the Company shall
advance expenses incurred by an officer or director in defending any such
action if the director or officer undertakes to repay such amount if it is
determined that he or she is not entitled to indemnification. The Company has
obtained directors' and officers' liability insurance.
The Company has entered into separate indemnification agreements with its
directors and officers. Each indemnification agreement provides for, among
other things: (i) indemnification against any and all expenses, liabilities and
losses (including attorney's fees, judgments, fines, taxes, penalties and
amounts paid in settlement) of any claim against an indemnified party unless it
is determined, as provided in the indemnification agreement, that
indemnification is not permitted under applicable law and (ii) prompt
advancement of expenses to any indemnified party in connection with his or her
defense against any claim.
II-1
<PAGE> 37
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
1 Purchase Agreement dated as of June 2, 1997 among the Company, Donaldson,
Lufkin & Jenrette Securities Corporation and Alex. Brown & Sons Incorporated
4.1 Indenture dated as of June 6, 1997 between the
Company and First Union National Bank of
Virginia, as Trustee.*
4.2 Registration Rights Agreement dated as of June 6, 1997 among the Company,
Donaldson, Lufkin & Jenrette Securities Corporation and Alex. Brown & Sons
Incorporated.*
5 Opinion of Hogan & Hartson L.L.P. regarding legality of shares being
registered
12 Statements regarding computation of ratios
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
24 Power of attorney (included on Signature Page)
25 Form T-1
</TABLE>
- ----------
* Incorporated herein by reference from the Company's form 10-Q for the
quarter ended June 30, 1997.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required in Section 10(a)(3) or the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) For purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 38
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fairfax, Commonwealth of Virginia, on the 25th day
of August, 1997.
SUNRISE ASSISTED LIVING, INC.
By: /s/ David W. Faeder
--------------------------------
David W. Faeder
President and
Chief Financial Officer
Each person whose signature appears below hereby constitutes and appoints
Paul J. Klaassen, David W. Faeder and Thomas B. Newell, or any of them, their
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for them and in their name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on August 25th, 1997 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- -------------------------- -----------------------------------------------
<S> <C>
/s/ Paul J. Klaassen
- -------------------------- Chairman of the Board of Directors and Chief
Paul J. Klaassen Executive Officer (Principal Executive Officer)
/s/ Teresa M. Klaassen
- -------------------------- Executive Vice President and Director
Teresa M. Klaassen
/s/ David W. Faeder
- -------------------------- President, Chief Financial Officer and
David W. Faeder Director (Principal Financial Officer)
/s/ Larry E. Hulse
- -------------------------- Controller (Principal Accounting Officer)
Larry E. Hulse
/s/ Ronald V. Aprahamian
- -------------------------- Director
Ronald V. Aprahamian
/s/ David Bradley
- -------------------------- Director
David Bradley
/s/ Thomas J. Donohue
- -------------------------- Director
Thomas J. Donohue
</TABLE>
II-4
<PAGE> 40
<TABLE>
<S> <C>
/s/ Richard A. Doppelt
- -------------------------- Director
Richard A. Doppelt
/s/ Timothy S. Smick
- -------------------------- Executive Vice President, Chief Operating
Timothy S. Smick Officer and Director
/s/ Scott F. Meadow
- -------------------------- Director
Scott F. Meadow
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1
SUNRISE ASSISTED LIVING, INC.
5 1/2% Convertible Subordinated Notes due 2002
PURCHASE AGREEMENT
June 2, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS INCORPORATED
c/o Donaldson Lufkin & Jenrette Securities Corporation
227 Park Avenue
New York, New York 10005
Dear Sirs:
Sunrise Assisted Living, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation and Alex. Brown & Sons Incorporated (each, an "Initial Purchaser"),
$130,000,000 aggregate principal amount of its 5 1/2% Convertible Subordinated
Notes due 2002 (the "Firm Notes"). The Company also proposes to issue and sell
to the Initial Purchasers not more than an additional $20,000,000 aggregate
principal amount of its 5 1/2% Convertible Subordinated Notes due 2002 (the
"Additional Notes"), if requested by the Initial Purchasers as provided in
Section 1 hereof. The Firm Notes and the Additional Notes are herein
collectively referred to as the "Notes." The Notes are to be issued pursuant
to an indenture (the "Indenture") to be dated as of June 6, 1997 between the
Company and First Union National Bank, as trustee (the "Trustee"), pursuant to
which the Notes, as provided therein, will be convertible at the option of the
holders thereof into shares of the Company's common stock, par value $.01 per
share (the "Common Stock"). The Notes and the Common Stock issuable upon
conversion thereof are herein collectively referred to as the "Securities".
The Securities and the Indenture are more fully described in the Final Offering
Memorandum (as hereinafter defined). Capitalized terms used in the Final
Offering Memorandum without definition herein have the respective meanings
specified in the Final Offering Memorandum.
The Securities will be offered and sold to the Initial Purchasers
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (collectively with the rules and regulations of the SEC
thereunder, the "Securities Act"). The Initial Purchasers have advised the
Company that they will offer and sell the Securities purchased by them
hereunder in accordance with
<PAGE> 2
Section 5 hereof as soon as the Initial Purchasers deem advisable after the
execution and delivery of this Agreement.
In connection with the sale of the Securities, the Company has
prepared an preliminary offering memorandum, dated May 22, 1997 (the
"Preliminary Offering Memorandum"), and a final offering memorandum, dated June
2, 1997 (the "Final Offering Memorandum"). Each of the Preliminary Offering
Memorandum and the Final Offering Memorandum sets forth certain information
concerning the Company and the Securities. The term "Preliminary Offering
Memorandum" and "Final Offering Memorandum" as used herein shall include all
documents incorporated by reference therein. The Company hereby confirms that
it has authorized the use of the Preliminary Offering Memorandum and the Final
Offering Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Securities by the Initial Purchasers.
The holders of the Securities will be entitled to the benefits of a
registration rights agreement (the "Registration Rights Agreement"), to be
dated June 6, 1997, between the Company and the Initial Purchasers, in
substantially the form of Exhibit A hereto.
1. Agreements to Sell and Purchase. (a) On the basis of
the representations and warranties contained in this Agreement, and subject to
its terms and conditions, (i) the Company agrees to issue and sell and (ii)
each Initial Purchaser agrees, severally and not jointly, to purchase from the
Company the principal amount of Firm Notes set forth opposite the name of such
Initial Purchaser on Schedule I hereto, at a purchase price of 97.5% of their
principal amount (the "Purchase Price").
(b) On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, (i) the
Company agrees to issue and sell the Additional Notes and (ii) the Initial
Purchasers shall have the right to purchase, severally and not jointly, the
Additional Notes from the Company at the Purchase Price. Additional Notes may
be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Notes. The Initial Purchasers may
exercise their right to purchase Additional Notes in whole or in part from time
to time by giving written notice thereof to the Company at any time within 30
days after the date of this Agreement. Donaldson, Lufkin & Jenrette Securities
Corporation shall give any such notice on behalf of the Initial Purchasers and
such notice shall specify the aggregate principal amount of Additional Notes to
be purchased pursuant to such exercise and the date for payment and delivery
thereof. The date specified in any such notice shall be a business day (i) no
earlier than the Closing Date (as hereinafter defined), (ii) no later than ten
business days after such notice has been given and (iii) no earlier than two
business days after such notice has been given. If any Additional Notes are to
be purchased, each Initial Purchaser, severally and not jointly, agrees to
purchase from the Company the principal amount of Additional Notes which bears
the same proportion to the total principal amount of Additional Notes to be
purchased form the Company as the principal amount of Firm Notes set forth
opposite the name of such Initial Purchaser in Schedule I bears to the total
principal amount of the Firm Notes.
(c) The Company hereby agrees (and the Company shall,
concurrently with the execution of this Agreement, deliver letter agreements
executed by each of the directors and executive officers of the Company,
pursuant to which each such person agrees), not to offer, sell, contract to
sell,
2
<PAGE> 3
grant any option to purchase, or otherwise dispose of any Common Stock of the
Company or any securities convertible into or exercisable or exchangeable for
such Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any such Common Stock,
for a period of 90 days after the date of the Final Offering Memorandum, other
than (i) as a gift or gifts, provided the donee or donees thereof agree in
writing to be bound by such letter agreement, (ii) transfers to a transferor's
affiliates, as such term is defined in Rule 405 promulgated under the Act,
provided the transferee agrees in writing to be bound by such letter agreement,
or (iii) with the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Notwithstanding the foregoing, during such period the
Company (i) may grant stock options (and may issue shares of its Common Stock
upon exercise thereof) pursuant to the Company's 1995 Stock Option Plan, 1996
Directors' Stock Option Plan, 1996 Non-Incentive Stock Option Plan or 1997
Stock Option Plan (collectively, the "Option Plans"), (ii) may issue shares of
Common Stock upon exercise of any of the 450,000 stock options granted to David
W. Faeder outside of the Options Plans, (iii) may issue shares of Common Stock
upon the exercise of the 50,000 warrants outstanding on the date hereof, and
(iv) may issue shares of Common Stock in connection with the Company's
acquisition of assets of, or an ownership interest in, another business or
entity, provided, however, that, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, the Company may not (i)
register the shares of Common Stock referred to in clause (iv) above under the
Securities Act for such 90-day period or (ii) grant any registration rights
with respect to the shares of Common Stock referred to in clause (iv) above
that are exercisable within such 90-day period.
2. Delivery and Payment. (a) Delivery to the Initial
Purchasers of and payment for the Firm Notes shall be made at 10:00 A.M., New
York City time, on June 6, 1997 (the "Closing Date") at the offices of Hogan &
Hartson L.L.P., 555 Thirteenth Street, NW, Washington, D.C. 20004 or such other
place as you shall designate. The Closing Date and the location of delivery of
and the form of payment for the Firm Notes may be varied by agreement between
you and the Company.
(b) Delivery to the Initial Purchasers of and payment for
any Additional Notes to be purchased by the Initial Purchasers shall be made at
the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street, NW, Washington,
D.C. 20004 or such other place as you shall designate, at 10:00 A.M., New York
City time, on the date specified in the exercise notice given by you pursuant
to Section 1(b) (the "Option Closing Date"). Any such Option Closing Date and
the location of delivery of and the form of payment for the Additional Notes
may be varied by agreement between you and the Company.
(c) At or prior to the Closing Date and each Option
Closing Date, if any, the Company shall execute and deliver for authentication
the Notes to be purchased and sold on such date and shall deposit in global
form Notes with the Depositary Trust Company ("DTC") for the account or
accounts of participants in DTC (including Euroclear and CEDEL, as the case may
be) purchasing beneficial interests therein. The Initial Purchasers shall pay
or cause the purchase price for such Notes to be paid to or upon the order of
the Company by wire transfer of same day funds against delivery of such Notes
to or for the respective accounts of the Initial Purchasers. Certificates
evidencing the Notes shall be registered in the name of Cede & Co. as nominee
of DTC or such other name or names and in such authorized denominations as the
Initial Purchasers may request in writing at least two full business days prior
to the Closing Date or the Option Closing Date, as the case may be. The
Company will permit the
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Initial Purchasers to inspect such certificates at the New York offices of
Donaldson, Lufkin & Jenrette Securities Corporation at least one full business
day prior to the Closing Date and each Option Closing Date, if any.
3. Agreements. The Company agrees with each Initial
Purchaser that:
(a) The Company will furnish to each Initial Purchaser
and to counsel for the Initial Purchasers, without charge, during the
period referred to in paragraph (b) below, as many copies of the Final
Offering Memorandum and any amendments and supplements thereto as each
Initial Purchaser may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(b) At any time prior to the earlier of the expiration of
nine months after the date of the Final Offering Memorandum and the
date of completion of the sale of the Securities by the Initial
Purchasers, the Company will not amend or supplement the Final
Offering Memorandum if the Initial Purchasers reasonably object to
such amendment or supplement within two business days after receiving
a copy thereof, and if at any time prior to the earlier of the
expiration of nine months after the date of the Final Offering
Memorandum and the date of completion of the sale of the Securities by
the Initial Purchasers, any event occurs as a result of which the
Final Offering Memorandum, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if
it should be necessary to amend or supplement the Final Offering
Memorandum to comply with applicable law, the Company will promptly
notify the Initial Purchasers of the same, will prepare and provide to
the Initial Purchasers the proposed amendment or supplement which will
correct such statement or omission or effect such compliance and will
not publish such amendment or supplement if the Initial Purchasers
reasonably object to the publication of such amendment or supplement
within two business days after receiving a copy thereof.
(c) The Company will arrange for the qualification of the
Securities for sale by the Initial Purchasers under the laws of such
jurisdictions, if any, as the Initial Purchasers may reasonably
designate in writing prior to the date of this Agreement and will
maintain such qualifications in effect so long as reasonably required
for the distribution of the Securities, provided, however, that the
Company shall not be required in connection therewith to qualify to do
business in any jurisdiction where it is not now so qualified or to
take any action which would subject it to general or unlimited service
of process or taxation in any jurisdiction where it is not now so
subject. The Company will promptly advise the Initial Purchasers of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and will use all reasonable efforts to have such
suspensions lifted as promptly as practicable.
(d) Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf will, directly or indirectly,
make offers or sales of any Security, or solicit offers to buy any
security, under circumstances that would require the registration of
the Securities under
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<PAGE> 5
the Securities Act, except pursuant to a registered public offering as
provided in the Registration Rights Agreement.
(e) Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf will engage in any form of
general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Securities
in the United States, except pursuant to a registered public offering
as provided in the Registration Rights Agreement.
(f) So long as any of the Securities are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities
Act, the Company will, during any period in which it is not subject to
and in compliance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), provide to each holder
of such restricted securities and to each prospective purchaser (as
designated by such holder) of such restricted securities, upon the
request of such holder or prospective purchaser, any information
required to be provided by Rule 144A(d)(4) under the Securities Act.
This covenant is intended to be for the benefit of the holders, and
the prospective purchasers designated by such holders, from time to
time of such restricted securities.
(g) Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf will engage in any directed
selling efforts with respect to the Securities, except pursuant to a
registered public offering as provided in the Registration Rights
Agreement, and each of them will comply with the offering restriction
requirements of Regulation S. Terms used in this paragraph have the
meanings given to them by Regulation S.
(h) The Company will cooperate with the Initial
Purchasers and use all reasonable efforts to permit the Securities to
be eligible for clearance and settlement through The Depository Trust
Company and, with respect to any Securities sold in accordance with
Regulation S under the Securities Act, Cedel Bank and Euroclear.
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, expenses, fees and
taxes incident to and in connection with: (i) the preparation,
printing, filing and distribution of the Preliminary Offering
Memorandum and the Final Offering Memorandum (including, without
limitation, financial statements and supplements thereto), (ii) the
preparation, printing (including, without limitation, word processing
and duplication costs) and delivery of this Agreement, the
Registration Rights Agreement and the Indenture, all preliminary and
final Blue Sky Memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection
herewith and with the sale of the Securities by the Initial Purchasers
to certain purchasers as set forth in Section 5 below, (iii) the
issuance and delivery of the Securities, (iv) the registration or
qualification of the Securities for offer and sale under the
securities or Blue Sky laws of the several states (including, without
limitation, the reasonable fees and disbursements of the Initial
Purchasers' counsel relating to such registration or qualification),
(v) the preparation of certificates for the Securities
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<PAGE> 6
(including, without limitation, printing thereof), (vi) the fees,
disbursements and expenses of the Company's counsel and accountants,
(vii) all expenses and listing fees in connection with the application
for quotation of the Securities on PORTAL, (viii) all fees and
expenses (including fees and expenses of counsel) of the Company in
connection with approval of the Securities by DTC for "book-entry"
transfer and eligibility of settlement of transactions in the
Securities through Euroclear and Cedel Bank and (ix) the performance
by the Company of its other obligations under this Agreement.
(j) The Company will use its best efforts to do and
perform all things required or necessary to be done and performed
under this Agreement by the Company prior to the Closing Date or any
Option Closing Date, as the case may be, and to satisfy all conditions
precedent on its part to the delivery of the Securities.
4. Representations and Warranties of the Company. The
Company represents and warrants to each Initial Purchaser that:
(a) The Preliminary Offering Memorandum and the Final
Offering Memorandum do not, and any supplement or amendment to them
will not, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties
contained in this paragraphs (a) shall not apply to statements in or
omissions from the Preliminary Offering Memorandum and the Final
Offering Memorandum (or any supplement or amendment thereto) made in
reliance upon and in conformity with information relating to you
furnished to the Company in writing by you expressly for use therein.
No stop order preventing the use of the Preliminary Offering
Memorandum or the Final Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Neither the Company, nor any of its affiliates (as
defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")), nor any person acting on its or their behalf has,
directly or indirectly, made offers or sales of any security, or
solicited offers to buy any security, under circumstances that would
require the registration of the Securities under the Securities Act.
(c) No securities of the same class as the Notes have
been issued and sold by the Company within the six-month period
immediately prior to the date hereof.
(d) Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf has engaged in any form of
general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Securities
in the United States.
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<PAGE> 7
(e) None of the Company, its Subsidiaries (as hereinafter
defined) or any of its or their affiliates or any person acting on its
or their behalf has engaged or will engage in any directed selling
efforts (as defined in Regulation S) in the United States with respect
to the Securities, and the Company, its subsidiaries and its or their
affiliates and all persons acting on its or their behalf have complied
with and will comply with the offering restriction requirements of
Regulation S.
(f) The Securities satisfy the eligibility requirements
of Rule 144A(d)(3) under the Securities Act.
(g) (i) The Company has agreed to permit the Securities
to be designated PORTAL eligible securities, will pay the requisite
fees related thereto and has been advised by the National Association
of Securities Dealers, Inc. PORTAL Market ("PORTAL") that the
Securities have been designated PORTAL eligible securities in
accordance with the rules and regulations of the National Association
of Securities Dealers, Inc.
(ii) The Company will cause the Common Stock
issuable upon conversion of the Notes to be listed for quotation on
the Nasdaq National Market prior to the 90th day following the latest
date of initial issuance of the Notes.
(h) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Indenture, and the Registration Rights Agreement and to
issue, sell and deliver the Securities as provided herein and therein.
(i) This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement
of the Company, enforceable in accordance with its terms except as
rights to indemnity and contribution hereunder may be limited by
federal or state securities laws and except as the enforceability
hereof may be limited by bankruptcy, rehabilitation, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and by general principles of equity.
(j) The Indenture has been duly and validly authorized by
the Company and, when duly executed and delivered by the Company, will
be the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except as the
enforceability thereof may be limited (1) by the effect of (x)
bankruptcy, rehabilitation, insolvency, reorganization, moratorium or
other similar laws nor or hereafter in effect relating to or affecting
the rights and remedies of creditors and (y) general principles of
equity, whether enforcement is considered in a proceeding in equity or
at law, and the discretion of the court before which any proceedings
therefor may be brought and (2) to the extent that the waiver
contained in Section 4.9 of the Indenture may be unenforceable.
(k) The Notes have been duly and validly authorized for
issuance by the Company and, when issued and authenticated in
accordance with the terms of the Indenture and delivered to and paid
for by the Initial Purchasers in accordance with the terms of this
Agreement, will be
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<PAGE> 8
the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture except (1) as the enforceability thereof may
be limited by bankruptcy, rehabilitation, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and general principles of equity, and (2) to the extent that the
waiver contained in Section 4.9 of the Indenture may be deemed
unenforceable. The Indenture conforms in all material respects to the
description thereof contained in the Final Offering Memorandum.
(l) The Notes are convertible into Common Stock in
accordance with the terms of the Indenture; the shares of Common Stock
initially issuable upon conversion of the Notes have been duly
authorized and reserved for issuance upon such conversion and, when
issued upon such conversion, will be validly issued, fully paid and
nonassessable and will conform to the description thereof contained in
the Final Offering Memorandum; the Company has the authorized and
outstanding capital stock as set forth in the Final Offering
Memorandum; and the stockholders of the Company have no preemptive
rights with respect to the Notes or the Common Stock issuable upon
conversion of the Notes.
(m) The Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and
delivered by the Company, will be the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms except as the enforceability thereof may be
limited by (i) bankruptcy, rehabilitation, insolvency, reorganization,
moratorium or other similar laws affecting creditor's rights
generally, (ii) general principles of equity, or (iii) the
enforceability of rights to indemnification and contribution
thereunder by federal or state securities laws. The Registration
Rights Agreement conforms in all material respects to the description
thereof in the Final Offering Memorandum.
(n) The (i) issuance and sale of the Securities by the
Company, (ii) execution, delivery and performance by the Company of
this Agreement, the Indenture and the Registration Rights Agreement,
(iii) compliance by the Company with all the provisions hereof and
with the provisions of the Indenture and the Registration Rights
Agreement and (iv) the consummation by the Company of the transactions
contemplated hereby and by the Indenture and the Registration Rights
Agreement will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency or
other governmental body (except as may be required under the federal
securities laws or the securities, blue sky or real estate syndication
laws of the various states) and will not conflict with, or constitute
a breach or a violation of any of the terms or provisions of, or a
default under, the charter, by-laws, partnership agreement, operating
agreement or other governing documents of the Company or any of its
Subsidiaries, or any material agreement, indenture, debenture, note or
any other evidence of indebtedness or other instrument to which it or
any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound or to which any of their respective properties
is subject or violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company, any
of its subsidiaries or their respective property, except as disclosed
in the Final Offering Memorandum and except as rights to indemnity and
contribution hereunder may be limited by applicable law.
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<PAGE> 9
(o) The Company is subject to and in material compliance
with the reporting requirements of Section 13 or Section 15(d) of the
Exchange Act.
(p) The Company is not required to deliver the
information specified in Rule 144A(d)(4) in connection with the resale
by the Initial Purchasers of the Securities as set forth in Section 4
hereof.
(q) The Company has not paid or agreed to pay to any
person any compensation for soliciting another to purchase any
securities of the Company (except as contemplated by this Agreement).
(r) It is not necessary in connection with the offer,
sale and delivery of the Securities in the manner contemplated by this
Agreement and the Final Offering Memorandum to register the Securities
under the Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act").
(s) The Company has been duly organized, is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Final Offering Memorandum, and is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries
(hereafter defined), taken as a whole.
(t) All of the consolidated corporation, partnerships and
limited liability companies in which the Company has a direct or
indirect ownership interest are listed in Annex II to this Agreement
(collectively, the "Subsidiaries"). The Company's ownership interest
in each of the facilities listed in the Final Offering Memorandum
under the caption "Business-- Owned Facilities" is owned by the
Company directly or indirectly through one or more Subsidiaries and
the Company's direct or indirect percentage ownership interests in
such facilities are as described under such caption.
(u) Each Subsidiary that is a corporation (a "Corporate
Subsidiary") has been duly organized, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Final Offering Memorandum, and is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the
Subsidiaries, taken as a whole. All of the outstanding shares
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<PAGE> 10
of capital stock of each Corporate Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable, were
issued and sold in compliance with all applicable federal and state
securities laws, were not issued in violation of or subject to any
preemptive or similar rights, and are owned by the Company directly,
or indirectly through one of the other Subsidiaries, free and clear of
any security interest, claim, lien, encumbrance or adverse interest of
any nature, except (i) for those encumbrances disclosed in the Final
Offering Memorandum, (ii) for interests or liens held by others as
security for indebtedness of the Company or any Subsidiary disclosed
in the Final Offering Memorandum and (iii) for transfer restrictions
under applicable federal and state securities and real estate
syndication laws.
(v) Each Subsidiary that is a limited partnership (a
"Limited Partnership Subsidiary") has been duly organized, is validly
existing as a limited partnership in good standing under the laws of
its jurisdiction of organization and has the limited partnership power
and authority to own, lease and operate its properties and to conduct
its business as described in the Final Offering Memorandum, and is
duly qualified and is in good standing (where applicable) as a foreign
limited partnership authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries, taken as a
whole. All outstanding limited partnership interests in the Limited
Partnership Subsidiaries were issued and sold in compliance with the
applicable limited partnership agreements of such Limited Partnership
Subsidiaries and all applicable federal and state securities laws, and
the limited partnership interests therein held directly or indirectly
by the Company are owned free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature, except (i)
for those encumbrances disclosed in the Final Offering Memorandum,
(ii) for interests or liens held by others as security for
indebtedness of the Company or any Subsidiary disclosed in the Final
Offering Memorandum, (iii) to the extent provided in the applicable
limited partnership agreements of such Limited Partnership
Subsidiaries and (iv) for transfer restrictions under applicable
federal and state securities and real estate syndication laws. To the
knowledge of the Company, each limited partnership agreement pursuant
to which the Company or a Subsidiary holds a partnership interest in a
Limited Partnership Subsidiary is in full force and effect and
constitutes the legal, valid and binding agreement of the parties
thereto, enforceable against such parties in accordance with the terms
thereof, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles. There
has been no material breach of or default under, and no event which
with notice or lapse of time would constitute a material breach of or
default under, such limited partnership agreements by the Company or
any Subsidiary or, to the Company's knowledge, any other party to such
agreements.
(w) Each Subsidiary that is a limited liability company
(an "LLC Subsidiary") has been duly organized, is validly existing as
a limited liability company in good standing under the laws of its
jurisdiction of organization and has the limited liability company
power and authority to own, lease and operate its properties and to
conduct its business as described in the Final
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<PAGE> 11
Offering Memorandum, and is duly qualified and is in good standing
(where applicable) as a foreign limited liability company authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole. All outstanding
membership interests in the LLC Subsidiaries were issued and sold in
compliance with the applicable operating agreements of such LLC
Subsidiaries and all applicable federal and state securities laws, and
the membership interests therein held directly or indirectly by the
Company are owned free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature, except (i) for
those encumbrances disclosed in the Final Offering Memorandum, (ii)
for interests or liens held by others as security for indebtedness of
the Company or any Subsidiary disclosed in the Final Offering
Memorandum, (iii) to the extent provided in the applicable operating
agreements of such LLC Subsidiaries and (iv) for transfer restrictions
under applicable federal and state securities and real estate
syndication laws. To the knowledge of the Company, each operating
agreement pursuant to which the Company or a Subsidiary holds a
membership interest in an LLC Subsidiary is in full force and effect
and constitutes the legal, valid and binding agreement of the parties
thereto, enforceable against such parties in accordance with the terms
thereof, except as enforcement thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles. There
has been no material breach of or default under, and no event which
with notice or lapse of time would constitute a material breach of or
default under, such operating agreements by the Company or any
Subsidiary or, to the Company's knowledge, any other party to such
agreements.
(x) All the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive rights, rights
of first refusal or other similar rights (in each case created by
statute or under the Company's certificate of incorporation or bylaws
or any agreement to which the Company is a party) that have not been
waived or satisfied.
(y) The authorized capital stock of the Company conforms
in all material respects as to legal matters to the description
thereof contained in the Final Offering Memorandum.
(z) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter, by-laws, partnership agreement,
operating agreement or other governing document(s). Neither the
Company nor any of the Subsidiaries is in default in the performance
of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the
business of the Company and its Subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound,
except for any such defaults that, individually or in the aggregate,
would not have a material adverse effect on the condition (financial
or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.
Neither
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<PAGE> 12
the Company nor any of the Subsidiaries is in material violation of
any order, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or over any
of their respective property. Neither the Company nor any of the
Subsidiaries is in violation of any law, ordinance, rule or regulation
applicable to the Company or any of the Subsidiaries, which violation
would have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.
(aa) Except as otherwise set forth in the Final Offering
Memorandum, there are no material legal or governmental proceedings
pending, or to the Company's knowledge, threatened or contemplated to
which the Company or any of the Subsidiaries is a party or of which
any of their respective property is the subject that (i) would be
required to be set forth in a registration statement on Form S-3, (ii)
could reasonably be expected to result in a material adverse change in
the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the
Subsidiaries, taken as a whole or (iii) could reasonably be expected
to adversely effect the issuance or validity of the Securities to be
issued and sold by the Company hereunder. No contract or document of
a character that would be required to be described in the Final
Offering Memorandum if the Final Offering Memorandum were a prospectus
included in a registration statement on Form S-3 under the Securities
Act is not so described.
(bb) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions
of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case could
reasonably be expected to result in any material adverse change in the
condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries,
taken as a whole.
(cc) Except as described in the Final Offering Memorandum,
the Company and the Subsidiaries have operated and currently operate
their business in conformity with all applicable laws, rules and
regulations of each jurisdiction in which it is conducting business,
except where the failure to be so in compliance would not have a
material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole. Each of the
Company and the Subsidiaries has such permits, licenses, franchises
and authorizations of governmental or regulatory authorities
("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business; the Company and
each of the Subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment
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<PAGE> 13
of the rights of the holder of any such permit; and, except as
described in the Final Offering Memorandum, such permits contain no
restrictions that are materially burdensome to the Company or any of
the Subsidiaries. The Company and the Subsidiaries are not aware of
any existing or imminent matter which could reasonably be expected to
materially and adversely impact their operations or business prospects
other than as disclosed in the Final Offering Memorandum.
(dd) Except as otherwise set forth in the Final Offering
Memorandum or such as are not material to the business, prospects,
financial condition or results of operation of the Company and the
Subsidiaries, taken as a whole, the Company and each of the
Subsidiaries has good and marketable title, free and clear of all
liens, claims, encumbrances and restrictions except liens for taxes
not yet due and payable, to all property and assets described in the
Final Offering Memorandum as being owned by it (other than stock or
other ownership interests in Subsidiaries, which are the subject of
the representations in paragraphs (u) through (w) above). The
agreements to which the Company or any of the Subsidiaries is a party
described in the Final Offering Memorandum are valid agreements,
enforceable by the Company and the Subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable
bankruptcy, rehabilitation, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the Company's
knowledge, the other contracting party or parties thereto are not in
material breach or material default under any of such agreements. All
leases to which the Company or any of the Subsidiaries is a party are
valid and binding and no default has occurred or is continuing
thereunder, which could reasonably be expected to result in any
material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole, and the Company
and the Subsidiaries enjoy peaceful and undisturbed possession under
all such leases to which any of them is a party as lessee with such
exceptions as do not materially interfere with the use made by the
Company or such Subsidiary.
(ee) The Company and the Subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in
the amounts generally deemed adequate for their respective businesses
and consistent with insurance coverage maintained by similar companies
in similar businesses, including, but not limited to, insurance
covering real and personal property owned or leased by the Company or
its subsidiaries against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which
insurance is in full force and effect.
(ff) Except as disclosed in the Final Offering Memorandum,
there are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to
or entitling any person to purchase or otherwise to acquire any shares
of the capital stock of, or other ownership interest in, the Company
or any Subsidiary.
(gg) There is (i) no material unfair labor practice
complaint pending against the Company or any of the Subsidiaries or,
to the knowledge of the Company, threatened against any
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<PAGE> 14
of them, before the National Labor Relations Board or any state or
local labor relations board, and no material grievance or arbitration
proceeding arising out of or under any collective bargaining agreement
is so pending against the Company or any of the Subsidiaries or, to
the knowledge of the Company, threatened against any of them, and (ii)
no material strike, labor dispute, slowdown or stoppage pending
against the Company or any of the Subsidiaries or, to the knowledge of
the Company, threatened against it or any of the Subsidiaries. No
collective bargaining agreement exists with any of the Company's
employees and, to the Company's knowledge, no such agreement is
imminent.
(hh) All material tax returns required to be filed by the
Company and each of the Subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of the
Subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(ii) Except as described in the Final Offering Memorandum,
the Company owns or possesses adequate rights to use all material
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the
conduct of its business and has no reason to believe that the conduct
of its business as described in the Final Offering Memorandum will
conflict with any such rights of others.
(jj) Neither the Company nor any of the Subsidiaries, nor
to the knowledge of the Company, any agent or other person acting on
behalf of the Company or any Subsidiary has, directly or indirectly,
used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or
domestic political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; failed to
disclose fully any contribution in violation of law; violated in any
material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any unlawful bribe, rebate, payoff,
influence, kick-back or other unlawful payment.
(kk) Ernst & Young LLP are independent public accountants
with respect to the Company as required by the Act.
(ll) The financial statements, together with related
schedules and notes forming part of the Final Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial
position of the Company and the Subsidiaries, on the basis stated in
the Final Offering Memorandum at the respective dates or for the
respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial
and statistical information and data set forth in the Final Offering
Memorandum (and any amendment or supplement thereto) is, in all
material respects, accurately
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<PAGE> 15
presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(mm) Neither the Company nor any of the Subsidiaries is, nor
will the Company or any of the Subsidiaries become upon the sale of
the Securities and the application of the proceeds therefrom as
described in the Final Offering Memorandum under the caption "Use of
Proceeds," an "investment company" or a person "controlled" by an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(nn) Except as described in the Final Offering Memorandum, no
holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company.
(oo) The Company and each of the Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(pp) Subsequent to the respective dates as of which
information is given in the Final Offering Memorandum, there has not
been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company and the Subsidiaries, taken as a whole, (ii) any
transaction that is material to the Company and the Subsidiaries,
taken as a whole, except transactions entered into in the ordinary
course of business, (iii) any obligation, direct or contingent, that
is material to the Company and the Subsidiaries, taken as a whole,
incurred by the Company or the Subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the
capital stock or outstanding indebtedness of the Company or any of the
Subsidiaries (other than as expressly contemplated therein) that is
material to the Company and the Subsidiaries, taken as a whole, (v)
any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (vi) any loss or damage (whether or
not insured) to the property of the Company or any of the Subsidiaries
which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole.
(qq) Neither the Company nor any agent thereof acting on its
behalf has taken, and none of them will take, any action that might
cause this Agreement or the issuance or sale of the Securities to
violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R.
Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve
System or analogous foreign laws and regulations.
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<PAGE> 16
(rr) No bid or purchase by the Company, and no bid or
purchase that could be attributed to the Company (as a result of bids
or purchases by an "affiliated purchaser" within the meaning of Rule
100 of Regulation M under the 1934 Act) for or of the Common Stock,
any securities of the same class or series as the Common Stock or any
securities immediately convertible into or exchangeable for or that
represent any right to acquire Common Stock, is now pending or in
progress or will have commenced at any time prior to the completion of
the resale of the Securities by the Initial Purchasers.
5. Offering of Securities. Each Initial Purchaser (i)
acknowledges that the Securities have not been registered under the Securities
Act and may not be offered or sold except pursuant to an exemption from, or in
a transaction not subject to, the registration requirements of the Securities
Act or pursuant to an effective registration statement under the Securities Act
and (ii) severally and not jointly, represents and warrants to and agrees with
the Company that:
(a) It has not offered or sold, and will not offer or
sell, any Securities except (i) to those it reasonably believes to be
qualified institutional buyers (as defined in Rule 144A under the
Securities Act) and that, in connection with each such sale, it has
taken or will take reasonable steps to ensure that the purchaser of
such Securities is aware that such sale is being made in reliance on
Rule 144A, (ii) to other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D) who
provide to it and to the Company a letter in the form of Annex A to
the Final Offering Memorandum or (iii) to Non-U.S. Persons in
accordance with Regulation S of the Securities Act.
(b) Neither it nor any person acting on its behalf has
made or will make offers or sales of the Securities in the United
States by means of any form of general solicitation or general
advertising (within the meaning of Regulation D) in the United States,
except pursuant to a registered public offering as provided in the
Registration Rights Agreement.
(c) Neither it nor any of its affiliates, nor any person
acting on its or their behalf will, directly or indirectly, make
offers or sales of any Security, or solicit offers to buy any
Security, under circumstances that would require the registration of
the Securities under the Securities Act.
(d) Neither it nor any of its affiliates, nor any person
acting on its or their behalf will engage in any directed selling
efforts with respect to the Securities, except pursuant to a
registered public offering as provided in the Registration Rights
Agreement.
(e) No action has been or will be taken by the Company or
any other person that would permit the offer or sale of the Securities
or the distribution of the Preliminary Offering Memorandum or the
Final Offering Memorandum or any other offering material relating to
the Securities in any jurisdiction where action for that purpose is
required. The Company shall have no responsibility with respect to
the rights of any person to offer or sell Securities or to distribute
the Preliminary Offering Memorandum or the Final Offering Memorandum
or any other offering material relating to the Securities in any
jurisdiction. Accordingly, the Initial Purchaser shall not
16
<PAGE> 17
offer or sell any Securities, or distribute the Preliminary Offering
Memorandum or the Final Offering Memorandum or any other offering
material relating to the Securities, in any jurisdiction except in
compliance with applicable law. The Initial Purchasers shall obtain
any consent, approval or authorization required for it to offer or
sell Securities, or to distribute the Preliminary Offering Memorandum
or the Final Offering Memorandum or any other offering material
relating to the Securities under the laws or regulations of any
jurisdiction where it proposes to make offers or sales of Securities,
or to distribute the Preliminary Offering Memorandum or the Final
Offering Memorandum or any other offering material relating to the
Securities.
(f) It is a participating organization in the Depository
Trust Company ("DTC").
(g) The Securities have not been and will not be
registered under the Securities Act, are "restricted securities"
within the meaning of Rule 144 under the Securities Act and may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Regulation S under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each of the Initial Purchasers
represents that it has not offered, sold or delivered the Securities,
and will not offer, sell or deliver the Securities (i) (A) as part of
its distribution at any time or (B) otherwise until 40 days after the
later of the commencement of the offering and the Closing Date, within
the United States or to, or for the account or benefit of, U.S.
persons, except in accordance with Rule 903 of Regulation S or Rule
144A under the Securities Act, or to institutional "accredited
investors" in accordance with Section 5(a) or pursuant to Section 5(k)
below or (ii) in violation of Rule 144 under the Securities Act.
Accordingly, each Initial Purchaser agrees that neither it, its
affiliates nor any persons acting on its or their behalf has engaged
or will engage in any directed selling efforts as defined in Rule
901(b) of Regulation S with respect to the Securities, and it, its
affiliates and all persons acting on its or their behalf have complied
and will comply with the offering restriction requirements of
Regulation S.
(h) Each Initial Purchaser represents and agrees that the
Securities offered and sold in reliance on Regulation S have been and
will be offered and sold only in "offshore transactions" within the
meaning of Regulation S and that such Securities have been and will be
represented upon issuance by a global security that may not be
exchanged for definitive securities until the expiration of the
Restricted Period (as defined in Regulation S) and only upon
certification of beneficial ownership of the Securities by a non-U.S.
Person or a U.S. person who purchased such securities in a transaction
that was exempt from the registration requirements of the Act.
(i) Each Initial Purchaser agrees that, at or prior to
confirmation of a sale of Securities (other than a sale pursuant to
Rule 144A or to institutional "accredited investors" in accordance
with Section 5(a), it will have sent to each distributor, dealer or
person receiving a selling concession, fee or other remuneration that
purchases Securities from it during the Restricted Period a
confirmation or notice to substantially the following effect:
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<PAGE> 18
"The Securities covered hereby have not been registered under
the United States Securities Act of 1933 (the "Securities
Act") and may not be offered and sold within the United States
or to, or for the account or benefit of, U.S. persons (i) (A)
as part of their distribution at any time or (B) otherwise
until 40 days after the later of the commencement of the
offering and the closing date, except in either case in
accordance with Regulation S (or Rule 144A if available) under
the Securities Act or (ii) in violation of Rule 144 under the
Securities Act. Terms used above have the meaning given to
them by Regulation S."
Terms used in this Section 5 that have meanings assigned to them in Regulation
S are used herein as so defined.
6. Indemnification. (a) The Company agrees to indemnify
and hold harmless (i) each Initial Purchaser, (ii) each person, if
any, who controls any Initial Purchaser within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, and (iii) the
respective officers, directors, partners, employees, representatives
and agents of the Initial Purchasers or any controlling person
(collectively, the "Indemnified Parties") from and against any and all
losses, claims, damages, liabilities and judgments caused by any
untrue statement or alleged untrue statement of a material fact
contained in the Final Offering Memorandum (as amended or supplemented
if the Company shall have furnished any amendments or supplements
thereto) or the Preliminary Offering Memorandum, or caused by any
omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the
circumstances under which made, not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any
such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Initial Purchaser
furnished in writing to the Company by or on behalf of any Initial
Purchaser through you expressly for use therein. The foregoing
indemnity, however, insofar as it relates to any untrue statement or
omission or alleged untrue statement or omission made in the
Preliminary Offering Memorandum but eliminated or remedied in the
Final Offering Memorandum shall not inure to the benefit of any
Indemnified Party with respect to any action or claim asserted by a
person who purchased any Notes from such Initial Purchaser unless such
person was sent or given a copy of the Final Offering Memorandum with
or prior to the written confirmation of the sale involved.
(b) In case any action shall be brought against any
Indemnified Party, based upon the Preliminary Offering Memorandum or
the Final Offering Memorandum or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company,
such Indemnified Party shall promptly notify the Company in writing
and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Party and payment of all reasonable fees and expenses. Any
Indemnified Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the
reasonable fees and expenses of such counsel shall be at the expense
of such Indemnified Party unless (i) the employment of such counsel
has been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense and employ counsel or
(iii) the named parties to any such action (including any impleaded
parties) include
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<PAGE> 19
both such Indemnified Party and the Company, and such Indemnified
Party shall have been advised by such counsel that there may be one or
more legal defenses available to it which are different from or
additional to those available to the Company (in which case the
Company shall not have the right to assume the defense of such action
on behalf of such Indemnified Party, it being understood, however,
that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel)
for all such Indemnified Parties, which firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation and
that all such fees and expenses shall be reimbursed as they are
incurred). The Company shall not be liable for any settlement of any
such action effected without its written consent, but if settled with
its written consent, it agrees to indemnify and hold harmless any
Indemnified Party from and against any loss or liability by reason of
such settlement. No indemnifying party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified
Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such proceeding.
(c) Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless (i) the Company (ii) each
person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act and (iii) the
officers, directors, partners, employees, representatives and agents
of the Company or any such controlling person (collectively, the
"Indemnified Company Parties") to the same extent as the foregoing
indemnity from the Company to each Initial Purchaser but only with
reference to information relating to such Initial Purchaser furnished
in writing by or on behalf of such Initial Purchaser expressly for use
in the Preliminary Offering Memorandum or the Final Offering
Memorandum (or any amendment or supplement thereto). In case any
action shall be brought against and Indemnified Company Party based on
the Preliminary Offering Memorandum or Final Offering Memorandum and
in respect of which indemnity may be sought against any Initial
Purchaser, each Initial Purchaser shall have the rights and duties
given to the Company (except that if the Company shall have assumed
the defense thereof such Initial Purchaser shall not be required to do
so, but may employ separate counsel therein and participate in the
defense thereof but the reasonable fees and expenses of such counsel
shall be at the expense of such Initial Purchaser), and the
Indemnified Company Party shall have the rights and duties given to
the Initial Purchasers, by paragraph 6(b) hereof.
(d) If the indemnification provided for in this Section 6
is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities and judgments in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and the Initial Purchasers on the other hand from the offering of the
Securities. If the allocation provided by the immediately preceding
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<PAGE> 20
sentence is not permitted by applicable law for any reason, the
Company and the Initial Purchasers shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Initial Purchasers in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on
the other hand shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses)
received by the Company, and the total discounts and commissions
received by the Initial Purchasers in connection with the purchase of
the Securities hereunder, bear to the total price to investors, in
each case as set forth on the cover page of the Final Offering
Memorandum. The relative fault of the Company and the Initial
Purchasers shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Initial Purchaser and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this paragraph 6(d)
were determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 6, such Initial Purchaser (or any related Indemnified
Party) shall not be required to contribute, in the aggregate, any
amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchaser with respect to the
Securities exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Initial Purchasers' obligations to contribute pursuant to this
paragraph 6(d) are several in proportion to the respective principal
amount of Notes purchased by each of the Initial Purchasers and not
joint.
(e) Each Initial Purchaser represents and warrants that
the information set forth (i) in the last paragraph on the front cover
page, (ii) on page 3 regarding stabilization and over-allotment, and
passive market making, and (iii) under the caption "Plan of
Distribution" in the Preliminary Offering Memorandum and the Final
Offering Memorandum relating to the Securities (insofar as such
information relates to such Initial Purchaser) constitutes the only
information furnished by the Initial Purchasers for inclusion in the
Preliminary Offering Memorandum and the Final Offering Memorandum.
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<PAGE> 21
7. Conditions of Initial Purchasers' Obligations. The
several obligations of the Initial Purchasers to purchase the Firm Notes under
this Agreement on the Closing Date and the Additional Notes, if any, on an
Option Closing Date are subject to the satisfaction of each of the following
conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date or an Option Closing Date, as the case may be, with the same
force and effect as if made on and as of the Closing Date or an Option
Closing Date.
(b) The Final Offering Memorandum shall have been printed
and copies distributed to the Initial Purchasers as promptly as
practicable following the date of this Agreement or at such other date
and time as to which you may agree; and no stop order suspending the
sale of the Securities in any jurisdiction shall have been issued and
no proceeding for that purpose shall have been commenced or shall be
pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date or any Option
Closing Date, prevent the issuance of the Securities; and no
injunction, restraining order or order of any nature by a Federal or
state court of competent jurisdiction shall have been issued as of the
Closing Date or any Option Closing Date which would prevent the
issuance of the Securities on the Closing Date or any Option Closing
Date.
(d) (i) Since the date of the latest balance sheet
included in the Final Offering Memorandum, there shall not have been
any material adverse change, or any development that could reasonably
be expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, affairs or business
prospects, whether or not arising in the ordinary course of business,
of the Company, (ii) since the date of the latest balance sheet
included in the Final Offering Memorandum there shall not have been
any material change, or any development that could reasonably be
expected to result in a material adverse change, in the capital stock
or in the long-term debt of the Company from that set forth in the
Final Offering Memorandum, other than changes resulting from (y) the
exercise of stock options which were granted under the Company's
currently existing stock option plans or agreements or (z) the
exercise of warrants granted to Creditanstalt-Benkverein dated as of
March 19, 1996, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to
the Company and its subsidiaries, taken as a whole, other than those
reflected in the Final Offering Memorandum and (iv) on the Closing
Date or an Option Closing Date, as the case may be, you shall have
received a certificate dated the Closing Date (or an Option Closing
Date, as appropriate), signed by Paul Klaassen and David W. Faeder, in
their capacities as the Chief Executive Officer and Chief Financial
Officer of the Company, respectively, confirming the matters set forth
in paragraphs (a), (b) and (d) of this Section 7.
(e) The Company and the Trustee shall have entered into
the Indenture and you shall have received counterparts, conformed as
executed, thereof.
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(f) The Company shall have entered into the Registration
Rights Agreement and you shall have received counterparts, conformed
as executed, thereof.
(g) You shall have received on the Closing Date or an
Option Closing Date, as the case may be, an opinion (reasonably
satisfactory to you and counsel for the Initial Purchaser), dated the
Closing Date (or an Option Closing Date, as appropriate) of Hogan &
Hartson, L.L.P., counsel for the Company, to the effect that:
(i) The Company was duly incorporated, and is
validly existing and in good standing under the laws of the
State of Delaware as of the date specified in such opinion
letter, and has the corporate power and corporate authority to
own, lease and operate its properties and to conduct its
business as described in the Final Offering Memorandum. The
Company is authorized to transact business as a foreign
corporation in each jurisdiction identified on a Schedule to
such opinion letter, as of the respective dates of the
certificates specified therein.
(ii) Each of the Corporate Subsidiaries
incorporated in Virginia was incorporated, and is validly
existing and in good standing under the laws of its
jurisdiction of incorporation as of the respective dates
specified in such opinion letter and has the corporate power
and corporate authority to own, lease and operate its
properties and to conduct its business as described in the
Final Offering Memorandum. Each such Corporate Subsidiary is
authorized to transact business as a foreign corporation in
each jurisdiction identified on a Schedule to such opinion
letter, as of the respective dates of the certificates
specified therein.
(iii) All of the outstanding shares of capital
stock of each such Corporate Subsidiary (a) have been duly
authorized and are validly issued, fully paid and
nonassessable, and (b) to such counsel's knowledge, were not
issued in violation of any preemptive rights under such
Corporate Subsidiary's charter or under the laws of the
jurisdiction of its incorporation or in violation of any
similar contractual rights.
(iv) Each Limited Partnership Subsidiary formed in
Virginia or Maryland was formed, and is validly existing and
in good standing under the laws of its jurisdiction of
organization as of the respective dates specified in such
opinion letter, and has the limited partnership power and
limited partnership authority to own, lease and operate its
properties and to conduct its business as described in the
Final Offering Memorandum. Each Limited Partnership
Subsidiary is authorized to transact business as a foreign
limited partnership in each jurisdiction identified on a
Schedule to such opinion letter, as of the respective dates of
the certificates specified therein.
(v) Each LLC Subsidiary formed in Maryland was
formed, and is validly existing and in good standing under the
laws of its jurisdiction of organization as of the respective
dates specified in such opinion letter, and has the limited
liability company
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<PAGE> 23
power and limited liability company authority to own, lease
and operate its properties and to conduct its business as
described in the Final Offering Memorandum.
(vi) Assuming the accuracy of the representations
and warranties of the Company and the Initial Purchasers
contained in this Agreement, the issuance and sale of the
Securities to the Initial Purchasers and the offering, resale
and delivery of the Securities by the Initial Purchasers, in
each case in the manner contemplated by the Offering
Memorandum, are exempt from the registration requirements of
the Securities Act and it is not necessary to qualify the
Indenture under the Trust Indenture Act;
(vii) The Company has the corporate power and
authority to enter into this Agreement, the Indenture and the
Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby and this
Agreement, the Indenture and the Registration Rights Agreement
have been duly authorized, executed and delivered by the
Company.
(viii) The Indenture constitutes a valid and
binding obligation of the Company, enforceable in accordance
with its terms, except as may be limited by bankruptcy,
rehabilitation, insolvency, reorganization, moratorium or
other laws affecting creditors' rights (including, without
limitation, the effect of statutory and other law regarding
fraudulent transfers, fraudulent, conveyances and preferential
transfers) and as may be limited by the exercise of judicial
discretion and the application of principles of equity,
including, without limitation, requirements of good faith,
fair dealing, conscionability and materiality (regardless of
whether the Indenture is considered in a proceeding in equity
or at law);
(ix) The Registration Rights Agreement constitutes
a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as may be limited by
bankruptcy, rehabilitation, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
(including, without limitation, the effect of statutory and
other law regarding fraudulent transfers, fraudulent,
conveyances and preferential transfers) and as may be limited
by the exercise of judicial discretion and the application of
principles of equity, including, without limitation,
requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether the Registration Rights
Agreement is considered in a proceeding in equity or at law);
(x) The Notes have been duly authorized on behalf
of the Company, and (assuming due execution, authentication,
issuance and delivery as provided in the Indenture) will
constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in
accordance with their terms, except as may be limited by
bankruptcy, rehabilitation, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
(including, without limitation, the effect of statutory and
other law regarding fraudulent transfers, fraudulent,
conveyances and preferential transfers) and as may be limited
by the exercise of judicial discretion and the application
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<PAGE> 24
of principles of equity, including, without limitation,
requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether the Notes are considered in
a proceeding in equity or at law); the issuance of the Notes
is not subject to (a) any preemptive rights under the
Company's Restated Certificate or (b) to such counsel's
knowledge, similar contractual rights;
(xi) The authorized capital stock of the Company
conforms in all material respects to the description thereof
contained in the Final Offering Memorandum under the caption
"Description of Capital Stock"; and the shares of Common Stock
initially issuable upon conversion of the Notes have been duly
authorized and reserved for issuance upon conversion of the
Notes, and such shares of Common Stock, when issued and
delivered by the Company upon such conversion, will be validly
issued, fully paid and nonassessable and the issuance of such
shares of Common Stock will not be subject to (A) any
preemptive rights under the Company's Restated Certificate of
Incorporation or (B) to such counsel's knowledge, similar
contractual rights;
(xii) The statements in the Offering Memorandum
under the caption "Description of the Notes," insofar as such
statements purport to summarize provisions of the Notes, the
Indenture and the Registration Rights Agreement, are accurate
summaries in all material respects of the provisions purported
to be summarized therein.
(xiii) The execution, delivery and performance as of
the Closing Date by the Company of this Agreement, the
Indenture and the Registration Rights Agreement do not (i)
violate the Restated Certificate of Incorporation or Amended
and Restated Bylaws of the Company, the charter, bylaws,
partnership agreements or operating agreements of any of the
Subsidiaries or the General Corporation Law of the State of
Delaware or (ii) breach or constitute a default under any
contract or agreement listed on a Schedule to such opinion
letter. No approval or consent of any Delaware, Virginia or
Maryland governmental agency is required to be obtained by the
Company in connection with the execution, delivery and
performance as of the Closing Date by the Company of this
Agreement.
(xiv) Each of the Company's owned assisted living
facilities in Maryland and Virginia currently holds (or has
pending a renewal application for) a license authorizing such
facility to furnish assisted living services as described
under the heading "Services" on pages 34 to 35 of the Final
Offering Memorandum.
(xv) Neither the Company nor any of the
Subsidiaries is required to be registered as an "investment
company" under the 1940 Act; and
(xvi) To such counsel's knowledge, the Company
owns directly or indirectly the ownership interests in the
Subsidiaries set forth on Annex II to the Purchase Agreement.
24
<PAGE> 25
In addition to the matters set forth above, such opinion shall
include a statement that no facts have come to the attention of such
counsel which cause them to believe that (i) the Final Offering
Memorandum, as of its date and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, (ii) there are any legal or governmental
proceedings pending or threatened against the Company that would be
required to be disclosed in a Registration Statement on Form S-3 that
are not disclosed in the Final Offering Memorandum, or (iii) there are
any contracts or documents of a character that would be required to be
described in a Registration Statement on Form S-3 that are not
described or referred to in the Final Offering Memorandum; provided
that in making the foregoing statements (which shall not constitute an
opinion), such counsel need not express any views as to the financial
statements and supporting schedules and other financial and
statistical information and data included in or omitted from the Final
Offering Memorandum.
In giving its opinion required by this paragraph (g) above,
such counsel may rely, (A) as to all matters of fact, upon
certificates and written statements of officers and employees of the
Company and its Subsidiaries, and (B) as to the qualification and good
standing of the Company and its Subsidiaries to do business in any
jurisdiction, upon certificates of appropriate government officials in
such jurisdictions. Further, such counsel may state that their
opinion is based as to matters of law solely upon (i) the federal
securities laws, (ii) the General Corporation Law, as amended, of each
of the States of Delaware and Virginia, (iii) the limited partnership
acts of Virginia and Maryland, (iv) the limited liability company act
of Maryland, (v) New York contract law (but not including any
statutes, ordinances, administrative decisions, rules or regulations
of any political subdivision of the State of New York), (vi) Hospitals
and Related Institutions, Md. Health-Gen. Code Ann. Sections 19-301
to 19-374, (vii) Domiciliary Care Homes, Md. Regs. Code Sections
10.07.03.01 to 10.07.03.27, (viii) Licensing of Homes for Aged, Infirm
or Disabled Adults, Va. Code Ann. Sections 63.1-172 to 182.1, and (ix)
Standards and Regulations for Licensed Adult Care Residences, 22 Va.
Admin. Code Sections 40-70-10 to 40-745-110; and that such counsel
expresses no opinion as to any other laws, statutes, ordinances, rules
or regulations; provided that, no opinion need be expressed in
paragraph (viii) above with respect to the waiver contained in Section
4.9 of the Indenture and no opinion need be expressed in paragraph
(ix) above with respect to the indemnity or contribution provisions of
the Registration Rights Agreement. The opinions expressed in
paragraphs (viii), (ix) and (x) above shall be understood to mean only
that if there is a default in performance of any obligation, (i) if a
failure to pay or other damage can be shown and (ii) if the defaulting
party can be brought into a court which will hear the case and apply
the governing law, then, subject to the availability of defenses, and
to the exceptions set forth in paragraphs (viii), (ix) and (x) above,
the court will provide a money damage (or perhaps injunctive or
specific performance) remedy.
The opinion of Hogan & Hartson described in this paragraph
7(g) shall be rendered to you at the request of the Company and shall
so state therein.
25
<PAGE> 26
(h) You shall have received on the Closing Date or an
Option Closing Date, as the case may be, an opinion, dated the Closing
Date (or an Option Closing Date, as appropriate), of Alston & Bird
LLP, counsel for the Initial Purchaser, in form and substance
reasonably satisfactory to you, with respect to the sufficiency of all
such corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such
counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(i) You shall have received a letter on and as of the
Closing Date or an Option Closing Date, as the case may be, in form
and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, with respect to the financial statements and
certain financial information contained or incorporated by reference
in the Final Offering Memorandum and substantially in the form and
substance of the letter delivered to you by Ernst & Young LLP on the
date of this Agreement.
(j) The Company shall not have failed at or prior to the
Closing Date or an Option Closing Date, as the case may be, to perform
or comply in any material respect with any of the agreements herein
contained and required to be performed or complied with by the Company
at or prior to the Closing Date.
(k) The Company shall have furnished to you such further
certificates and documents as you or your counsel shall reasonably
request, including, without limitation, certificates of officers of
the Company as to the accuracy of the representations and warranties
of the Company herein, as to the performance by the Company of their
respective obligations hereunder and as to other conditions concurrent
and precedent to the obligations of the Initial Purchasers hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to counsel to the Underwriters. The Company will furnish
with such number of conformed copies of such opinions, certificates,
letters and documents as you shall reasonably request.
The several obligations of the Initial Purchasers to purchase
any Additional Notes hereunder are subject to satisfaction on and as
of each Option Closing Date of the conditions set forth in paragraphs
(a) through (k) except that the opinions called for in paragraphs (g)
and (h) and the letters referred to in paragraph (i) shall be revised
to reflect the sale of the Additional Notes.
8. Effective Date of Agreement and Termination. This
Agreement shall become effective upon the execution of this Agreement.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Company if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Final Offering Memorandum, any material adverse change, or
26
<PAGE> 27
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, of the Company and its
subsidiaries, taken as a whole, or the earnings, affairs, or business prospects
of the Company and its subsidiaries, taken as a whole, whether or not arising
in the ordinary course of business, which would, in your judgment, make it
impracticable to market the Securities on the terms and in the manner
contemplated in the Final Offering Memorandum, (ii) any outbreak or escalation
of hostilities or other national or international calamity or crisis or change
in economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable to market the Securities on the terms and in
the manner contemplated in the Final Offering Memorandum, (iii) the suspension
or material limitation of trading in securities on the New York Stock Exchange,
the American Stock Exchange or The Nasdaq Stock Market or limitation on prices
for securities on any such exchange or The Nasdaq Stock Market, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
9. Default by an Initial Purchaser. If one of the
Initial Purchasers shall fail to purchase and pay for any of the Notes agreed
to be purchased by such Initial Purchaser hereunder and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Initial Purchaser shall be
obligated to take up and pay for the Notes which the defaulting Initial
Purchaser agreed but failed to purchase; provided, however, that in the event
that the aggregate principal amount of Notes which the defaulting Initial
Purchaser agreed but failed to purchase shall exceed 10% of the aggregate
principal amount of Notes set forth in Schedule I hereto, the remaining Initial
Purchaser shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Notes, and if such non-defaulting Initial
Purchaser does not purchase all the Notes, this Agreement will terminate
without liability to the non-defaulting Initial Purchaser or the Company. In
the event of a default by any Initial Purchaser as set forth in this Section 9,
the Closing Date or the Option Closing Date, as the case may be, shall be
postponed for such period, not exceeding seven days, as the remaining Initial
Purchaser shall determined in order that the required changes in the Final
Offering Memorandum or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Initial
Purchaser of its liability, if any, to the Company or any non-defaulting
Initial Purchaser for damages occasioned by its default hereunder.
10. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (a) if to the
Company, to Sunrise Assisted Living, Inc., 9401 Lee Highway, Suite 300,
Fairfax, Virginia 22031, Attention: Paul J. Klaassen, (b) if to any Initial
Purchaser, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 227 Park
Avenue, New York, New York 10005, Attention: Craig Callen, or in any case to
such other address as the person to be notified may have requested in writing.
27
<PAGE> 28
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, its officers
and directors and of the several Initial Purchasers set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any Initial Purchaser or by or on behalf of the Company, the officers or
directors of the Company or any controlling person of the Company, (ii)
acceptance of the Notes and payment for them hereunder and (iii) termination of
this Agreement.
If this Agreement shall be terminated by the Initial
Purchasers because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement,
the Company shall reimburse the Initial Purchasers for all out-of-pocket
expenses (including the fees and disbursements of counsel) reasonably incurred
by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Initial Purchasers, any controlling persons referred to herein and their
respective successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include
a purchaser of any of the Notes from either of the Initial Purchasers merely
because of such purchase.
This Agreement shall be governed and construed in accordance
with the internal laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
[Signatures on Next Page]
28
<PAGE> 29
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Initial Purchasers.
Very truly yours,
SUNRISE ASSISTED LIVING, INC.
By: /s/ PAUL J. KLAASSEN
--------------------------------------------
Paul J. Klaassen
President and Chief Executive Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ JOHN W. PATTERSON
----------------------------------------
Name: John W. Patterson
-----------------------------
Title: Senior Vice President
----------------------------
ALEX. BROWN & SONS INCORPORATED
By: /s/ L.J. KRASKA
----------------------------------------
Name:
-----------------------------
Title: Principal
----------------------------
<PAGE> 30
SCHEDULE I
<TABLE>
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . . $ 97,500,000
Alex. Brown & Sons Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . 32,500,000
------------
Total $130,000,000
============
</TABLE>
<PAGE> 31
ANNEX II
Sunrise Assisted Living, Inc.
List of Consolidated Subsidiaries
<TABLE>
<CAPTION>
Direct or Indirect Jurisdiction
Subsidiaries Ownership of Incorporation
- ------------- ------------------- ----------------
<S> <C> <C>
Sunrise Terrace, Inc. 100% Virginia
Sunrise Development, Inc. 100% Virginia
Sunrise Assisted Living
Investments, Inc. 100% Virginia
Sunrise Assisted Living
Limited Partnership 100% Virginia
Sunrise Partners Limited Partnership 100% Virginia
Sunrise at Gardner Park
Limited Partnership 50% Massachusetts
Sunrise of Raleigh, LLC 100% North Carolina
Sunrise Village House, LLC 80% Maryland
Sunrise Assisted Living
Limited Partnership II 100% Virginia
Sunrise Assisted Living
Limited Partnership III 100% Pennsylvania
Sunrise Assisted Living
Limited Partnership IV 100% New Jersey
Sunrise Assisted Living
Limited Partnership V 100% New Jersey
Sunrise Assisted Living
Limited Partnership VI 100% New Jersey
Sunrise Assisted Living
Limited Partnership VII 100% Maryland
Sunrise Assisted Living
Limited Partnership VIII 100% California
Sunrise Assisted Living of
Abington, L.P. 100% Pennsylvania
Sunrise Assisted Living of
Granite Run, L.P. 100% Pennsylvania
Sunrise Assisted Living of
Franconia, L.P. 100% Virginia
Independence Home Care
Agency, Inc. 100% Washington
Sunrise Homes of Towson LLC 100% Maryland
Sunrise East Assisted Living
Limited Partnership 100% Virginia
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
Sunrise of Alexandria 100% Virginia
Assisted Living, L.P.
Sunrise of Rockville Assisted 100% Maryland
Living Limited Partnership
Sunrise Huntcliff Assisted 100% Georgia
Living Limited Partnership
Sunrise Augusta Assisted 100% Georgia
Living Limited Partnership
Sunrise Columbus Assisted 100% Georgia
Living Limited Partnership
Sunrise Greenville Assisted 100% South Carolina
Living Limited Partnership
Sunrise Northshore Assisted 100% Florida
Living Limited Partnership
Sunrise of Westfield Assisted
Living, LP 100% Maryland
NAH/Sunrise Severna Park, LLC 50% Maryland
Sunrise Wayland Assisted
Living Limited Partnership 100% Massachusetts
Sunrise Norwood Assisted
Living Limited Partnership 100% Massachusetts
Sunrise Napa Assisted Living 100% California
Limited Partnership
Sunrise Walnut Creek Assisted 100% California
Living Limited Partnership
Sunrise West Assisted Living 100% California
Limited Partnership
Sunrise Sterling Canyon Assisted 100% California
Living Limited Partnership
Sunrise Decatur Assisted Living 100% Georgia
Limited Partnership
Sunrise Ivey Ridge Assisted Living 100% Georgia
Limited Partnership
Sunrise East Cobb Assisted Living 100% Georgia
Limited Patnership
Sunrise Glen Cove Assisted Living 100% New York
Limited Partnership
Sunrise Walnut Creek Assisted Living 100% California
Limited Partnership
Sunrise Napa Assisted Living Limited 100% California
Partnership
Sunrise Pinehurst Assisted Living 100% Colorado
Limited Partnership
Sunrise Holly Assisted Living Limited 100% Colorado
Partnership
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
Sunrise Cohasset Assisted Living Limited 100% Massachusetts
Partnership
Sunrise Oakland Assisted Living Limited 100% California
Partnership
</TABLE>
<PAGE> 1
EXHIBIT 5
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
August 25, 1997
Board of Directors
Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, VA 22031
Ladies and Gentlemen:
This firm has acted as counsel to Sunrise Assisted Living, Inc., a
Delaware corporation (the "Company"), in connection with its registration
statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission, relating to resales of up to $150,000,000 aggregate
principal amount of the Company's 5 1/2% Convertible Subordinated Notes due
2002 (the "Notes") and the 4,033,613 shares (as such number may be adjusted as
set forth in the Indenture, dated as of June 6, 1997 (the "Indenture"), between
the Company and First Union National Bank (formerly, First Union National Bank
of Virginia), as trustee (the "Trustee")) of Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") issuable upon conversion of the
Notes in accordance with the Indenture. This opinion letter is furnished to you
at your request to enable you to fulfill the requirements of Item 601(b)(5) of
Regulation S-K, 17 C.F.R. Section 229.601(b)(5), In connection with the
Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. An executed copy of the Indenture.
3. Executed copies of the Notes, each dated as of June 6, 1997.
4. The Restated Certificate of Incorporation of the Company, as
certified by the Secretary of the State of the State of
Delaware on May 30, 1997 and by the Assistant Secretary of the
Company on the date hereof as then being complete, accurate and
in effect.
<PAGE> 2
Sunrise Assisted Living, Inc.
August 25, 1997
Page 2
5. The Amended and Restated Bylaws of the Company, as
certified by the Assistant Secretary of the Company on
the date hereof as then being complete, accurate and in effect.
6. Resolutions of the Board of Directors of the Company adopted at
a meeting of the Board of Directors of the Company on
May 23, 1997 and by unanimous written consent as of June 2,
1997, and resolutions adopted by the Pricing Committee of the
Board of Directors on June 2, 1997, as certified by the
Assistant Secretary of the Company on the date hereof as then
being complete, accurate and in effect, relating to the
offering of the Notes and arrangements in connection therewith.
7. Compliance certificate of the Trustee dated June 6, 1997 that
the Notes have been duly authenticated in accordance with the
terms of the Indenture.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
For purposes of this opinion letter, we have assumed that (i) the
Trustee has all requisite power and authority under all applicable laws,
regulations and governing documents to execute, deliver and perform its
obligations under the Indenture, (ii) the Trustee has duly authorized, executed
and delivered the Indenture and is validly existing and in good standing in all
necessary jurisdictions and (iii) the Indenture constitutes a valid and binding
obligation of the Trustee, enforceable against the Trustee in accordance with
its terms. We also have assumed the receipt by the Company of the consideration
for the Notes as contemplated by the Board resolutions authorizing the issuance
thereof.
This opinion letter is based as to matters of law solely on
applicable provisions of (i) the General Corporation Law of the State of
Delaware and (ii) New York contract law (but not including any statutes,
ordinances, administrative decisions, rules or regulations of any political
subdivisions of the State of New York), and we express no opinion as to any
other laws, statutes, rules or regulations (such as federal or state securities
or "blue sky" laws).
Based upon, subject to and limited by the foregoing, we are of the
opinion that:
<PAGE> 3
Sunrise Assisted Living, Inc.
August 25, 1997
Page 3
(a) The Notes constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
(including, without limitation, the effect of statutory and other laws
regarding fraudulent conveyances, fraudulent transfers and preferential
transfers) and as may be limited by the exercise of judicial discretion and the
application of principles of equity, including, without limitation,
requirements of good faith, fair dealing, conscionability and materiality
(regardless of whether the security is considered in a proceeding at law or in
equity) and except that a waiver of rights under any usury law may be
unenforceable.
(b) The shares of Common Stock issuable upon conversion of the Notes,
when issued in accordance with the terms of the Notes, will be validly issued,
fully paid and non-assessable.
The opinion expressed in Paragraph (a) above shall be understood to
mean only that if there is a default in performance of an obligation, (i) if a
failure to pay or other damage can be shown and (ii) if the defaulting party
can be brought into a court which will hear the case and apply the governing
law, then, subject to the availability of defenses, and to the exceptions set
forth in Paragraph (a) above, the court will provide a money damage (or perhaps
injunctive or specific performance) remedy.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written
consent of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the Prospectus. In giving this consent, we do not
thereby admit that we are an "expert" within the meaning of the Securities Act
of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
1992 1993 1994 1995 1996 30-Jun-96 30-Jun-97
---- ---- ---- ---- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax (loss) income
from continuing operations ($171) ($637) $562 ($10,137) ($4,760) ($4,088) $510
Share of pretax income of 50%
owned affiliate net of equity
pick-up - - - - - - -
Share of distributed income (loss)
of less-than-50%-owned
affiliates net of equity pick-up 55 25 (33) 36 (14) 91 9
Share of pretax loss of less-than-
50%-owned affiliate with
guaranteed debt net of equity
pick-up - - - - - - -
Amortization of capitalized interest 1 5 9 19 59 15 24
Interest 2,275 3,951 8,894 17,129 11,890 6,049 6,165
Less interest capitalized during the
period (63) (143) (305) (573) (2,168) (627) (1,899)
Net amortization of debt discount
and premium and issuance
expense - - 267 457 714 417 530
Interest portion of rental expense 154 96 119 125 161 71 177
----------------------------------------------------------------------------
Earnings $2,251 $3,297 $9,513 $7,056 $5,882 $1,928 $5,516
============================================================================
Interest $2,275 $3,951 $8,894 $17,129 $11,890 $6,049 $6,165
Net amortization of debt discount
and premium and issuance
expense - - 267 457 714 417 530
Interest portion of rental expense 154 96 119 125 161 71 177
Interest expense relating to
guaranteed debt of less-than-
50% owned affiliate - - - - - - -
----------------------------------------------------------------------------
Fixed Charges $2,429 $4,047 $9,280 $17,711 $12,765 $6,537 $6,872
============================================================================
Ratio of Earnings to
Fixed Charges 0.93 0.81 1.03 0.40 0.46 0.29 0.80
============================================================================
</TABLE>
Page l
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of
Sunrise Assisted Living, Inc. for the registration of $150,000,000 of its
5 1/2% Convertible Subordinated Notes due 2002 and to the incorporation by
reference therein of our report dated March 4, l997, with respect to the
consolidated financial statements of Sunrise Assisted Living, Inc. as of and
for the years ended December 31, 1996 and 1995 and the combined financial
statements of Sunrise Entities for the year ended December 31, 1994
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Washington, D.C.
August 22, 1997
<PAGE> 1
EXHIBIT 25
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM T-1
------------------------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2)
-----
------------------------------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
230 SOUTH TRYON STREET, 9TH FLOOR
CHARLOTTE, NC 28288-1179 56-0900030
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
PATRICIA A. WELLING, (804) 788-9663
901 E. CARY STREET, RICHMOND, VIRGINIA 23219
-------------------------------------------------
SUNRISE ASSISTED LIVING, INC.
(Exact name of obligor as specified in its charter)
VIRGINIA
(State or other jurisdiction of incorporation or organization)
54-1746596
(I.R.S. Employer Identification No.)
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VA
(Address of principal executive offices)
22031
(Zip Code)
SUNRISE ASSISTED LIVING, INC.
5.50% CONVERTIBLE SUBORDINATED NOTES
DUE 6/15/2002
================================================================================
<PAGE> 2
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining
or supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
3. VOTING SECURITIES OF THE TRUSTEE.
Not applicable
(See answer to Item 13)
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
Not applicable
(See answer to Item 13)
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR
OR UNDERWRITERS.
Not applicable
(See answer to Item 13)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
Not applicable
(See answer to Item 13)
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Not applicable
(See answer to Item 13)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Not applicable
(See answer to Item 13)
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
Not applicable
(See answer to Item 13)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
Not applicable
(See answer to Item 13)
2
<PAGE> 3
11. OWNERSHIP OF HOLDERS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
Not applicable
(See answer to Item 13)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Not applicable
(See answer to Item 13)
13. DEFAULTS BY THE OBLIGOR.
A. None
B. None
14. AFFILIATIONS WITH THE UNDERWRITERS.
Not applicable
(See answer to Item 13)
15. FOREIGN TRUSTEE.
Trustee is a national banking association organized under the
laws of the United States.
16. LIST OF EXHIBITS.
(1) Articles of Incorporation. (Incorporated by reference from Exhibit
25 to Registration 333-25575, filed June 5, 1997.)
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
333-25575, filed June 5, 1997.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 4 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and Commonwealth of Virginia on the 20th day of August, 1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ PATRICIA A. WELLING
---------------------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Sunrise Assisted Living, Inc., of its
5.50% Convertible Subordinated Notes due 6/15/2002, First Union National Bank,
as the Trustee herein named, hereby consents that reports of examinations of
said Trustee by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ JOHN M. TURNER
-------------------------------------------------
John M. Turner, Vice President and Managing Director
Dated: August 20, 1997
4
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/97 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-1
City, State Zip: Charlotte, NC 28288-0201
FDIC Certificate No.: |0|4|8|8|5|
-----------
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for June 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
----------
| C400 |
------------ --------
Dollar Amounts in Thousands | RCON Bil Mil Thou |
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 4,473,562 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 159,113 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 1,303,183 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 7,934,740 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell ..................... | 1350 2,305,347 | 3.
4. Loans and lease financing receivables: ----------------------------| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCON 2122 | 59,060,409 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCON 3123 | 875,011 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCON 3128 | 0 | ////////////////// | 4.c.
----------------------------
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 58,185,398 | 4.d.
5. Trading assets (from Schedule RC-D) ........................................................ | 3545 2,298,398 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 1,622,300 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 48,538 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 74,680 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 643,693 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 1,469,446 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 3,381,292 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 83,899,690 | 12.
----------------------
</TABLE>
- ------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
9
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: First Union National Bank Call Date: 6/30/97 ST-BK: 37-0351 FFIEC 031
Address: Two First Union Center Page RC-2
City, State Zip: Charlotte, NC 28288-0201
FDIC Certificate No.: |0|4|8|8|5|
-----------
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I ...... | RCON 2200 50,763,146 | 13.a.
----------------------------
(1) Noninterest-bearing(1) ................................ | RCON 6631 12,216,938 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 38,548,208 | /////////////////////// | 13.a.(2)
----------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II)............................................................................... | RCFN 2200 7,831,207 | 13.b.
---------------------------
(1) Noninterest-bearing ....................................| RCFN 6631 0 | /////////////////////// |
(2) Interest-bearing .......................................| RCFN 6636 7,831,207 | /////////////////////// |
---------------------------
14. Federal funds purchased and securities sold under agreements to repurchase ............... | RCFD 2800 10,011,148 | 14.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 211,051 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 2,297,315 | 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized | /////////////////////// |
leases): | /////////////////////// |
a. With a remaining maturity of one year or less ......................................... | RCFD 2332 2,202,979 | 16.a.
b. With a remaining maturity of more than one year ....................................... | RCON A547 524,062 | 16.b.
c. With a remaining maturity of more than three years..................................... | RCFD A548 22,062 | 16.c.
17. Not applicable | /////////////////////// |
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 643,693 | 18.
19. Subordinated notes and debentures (2) .................................................... | RCFD 3200 1,899,753 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 1,475,586 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 77,884,002 | 21.
22. Not applicable | /////////////////////// |
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 2828 0 | 23.
24. Common stock ............................................................................. | RCFD 3230 82,795 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 3,709,471 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 2,191,564 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 31,858 | 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 6,015,688 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21 | |
and 28) .................................................................................. | RCFD 3300 82,899,690 | 29.
---------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that Number
best describes the most comprehensive level of auditing work performed -------------------
for the bank by independent external auditors as of any date during 1996 ........................... | RCFD 6724 | N/A | M.1.
-------------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state
chartering authority)
- ------------
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
10
