<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ALTERNATIVE LIVING SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 39-1771281
(State or other jurisdiction of incorporation or (IRS Employer Identification Number)
organization)
</TABLE>
450 NORTH SUNNYSLOPE ROAD, SUITE 300
BROOKFIELD, WISCONSIN 53005
(414) 789-9565
(Address and telephone number of Registrant's principal executive offices)
WILLIAM F. LASKY, CHIEF EXECUTIVE OFFICER
ALTERNATIVE LIVING SERVICES, INC.
450 NORTH SUNNYSLOPE ROAD, SUITE 300
BROOKFIELD, WISCONSIN 53005
(414) 789-9565
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
ALAN C. LEET, ESQ.
ROGERS & HARDIN LLP
2700 INTERNATIONAL TOWER, PEACHTREE CENTER
229 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 522-4700
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 number of the earlier effective registration statement for the same
offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.75% Debentures Due 2006(2)......... $35,000,000 100% $35,000,000 $10,325(3)
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
(2) There are also being registered hereunder the number of shares of Common
Stock, $.01 par value per share, of Registrant (the "Conversion Shares")
issuable upon conversion of the Debentures being registered hereunder,
together with such additional indeterminate number of shares as may become
issuable upon conversion by means of adjustments in the conversion price.
(3) Pursuant to Rule 457(i), no registration fee is payable with respect to the
Conversion Shares since the Conversion Shares will be issued for no separate
consideration. Conversion Shares will be issued only upon the conversion of
the Debentures at the initial conversion price of $20.38, subject to
adjustment in certain cases, in principal amount of the Debentures per
share.
-------------------------
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.
================================================================================
<PAGE> 2
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 FEBRUARY 2, 1998
PRELIMINARY PROSPECTUS
ALTERNATIVE LIVING SERVICES, INC.
$35,000,000 6.75% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
(INTEREST PAYABLE JUNE 30 AND DECEMBER 30)
AND
1,717,217 SHARES COMMON STOCK, $.01 PAR VALUE PER SHARE,
ISSUABLE UPON CONVERSION THEREOF
---------------------
This Prospectus relates to (i) $35,000,000 aggregate principal amount of
6.75% Convertible Subordinated Debentures due 2006 (the "Debentures") of
Alternative Living Services, Inc., a Delaware corporation (the "Company" or
"ALS"), originally issued by Sterling House Corporation, a Kansas corporation
("Sterling"), in a private placement on May 17, 1996 (the "Debenture Offering")
and assumed by ALS as of October 23, 1997 in connection with the merger of a
wholly owned subsidiary of ALS with and into Sterling (the "Sterling Merger")
and (ii) the 1,717,217 shares of the common stock, $.01 par value per share, of
the Company (the "Common Stock") that are issuable upon conversion of the
Debentures, subject to adjustment under certain circumstances. The Debentures
and the shares of Common Stock issued upon conversion of the Debentures may be
offered from time to time for the account of the holders of Debentures named
herein (the "Selling Securityholders"). The Company will not receive any
proceeds from this offering. See "Plan of Distribution."
The aggregate principal amount of Debentures that may be offered by the
Selling Securityholders pursuant to this Prospectus is $35,000,000. Information
concerning such Selling Securityholders may change from time to time and will be
set forth in Supplements to this Prospectus. Accordingly, the aggregate
principal amount of Debentures offered hereby may decrease. As of the date of
this Prospectus, the aggregate principal amount of Debentures outstanding is
$35,000,000.
The Debentures are convertible into Common Stock at any time at or prior to
maturity, unless previously redeemed, at a conversion price of $20.381818 per
share, subject to adjustment under certain circumstances. Although the
Debentures have been eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market, no public market now
exists for the Debentures. The Common Stock is traded on the American Stock
Exchange ("AMEX") under the symbol "ALI." On January 30, 1998, the last reported
sale price of the Common Stock, as reported by AMEX, was $29 1/4 per share.
The Debentures are redeemable, in whole or in part, at the option of the
Company, for cash, at any time on or after July 15, 1999 on at least 30 days'
notice at the redemption prices set forth herein plus accrued interest. See
"Description of Debentures."
The Debentures are unsecured obligations of the Company and are subordinated
in right of payment to all existing and future Senior Indebtedness (as defined)
of the Company. The Indenture (as defined) does not restrict the incurrence of
Senior Indebtedness or other Indebtedness (as defined) by the Company or any
subsidiary. At December 31, 1997, the Company had approximately $89.1 million of
Senior Indebtedness.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE DEBENTURES AND THE COMMON
STOCK.
The Company has been advised by the Selling Securityholders that the Selling
Securityholders, acting as principals for their own account, directly, through
agents designated from time to time, or through dealers or underwriters also to
be designated, may sell all or a portion of the Debentures or shares of Common
Stock offered hereby from time to time on terms to be determined at the time of
sale. The aggregate proceeds to the Selling Securityholders from the sale of
Debentures and Common Stock offered by the Selling Securityholders hereby will
be the purchase price of such Debentures or Common Stock less any commissions or
discounts, if any. For information concerning indemnification arrangements
between the Company and the Selling Securityholders, see "Plan of Distribution."
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Debentures or shares of Common Stock may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Debentures or shares of Common
Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1998
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New York Regional
Office of the Commission, Seven World Trade Center, Suite 1300, New York, New
York 10048, and at the Chicago Regional Office of the Commission, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such reports and other information may also be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006. The
Commission also maintains a World Wide Web Site that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission, at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. The
Prospectus and any accompanying Prospectus Supplement do not contain all of the
information included in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, the Debentures and the Common
Stock, reference is hereby made to the Registration Statement including the
exhibits and schedules thereto. Statements contained in this Prospectus and any
accompanying Prospectus Supplement concerning the provisions or contents of any
contract, agreement or any other document referred to herein or therein are not
necessarily complete. With respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, and each such
statement shall be deemed qualified in its entirety by such reference to the
copy of the applicable document filed with the Commission. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. and copies of it or any part thereof may be obtained from such
office, upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, as amended by
Amendment No. 1 on Form 10-K/A filed with the Commission on May 12, 1997; (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997; (iii) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997; (iv) the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997; (v) the Company's Current Report on Form 8-K dated
December 31, 1996, filed with the Commission on January 15, 1997, as amended by
Amendment No. 1 on Form 8-K/A filed with the Commission on March 17, 1997; (vi)
the Company's Current Report on Form 8-K dated May 14, 1997, filed with the
Commission on May 27, 1997; (vii) the Company's Current Report on Form 8-K dated
July 30, 1997, filed with the Commission on August 14, 1997; (viii) the
Company's Current Report on Form 8-K dated September 23, 1997, filed with the
Commission on October 10, 1997, as amended by Amendment No. 1 on Form 8-K/A
filed with the Commission on November 6, 1997; (ix) the Company's Current Report
on Form 8-K dated November 21, 1997, filed with the Commission on December 2,
1997; (x) the description of the Company's Capital Stock contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on July
30, 1996; and (xi) the Company's Current Report on Form 8-K filed on January 28,
1998. In addition, each document filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to termination of the offering of the Debentures and the
Common Stock offered hereby shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date such document is filed
with the Commission.
2
<PAGE> 4
Any statement contained herein, or in any document, all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or this Prospectus. All
information appearing in this Prospectus is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference. This Prospectus incorporates
documents by reference which are not presented herein or delivered herewith.
These documents (other than exhibits to such documents which are not
specifically incorporated by reference into such documents) are available
without charge, upon written or oral request by any person to whom this
Prospectus has been delivered, from Thomas E. Komula, Senior Vice President, 450
N. Sunnyslope Road, Suite 300, Brookfield, Wisconsin 53005, telephone (414)
789-9565.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Prospectus under "Risk Factors," in addition
to certain statements contained elsewhere in this Prospectus or in the Company's
filings under the Exchange Act, are "Forward-Looking Statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are thus
prospective. Such forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual future results or trends to differ
materially from future results or trends expressed or implied by such
forward-looking statements. The most significant of such risks, uncertainties
and other factors are discussed in this Prospectus under "Risk Factors" and
prospective investors are urged to carefully consider such factors. Updated
information will be periodically provided by the Company as required by the
Securities Act and the Exchange Act. The Company, however, undertakes no
obligation to publicly release the results of any revisions to such
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
---------------------
Crossings(R), Sterling House(R) and WovenHearts(R) are registered service
marks of the Company and the Company claims service mark protection in the marks
Alternative Living Services(sm), Wynwood (sm) and Clare Bridge(sm).
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus or in any Prospectus Supplement hereto, and in the
documents incorporated in this Prospectus by reference. Prospective investors
should carefully review the matters set forth under "Risk Factors" before making
a decision with respect to an investment in the Debentures or the Common Stock.
THE COMPANY
The Company is a leading national assisted living company, operating 219
residences with an aggregate capacity of approximately 9,200 residents as of
November 1, 1997. Of these residences, the Company owns 50, leases 101, holds
majority interests in entities which own 20 and lease 12, holds minority
interests in entities which own 11 and lease 9, and manages 16 for other owners.
The Company and its predecessor have operated high-acuity assisted living
residences since 1981, and specialty dementia care residences since 1985.
The Company provides a broad continuum of personal care (such as assistance
with bathing, toileting, dressing, eating and ambulation), support services
(such as housekeeping, laundry and transportation) and health care (such as
medication administration, routine and skilled nursing care and health
monitoring) to its residents. In addition, the Company offers a wide range of
specialized services, including behavior management and environmental adaptation
programs, to residents who suffer from Alzheimer's disease and other dementias.
All of these services are provided on a 24-hour basis in "homelike" settings
which emphasize privacy, individual choice and independence. The Company
operates multiple residence models, each with a recognized brand and each
serving a particular segment of the private pay elderly population. Each
residence model is designed to permit residents to age in place by meeting their
personal and health care needs across a range of pricing options.
Since 1993, the Company has experienced significant growth through its
aggressive development program and several strategic acquisitions and mergers.
In October 1997, the Company completed the Sterling Merger. At the time of the
Sterling Merger, Sterling operated 104 residences with an aggregate capacity of
approximately 3,900 residents. As a result of the Sterling Merger, the Company
added significant depth to its experienced management team, acquired an
additional high-acuity residence model in the Sterling House residence model and
significantly expanded its presence in the Mid West and Southeast. In 1996, the
Company acquired New Crossings International Corporation ("Crossings"), an
assisted living company which operated 15 residences with a capacity of
approximately 1,420 residents throughout the Western United States, and
Heartland Retirement Services, Inc. ("Heartland"), an assisted living company
which operated 20 WovenHearts residences throughout Wisconsin. As a result of
these 1996 transactions, the Company expanded into several new geographic
markets and broadened its offering of assisted living residence models through
the addition of the Crossings apartment style residence model and the
WovenHearts residence model designed to serve frail elderly individuals in
moderate income markets and smaller communities. The Company has also
significantly expanded its operations through the development of free-standing
residences. Through November 1, 1997, the Company (including Sterling, Crossings
and Heartland) has developed 203 residences with an aggregate capacity of
approximately 8,700 residents. The Company intends to continue its development
strategy and, at November 1, 1997, was constructing 99 residences with an
aggregate capacity of approximately 4,200 residents and was developing an
additional 74 residences with an aggregate capacity of approximately 3,200
residents. Of these residences, at least 110 are expected to open during 1998.
The Company's executive offices are located at 450 North Sunnyslope Road,
Suite 300, Brookfield, Wisconsin 53005, and its telephone number is (414)
789-9565.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a discussion of certain factors
which should be considered carefully by prospective investors in evaluating an
investment in the Debentures or the Common Stock.
4
<PAGE> 6
USE OF PROCEEDS
The proceeds from the sale of the Debentures and shares of Common Stock
offered hereby are solely for the account of the Selling Securityholders.
Accordingly, the Company will receive none of the proceeds from sales thereof.
DESCRIPTION OF DEBENTURES
The Debentures............. $35,000,000 of 6.75% Convertible Subordinated
Debentures due 2006 issued under the Indenture
dated May 23, 1996 between Sterling and Fleet
National Bank, as trustee (the "Original
Indenture"). The Debentures were assumed by ALS
effective as of October 23, 1997 pursuant to a
Supplemental Indenture dated October 23, 1997
between ALS and State Street Bank and Trust, as
successor trustee (the "Supplemental Indenture") in
connection with the Sterling Merger. The Original
Indenture, as supplemented by the Supplemental
Indenture, is referred to herein as the Indenture.
Interest Payment Dates..... June 30 and December 30, commencing December 30,
1996.
Maturity Date.............. June 30, 2006.
Conversion Rights.......... The holders of the Debentures are entitled at any
time, subject to prior redemption or repurchase, to
convert the Debentures, or portions thereof (if the
portions are $1,000 or whole multiples thereof)
into shares of the Common Stock at the conversion
price of $20.381818 per share (subject to certain
adjustments). See "Description of
Debentures -- Conversion Rights."
Optional Redemption........ The Debentures are not redeemable by the Company
prior to June 15, 1999. On or after June 15, 1999
the Debentures are redeemable on at least 30 days'
and not more than 60 days' prior notice at the
option of the Company, in whole or in part at any
time, at the redemption prices set forth herein, in
each case together with accrued interest. See
"Description of Debentures -- Optional Redemption."
Consolidation, Merger, Sale
or Conveyance............ The Indenture provides that the Company may not
merge or consolidate with, or sell or convey all,
or substantially all, of its assets to another
person unless such person is a company or a trust;
such person assumes by supplemental indenture all
the obligations of the Company under the Debentures
and the Indenture; and immediately after the
transaction no default or Event of Default shall
exist. See "Description of
Debentures -- Consolidation, Merger, Sale or
Conveyance," and "-- Events of Default, Notice and
Waiver."
Subordination.............. The payment of the principal of and premium, if
any, and interest on the Debentures is subordinated
in right of payment to the prior payment in full of
amounts then due on all existing and future Senior
Indebtedness (as defined herein). The Indenture
contains no limitations on the incurrence of
additional Senior Indebtedness or other
indebtedness by the Company. See "Description of
Debentures -- Subordination of Debentures."
Events of Default.......... An Event of Default with respect to the Debentures
includes the occurrence of any of the following:
default for 30 days in payment of interest; default
in payment of principal at maturity, upon
redemption or
5
<PAGE> 7
otherwise, which continues for five business days;
acceleration of any indebtedness or money borrowed
of at least $1,000,000 principal amount if such
indebtedness is not paid or such acceleration is
not annulled within 10 days after notice to the
Company of such acceleration; failure by the
Company for 60 days after notice to it to comply in
any material respect with any of its other
agreements in the Indenture or the Debentures; and
certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the
Trustee or the holders of at least a majority in
principal amount of the Debentures may declare all
the Debentures to be due and payable immediately.
See "Description of Debentures -- Events of
Default, Notice and Waiver."
Trading.................... Although the Debentures have been eligible for
trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL")
market, no public market now exists for the
Debentures.
DESCRIPTION OF COMMON STOCK
The Common Stock........... 1,717,217 shares of Common Stock are issuable upon
conversion of the Debentures. The Debentures are
convertible into Common Stock at a conversion price
of $20.381818 per share, subject to adjustment
under certain circumstances. See "Description of
Capital Stock" and "Description of
Debentures -- Conversion Rights."
Shares Outstanding......... As of December 31, 1997, there were 21,390,522
shares of Common Stock outstanding. As of the date
of this Prospectus, none of the Debentures have
been converted into shares of Common Stock.
Shares Outstanding if all
Debentures are
Converted................ As of December 31, 1997, 23,107,739 shares of
Common Stock would be outstanding if all of the
Debentures were converted into shares of Common
Stock.
Dividend Policy............ The Company has never declared or paid a cash
dividend to stockholders. The Company's Board of
Directors presently intends to retain all earnings
to finance the expansion of the Company's
operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of
cash dividends in the future will depend upon the
Company's earnings, capital requirements and other
factors considered relevant by the Company's Board
of Directors. Certain of the Company's debt
agreements restrict the amount of dividends which
may be paid.
Trading.................... The Common Stock is traded on the American Stock
Exchange under the symbol "ALI".
6
<PAGE> 8
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)................ -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) No preferred stock was outstanding during the periods presented; therefore,
the ratio of earnings to combined fixed charges and preferred stock
dividends has not been presented. 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 and debt
issuance costs, and a portion of rent expense estimated by management to be
the interest component of such rentals. Without giving effect to the
Sterling Merger, earnings of the Company were not sufficient to cover fixed
charges as follows: for the years ended December 31, 1992, 1993, 1994, 1995
and 1996, $130,000, $180,000, $691,000, $1,482,000 and $8,326,000,
respectively; and for the nine months ended September 30, 1996 and 1997,
$6,547,000 and $7,485,000, respectively.
7
<PAGE> 9
RISK FACTORS
An investment in the Debentures or the Common Stock offered hereby involves
various risks. Prospective investors are urged to carefully consider each of the
following risks, in conjunction with the other information contained in this
Prospectus, before purchasing the Debentures or the Common Stock of the Company.
Financial data referred to herein and giving effect to the Sterling Merger for
the nine month periods ended September 30, 1997 and 1996 are derived from the
unaudited interim supplemental consolidated financial statements of the Company
incorporated herein by reference. The supplemental consolidated financial
statements give retroactive effect to the Sterling Merger consummated on October
23, 1997, which has been accounted for as a pooling-of-interests as described in
Note 1 to the audited supplemental financial statements included in the
Company's Amended Current Report on Form 8-K/A filed with the Commission on
November 6, 1997. In accordance with generally accepted accounting principles,
such supplemental consolidated financial statements will become the historical
consolidated financial statements of the Company and subsidiaries after
financial statements covering the date of consummation of the Sterling Merger
are issued. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1997.
SUBSTANTIAL DEBT AND OPERATING LEASE PAYMENT OBLIGATIONS
Giving effect to the Sterling Merger, (i) the Company had lease expense of
$9.0 million and $18.1 million for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively and (ii) the Company's total
indebtedness as of September 30, 1997 was $222.4 million, and its net interest
expense was $3.2 million for the year ended December 31, 1996 and $2.2 million
for the nine months ended September 30, 1997. Debt and annual operating lease
payment obligations will continue to increase significantly as the Company
pursues its growth strategy. In addition, the Company anticipates that future
development of residences may be financed with construction loans and,
therefore, there is a risk that, upon completion of construction, permanent
financing for newly developed residences may not be available or may be
available only on terms that are unfavorable or unacceptable to the Company.
The Company has not had sufficient earnings on a historical basis to cover
fixed charges. See "Prospectus Summary -- Ratio of Earnings to Fixed Charges" in
the Prospectus. Giving effect to the Sterling Merger, earnings of the Company
were insufficient to cover fixed charges by $10.7 million for the year ended
December 31, 1996 and $10.2 million for the nine months ended September 30,
1997. There can be no assurance that the Company will generate sufficient cash
flow to meet its obligations. Any payment or other default with respect to such
obligations could cause the lender to foreclose upon the residences securing the
indebtedness or, in the case of an operating lease, to terminate the lease, with
a consequent loss of income and asset value to the Company. Moreover, because of
cross-default and cross-collateralization provisions in certain mortgages and
debt instruments of the Company and in most of its leases, a default by the
Company on one of its payment obligations could result in acceleration of other
obligations and adversely affect a significant number of its other residences.
See "-- Need for Additional Financing; Risk of Rising Interest Rates."
HISTORY OF OPERATING LOSSES
The Company has experienced significant operating losses and net losses in
each year since inception, primarily as a result of its development,
construction and residence lease-up activities as well as the incurrence of
certain expenses to establish corporate infrastructure to support future planned
growth. Giving effect to the Sterling Merger, (i) for the years ended December
31, 1994, 1995 and 1996, the Company incurred operating losses of $489,000, $1.8
million and $5.7 million, respectively, and net losses of $1.1 million, $3.0
million and $8.8 million, respectively, and (ii) for the nine months ended
September 30, 1997, the Company incurred an operating loss of $3.4 million and
net income of $79,000.
Newly opened assisted living residences typically operate at a loss during
the first six to 12 months of operation, primarily due to the incurrence of
certain fixed and variable expenses in advance of the achievement of targeted
rent and service fee revenues from the lease-up of such residences. As of
November 1, 1997, of the
8
<PAGE> 10
Company's 219 residences, 90 had been open for 12 months or less. In addition,
the development and construction of assisted living residences requires the
commitment of substantial capital over a typical six- to 12-month construction
period, the consequence of which may be an adverse impact on the Company's
liquidity. As of November 1, 1997, the Company had 99 residences under
construction and an additional 74 residences under development. In the case of
acquired residences, resident turnover and increased marketing expenditures
which may be required to reposition such residences, together with the possible
disruption of operations resulting from the implementation of renovations, may
adversely impact the financial performance of such residences for a period of
time after their acquisition. In addition, occupancy levels and the rates which
the Company may be able to charge for its services may be adversely affected in
competitive market circumstances which would negatively impact the operating
results of affected residences. Accordingly, there can be no assurance that the
Company will not experience unforeseen expenses, difficulties, complications and
delays which could result in greater than anticipated operating losses or
otherwise materially adversely affect the Company's financial condition and
results of operations. See "-- Development and Construction Risks" and
"-- Competition."
INTEGRATION OF OPERATIONS FOLLOWING THE STERLING MERGER
The Sterling Merger which was consummated on October 23, 1997, involves the
integration of two companies that have previously operated independently. Among
the factors considered by the Board of Directors of the Company in connection
with its approval of the Sterling Merger were the opportunities for operating
efficiencies that may result from the Sterling Merger. While the Company would
expect to achieve certain operating efficiencies as a result of the Sterling
Merger, no assurance can be given that difficulties will not be encountered in
integrating the operations of the Company and Sterling or that the benefits
expected from such integration will be realized. In addition, management of the
Company expects to devote significant attention to efforts to integrate the
operations of the two companies, which efforts may affect such management's
ability to manage ongoing operations and expansion efforts. Any delays or
unexpected costs incurred in connection with such integration could have a
material adverse effect on the business, results of operations or financial
condition of the Company.
Significant expenses are expected to be incurred in connection with the
consolidation and integration of the Company and Sterling as a result of the
Sterling Merger. Such activities may include restructuring regional and
corporate functions, consolidating information systems, integrating operations,
and other personnel costs. In addition, under the pooling-of-interests
accounting method, direct transaction costs are expensed in the period in which
the transaction is consummated. Such costs include investment banking, legal,
accounting, printing, solicitation and filing fees, and similar expenses. The
Company anticipates recording charges to earnings in the quarter ended December
31, 1997 related to the Sterling Merger in an aggregate range of $9.0 million to
$11.0 million. A portion of these charges to earnings will be identified as
non-recurring merger charges in the Company's financial statements for such
quarter.
INSUFFICIENT AUTHORIZED SHARES OF COMMON STOCK TO SATISFY CONVERSION OF OTHER
DEBENTURES
The Company's 5.25% Convertible Subordinated Debentures due 2002 (the
"5.25% Debentures") are convertible commencing on June 16, 1998 into an
aggregate of 5,000,000 shares of Common Stock, based on an initial conversion
price of $28.75 per share. The Company's Restated Certificate of Incorporation,
as amended (the "Certificate"), authorizes the issuance of 5,000,000 shares of
preferred stock and 30,000,000 shares of Common Stock. After giving effect to
the reservations of shares issuable upon conversion of the Debentures and the
Company's 7% Convertible Subordinated Debentures due 2004 (the "7% Debentures")
and the exercise of stock options previously granted or available for grant
under the Company's stock option plans, the Company will have 2,195,369 shares
of authorized but unissued Common Stock. As a result, the Company will not have
sufficient authorized shares of Common Stock to full satisfy its obligations
with respect to the conversion of the 5.25% Debentures. The Company has agreed
to seek stockholder approval of an amendment to the Certificate (the "Charter
Amendment") to increase the number of authorized shares of Common Stock to a
number sufficient to permit the 100% conversion of the 5.25% Debentures.
Directors of
9
<PAGE> 11
the Company and certain of their affiliates beneficially owning in the aggregate
approximately 22.4% of the outstanding shares of Common Stock as of January 1,
1998 have indicated their intent to vote in favor of the Charter Amendment.
Pursuant to the supplemental indentures relating to the 5.25% Debentures, a
holder of 5.25% Debentures who seeks to convert his 5.25% Debentures into Common
Stock at a time that the Company does not have sufficient authorized shares of
Common Stock to satisfy such conversion will have the right to require the
Company to repurchase his 5.25% Debentures for an amount payable in cash equal
to the principal amount of such 5.25% Debentures plus accrued and unpaid
interest thereon. There can be no assurance that the Company will have
sufficient capital resources available to satisfy its obligations with respect
to the repurchase of any 5.25% Debentures. In addition, until the Charter
Amendment is approved, pursuant to the supplemental indentures relating to the
5.25% Debentures the Company will not be entitled (i) to exercise its right to
voluntarily redeem the 5.25% Debentures at any time on or after December 31,
2000 or (ii) to issue additional shares of Common Stock or securities
convertible into or exchangeable for Common Stock except for employee stock
options to acquire Common Stock granted under the Company's existing stock
option plans and except for shares of Common Stock issuable upon exercise of
stock options or upon conversion of the Debentures, the 7% Debentures or the
5.25% Debentures. If and for so long as the Company is unable to secure
stockholder approval of the Charter Amendment, the Company will be prohibited
from issuing Common Stock in connection with financing, acquisition or other
transactions, which may preclude the Company from raising additional equity
capital or effecting acquisitions or other transactions that may be in the best
interest of the Company. No assurances can be given that a failure to secure
such stockholder approval of the Charter Amendment will not have a material
adverse effect upon the price of the Common Stock. See "-- Need for Additional
Financing; Rising Interest Rates."
SUBORDINATION OF DEBENTURES
The Debentures are expressly subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. At December 31, 1997,
the Company's Senior Indebtedness aggregated approximately $89.1 million.
Neither the Indenture nor the Debentures limit the ability of the Company to
incur additional Senior Indebtedness or other indebtedness by the Company. The
Indenture and the Debentures do not contain any financial covenants or similar
restrictions with respect to the Company and, therefore, the holders of the
Debentures have no protection (other than rights upon Events of Default as
described under "Description of Debentures") from adverse changes in the
Company's financial condition. By reason of the subordination of the Debentures,
in the event of insolvency, bankruptcy, liquidation, reorganization, dissolution
or winding up of the business of the Company or upon a default in payment with
respect to any indebtedness of the Company or an event of default with respect
to such indebtedness resulting in the acceleration thereof, the assets of the
Company will be available to pay the amounts due on the Debentures only after
all Senior Indebtedness has been paid in full. See "Description of
Debentures -- Subordination of Debentures."
ABILITY TO CONTINUE GROWTH; ABILITY TO MANAGE RAPID EXPANSION AND BUSINESS
DIVERSIFICATION
The Company has and expects to continue to pursue an aggressive expansion
strategy focused on developing, constructing and acquiring assisted living
residences. The Company is currently managing significant construction and
development activity. Accordingly, the Company's prospects are directly affected
by its ability to develop, construct and, to a lesser extent, acquire additional
residences. The Company's ability to continue to grow will depend in large part
on its ability to identify suitable and affordable development and acquisition
opportunities and successfully pursue such opportunities, identify and obtain
necessary financing commitments and effectively operate its assisted living
residences. There can be no assurance, however, that the Company will be
successful in developing, constructing or acquiring any additional residences or
that it will be able to continue to achieve or exceed its historical growth
rate.
The Company's rapid expansion places significant demands on the Company's
management and operating personnel. The Company's ability to manage its recent
and future growth effectively will require it to continue to improve its
operational, financial and management information systems and to continue to
attract,
10
<PAGE> 12
retain, train, motivate and manage key employees. If the Company is unable to
manage its growth effectively, its business, operating results and financial
condition will be adversely affected.
Management of the Company intends to review and, in appropriate
circumstances, pursue opportunities for development and expansion of new
products and services, such as home health care, rehabilitation and pharmacy
services. Efforts to achieve such business diversification, however, are subject
to certain risks, including management's relative unfamiliarity with such
businesses, additional uncertainties related to government regulation and
possible difficulties in integrating new products or businesses.
DEVELOPMENT AND CONSTRUCTION RISKS
The Company's growth strategy is dependent, in part, on its ability to
develop and construct a significant number of additional residences. As of
November 1, 1997, the Company had 99 residences under construction and 74
residences under development. Development projects generally are subject to
various risks, including zoning, permitting, health care licensing and
construction delays, that may result in construction cost overruns and longer
development periods and, accordingly, higher than anticipated start-up losses.
Project management is subject to a number of contingencies over which the
Company will have little or no control and which might adversely affect project
costs and completion time. Such contingencies include 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. In addition, the Company's construction
management subsidiary serves as general contractor on many of the Company's
residences in construction and development, and, accordingly, in these instances
the Company may not have the same contractual recourse for construction delays
and defects as would generally be available were a third party general
contractor engaged to construct these residences. As a result of these various
factors, there can be no assurance that the Company will not experience
construction delays, that it will be successful in developing and constructing
currently planned or additional residences or that any developed residence will
be economically successful. If the Company's planned development is delayed, the
Company's business, operating results and financial condition could be adversely
affected.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has acquired residences in the past and intends to continue to
seek acquisition opportunities in the future. However, no assurances can be
given that the Company will be successful in identifying any future acquisition
opportunities or completing any identified acquisitions. The acquisition of
residences involves a number of risks. Existing residences available for
acquisition frequently serve or target different market segments than those
presently served by the Company. It may be necessary in such cases to reposition
and renovate acquired residences or turn over the existing resident population
to achieve a resident acuity and income profile which is consistent with the
Company's current operations. In addition, the Company may also determine that
staff and operating management personnel changes are necessary to successfully
integrate such residences into the Company's existing operations. No assurances
can be made that management will be successful in repositioning any acquired
residences or in effecting any necessary operational or structural changes and
improvements on a timely basis. Any failure by the Company to make necessary
operational or structural changes or to successfully reposition acquired
residences may adversely impact the Company's business, operating results and
financial condition. In undertaking acquisitions of residences, the Company also
may be adversely impacted by unforeseen liabilities attributable to the prior
operators of such residences, against whom the Company may have little or no
recourse.
NEED FOR ADDITIONAL FINANCING; RISK OF RISING INTEREST RATES
To achieve its growth strategy, the Company will need to obtain sufficient
financing to fund its continued development, construction and acquisition
activities. Accordingly, the Company's future growth will depend on its ability
to obtain additional financing on acceptable terms. The Company has executed
non-binding letters of intent with four health care REITs for financing
commitments aggregating approximately $574.0 million (of which $325.9 million
has been utilized in sale/leaseback and mortgages financing transactions through
November 30, 1997) and with conventional mortgage lenders for construction and
long-term
11
<PAGE> 13
mortgage financing aggregating $130.0 million ($8 million of which has been used
as of November 30, 1997). The Company's management believes financing available
pursuant to these arrangements, and pursuant to other sources of financing, will
be sufficient to fund its development and acquisition programs for at least the
next 12 months. The Company will from time to time seek additional funding
through public or private financing, including equity or debt financing. If
additional funds are raised by issuing equity securities, the Company's
stockholders may experience dilution. In addition, the Company will require
significant financial resources to meet its operating and working capital needs,
including contractual obligations to purchase the equity interest of joint
venture portions in residences owned in joint ventures. See "-- Joint Ventures
and Related Mandatory Purchase Obligations." There can be no assurance that any
newly constructed residences will achieve a stabilized occupancy rate and attain
a resident mix that meet the Company's expectations or generate sufficient
positive cash flow to cover operating and financing costs associated with such
residences. There can be no assurance that the Company will be successful in
securing additional financing or that adequate funding will be available and, if
available, will be on terms that are 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. In addition, the Company may require additional
financing to enable it to acquire additional residences, to respond to changing
economic conditions, to expand the Company's development program or to account
for changes in assumptions related to its development program.
Approximately $64.3 million, or 22%, of the Company's total indebtedness as
of December 31, 1997 was subject to floating interest rates. Although a majority
of the debt and lease payment obligations of the Company are not subject to
floating interest rates, indebtedness that the Company may incur in the future
may bear interest at a floating rate. In addition, future fixed rate
indebtedness and lease obligations will be based on interest rates prevailing at
the time such arrangements are obtained. Therefore, increases in prevailing
interest rates could increase the Company's interest or lease payment
obligations and could have an adverse effect on the Company's business,
financial condition and results of operations.
JOINT VENTURES AND RELATED MANDATORY PURCHASE OBLIGATIONS
The Company has entered into several joint ventures with regional real
estate development partners and others for the construction, development and
ownership of assisted living residences in targeted geographic areas. As of
November 1, 1997, 52 of the Company's operating residences were jointly owned,
directly or indirectly, with venture partners. Of the 173 residences which were
either under construction or development by the Company as of November 1, 1997,
a significant portion of such residences are being or will be constructed or
developed under joint venture agreements. There can be no assurance that these
joint venture development partners will be successful in identifying sites for
future residences, securing necessary permits and licenses for the construction
of new residences and supervising the construction of new residences on time and
within budget. In addition, the Company has agreed not to own or operate
competing assisted living residences during specified contractual periods within
specified geographic areas adjacent to residences developed through certain of
its joint ventures. While the Company typically receives a fee for managing
residences developed through joint ventures, it shares with its joint venture
partners any profits or losses realized from the operation or sale of such
residences. The Company is obligated under its joint venture arrangements to
purchase the equity interests of its joint venture partners upon the election of
such joint venture partners at a price based on either a formula price or the
appraised value of the residence owned by the applicable joint venture. These
purchase rights generally become exercisable during the first six months to two
years following the opening of the residence owned by such joint venture. As a
result of these provisions, the Company might become obligated to acquire
additional interests in residences developed through joint ventures on terms or
at times that would otherwise not be acceptable to the Company, including times
during which the Company may not have adequate liquidity to fund such
acquisitions.
RESIDENCE MANAGEMENT, STAFFING AND LABOR COSTS
The Company competes with other providers of long-term care with respect to
attracting and retaining qualified and skilled personnel. The Company will be
dependent upon its ability to attract and retain management personnel
responsible for the day-to-day operations of each of the Company's residences.
Any
12
<PAGE> 14
inability of the Company to attract or retain qualified residence management
personnel could have a material adverse effect on the Company's financial
condition or results of operations. In addition, a possible shortage of nurses
or trained personnel may require the Company to enhance its wage and benefits
package in order to compete in the hiring and retention of such personnel. The
Company will also be dependent upon the available labor pool of semi-skilled and
unskilled employees in each of the markets in which it operates. No assurance
can be given that the Company's labor costs will not increase, or that, if they
do increase, they can be matched by corresponding increases in rates charged to
residents. Any significant failure by the Company to attract and retain
qualified management and staff personnel, to control its labor costs or to pass
on any increased labor costs to residents through rate increases would have a
material adverse effect on the Company's business, operating results and
financial condition.
COMPETITION
The long-term care industry is highly competitive and, given the relatively
low barriers to entry and continuing health care cost containment pressures, the
Company expects that the assisted living segment of such industry will become
increasingly competitive in the future. The Company competes with other
companies providing assisted living services as well as numerous other companies
providing similar service and care alternatives, such as home health care
agencies, congregate care facilities, retirement communities and skilled nursing
facilities. While the Company believes there is a need for additional assisted
living residences in the markets where the Company is constructing and
developing residences, the Company expects that, as assisted living residences
receive increased market awareness and the number of states which include
assisted living services in their Medicaid programs increases, competition will
increase from new market entrants, many of whom may have substantially greater
financial resources than the Company. No assurance can be given that increased
competition will not adversely affect the Company's ability to attract or retain
residents or maintain its existing rate structures. Moreover, in implementing
its growth strategy, the Company expects to face competition for development and
acquisition opportunities from local developers and regional and national
assisted living companies. Some of the Company's present and potential
competitors have, or may have access to, greater financial resources than those
of the Company. Consequently, there can be no assurance that the Company will
not encounter increased competition in the future which could limit its ability
to attract and retain residents, to maintain or increase resident service fees
or to expand its business and could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
Management of the Company is not able to predict the effect that the health
care industry trend towards managed care will have on the assisted living
marketplace. Managed care, an arrangement whereby service and care providers
agree to sell specifically defined services to one or more public or private
payors (frequently not the end user or resident) subject to a predefined system
in an effort to achieve more efficiency with respect to utilization and cost, is
not currently a significant factor in the assisted living marketplace. However,
managed care plans sponsored by insurance companies or HMOs may in the future be
a factor in the assisted living marketplace. There can be no assurance that the
Company will not encounter increased competition or be subject to other
competitive pressures that could affect its business, results of operation or
financial condition as a result of managed care.
GOVERNMENT REGULATION
Health care is an area of extensive and frequent regulatory change. The
assisted living industry is relatively new, and, accordingly, the manner and
extent to which it is regulated at the Federal and state levels is evolving.
Changes in the laws or new interpretations of existing laws may have a
significant impact on the Company's methods and costs of doing business. The
Company is, and will be, subject to varying degrees of regulation and licensing
by health or social service agencies and other regulatory authorities in the
various states and localities where they operate or intend to operate.
The Company and its activities are subject to zoning, health and other
state and local government regulations. Zoning variances or use permits are
often required for construction. Severely restrictive regulations could impair
the ability of the Company to open additional residences at desired locations or
could result in costly delays. Several of the Company's residences have been
financed by revenue bonds. In order to
13
<PAGE> 15
continue to qualify for favorable tax treatment of the interest payable on
certain of these bonds, the financed residences 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.
The Company's success will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses in rapidly changing regulatory environments. Any failure to satisfy
applicable regulations or to procure or maintain a required license could have a
material adverse effect on the Company's financial condition, results of
operations and prospects. The Company's operations could also be adversely
affected by, among other things, regulatory developments such as revisions in
building code requirements for assisted living residences, mandatory increases
in the scope and quality of care to be offered to residents and revisions in
licensing and certification standards. There can be no assurance that Federal,
state or local laws or regulations will not be imposed or expanded which
adversely impact the Company's business, financial condition, results of
operations or prospects. The Company's residence operations are also subject to
health and other state and local government regulations.
The Company has sold franchises for its Sterling House model and may sell
on a limited basis franchises for such model in the future. The sale of
franchises is regulated by the Federal Trade Commission and by certain state
agencies located in jurisdictions other than those states where the Company
currently conducts franchise operations. Principally, these regulations require
that certain written disclosures be made prior to the sale of a franchise. In
addition, some states have relationship laws which prescribe the basis for
terminating a franchisee's rights and regulate both the franchisor's and its
franchisees' post-termination rights and obligations. There can be no assurance
that changes in such regulations will not have an adverse impact upon the
ability of the combined company to continue its franchising activities.
The Company intends to review and, in appropriate circumstances, pursue
opportunities for development and expansion into new products and services.
These new products and services may include home health care, rehabilitation and
pharmacy services. The Federal and state regulation of such additional products
and services may be more evolved and extensive than that related to the
Company's assisted living operations. The Company has not in the past engaged in
significant activities outside of its core assisted living business. Should the
Company expand into new products and services, the Company will be subject to
additional Federal, state and local laws and regulations. Non-compliance with
such regulations could have a material adverse effect on the Company's business,
financial condition, results of operations or prospects.
LIABILITY AND INSURANCE
The provision of personal and health care services entails an inherent risk
of liability. In recent years, participants in the long-term care industry have
become subject to an increasing number of lawsuits alleging malpractice or
related legal theories, many of which involve large claims and result in the
incurrence of significant defense costs. In addition, compared to more
institutional long-term care facilities, assisted living residences (especially
dementia care residences) of the type operated by the Company offer residents a
greater degree of independence in their daily lives. This increased level of
independence, however, may subject the resident and the Company to certain risks
that would be reduced in more institutionalized settings. The Company currently
maintains liability insurance intended to cover such claims which it believes is
adequate based on the nature of the risks, historical experience and industry
standards. There can be no assurance, however, that claims in excess of such
insurance or claims not covered by insurance, such as claims for punitive
damages, will not arise. A successful claim against the Company not covered by,
or in excess of, its insurance could have a material adverse effect upon 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 upon the Company's ability to attract or retain residents or
expand its business and may require management to devote substantial time to
matters unrelated to day-to-day operations. In addition, insurance policies must
be renewed annually. There can be no assurance that the Company will be able to
obtain liability insurance in the future or that, if such insurance is
available, it will be available on acceptable economic terms.
14
<PAGE> 16
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY
The Company currently relies, and for the foreseeable future, the Company
expects to rely, primarily on the ability of its residents to pay for services
from their own and their families' financial resources. Generally, only elderly
adults with income or assets meeting or exceeding the comparable median in the
region where assisted living residences of the Company are located can afford
the fees for such residences. Inflation or other circumstances which adversely
affect the ability of residents and potential residents to pay for assisted
living services could have an adverse effect on the Company. In the event that
the Company encounters difficulty in attracting seniors with adequate resources
to pay for the Company's services, the Company would be adversely affected.
ENVIRONMENTAL LIABILITY RISKS ASSOCIATED WITH REAL PROPERTY
Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and clean
up costs incurred by such parties in connection with the contamination. Such
laws typically impose clean up responsibility and liability without regard to
whether the owner knew of or caused the presence of contaminants, and liability
under such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation or responsibility. The
costs of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such property, may adversely affect the owner's ability to sell or
lease such property or to borrow using such property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is owned or operated by such person. Finally, the owner of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site.
With the exception of four Sterling House residences operated by the
Company or its predecessors since prior to 1995, the Company has conducted
environmental assessments of all of its operating residences and has conducted,
or is in the process of conducting, environmental assessments of all of its
undeveloped sites and sites currently under construction. These assessments have
not revealed, and the Company is not otherwise aware of, any environmental
liability that it believes would have a material adverse effect on the Company's
business, assets or results of operations. There can be no assurance, however,
that environmental assessments would detect all environmental contamination
which may give rise to material environmental liabilities. The Company believes
that its respective residences are in compliance in all material respects with
all applicable environmental laws. The Company has not been notified by any
governmental authority, or is otherwise aware, of any material non-compliance,
liability or claim relating to hazardous or toxic substances or petroleum
products in connection with any of the residences its currently operates.
ANTI-TAKEOVER PROVISIONS
The Certificate authorizes the issuance of 5,000,000 shares of preferred
stock and 30,000,000 shares of Common Stock. The Company intends to seek an
increase in its authorized Common Stock at its 1998 Annual Meeting of
Stockholders. Subject to the rules of the American Stock Exchange ("AMEX") upon
which the Common Stock is listed, the Board of Directors of the Company has the
power to issue any or all of authorized and unissued shares without stockholder
approval, and the preferred shares can be issued with such rights, preferences
and limitations as may be determined by the Company's Board. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of any holders of preferred stock that may be issued in the future.
The Company presently has no commitments or contracts to issue any additional
shares of Common Stock (other than pursuant to the exercise of outstanding stock
options or the conversion of the Debentures, the 7% Debentures and the 5.25%
Debentures) or any shares of preferred stock. Authorized and unissued preferred
stock and Common Stock, while providing desirable flexibility in
15
<PAGE> 17
connection with possible acquisitions and other corporate purposes, could delay,
discourage, hinder or preclude an unsolicited acquisition of the Company, could
make it less likely that stockholders receive a premium for their shares as a
result of any such attempt and could adversely affect the market price of and
the voting and other rights of the holders of outstanding shares of Common
Stock. As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law (the "DGCL") which, in general, prevents an
"interested stockholder" (defined generally as a person owing 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) for three years following the date such
person became an interested stockholder unless certain conditions are satisfied.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices of the Common Stock.
In connection with the Sterling Merger, the Company issued 5,549,760 shares
of Common Stock to holders of the common stock of Sterling. Up to 46% of such
shares are available for sale by the holders thereof pursuant to Rule 145
adopted by the Commission under the Securities Act upon the publication by the
Company of financial results covering at least 30 days of post-Sterling Merger
combined operations, and the remainder of such shares are available for
immediate resale by the holders thereof.
Approximately 51.1% of the outstanding shares of Common Stock was offered
and sold in reliance upon exemptions from registration under the Securities Act
and, accordingly, such shares are "restricted shares" for purposes of Rule 144
adopted under the Securities Act ("Restricted Shares"). The substantial majority
of the Restricted Shares are currently either freely tradeable without
restriction or limitation under the Securities Act or may be sold in the public
market pursuant to Rule 144 promulgated under the Securities Act, subject to the
volume and resale restrictions of such rule, and subject to a 90-day lock-up
agreement with certain underwriters.
Holders of the Debentures, the 7% Debentures and the 5.25% Debentures have
the right to convert such debentures into Common Stock at a conversion price of
$20.38, $20.25 or $28.75 per share, respectively, at any time after the
registration statements which have been filed by the Company with respect
thereto are declared effective by the Commission. If holders elect to convert
all of the outstanding Debentures, the 7% Debentures and the 5.25% Debentures
into shares of Common Stock, the Company would issue an additional 9,186,506
shares of Common Stock. In case of the 5.25% Debentures, which are convertible
into an aggregate of 5,000,000 shares of Common Stock, such debentures are not
so convertible until June 16, 1998.
After giving effect to the reservation of shares issuable upon conversion
of the Debentures, the 7% Debentures and the 5.25% Debentures, the issuance of
3,220,000 shares of Common Stock pursuant to the Stock Offering and the exercise
of stock options previously granted or available for grant under the Company's
existing stock option plans, the Company will not have sufficient authorized
shares of Common Stock to fully satisfy its obligations with respect to the
conversion of the 5.25% Debentures. However, a holder of the 5.25% Debentures is
permitted to convert his 5.25% Debentures to the extent that authorized and
unissued shares of Common Stock are available to fully satisfy the conversion of
his Debenture. The Company has agreed to seek stockholder approval of the
Charter Amendment to increase the number of authorized shares of Common Stock to
a number sufficient to permit the 100% conversion of the 5.25% Debentures. See
"-- Insufficient Authorized Shares of Common Stock to Satisfy Conversion of
Debentures; Increase in Authorized Shares."
POSSIBLE PRICE VOLATILITY OF DEBENTURES AND THE COMMON STOCK
The market price of the Debentures and Common Stock offered hereby could be
subject to significant fluctuations in response to various factors and events,
including the liquidity of the market for the Debentures and Common Stock
offered hereby, variations in the Company's operating results, and new statutes
or regulations or changes in the interpretation of existing statutes or
regulations affecting the health care industry generally 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
16
<PAGE> 18
of particular companies. These market fluctuations also may adversely affect the
market price of the Debentures and Common Stock.
USE OF PROCEEDS
The proceeds from the sale of the Debentures and shares of Common Stock
offered hereby are solely for the account of the Selling Securityholders.
Accordingly, the Company will receive none of the proceeds from sales thereof.
17
<PAGE> 19
SELLING SECURITYHOLDERS
The Debentures being offered hereby were acquired by the Selling
Securityholders in connection with a private placement of the Debentures by
Sterling on May 23, 1996 pursuant to Rule 144A, and Regulation D under the
Securities Act or in permitted resale transactions from the initial purchasers
of the Debentures (the "Initial Purchasers") or holders acquiring such
Debentures from prior holders thereof in further permitted resale transactions.
The following table sets forth information concerning the principal amount of
Debentures beneficially owned by such Selling Securityholders which may be
offered from time to time pursuant to this Prospectus. Other than as a result of
the ownership of Debentures, or other securities of the Company in certain
cases, none of the Selling Securityholders has had any material relationship
with the Company within the past three years, except as noted herein. The table
has been prepared based upon information furnished to the Company by the Trustee
(as defined) for the Debentures, by The Depository Trust Company (the
"Depository"), and by or on behalf of the Selling Securityholders.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PERCENT OF
OF DEBENTURES OF DEBENTURES OUTSTANDING
NAME BENEFICIALLY OWNED THAT MAY BE SOLD DEBENTURES
- ---- ------------------ ---------------- -----------
<S> <C> <C> <C>
Bank of New York.................................... $2,120,000 $2,120,000 6.1%
Bankers Trust Co.................................... 400,000 400,000 6.1
Brown Brothers Harriman & Co........................ 1,400,000 1,400,000 4.0
Chase Manhattan Bank................................ 330,000 330,000 *
Chase Manhattan Bank, Trustee IBM Cor. Retirement
Trust Dtd. 12/1845................................ 500,000 500,000 1.4
Bankers Trust Company, Trustee Chrysler Retirement
Plan.............................................. 3,500,000 3,500,000 10.0
Citicorp Service, Inc............................... 970,000 970,000 2.8
Commerce Bank of Kansas City, N.A................... 250,000 250,000 *
Foundation Account No. 1............................ 510,000 510,000 1.5
Investors Bank & Trust.............................. 3,000,000 3,000,000 8.6
Mellon Bank, Trustee Nynex Master Pension Trust Dtd.
01/01/84.......................................... 500,000 500,000 1.4
Michael W. Meyer.................................... 50,000 50,000 *
Jame J. O'Donnell................................... 50,000 50,000 *
Nicholas K. Pontikes, Trustee UA Dtd. 01/24/97
Pontikes Investments Tr........................... 100,000 100,000 *
Prudential Securities Incorporated.................. 200,000 200,000 *
Raymond James & Associates, Inc..................... 355,000 355,000 1.0
Sanwa Bank California............................... 990,000 990,000 2.8
Elizabeth Scofield.................................. 50,000 50,000 *
Nanette Scofield.................................... 50,000 50,000 *
Nanette Scofield & Elizabeth Scofield, Trustees U/A
Dtd. 01/28/77 Anthony L. Scofield Trust........... 50,000 50,000 *
SSB -- Custodian Global Proxy Unit, S5N W........... 5,350,000 5,350,000 15.3
State Street -- Custodian GE Pension Trust.......... 2,500,000 2,500,000 7.1
Strategic Restructuring Partnership, L.P............ 200,000 200,000 *
Swiss American Securities, Inc...................... 1,190,000 1,190,000 3.4
Edith G. Tanenbaum.................................. 50,000 50,000 *
Thermo Securities Corp.............................. 100,000 100,000 *
Andrew L. Turner, Trustee U/A 06/14/94.............. 450,000 450,000 1.3
UMB Bank, N.A....................................... 2,000,000 2,000,000 5.7
Martin Walsh........................................ 50,000 50,000 *
Wilmington Trust.................................... 20,000 20,000 *
Winchester Convertible Plus Ltd..................... 2,120,000 2,120,000 6.1
</TABLE>
- ---------------
* Represents less than 1% ownership.
18
<PAGE> 20
Information concerning the Selling Securityholders may change from time to
time and will be set forth in Prospectus Supplements. As of the date of this
Prospectus, the aggregate principal amount of Debentures outstanding is
$35,000,000.
Because the Selling Securityholders may offer all or some of the Debentures
and shares of Common Stock issued upon conversion thereof pursuant to the
offering contemplated by this Prospectus, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the Debentures or shares of Common Stock that will be held by the Selling
Securityholders after completion of this offering, no estimate can be given as
to the principal amount of Debentures or shares of Common Stock that will be
held by the Selling Securityholders after completion of this offering. See "Plan
of Distribution."
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this offering. The
Company has been advised by the Selling Securityholders that the Selling
Securityholders may sell all or a portion of the Debentures and shares of Common
Stock offered hereby from time to time to be determined at the times of such
sales. The Debentures and shares of Common Stock offered hereby may be sold from
time to time by the Selling Securityholders or by pledgees, donees, transferees
or other successors in interest. Such sales may be made on one or more exchanges
or in the over-the-counter market, or otherwise at prices and at terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Debentures and shares of Common Stock offered
hereby may be sold by one or more of the following: (a) a block trade in which
the broker or dealer so engaged will attempt to sell the Debentures and shares
of Common Stock offered hereby as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Brokers or dealers will receive commissions
or discounts from the Selling Securityholders in amounts to be negotiated
immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. To the extent
required, the aggregate principal amount of Debentures and number of shares of
Common Stock to be sold, the names of the Selling Securityholders, the purchase
price, the name of any such agent, dealer or underwriter and any applicable
commissions with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. The aggregate proceeds to the Selling
Securityholders from the sale of the Debentures and Common Stock offered by the
Selling Securityholders hereby will be the purchase price of such Debentures and
shares of Common Stock less any commissions. There is no assurance that the
Selling Securityholders will sell any or all of the Debentures and shares of
Common Stock offered hereby.
The Debentures and the shares of Common Stock issued upon conversion of the
Debentures may be sold from time to time in one or more transactions at fixed
offering prices, which may be changed, or at varying prices determined at the
time of sale or at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders and underwriters
or dealers who may receive fees or commissions in connection therewith.
The outstanding Common Stock is listed on the AMEX and the shares of Common
Stock issuable upon conversion of the Debentures has been approved for listing
thereon. The Company does not intend to apply for listing of the Debentures on
any national securities exchange or on Nasdaq. The Company does not anticipate
that an active market for the Debentures will develop.
In order to comply with the securities laws of certain states, if
applicable, the Debentures and shares of Common Stock offered hereby will be
sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states the Debentures and shares of Common
Stock offered hereby may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
19
<PAGE> 21
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Debentures and the shares of Common Stock
issued upon conversion of the Debentures may not simultaneously engage in market
making activities with respect to the Common Stock for a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the foregoing, each Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchase and sales of shares of the Common Stock by the
Selling Securityholders.
The Debentures were originally sold to the Initial Purchasers on May 23,
1996 in a private placement at a purchase price of 100% of their principal
amount. Under certain circumstances, Sterling agreed to indemnify and hold the
Initial Purchasers and certain subsequent holders of the Debentures harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale of the Debentures by the Initial Purchasers or such
subsequent holders.
The Company will pay all expenses incident to this offering and sale of the
Debentures and Common Stock to the public other than underwriting discounts and
selling commissions and fees.
The Company has filed the Registration Statement of which this Prospectus
is a part to satisfy its obligations under the Sterling Merger Agreement, which
also satisfies Sterling's obligations under the Registration Rights Agreement
dated May 23, 1996 by and between Sterling and the Initial Purchasers (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
Sterling has also agreed to prepare and file such amendments and supplements to
the Registration Statement of which this Prospectus is a part as may be
necessary to keep the Registration Statement effective until all the Debentures
and the shares of Common Stock issuable upon conversion thereof have been sold
thereby or until the Debentures and the shares of Common Stock issuable upon
conversion thereof are no longer, by reason of Rule 144(k) promulgated under the
Securities Act or any other rule of similar effect, required to be registered
for the sale thereof by the holders thereof. The Company intends to satisfy
Sterling's obligations under the Registration Rights Agreement.
DESCRIPTION OF DEBENTURES
The Debentures were issued under an Indenture dated as of May 23, 1996 (the
"Original Indenture"), executed by Sterling and Fleet National Bank, as the
trustee under the Indenture. ALS assumed the Debentures and all of Sterling's
obligations under the Indenture as of October 23, 1997 pursuant to that certain
First Supplemental Indenture dated as of October 23, 1997 (the "Supplemental
Indenture") between ALS and State Street Bank and Trust Company, as successor
trustee (the "Trustee"). The Original Indenture, as supplemented by the
Supplemental Indenture is referred to herein as the Indenture. The terms of the
Debentures include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended.
The following is a summary of certain provisions of the Indenture and does
not purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the Indenture, including the definitions of certain terms
therein to which reference is hereby made, for a complete statement of such
provisions. Wherever particular provisions or sections of the Indenture or terms
defined therein are referred to herein, such provisions or definitions are
incorporated herein by reference.
GENERAL
The Debentures are unsecured general obligations of the Company, subject to
the rights of holders of Senior Indebtedness of the Company, and will mature on
June 30, 2006. The Debentures are limited to $35,000,000 aggregate principal
amount and bear interest payable semiannually on June 30 and December 30 of each
year, commencing December 1, 1997, at the per annum rate of 6.75%. The Company
will pay interest on the Debentures to the persons who are registered holders of
Debentures at the close of business on the June 15 or December 15 preceding the
interest payment date. Principal (and premium, if any) and interest will be
payable, the Debentures will be convertible and exchangeable, and transfers
thereof will be
20
<PAGE> 22
registerable, at the office or agency of the Company maintained for such
purposes, initially at the offices of the Trustee. The Company may pay principal
and interest by check and may mail an interest check to a holder's registered
address. Holders must surrender Debentures to a Paying Agent to collect
principal payments.
The Trustee acts as Paying Agent, Registrar and Conversion Agent, but the
Company may change any Paying Agent, Registrar, Conversion Agent or co-registrar
upon prior written notice to the Trustee and may act in any such capacity
itself.
DELIVERY AND FORM OF DEBENTURES
Those Debentures initially sold to qualified institutional buyers (as
defined in Rule 144A under the Securities Act) were issued in global form
represented by a single global Debenture (the "Rule 144A Global Security") and
were deposited on May 23, 1996 with the Depository and registered in the name of
Cede & Co., as nominee of the Depository. Those Debentures that were initially
sold to institutional accredited investors were initially issued in fully
registered form.
A holder may transfer or exchange Debentures in accordance with the
Indenture. No service charge will be made for any registration or transfer,
exchange or conversion of Debentures, except for any tax or other governmental
charges that may be imposed in connection therewith. The Registrar need not
transfer or exchange any Debentures selected for redemption. Also, in the event
of a partial redemption, it need not transfer or exchange any Debentures for a
period of 15 days before selecting Debentures to be redeemed. The Indenture does
not contain any provision requiring the Company to repurchase the Debentures at
the option of the holders thereof in the event of a leveraged buyout,
recapitalization or similar restructuring of the Company, even though the
Company's credit worthiness and the market value of the Debentures may decline
significantly as a result of such transaction. The Indenture does not protect
holders of the Debentures against any decline in credit quality, whether
resulting from any such transaction or from any other cause. The registered
holder of a Debenture may be treated as its owner for all purposes.
CONVERSION RIGHTS
The holders of the Debentures are entitled at any time after the effective
date of the Registration Statement of which this Prospectus is a part and prior
to maturity, subject to prior redemption, to convert the Debentures or portions
thereof (which are $1,000 or multiples thereof) into shares of Common Stock at
the conversion price set forth in the Debenture (subject to adjustments as
described below). No payment or adjustment will be made for accrued interest on
a converted Debenture. If any Debenture not called for redemption is converted
between a record date for the payment of interest and the next succeeding
interest payment date, such Debenture must be accompanied by funds equal to the
interest payable to the registered holder on such interest payment date on the
principal amount so converted. The Company will not issue fractional interests
in shares of Common Stock upon conversion of the Debentures and instead will
deliver a check for the fractional share based upon the market value of the
Common Stock on the last trading date prior to the conversion date. If the
Debentures are called for redemption, conversion rights will expire at the close
of business on the redemption date, unless the Company defaults in payment due
upon such redemption.
The conversion price is subject to adjustments, as set forth in the
Indenture, in certain events, including the payment of dividends or
distributions on the Common Stock in shares of capital stock; subdivisions or
combinations of the Common Stock into a greater or smaller number of shares of
Common Stock; reclassification of the shares of Common Stock resulting in an
issuance of any shares of the Company's capital stock; distribution of rights or
warrants to all holders of Common Stock entitling them to purchase Common Stock
at less than the then current price at that time; and the distribution to all
holders of Common Stock of assets, excluding certain cash dividends and
distributions, or debt securities or any rights or warrants to purchase
securities of the Company; provided, however, that no adjustment will be
required if holders of the Debentures receive notice of and are allowed to
participate in such transactions. No adjustment will be required for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest, or for a change in the par value of the Common Stock. To the extent
that Debentures become convertible into cash, no adjustment will be required
thereafter as to cash. No adjustment in the conversion
21
<PAGE> 23
price need be made unless such adjustment would require a change of at least
1.0% in the conversion price; however, any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. The Company may voluntarily reduce the conversion price
for a period of time.
If the Company pays dividends on the Common Stock in shares of capital
stock or subdivides or combines the Common Stock or issues by reclassification
of its Common Stock any shares of its capital stock or merges with, or transfers
or leases substantially all of its assets to, another corporation or trust, the
holders of the Debentures then outstanding will be entitled thereafter to
convert such Debentures into the kind and amount of shares of capital stock,
other securities, cash or other assets which they would have owned immediately
after such event had such Debentures been converted before the effective date of
the transaction.
Any Debentures called for redemption, unless surrendered for conversion on
or before the close of business on the redemption date, are subject to being
purchased from the holder of such Debentures at the redemption price by one or
more investment banks or other purchasers who may agree with the Company to
purchase such Debentures and convert them into Common Stock of the Company.
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment of the conversion price, the holders of the Debentures
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend.
SUBORDINATION OF DEBENTURES
The indebtedness evidenced by the Debentures is subordinated and junior in
right of payment to the extent set forth in the Indenture to the prior payment
in full of amounts then due on all Senior Indebtedness. No payment shall be made
by the Company on account of principal of (or premium if any) or interest on the
Debentures or on account of the purchase or other acquisition of Debentures, if
there shall have occurred and be continuing a default with respect to any Senior
Indebtedness permitting the holders to accelerate the maturity thereof, or with
respect to any Senior Indebtedness and such default shall be the subject of a
judicial proceeding, or the Company shall have received notice of such default
from certain authorized persons, unless and until such default or event of
default shall have been cured or waived or shall have ceased to exist. By reason
of these provisions, in the event of default on any Senior Indebtedness, whether
now outstanding or hereafter issued, payments of principal of (and premium, if
any) and interest on the Debentures may not be permitted to be made until such
Senior Indebtedness is paid in full, or the event of default on such Senior
Indebtedness is cured or waived.
Upon any acceleration of the principal of the Debentures or any
distribution of assets of the Company upon any receivership, dissolution,
winding-up, liquidation, reorganization or similar proceedings of the Company,
whether voluntary or involuntary, or in bankruptcy or insolvency, all amounts
due or to become due upon all Senior Indebtedness must be paid in full before
the holders of the Debentures or the Trustee are entitled to receive or retain
any assets so distributed in respect of the Debentures. By reason of this
provision, in the event of insolvency, holders of the Debentures may recover
less, ratably, than holders of Senior Indebtedness.
"Senior Indebtedness" is defined to mean the principal, premium, if any,
interest on and all other amounts payable under or in respect of Indebtedness
(as defined in the Indenture) of the Company (other than Indebtedness owed to a
subsidiary of the Company, Indebtedness of the Company which is expressly pari
passu with the Debentures or Indebtedness which is expressly subordinated to the
Debentures). There is no limit on the amount of Senior Indebtedness that the
Company may incur.
OPTIONAL REDEMPTION
The Debentures are subject to redemption, as a whole or in part, at any
time or from time to time commencing on or after June 15, 1999 at the option of
the Company on at least 30 days' and not more than
22
<PAGE> 24
60 days' prior notice by mail. The redemption prices (expressed as a percentage
of principal amount) are as follows for the 12-month period beginning on or
after July 15 of the following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
1999........................................................ 102%
2000........................................................ 101
2001 and thereafter......................................... 100
</TABLE>
MODIFICATION OF THE INDENTURE
Under the Indenture, with certain exceptions, the rights and obligations of
the Company with respect to the Debentures and the rights of holders of the
Debentures may only be modified by the Company and the Trustee with the written
consent of the holders of not less than 66 2/3% in principal amount of the
outstanding Debentures. However, without the consent of each Holder of any
Debenture affected, an amendment, waiver or supplement may not (a) reduce the
amount of Debentures whose holders may consent to an amendment; (b) reduce the
rate or change the time of payment of interest on any Debenture; (c) reduce the
principal of or change the fixed maturity of any Debenture; (d) make any
Debenture payable in money other than that stated in the Debenture; (e) change
the provisions of the Indenture regarding the right of the holders of a majority
of the Debenture to waive defaults under the Indenture or impair the right of
any holder of Debentures to institute suit for the enforcement of any payment of
principal and interest on the Debentures on and after their respective due
dates; or (f) make any change that adversely affects the right to convert any
Debenture.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following is a summary of certain provisions of the Indenture relating
to events of default, notice and waiver.
The following are Events of Default under the Indenture with respect to the
Debentures: (i) default in the payment of interest on the Debentures when due
and payable which continues for 30 days; (ii) default in the payment of
principal of (and premium, if any) on the Debentures when due and payable, at
maturity, upon redemption or otherwise, which continues for five business days;
(iii) failure to perform any other covenant of the Company contained in the
Indenture or the Debentures which continues for 60 days after notice as provided
in the Indenture; (iv) acceleration of any indebtedness for money borrowed
(including obligations under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles but not
including any indebtedness or obligation for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $1,000,000,
whether existing on the date of the execution of the Indenture or thereafter
created, if such indebtedness is not paid or such acceleration is not annulled
within ten days after notice to the Company of such acceleration; and (v)
certain events of bankruptcy, insolvency or reorganization relating to the
Company.
If an Event of Default occurs and is continuing with respect to the
Debentures, either the Trustee or the Holders of at least a majority in
principal amount of the Debentures may declare all of the Debentures to be due
and payable immediately.
The Company will not (i) declare or pay any dividends or make any
distribution to holders of its capital stock or (ii) purchase, redeem or
otherwise acquire or retire for value any of its Common Stock, or any warrants,
rights or options, to purchase or acquire any shares of its Common Stock (other
than the Debentures or any other convertible indebtedness of the Company that is
neither secured nor subordinated to the Debentures), if at the time any of the
aforementioned Events of Default has occurred and is continuing or would exist
immediately after giving effect to such action.
The Trustee may require indemnity reasonably satisfactory to it before it
enforces the Indenture or the Debentures. Subject to certain limitations,
holders of a majority in principal amount of the Debentures may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Debentures notice of any default (except a default in payment of
principal or interest) if it determines that
23
<PAGE> 25
withholding notice is in their interests. The Company is required to file with
the Trustee annually an officer's statement as to the absence of defaults in
fulfilling any of its obligations under the Indenture.
No consent of the holders of the Debentures is required for the Company to
consolidate with or merge into or transfer or lease substantially all of its
assets to another corporation or trust which assumes the obligations of the
Company under the Indenture and Debentures or for any reorganization within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code; nor is any such
consent of holders of the Debentures required for any amendment of the Indenture
or the Debentures by the Company or the Trustee to cure any ambiguity, defect or
inconsistency, or to provide for uncertificated Debentures in addition to
certified Debentures, or to make any change that does not adversely affect the
right of a holder of a Debenture.
Subject to certain conditions, any person having a beneficial interest in
the Rule 144A Global Security may, upon request to the Trustee, exchange such
beneficial interest for Debentures in the form of certificated Debentures. Upon
any such issuance, the Trustee is required to register such certificated
Debentures in the name of, and cause the same to be delivered to, such person or
persons (nominee of any thereof). All such certificated Debentures will be
subject to the legend requirements set forth in the Indenture. In addition, if
(i) the Company notifies the Trustee in writing that the Depository is no longer
willing or able to act as a depository 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 Debentures in the
form of certificated Debentures under the Indenture, then, upon surrender by the
Rule 144A Global Security Holder of its Rule 144A Global Security, Debentures in
certificated form will be issued to each person that the Rule 144A Global
Security Holder and the Depository identify as being the beneficial owner of the
related Debentures.
Neither the Company nor the Trustee will be liable for any delay by the
Rule 144A Global Security Holder or the Depository in identifying the beneficial
owners of Debentures, and the Company and the Trustee may conclusively rely on,
and will be protected in relying on, instructions from the Rule 144A Global
Security Holder or the Depository for all purposes.
The Debentures may not be sold or otherwise transferred except in
accordance with the provisions set forth in the Indenture.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Indenture provides that the Company may not merge or consolidate with,
or sell or convey all, or substantially all, of its assets to another person
unless such person is a company or a trust; such person assumes by supplemental
indenture all the obligations of the Company under the Debentures and the
Indenture; and immediately after the transaction no default or Event of Default
shall exist.
MARKETABILITY
The Debentures are a new issue of securities with no established trading
market. The Company does not intend to list the Debentures on Nasdaq or on any
national securities exchange. No assurance can be given as to the liquidity of
the trading market for the Debentures.
GOVERNING LAW
The Indenture and the Debentures are governed by and construed in
accordance with the laws of the State of New York.
LEGAL MATTERS
Certain legal matters relating to the validity of the Debentures and Common
Stock offered hereby will be passed upon for the Company by Rogers & Hardin LLP,
Atlanta, Georgia.
24
<PAGE> 26
EXPERTS
The (i) consolidated financial statements of Alternative Living Services,
Inc. and subsidiaries as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996 have been included in the Company's Form 10-K
for the year ended December 31, 1996 and (ii) supplemental consolidated
financial statements of Alternative Living Services, Inc. and subsidiaries as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996 have been included in the Form 8-K/A filed by the Company on November 6,
1997; and each such financial statements have been incorporated by reference in
the Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing therein upon the authority of said firm
as experts in accounting and auditing.
25
<PAGE> 27
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
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 BY ANY SELLING SECURITYHOLDER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 17
Selling Securityholders............... 18
Plan of Distribution.................. 19
Description of Debentures............. 20
Legal Matters......................... 24
Experts............................... 25
</TABLE>
======================================================
======================================================
$35,000,000
ALTERNATIVE
LIVING SERVICES, INC.
6.75% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
AND
1,717,217
SHARES COMMON STOCK, $.01 PAR VALUE PER SHARE,
ISSUABLE UPON CONVERSION THEREOF
-----------------
PROSPECTUS
-----------------
, 1998
======================================================
<PAGE> 28
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid in connection with
the issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions, and all such expenses will be borne
by the Registrant. All amounts are estimates except for the SEC registration fee
and the AMEX filing fee. It is estimated that the Registrant will incur the
following expenses in connection with the offering of the securities being
registered.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $10,325
AMEX Filing Fee............................................. 17,500
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Legal Fees and Expenses..................................... *
Printing and Mailing Expenses............................... *
Transfer Agent Fees and Expenses............................ *
Miscellaneous Expenses...................................... *
-------
Total*............................................ $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL") allows a
corporation to eliminate or limit the personal liability of directors of a
corporation to the corporation or to any of its stockholders for monetary
damages for a breach of fiduciary duty as a director, except (i) for breach of
the director's duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
certain unlawful dividends and stock repurchases, or (iv) for any transaction
from which the director derived an improper personal benefit.
Section 145 of the DGCL provides that in the case of any action other than
one by or in the right of the corporation, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity on behalf of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 145 of the DGCL provides that in the case of an action by or in the
right of a corporation to procure a judgment in its favor, a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any action or suit by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in such capacity on behalf of another corporation
or enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted under standards similar to those set forth in the
proceeding paragraph, except that no indemnification may be made in respect of
any action or claim as to which such person shall have been adjudged to be
liable to the corporation unless a court determines that such person is fairly
and reasonably entitled to indemnification.
Articles VIII and IX of the Company's Restated Certificate of
Incorporation, as amended, provides for indemnification of directors, officers
and employees to the fullest extent permissible under the DGCL.
II-1
<PAGE> 29
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1,
Registration No. 333-04595, filed with Commission on July
30, 1996 (the "Form S-1")).
3.2 -- Certificate of Merger, dated May 24, 1996 (incorporated
herein by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-3, Registration No.
333-37737, filed with the Commission on October 14, 1997
(the "Form S-3")).
3.3 -- Certificate of Amendment to the Restated Certificate of
Incorporation, dated August 1, 1996 (incorporated herein by
reference to Exhibit 3.2 to the Form S-3).
3.4 -- Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form S-3, Registration No. 333-39705, filed
with the Commission on November 6, 1997 (the "November
S-3")).
4.1 -- Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 to the Form S-1).
4.2 -- See Articles Four, Six, Seven, Eight, Nine, Ten and Eleven
of the Registrant's Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to the Form
S-1) and the Certificate of Amendment to the Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3.2 to the Form S-3).
4.3 -- See Articles 2, 3, 5, 7 and 8 of the Registrant's Restated
Bylaws (incorporated herein by reference to Exhibit 3.4 to
the November S-3).
4.4 -- Indenture dated as of May 23, 1996 by and between Sterling
House Corporation ("Sterling") and Fleet National Bank, as
Trustee (incorporated by reference to Exhibit 4.11 to
Sterling's Registration Statement on Form S-3 (Registration
No. 333-15329 filed on November 1, 1996 (the "Sterling
S-3")).
4.5 -- Form of Registration Rights Agreement dated as of May 17,
1996 by and between Sterling and the initial purchasers of
the 6.75% Convertible Subordinated Debentures due 2006
(incorporated herein by reference to Exhibit 4.9 to the
Sterling S-3).
4.6 -- First Supplemental Indenture dated as of October 23, 1997
among the Registrant, Sterling and State Street Bank and
Trust Company, as successor Trustee (incorporated herein by
reference to Exhibit 4.9 to the November S-3).
4.7 -- Indenture dated as of May 21, 1996 by and between
Alternative Living Services, Inc. and IBJ Schroder Bank &
Trust company, as Trustee (incorporated by reference to
Exhibit 4.1 to the Registrants' Current Report on Form 8-K
(No. 1-11999) filed on May 27, 1997 (the "Form 8-K")).
4.8 -- Form of Registration Rights Agreement dated as of May 21,
1997 by and between Alternative Living Services, Inc. and
the purchasers of the 7% Convertible Subordinated Debentures
due 2004 (incorporated by reference to Exhibit 99.2 to the
Form 8-K).
4.9 -- Indenture dated as of December 19, 1997 by and between
Alternative Living Services, Inc. and United States Trust
Company of New York, as Trustee (incorporated by reference
to Exhibit 1.1 to Registrant's Registration Statement on
Form 8-A, relating to Registration file number 333-39705,
filed with the Commission on December 16, 1997 (the "Form
8-A")).
4.10 -- Form of First Supplemental Indenture dated as of December
19, 1997 by and between Alternative Living Services, Inc.
and United States Trust Company of New York, as Trustee,
relating to the 5.25% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 1.2 to the
Form 8-A).
</TABLE>
II-2
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
4.11 -- Form of Second Supplemental Indenture dated as of January 2,
1998 by and between Alternative Living Services, Inc. and
United States Trust Company of New York, as Trustee,
relating to the 5.25% Convertible Subordinated Debenture due
2002 (incorporated by reference to Exhibit 4.3 to the
Registrant's Form 8K filed on January 26, 1998).
5.1 -- Opinion of Rogers & Hardin LLP.*
12.1 -- Statement regarding computation of earnings to fixed
charges.
23.1 -- Consent of Rogers & Hardin LLP (included in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
24.1 -- Power of Attorney
25.1 -- Statement of Eligibility and Qualification of successor
Trustee under the Trust Indenture Act of 1939 on Form T-1.*
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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
registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
II-3
<PAGE> 31
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of 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 of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Brookfield, State of Wisconsin, on this 31st day of
January, 1998.
ALTERNATIVE LIVING SERVICES, INC.
By: /s/ WILLIAM F. LASKY
------------------------------------
William F. Lasky
Chief Executive Officer
In accordance with requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM F. LASKY Chief Executive Officer and January 31, 1998
- ----------------------------------------------------- Director (Principal
William F. Lasky Executive Officer)
/s/ TIMOTHY J. BUCHANAN President and Director January 31, 1998
- -----------------------------------------------------
Timothy J. Buchanan
/s/ STEVEN L. VICK Chief Operating Officer and January 31, 1998
- ----------------------------------------------------- Director
Steven L. Vick
/s/ THOMAS E. KOMULA Senior Vice President, January 31, 1998
- ----------------------------------------------------- Treasurer and Chief
Thomas E. Komula Financial Officer and
Assistant Secretary
(Principal Financial
Officer)
/s/ JOHN D. PETERSON Vice President and Controller January 31, 1998
- ----------------------------------------------------- (Principal Accounting
John D. Peterson Officer)
* Chairman of the Board and January 31, 1998
- ----------------------------------------------------- Director
William G. Petty, Jr.
* Vice Chairman and Director January 31, 1998
- -----------------------------------------------------
Richard W. Boehlke
* Director January 31, 1998
- -----------------------------------------------------
Gene E. Burleson
* Director January 31, 1998
- -----------------------------------------------------
D. Ray Cook, M.D.
</TABLE>
II-5
<PAGE> 33
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
<-> Director January 31, 1998
*
- -----------------------------------------------------
Robert Haveman
* Director January 31, 1998
- -----------------------------------------------------
Ronald G. Kenny
*By: /s/ THOMAS E. KOMULA
------------------------------------------------
Thomas E. Komula
as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ------
<C> <C> <S> <C>
3.1 -- Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1,
Registration No. 333-04595, filed with Commission on July
30, 1996 (the "Form S-1")).
3.2 -- Certificate of Merger, dated May 24, 1996 (incorporated
herein by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-3, Registration No.
333-37737, filed with the Commission on October 14, 1997
(the "Form S-3")).
3.3 -- Certificate of Amendment to the Restated Certificate of
Incorporation, dated August 1, 1996 (incorporated herein by
reference to Exhibit 3.2 to the Form S-3).
3.4 -- Restated Bylaws of the Registrant (incorporated herein by
reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form S-3, Registration No. 333-39705, filed
with the Commission on November 6, 1997 (the "November
S-3")).
4.1 -- Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 to the Form S-1).
4.2 -- See Articles Four, Six, Seven, Eight, Nine, Ten and Eleven
of the Registrant's Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1 to the Form
S-1) and the Certificate of Amendment to the Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3.2 to the Form S-3).
4.3 -- See Articles 2, 3, 5, 7 and 8 of the Registrant's Restated
Bylaws (incorporated herein by reference to Exhibit 3.4 to
the November S-3).
4.4 -- Indenture dated as of May 23, 1996 by and between Sterling
House Corporation ("Sterling") and Fleet National Bank, as
Trustee (incorporated by reference to Exhibit 4.11 to
Sterling's Registration Statement on Form S-3 (Registration
No. 333-15329 filed on November 1, 1996 (the "Sterling
S-3")).
4.5 -- Form of Registration Rights Agreement dated as of May 17,
1996 by and between Sterling and the initial purchasers of
the 6.75% Convertible Subordinated Debentures due 2006
(incorporated herein by reference to Exhibit 4.9 to the
Sterling S-3).
4.6 -- First Supplemental Indenture dated as of October 23, 1997
among the Registrant, Sterling and State Street Bank and
Trust Company, as successor Trustee (incorporated herein by
reference to Exhibit 4.9 to the November S-3).
4.7 -- Indenture dated as of May 21, 1996 by and between
Alternative Living Services, Inc. and IBJ Schroder Bank &
Trust company, as Trustee (incorporated by reference to
Exhibit 4.1 to the Registrants' Current Report on Form 8-K
(No. 1-11999) filed on May 27, 1997 (the "Form 8-K")).
4.8 -- Form of Registration Rights Agreement dated as of May 21,
1997 by and between Alternative Living Services, Inc. and
the purchasers of the 7% Convertible Subordinated Debentures
due 2004 (incorporated by reference to Exhibit 99.2 to the
Form 8-K).
4.9 -- Indenture dated as of December 19, 1997 by and between
Alternative Living Services, Inc. and United States Trust
Company of New York, as Trustee (incorporated by reference
to Exhibit 1.1 to Registrant's Registration Statement on
Form 8-A, relating to Registration file number 333-39705,
filed with the Commission on December 16, 1997 (the "Form
8-A)).
4.10 -- Form of First Supplemental Indenture dated as of December
19, 1997 by and between Alternative Living Services, Inc.
and United States Trust Company of New York, as Trustee,
relating to the 5.25% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 1.2 to the
Form 8-A).
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ------
<C> <C> <S> <C>
4.11 -- Form of Second Supplemental Indenture dated as of January 2,
1998 by and between Alternative Living Services, Inc. and
United State Trust Company of New York, as Trustee, relating
to the 5.25% Convertible Subordinated Debentures due 2002
(incorporated by reference to Exhibit 4.3 to the
Registrant's Form 8-K filed on January 26, 1998).
5.1 -- Opinion of Rogers & Hardin LLP.*
12.1 -- Statement regarding computation of earnings to fixed
charges.
23.1 -- Consent of Rogers & Hardin LLP (included in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
24.1 -- Power of Attorney.
25.1 -- Statement of Eligibility and Qualification of successor
Trustee under the Trust Indenture Act of 1939 on Form T-1.*
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 12.1
ALTERNATIVE LIVING SERVICES, INC.
STATEMENTS REGARDING COMPUTATION OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(In Thousands Except Ratios)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
--------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net loss from continuing operations $(130) $(180) $(643) $(1,746) $(7,811) $(6,211) $ (57)
Fixed charges 209 250 533 1,172 6,249 4,415 9,309
Capitalized interest -- -- -- (62) (491) (368) (2,865)
Equity in losses of unconsolidated affiliates -- -- 1 438 52 56 195
Minority interest in losses of consolidated
subsidiaries -- -- (49) (112) (76) (24) (4,758)
--------------------------------------------- ------------------
Total Earnings $ 79 $ 70 $(158) $ (310) $(2,077) $(2,132) $ 1,824
============================================= ==================
Fixed Charges:
Capitalized interest $ -- $ -- $ -- $ 62 $ 491 $ 368 $ 2,865
Lease expense(1) 182 194 232 297 2,018 1,296 3,564
Interest expense, net 27 56 301 813 3,740 2,751 2,880
--------------------------------------------- ------------------
Total Fixed Charges $ 209 $ 250 $ 533 $ 1,172 $ 6,249 $ 4,415 $ 9,309
============================================= ==================
Ratio of earnings to fixed charges -- -- -- -- -- -- --
============================================= ==================
Fixed charge deficiancy $ 130 $ 180 $ 691 $ 1,482 $ 8,326 $ 6,547 $ 7,485
============================================= ==================
</TABLE>
- --------------------------------
(1) Management estimates that one-third (1/3) of its lease expense
represents interest, and such amount is included in the calculation of
Fixed Charges.
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Alternative Living Services, Inc.:
We consent to the use of our report dated February 21, 1997, incorporated
herein by reference, with respect to the consolidated financial statements of
Alternative Living Services, Inc., and subsidiaries as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996
which report is incorporated by reference in the December 31, 1996, annual
report on Form 10-K (as amended as of May 12, 1997) of Alternative Living
Services, Inc. and to the reference included herein to our firm under the
heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 2, 1998
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
Alternative Living Services, Inc.:
We consent to the use of our report dated February 21, 1997, except for
note 1, which is as of November 3, 1997, with respect to the supplemental
consolidated financial statements of Alternative Living Services, Inc. and
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996, which report appears in the Form
8-K/A of Alternative Living Services, Inc.
Our report dated February 21, 1997, except for note 1, which is as of
November 3, 1997, contains an explanatory paragraphs that states that the
supplemental consolidated financial statements give retroactive effect to the
merger of Alternative Living Services, Inc. and Sterling House Corporation on
October 23, 1997, which has been accounted for as a pooling-of-interests as
described in note 1 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation.
However, they will become the historical consolidated financial statements of
Alternative Living Services, Inc. and subsidiaries after financial statements
covering the date of consummation of the business combination are issued.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 2, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William F. Lasky or Thomas E. Komula, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form S-3 of Alternative
Living Services, Inc. (the "Company"), relating to the 6.75% Convertible
Subordinated Debentures due 2006 and shares of the Company's common stock
issuable upon conversion thereof, filed with the Commission, and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
This 23rd day of October, 1997.
/s/ Richard W. Boehlke /s/ Timothy J. Buchanan
- ------------------------------------- ---------------------------------------
Richard W. Boehlke Timothy J. Buchanan
/s/ Gene E. Burleson /s/ D. Ray Cook, M.D.
- ------------------------------------- ---------------------------------------
Gene E. Burleson D. Ray Cook, M.D.
/s/ Robert Haveman /s/ Ronald G. Kenny
- ------------------------------------- ---------------------------------------
Robert Haveman Ronald G. Kenny
/s/ Thomas E. Komula /s/ William F. Lasky
- ------------------------------------- ---------------------------------------
Thomas E. Komula William F. Lasky
/s/ William G. Petty, Jr.
- ------------------------------------- ---------------------------------------
John D. Peterson William G. Petty, Jr.
/s/ Jerry L. Tubergen /s/ Steven L. Vick
- ------------------------------------- ---------------------------------------
Jerry L. Tubergen Steven L. Vick
