<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMERICAN RETIREMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
TENNESSEE 62-1674303
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
111 WESTWOOD PLACE, SUITE 402
BRENTWOOD, TENNESSEE 37027
(615) 221-2250
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
W.E. SHERIFF
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
111 WESTWOOD PLACE, SUITE 402
BRENTWOOD, TENNESSEE 37027
(615)221-2250
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
COPIES OF COMMUNICATIONS TO:
T. ANDREW SMITH
BASS, BERRY & SIMS PLC
FIRST AMERICAN CENTER
NASHVILLE, TENNESSEE 37238
(615) 742-6200
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective, depending on market
conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
If 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>
============================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share, Debt Securities
Issuable in Series, and Preferred Stock Issuable in
Series(3)............................................... $350,000,000 $103,250
============================================================================================================================
</TABLE>
(1) In no event will the aggregate maximum offering price of all securities
offered pursuant to this Registration Statement exceed $350,000,000 or, if
any debt securities are issued with original discount, such greater amount
as shall result in an aggregate offering price of $350,000,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) Determined pursuant to Rule 457(o) under the Securities Act of 1933, as
amended.
(3) An indeterminate number of shares of Common Stock as may be issued upon
conversion of the Debt Securities or Preferred Stock registered hereby is
also being registered hereunder.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE 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 JUNE 1, 1998
PROSPECTUS
(AMERICAN RETIREMENT CORPORATION LOGO)
---------------------
American Retirement Corporation, a Tennessee corporation (the "Company"),
may offer from time to time, in one or more series (individually, an "Offering,"
and collectively, "Offerings"), its debt securities (the "Debt Securities"),
shares of its preferred stock, no par value per share (the "Preferred Stock"),
and/or shares of its common stock, $.01 par value per share (the "Common
Stock"). The Debt Securities, Preferred Stock, and Common Stock are collectively
referred to herein as the "Securities." The Securities will have an aggregate
offering price of up to $350,000,000 and will be offered on terms to be
determined at the time of each Offering.
In the case of Debt Securities, the specific title, the aggregate principal
amount, the ranking, the purchase price, the maturity, the rate and time of
payment of any interest, any redemption or sinking fund provisions, any
conversion provisions, and any other specific term of the series of Debt
Securities will be set forth in an accompanying supplement to this Prospectus (a
"Prospectus Supplement"). In the case of Preferred Stock, the specific number of
shares, designation, stated value per share, liquidation preference per share,
issuance price, dividend rate (or method of calculation), dividend payment
dates, any redemption or sinking fund provisions, any conversion rights, and any
other specific term of the series of Preferred Stock will be set forth in an
accompanying Prospectus Supplement. In the case of Common Stock, the specific
number of shares and issuance price per share will be set forth in an
accompanying Prospectus Supplement. Each Prospectus Supplement will also
disclose whether the subject Securities will be listed on a national securities
exchange and, if they are not to be listed, the possible effects thereof on
their marketability.
The Securities may be sold: (i) directly by the Company; (ii) through
underwriting syndicates represented by one or more managing underwriters, or
through one or more underwriters without a syndicate; and (iii) through agents
designated from time to time. The names of any underwriters or agents of the
Company involved in the sale of the Securities in respect of which this
Prospectus is being delivered and any applicable commissions or discounts will
be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." The net proceeds to the Company from such sale will be set forth
in such Prospectus Supplement.
The Company's Common Stock and 5 3/4% Convertible Subordinated Debentures
Due 2002 (the "Convertible Debentures") are traded on the New York Stock
Exchange (the "NYSE") under the symbols "ACR" and "ACR 02," respectively. On May
28, 1998, the closing sale price of the Common Stock on the NYSE was $19.3125
per share.
SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
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.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (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. This Prospectus and any
accompanying Prospectus Supplement do not contain all of the information set
forth in the Registration Statement and the exhibits thereto. Certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities, 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, reference is made to
such document for a more complete description, and each statement is deemed to
be qualified in all respects by such reference. 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.
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 proxy statements, reports, and other information
with the Commission. The Registration Statement (with exhibits), as well as such
proxy statements, reports, and other information filed by the Company may be
inspected and copied at the public reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at the Northeast Regional Office of the Commission, Seven World Trade
Center, Suite 1300, New York, New York 10048, and at the Midwest 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. The Commission also maintains a 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's Common
Stock and Convertible Debentures are listed on the NYSE and proxy statements,
reports, and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
2
<PAGE> 4
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, 1997;
(ii) the Company's Quarterly Report on Form 10-Q/A for the quarter
ended June 30, 1997, as filed with the Commission on February 17, 1998;
(iii) the Company's Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1997, as filed with the Commission on February 17,
1998;
(iv) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(v) the Company's Current Report on Form 8-K, dated May 29, 1998; and
(vi) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
May 22, 1997.
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 the termination of the Offerings shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date such
document is filed with the Commission. Any statement contained herein, or 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 that are not presented
herein or delivered herewith. These documents (other than exhibits to such
documents that 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 George T. Hicks,
Secretary, 111 Westwood Place, Suite 402, Brentwood, Tennessee 37027, telephone
(615) 221-2250.
3
<PAGE> 5
RISK FACTORS
Prospective investors should consider carefully the following factors as
well as the more detailed information contained in or incorporated by reference
into this Prospectus and in any accompanying Prospectus Supplement before making
a decision to invest in the Securities.
SUBSTANTIAL DEBT AND OPERATING LEASE PAYMENTS
At March 31, 1998, the Company had long-term debt (including current
portion) of approximately $239.8 million (including $138.0 million of
Convertible Debentures), of which $77.0 million was payable to one lender,
General Electric Capital Corporation ("GECC"), and was obligated to pay annual
rental obligations of approximately $7.7 million under long-term operating
leases. The Company has entered into non-binding letters of intent to establish
operating lease facilities with Nationwide Health Properties, Inc. ("NHP") and
National Health Investors, Inc. ("NHI"), both health care real estate investment
trusts, pursuant to which NHP and NHI, at the Company's request and upon
satisfaction of certain conditions, would develop, construct, or acquire up to
$110.0 million and $74.7 million, respectively, of senior living communities and
lease the communities to the Company (collectively, the "REIT Facilities").
Currently, the Company has been allocated $41.6 million and $4.7 million,
respectively, in commitments under the REIT Facilities. The Company also
maintains a $50.0 million revolving credit facility with GECC, a $4.0 million
revolving credit facility with a bank, and a $5.0 million revolving credit
facility with a bank that is available for land acquisitions. The Company
currently intends to finance its growth through a combination of bank
indebtedness, construction and mortgage financing, transactions with NHP and NHI
or other real estate investment trusts, the remaining proceeds from the sale of
the Convertible Debentures in September 1997, the net proceeds of the Offerings,
and joint venture and other arrangements. As a result, a substantial portion of
the Company's cash flow will be devoted to debt service and lease payments. As
of March 31, 1998, the Company's existing debt and lease agreements required
aggregate annual payments for the years ending December 31, 1998, 1999, 2000,
2001, and 2002, assuming no change in the Company's average interest cost (6.8%
at March 31, 1998), ranging from approximately $23.9 million to $86.3 million
(approximately $224.3 million for the year ended December 31, 2002 including the
$138.0 million principal amount of the Convertible Debentures due in October
2002). The Company intends to continue to incur significant additional
indebtedness and lease obligations and therefore expects its annual debt service
and lease obligations over the next five fiscal years to be significantly
greater than the amounts set forth in the preceding sentences. For the fiscal
year ended December 31, 1997, the Company's net cash provided by operating
activities, before giving effect to the payment of interest expense on the
Company's outstanding indebtedness, was approximately $24.2 million. There can
be no assurance that the Company will generate sufficient cash flows from
operations to cover required interest, principal, and operating lease payments.
Any payment or other default could cause the lender to foreclose upon the
communities securing such indebtedness, or, in the case of an operating lease,
could terminate the lease, with a consequent loss of income and asset value to
the Company. Furthermore, because most of the Company's mortgages and
sale-leaseback agreements contain cross-default provisions, a default by the
Company on one of its payment obligations could adversely affect a significant
number of the Company's other properties and, consequently, the Company's
business, results of operations, and financial condition.
NEED FOR ADDITIONAL FINANCING; EXPOSURE TO RISING INTEREST RATES
The Company's ability to sustain any operating losses and to otherwise meet
its growth objectives will depend, in part, on its ability to obtain additional
financing on acceptable terms from available financing sources. The Company
maintains a line of credit that restricts the Company's ability to incur
additional indebtedness. There can be no assurance that future debt instruments
will not also include covenants restricting the Company's ability to incur
additional debt. Moreover, raising additional funds through the issuance of
equity securities could cause existing shareholders to experience dilution.
There can be no assurance that the Company will be successful in securing
additional financing or that adequate financing will be available and, if
available, will be on terms that are acceptable to the Company. The Company's
inability to obtain additional financing on acceptable terms could delay or
eliminate some or all of the Company's growth plans.
4
<PAGE> 6
In addition, it is anticipated that the REIT Facilities will require
operating lease payments that will be based on prevailing interest rates. Future
indebtedness, from commercial banks or otherwise, and lease obligations are also
expected to be based on interest rates prevailing at the time such debt and
lease arrangements are obtained. Therefore, increases in prevailing interest
rates could increase the Company's interest or lease payment obligations and
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
NO ASSURANCE AS TO ABILITY TO MANAGE GROWTH
The Company intends to continue to expand its operations through the
development, construction, and acquisition of free-standing assisted living
residences and through the acquisition of other types of senior living
communities, as well as through the selective expansion of the Company's home
health care services. The success of the Company's growth strategy will depend,
in large part, on its ability to effectively operate any newly acquired or
developed residences, communities, or home health care agencies, as to which
there can be no assurance. The Company has limited experience developing and
operating assisted living residences on a free-standing basis. The Company's
growth plans will also place significant demands on the Company's management and
operating personnel. The Company's ability to manage its future growth
effectively will require it to improve its operational, financial, and
management information systems and to continue to attract, retain, train,
motivate, and manage key employees. If the Company is unable to manage its
growth effectively, its business, results of operations, and financial condition
will be adversely affected.
RISKS IN ACQUISITIONS OF COMMUNITIES AND COMPLEMENTARY BUSINESSES; DIFFICULTIES
OF INTEGRATION
The Company plans to make strategic acquisitions of senior living
communities (which may include a variety of continuing care retirement
communities ("CCRCs"), independent living, assisted living, and skilled nursing
facilities), assisted living residences, home health care agencies, and other
properties or businesses that are complementary to the Company's operations and
growth strategy. The acquisition of existing communities or other businesses
involves a number of risks. Existing communities available for acquisition
frequently serve or target different markets than those presently served by the
Company. The Company may also determine that renovations of acquired communities
and changes in staff and operating management personnel are necessary to
successfully integrate such communities or businesses into the Company's
existing operations. The costs incurred to reposition or renovate newly acquired
communities may not be recovered by the Company. In undertaking acquisitions,
the Company also may be adversely impacted by unforeseen liabilities
attributable to the prior operators of such communities or businesses, against
whom the Company may have little or no recourse. The success of the Company's
acquisition strategy will be determined by numerous factors, including the
Company's ability to identify suitable acquisition candidates, the competition
for such acquisitions, the purchase price, the requirement to make operational
or structural changes and improvements, the financial performance of the
communities or businesses after acquisition, the Company's ability to finance
the acquisitions, and the Company's ability to integrate effectively any
acquired communities or businesses into the Company's management, information,
and operating systems. There can be no assurance that the Company's acquisition
of senior living communities and complementary properties and businesses will be
completed at the rate currently expected, if at all, or, if completed, that any
acquired communities or businesses will be successfully integrated into the
Company's operations.
NO ASSURANCE AS TO ABILITY TO DEVELOP ADDITIONAL ASSISTED LIVING RESIDENCES
An integral component of the Company's growth strategy is to develop and
operate assisted living residences. As part of its growth strategy, the Company
is currently developing 36 assisted living residences, with an estimated
aggregate capacity for approximately 3,500 residents, and is expanding or is
planning to commence expansions at five of its existing senior living
communities to add capacity to accommodate approximately 400 additional
residents. The Company's ability to develop successfully assisted living
residences will depend on a number of factors, including, but not limited to,
the Company's ability to acquire suitable development sites at reasonable
prices; the Company's success in obtaining necessary zoning, licensing, and
other required governmental permits and authorizations; and the Company's
ability to control
5
<PAGE> 7
construction costs and project completion schedules. In addition, the Company's
development plans are subject to numerous factors over which it has little or no
control, including competition for developable properties; shortages of labor or
materials; changes in applicable laws or regulations or their enforcement; the
failure of general contractors or subcontractors to perform under their
contracts; strikes; and adverse weather conditions. As a result of these
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 assisted living residences, or that any
developed assisted living residences will be economically successful. If the
Company's development schedule is delayed, the Company's growth plans could be
adversely affected. Additionally, the Company anticipates that the development
and construction of additional assisted living residences will involve a
substantial commitment of capital with little or no revenue associated with
residences under development, the consequence of which could be an adverse
impact on the Company's liquidity.
LOSSES FROM NEWLY DEVELOPED RESIDENCES AND ACQUISITIONS
Although the Company was profitable in 1994, 1995, 1996, and 1997 (before
giving effect to a non-recurring tax charge incurred in 1997 in connection with
the reorganization of the Company's predecessor, American Retirement
Communities, L.P. (the "Predecessor"), into the Company (the "Reorganization")
and the extraordinary charge relating to the prepayment of indebtedness in
December 1997), in view of its growth plan for development and acquisitions,
there can be no assurance that the Company will continue to be profitable in any
future period. Newly developed assisted living residences are expected to incur
operating losses during a substantial portion of their first 12 months of
operations, on average, until the residences achieve targeted occupancy levels.
Newly acquired residences and communities may also incur losses pending their
integration into the Company's operations. The Company may also incur operating
losses as a result of the expansion of its existing home health care agencies
and the establishment of additional home health care agencies in new markets.
RISKS OF DEVELOPMENT IN CONCENTRATED GEOGRAPHIC AREAS
The Company's growth strategy involves the development of assisted living
residences and the acquisition of senior living communities in concentrated
geographic service areas. Accordingly, the Company's occupancy rates in
existing, developed, or acquired communities may be adversely affected by a
number of factors, including regional and local economic conditions, general
real estate market conditions including the supply and proximity of senior
living communities, competitive conditions, and applicable local laws and
regulations.
DISCRETIONARY USE OF PROCEEDS
The Company will have broad discretion as to the application of the net
proceeds of the Offerings. The Company intends to use the net proceeds of the
Offerings to fund future acquisitions of senior living communities and
businesses engaged in activities similar or complementary to the Company's
business, for the development and construction of assisted living residences and
expansions at the Company's existing communities, and for general corporate
purposes, including working capital. See "Use of Proceeds."
DEPENDENCE ON PRIVATE PAY RESIDENTS
Approximately 89.4% of the Company's total revenues for the year ended
December 31, 1997 and approximately 92.3% of the Company's total revenues for
the three months ended March 31, 1998 were attributable to private pay sources.
For the same periods, 10.6% and 7.7%, respectively, of the Company's revenues
were attributable to reimbursement from third-party payors, including Medicare.
The Company expects to continue to rely primarily on the ability of residents to
pay for the Company's services from their own or familial financial resources.
Inflation or other circumstances that adversely affect the ability of seniors to
pay for the Company's services could have a material adverse effect on the
Company's business, financial condition, and results of operations.
6
<PAGE> 8
INCREASING COMPETITION
The senior living and health care services industry is highly competitive,
and the Company expects that all segments of the industry will become
increasingly competitive in the future. The Company competes with other
companies providing independent living, assisted living, skilled nursing, home
health care, and other similar service and care alternatives. Although the
Company believes there is a need for assisted living residences in the markets
where the Company is operating and developing residences, the Company expects
that competition will increase from existing competitors and new market
entrants, some of whom may have substantially greater financial resources than
the Company. In addition, some of the Company's competitors operate on a
not-for-profit basis or as charitable organizations and have the ability to
finance capital expenditures on a tax-exempt basis or through the receipt of
charitable contributions, neither of which are readily available to the Company.
Furthermore, if the development of new senior living communities (particularly
given the rapid pace of development of new assisted living residences) outpaces
the demand for such communities in the markets in which the Company has or is
developing senior living communities, such markets may become saturated. An
oversupply of such communities in the Company's markets could cause the Company
to experience decreased occupancy, reduced operating margins, and lower
profitability. Consequently, there can be no assurance that the Company will not
encounter increased competition that would adversely affect its occupancy rates,
pricing for services, and growth prospects.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of its executive officers,
particularly the Company's Chairman and Chief Executive Officer, W.E. Sheriff,
and the Company's President and Chief Operating Officer, Christopher J. Coates,
for the management of the Company. Neither Mr. Sheriff, Mr. Coates, nor any of
the Company's other executive officers has an employment agreement with the
Company. The Company has a key employee life insurance policy in the amount of
$2.0 million covering Mr. Sheriff. The loss by the Company of certain of its
executive officers and the inability to attract and retain qualified management
personnel could adversely affect the Company's business, financial condition,
and results of operations.
RESIDENCE MANAGEMENT, STAFFING, AND LABOR COSTS
The Company competes with other providers of senior living and health care
services with respect to attracting and retaining qualified management personnel
responsible for the day-to-day operations of each of the Company's communities
and skilled technical personnel responsible for providing resident care. A
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 or to hire more expensive temporary personnel. The Company will
also be dependent on 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 could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
CONTROL BY MANAGEMENT AND CERTAIN SHAREHOLDERS
The Company's officers and directors and entities controlled by them,
collectively, beneficially own approximately 39.5% of the outstanding shares of
Common Stock. Accordingly, such persons have the ability, by voting their shares
in concert, to influence the election of the Company's Board of Directors and
the outcome of all other matters submitted to the Company's shareholders.
Furthermore, such influence could preclude any unsolicited acquisition of the
Company and, consequently, adversely affect the market price of the Common
Stock.
7
<PAGE> 9
GOVERNMENT REGULATION AND THE BURDENS OF COMPLIANCE
Federal and state governments regulate various aspects of the Company's
business. The development and operation of health care facilities and the
provision of health care services are subject to federal, state, and local
licensure, certification, and inspection laws that regulate, among other
matters, the number of licensed beds, the provision of services, the
distribution of pharmaceuticals, billing practices and policies, equipment,
staffing (including professional licensing), operating policies and procedures,
fire prevention measures, environmental matters, and compliance with building
and safety codes. Failure to comply with these laws and regulations could result
in the denial of reimbursement, the imposition of fines, temporary suspension of
admission of new patients, suspension or decertification from the Medicare
programs, restrictions on the ability to acquire new facilities or expand
existing facilities, and, in extreme cases, the revocation of a community's
license or closure of a community. There can be no assurance that federal,
state, or local governments will not impose additional restrictions on the
Company's activities that could materially adversely affect the Company.
The Balanced Budget Act ("BBA") of 1997, Public Law 105-33, included
sweeping changes to Medicare and Medicaid, significantly reducing rates of
increase for payments to home health agencies and skilled nursing facilities.
Under the BBA, beginning in the year 2001, skilled nursing facilities will no
longer be reimbursed under a cost based system. A prospective payment system
under which facilities are reimbursed on a per diem basis will be phased in over
the next three years. The BBA also requires the Secretary of Health and Human
Services to establish and implement a prospective payment system for home health
services for cost reporting periods beginning on and after October 1, 1999. The
Company believes that the phase-in period will allow it to make timely operating
adjustments appropriate under the new system, but does not know what effect
these changes will have on skilled nursing and home health operations.
Approximately 7.7% of the Company's total revenues for the three months ended
March 31, 1998 and approximately 10.6%, 7.9%, and 8.8% of the Company's total
revenues for the years ended December 31, 1997, 1996, and 1995, respectively,
were attributable to Medicare, including Medicare-related private co-insurance.
Many states, including several of the states in which the Company currently
operates, control the supply of licensed skilled nursing beds and home health
care agencies through certificate of need ("CON") programs. Presently, state
approval is required for the construction of new health care communities, the
addition of licensed beds, and certain capital expenditures at such communities,
as well as the opening of a home health care agency. To the extent that a CON or
other similar approval is required for the acquisition or construction of new
facilities, the expansion of the number of licensed beds, services, or existing
communities, or the opening of a home health care agency, the Company could be
adversely affected by the failure or inability to obtain such approval, changes
in the standards applicable for such approval, and possible delays and expenses
associated with obtaining such approval. In addition, in most states the
reduction of the number of licensed beds or the closure of a community requires
the approval of the appropriate state regulatory agency and, if the Company were
to seek to reduce the number of licensed beds at, or to close, a community, the
Company could be adversely affected by a failure to obtain or a delay in
obtaining such approval.
Federal and state anti-remuneration laws, such as "anti-kickback" laws,
govern certain financial arrangements among health care providers and others who
may be in a position to refer or recommend patients to such providers. These
laws prohibit, among other things, certain direct and indirect payments that are
intended to induce the referral of patients to, the arranging for services by,
or the recommending of, a particular provider of health care items or services.
Federal anti-kickback laws have been broadly interpreted to apply to certain
contractual relationships between health care providers and sources of patient
referral. Similar state laws vary, are sometimes vague, and seldom have been
interpreted by courts or regulatory agencies. Violation of these laws can result
in loss of licensure, civil and criminal penalties, and exclusion of health care
providers or suppliers from participation in the Medicare and Medicaid programs.
There can be no assurance that such laws will be interpreted in a manner
consistent with the practices of the Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state, and
local laws exist that also may require modifications to existing and planned
communities to
8
<PAGE> 10
create access to the properties by disabled persons. Although the Company
believes that its communities are substantially in compliance with present
requirements or are exempt therefrom, if required changes involve a greater
expenditure than anticipated or must be made on a more accelerated basis than
anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
POTENTIAL FOR ENVIRONMENTAL LIABILITY
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 the 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 of
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.
LIABILITY AND INSURANCE
The provision of personal and health care services entails an inherent risk
of liability. In recent years, participants in the health care services industry
have become subject to an increasing number of lawsuits alleging negligence or
related legal theories, many of which involve large claims and result in the
incurrence of significant defense costs. Moreover, assisted living residences
offer residents a greater degree of independence in their daily living than
skilled nursing facilities. This increased level of independence may subject the
resident and the Company to certain risks that would be reduced in more
institutionalized settings. The Company currently maintains liability insurance
in amounts it believes are sufficient to cover such claims based on the nature
of the risks, its historical experience, and industry standards. There can be no
assurance, however, that claims in excess of the Company's insurance or claims
not covered by the Company's insurance, such as claims for punitive damages,
will not arise. A claim against the Company not covered by, or in excess of, the
Company's insurance could have a material adverse effect upon the Company. In
addition, the Company's 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.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority, without action by the
shareholders, to issue up to 5,000,000 shares of preferred stock and to fix the
rights and preferences of such shares. This authority, together with certain
provisions of the Company's Charter (including provisions that implement
staggered terms for directors, limit shareholder ability to call a shareholders'
meeting or to remove directors, and require a supermajority vote to amend
certain provisions of the Charter), may delay, deter, or prevent a change in
control of the Company. In addition, as a Tennessee corporation, the Company is
subject to the provisions of the Tennessee Business Combination Act and the
Tennessee Greenmail Act, each of which may be deemed to have anti-takeover
effects and may delay, deter, or prevent a takeover attempt that might be
considered by the shareholders to be in their best interests. In the event of
any Change in Control of the Company, each of the holders of the Convertible
Debentures will have the right, at such holder's option and subject to certain
conditions and restrictions, to require the Company to repurchase all or any
part of such holder's Convertible
9
<PAGE> 11
Debentures. The right to require the Company to repurchase Convertible
Debentures may delay, deter, or prevent a change in control of the Company. See
"Description of Capital Stock -- Certain Provisions of the Charter, Bylaws, and
Tennessee Law."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock. Approximately
68.5% of the outstanding shares of Common Stock are "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act and may not
be resold in the public markets unless registered under the Securities Act or
pursuant to an exemption, such as the safe harbor provided by Rule 144. All of
such restricted shares can be sold in the public market pursuant to Rule 144,
subject to the volume and resale restrictions of such rule. In addition, certain
holders of such restricted shares have certain contractual registration rights
with respect thereto. See "Description of Capital Stock -- Registration Rights."
Holders of the Convertible Debentures have the right to convert such
Convertible Debentures into shares of Common Stock at the Conversion Price. If
holders elect to convert all of the Convertible Debentures into shares of Common
Stock, the Company would issue an additional 5,750,000 shares of Common Stock,
all of which would be freely tradeable.
POSSIBLE PRICE VOLATILITY OF THE SECURITIES
The market price of the Securities offered from time to time hereby could
be subject to significant fluctuations in response to various factors and
events, including the liquidity of the market for the Securities offered from
time to time 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 of particular companies. These market fluctuations
also may adversely affect the market price of the Securities.
FORWARD-LOOKING STATEMENTS
This Prospectus, any accompanying Prospectus Supplement, and the Company's
filings under the Exchange Act contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby. Those
statements include, but may not be limited to, the discussions of the Company's
operating and growth strategy, including its development plans and possible
acquisitions. Investors are cautioned that all forward-looking statements
involve risks and uncertainties including, without limitation, the factors set
forth under the caption "Risk Factors" in this Prospectus. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this Prospectus, any accompanying Prospectus Supplement, or the
Company's filings under the Exchange Act will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein or therein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. In addition, 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 that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
10
<PAGE> 12
THE COMPANY
GENERAL
The Company is a national senior living and health care services provider
offering a broad range of care and services to seniors, including independent
living, assisted living, skilled nursing, and home health care services.
Established in 1978, the Company currently operates 26 senior living communities
in 13 states, consisting of 14 owned communities, five leased communities, and
seven managed communities, with an aggregate capacity for approximately 7,400
residents. The Company also owns 11 home health care agencies and manages four
home health care agencies for third parties. At March 31, 1998, the Company's
owned communities had a stabilized occupancy rate of 93%, its leased communities
had a stabilized occupancy rate of 93%, and its managed communities had a
stabilized occupancy rate of 96%. Approximately 89.4% and 92.3% of the Company's
total revenues for the year ended December 31, 1997 and the three months ended
March 31, 1998, respectively, were derived from private pay sources.
Since 1992, the Company has experienced significant growth, primarily
through the acquisition of senior living communities. The Company's revenues
have grown from $17.8 million in 1992 to $94.2 million in 1997, an annual growth
rate of 40%. During the same period, the Company's income from operations has
grown from $2.3 million to $18.1 million, an annual growth rate of 51%. The
Company intends to continue its growth by establishing senior living networks
throughout the United States through a combination of (i) selective acquisitions
of senior living communities, including CCRCs and assisted living residences;
(ii) development of assisted living residences, including special living units
and programs for residents with Alzheimer's and other forms of dementia;(iii)
expansion of existing communities; and (iv) selective development and
acquisition of home health care agencies. The Company is currently developing 36
assisted living residences, with an estimated aggregate capacity for
approximately 3,500 residents, is expanding or is planning to commence
expansions at five of its existing communities to add capacity to accommodate a
total of approximately 400 additional residents.
The Company was incorporated under the laws of the State of Tennessee in
February 1997 as a wholly-owned subsidiary of the Predecessor in anticipation of
the Reorganization and the Company's initial public offering. The Company's
principal executive offices are located at 111 Westwood Place, Suite 402,
Brentwood, Tennessee 37027, and its telephone number at that address is (615)
221-2250.
11
<PAGE> 13
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
certain affiliated partnerships and corporations of the Company (the
"Predecessor Entities"), the Predecessor, and the Company. The ratios as of and
for the years ended December 31, 1993 and 1994 and the three months ended March
31, 1995 are derived from the combined financial statements of the Predecessor
Entities. The ratios as of and for the nine months ended December 31, 1995 and
as of and for the year ended December 31, 1996 are derived from the consolidated
financial statements of the Predecessor. The ratios as of and for the three
months ended March 31, 1997, as of and for the year ended December 31, 1997, and
as of and for the three months ended March 31, 1998 are derived from the
consolidated financial statements of the Company and include the operations of
the Predecessor for the period January 1, 1997 though May 28, 1997 and the
Company for the period May 29, 1997 through March 31, 1998.
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
--------------------------------- ----------------------------------------------------------
PREDECESSOR ENTITIES PREDECESSOR COMPANY
--------------------------------- ------------------------ ------------------------------
YEARS ENDED YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, THREE MONTHS ENDED DECEMBER 31, MARCH 31,
------------ MARCH 31, NINE MONTHS ENDED ------------ --------------------
1993 1994 1995 DECEMBER 31, 1995 1996 1997 1997 1998
---- ---- ------------------ ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1)(2)............. 1.2x 1.0x 0.5x 1.4x 1.4x 1.3x 1.3x 1.2x
</TABLE>
- ---------------
(1) The ratios of fixed earnings to combined fixed charges and preferred stock
dividends is identical to the ratios of earnings to fixed charges for each
period listed because the Company has not yet issued any shares of Preferred
Stock.
(2) For purposes of this computation, earnings are defined as income (loss)
before income taxes and extraordinary item and fixed charges (excluding
capitalized interest). Fixed charges are defined as interest expensed and
capitalized, amortization of capitalized financing costs, and the portion of
operating lease rental expense that is representative of the interest
factor. Earnings were inadequate to cover fixed charges for the three months
ended March 31, 1995 by $1.2 million.
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement that accompanies this
Prospectus, the net proceeds from the sale of the Securities offered from time
to time hereby will be used to fund possible acquisitions of senior living
communities and businesses engaged in activities similar or complementary to the
Company's business, for the development and construction of additional assisted
living residences and expansions of the Company's existing communities, and for
general corporate purposes, including working capital.
12
<PAGE> 14
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of Preferred Stock, no par value per
share. Currently, 11,420,860 shares of Common Stock are issued and outstanding,
no shares of Preferred Stock are outstanding, and 815,500 shares of Common Stock
are reserved for issuance pursuant to outstanding stock options under the
Company's 1997 Stock Incentive Plan. In addition, an aggregate of 5,750,000
shares of Common Stock are reserved for issuance upon conversion of the
Convertible Debentures.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are not entitled to cumulative voting
in the election of directors, which means that the holders of a majority of the
shares voting for the election of directors can elect all of the directors then
standing for election by the holders of Common Stock. The holders of Common
Stock are entitled to share ratably in such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. The holders of Common Stock are entitled to
share ratably in any assets remaining after satisfaction of all prior claims
upon liquidation of the Company. The Company's Charter gives holders of Common
Stock no preemptive or other subscription or conversion rights, and there are no
redemption provisions with respect to such shares. All outstanding shares of
Common Stock are, and the shares offered hereby will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences, and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of holders of shares of any series of Preferred Stock that the Company
may designate and issue in the future.
The Common Stock is listed on the NYSE. The transfer agent and registrar
for the Common Stock is American Stock Transfer and Trust Company, New York, New
York.
PREFERRED STOCK
General
The following description of the Preferred Stock sets forth certain
anticipated general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement (which terms may be
different than those stated below) will be described in such Prospectus
Supplement. The description of certain provisions of the Preferred Stock set
forth below and in any Prospectus Supplement does not purport to be complete and
is subject to and qualified in its entirety by reference to the Company's
Charter and the Board of Directors' resolution relating to each series of the
Preferred Stock that will be filed with the Commission and incorporated by
reference to the Registration Statement of which this Prospectus is a part at or
prior to the time of the issuance of such series of Preferred Stock.
Under the Charter, the Board of Directors of the Company is authorized to
establish and issue, from time to time, up to 5,000,000 shares of Preferred
Stock, in one or more series, with such dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preference as shall be stated in the resolution providing for the issue of a
series of such stock, adopted, at any time or from time to time, by the Board of
Directors of the Company.
The Preferred Stock shall have the dividend, liquidation, redemption, and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
the dividend rate (or method of calculation), the dates on which dividends shall
be payable, and the dates from which dividends shall
13
<PAGE> 15
commence to cumulate, if any; (v) any redemption or sinking fund provisions;
(vi) any conversion rights; and (vii) any additional voting, dividend,
liquidation, redemption, sinking fund, and other rights, preferences,
privileges, limitations, and restrictions.
The Preferred Stock will, when issued, be fully paid and nonassessable and
will have no preemptive rights. Unless otherwise stated in a Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on a parity as to dividends and distributions
of assets with each other series of the Preferred Stock. The rights of the
holders of each series of Preferred Stock will be subordinate to those of the
Company's general creditors.
The Common Stock is listed on the NYSE. The current rules of the NYSE
effectively preclude the listing on the NYSE of any securities of an issuer that
has issued securities or taken other corporate action that would have the effect
of nullifying, restricting, or disparately reducing the per share voting rights
of holders of an outstanding class or classes of securities registered under
Section 12 of the Exchange Act. The Company does not intend to issue any
additional shares of stock that would make the Common Stock ineligible for
continued listing or cause the Common Stock to be delisted from the NYSE.
Dividend Rights
Unless otherwise stated in a Prospectus Supplement relating to a particular
series of the Preferred Stock, holders of shares of the Preferred Stock of each
series will be entitled to receive, when, as, and if declared by the Board of
Directors of the Company, out of funds of the Company legally available
therefor, cash dividends on such dates and at such rates as will be set forth
in, or as are determined by the method described in, the Prospectus Supplement
relating to such series of the Preferred Stock. Such rate may be fixed or
variable or both. Each such dividend will be payable to the holders of record as
they appear on the stock books of the Company on such record dates, fixed by the
Board of Directors of the Company, as specified in the Prospectus Supplement
relating to such series of Preferred Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Preferred Stock. If the Board
of Directors of the Company fails to declare a dividend payable on a dividend
payment date on any series of Preferred Stock for which dividends are
noncumulative, then the holders of such series of Preferred Stock will have no
right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company shall have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series are
declared payable on any future dividend payment dates. Dividends on the shares
of each series of Preferred Stock for which dividends are cumulative will accrue
from the date on which the Company initially issues shares of such series.
Unless otherwise stated in a Prospectus Supplement relating to a particular
series of the Preferred Stock, so long as the shares of any series of the
Preferred Stock shall be outstanding, unless (i) full dividends (including if
such Preferred Stock is cumulative, dividends for prior dividend periods) shall
have been paid or declared and set apart for payment on all outstanding shares
of the Preferred Stock of such series and all other classes and series of
Preferred Stock (other than Junior Stock, as defined below) and (ii) the Company
is not in default or in arrears with respect to the mandatory or optional
redemption or mandatory repurchase or other mandatory retirement of, or with
respect to any sinking or other analogous fund for, any shares of Preferred
Stock of such series or any shares of any other Preferred Stock of any class or
series (other than Junior Stock), the Company may not declare any dividends on
any shares of Common Stock or any other stock of the Company ranking as to
dividends or distributions of assets junior to such series of Preferred Stock
(the Common Stock and any such other stock being herein referred to as "Junior
Stock"), or make any payment on account of, or set apart money for, the
purchase, redemption, or other retirement of, or for a sinking or other
analogous fund for, any shares of Junior Stock or make any distribution in
respect thereof, whether in cash or property or in obligations or stock of the
Company, other than Junior Stock that is neither convertible into, nor
exchangeable or exercisable for, any securities of the Company other than Junior
Stock.
14
<PAGE> 16
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company,
voluntary or involuntary, the holders of each series of the Preferred Stock will
be entitled to receive out of the assets of the Company available for
distribution to shareholders, before any distribution of assets or payment is
made to the holders of Common Stock or any other shares of stock of the Company
ranking junior as to such distribution or payment to such series of Preferred
Stock, the amount set forth in the Prospectus Supplement relating to such series
of the Preferred Stock. Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the Company, the Preferred Stock of such series
and such other shares of Preferred Stock will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment to the holders of
the Preferred Stock of each series of the full preferential amounts of the
liquidating distribution to which they are entitled, the holders of each such
series of the Preferred Stock will be entitled to no further participation in
any distribution of assets by the Company.
If such payment shall have been made in full to all holders of shares of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes of stock ranking junior to the Preferred Stock
upon liquidation, dissolution, or winding up, according to their respective
rights and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with or
into any other corporation, or the sale, lease, or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution, or winding up of the Company.
Redemption
A series of the Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to such series. Shares of the Preferred Stock redeemed by the Company
will be restored to the status of authorized but unissued shares of Preferred
Stock of the Company.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or pro
rata (subject to rounding to avoid fractional shares) as may be determined by
the Company or by any other method as may be determined by the Company in its
sole discretion to be equitable. From and after the redemption date (unless the
Company defaults in the payment of the redemption price plus accumulated and
unpaid dividends, if any), dividends shall cease to accumulate on the shares of
the Preferred Stock called for redemption and all rights of the holders thereof
(except the right to receive the redemption price plus accumulated and unpaid
dividends, if any) shall cease.
So long as any dividends on shares of any series of the Preferred Stock or
any other series of Preferred Stock of the Company ranking on a parity as to
dividends and distributions of assets with such series of the Preferred Stock
are in arrears, no shares of any such series of the Preferred Stock or such
other series of Preferred Stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares; provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares of Preferred Stock of such series or of shares of
such other series of Preferred Stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Preferred Stock
of such series and, unless the full cumulative dividends on all outstanding
shares of any cumulative Preferred Stock of such series and any other stock of
the Company ranking on a parity with such series as to dividends and upon
liquidation shall have been paid or contemporaneously are declared and paid for
all past dividend periods, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation).
15
<PAGE> 17
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of shares of Preferred
Stock to be redeemed at the address shown on the stock transfer books of the
Company.
Conversion Rights
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted (mandatorily or otherwise) into shares of Common
Stock or another series of Preferred Stock will be set forth in the Prospectus
Supplement relating thereto.
Voting Rights
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, the holders of the Preferred Stock will not be entitled to vote for any
purpose.
Unless otherwise stated in a Prospectus Supplement relating to a particular
series of the Preferred Stock, so long as any shares of Preferred Stock remain
outstanding, the Company shall not, without the consent or the affirmative vote
of the holders of a majority of the shares of each series of Preferred Stock
outstanding at the time given in person or by proxy, either in writing or at a
meeting (such series voting separately as a class) (i) authorize, create, or
issue, or increase the authorized or issued amount of, any class or series of
stock ranking prior to such series of Preferred Stock with respect to payment of
dividends, or the distribution of assets on liquidation, dissolution, or winding
up or reclassifying any authorized stock of the Company into any such shares, or
create, authorize, or issue any obligation or security convertible into or
evidencing the right to purchase any such shares and (ii) to repeal, amend, or
otherwise change any of the provisions applicable to the Preferred Stock of such
series in any manner that materially and adversely affects the powers,
preferences, voting power, or other rights or privileges of such series of the
Preferred Stock or the holders thereof; provided, however, that any increase in
the amount of the authorized Preferred Stock or the creation or issuance of
other series of Preferred Stock, or any increase in the amount of authorized
shares of such series or of any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Preferred Stock of such series, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges, or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of the Preferred Stock shall have been
redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.
Transfer Agent and Registrar
The transfer agent, dividend and redemption price disbursement agent, and
registrar for shares of each series of the Preferred Stock will be set forth in
the Prospectus Supplement relating thereto.
CERTAIN PROVISIONS OF THE CHARTER, BYLAWS, AND TENNESSEE LAW
General
The provisions of the Charter, the Bylaws, and Tennessee statutory law
described in this section may delay or make more difficult acquisitions or
changes of control of the Company that are not approved by the Board of
Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as an
independent, publicly-owned company, to develop its business in a manner that
will foster its long-term growth without the disruption of the threat of a
takeover not deemed by the Board of Directors to be in the best interests of the
Company and its shareholders.
Directors
The Bylaws provide that the number of directors shall be no fewer than
three nor more than fifteen, with the exact number to be established by the
Board of Directors and subject to change from time to time as
16
<PAGE> 18
determined by the Board of Directors. Vacancies on the Board of Directors
(including vacancies created by an increase in the number of directors) may be
filled by the Board of Directors, acting by a majority of the remaining
directors then in office, or by a plurality of the votes cast by the
shareholders at a meeting at which a quorum is present. Officers are elected
annually by and serve at the pleasure of the Board of Directors.
The Charter and Bylaws provide that the Board of Directors is divided into
three classes of as nearly equal size as possible, and the term of office of
each class expires in consecutive years so that each year only one class is
elected. The Charter also provides that directors may be removed only for cause
and only by (i) the affirmative vote of the holders of a majority of the voting
power of all the shares of the Company's capital stock then entitled to vote in
the election of directors, voting together as a single class, unless the vote of
a special voting group is otherwise required by law; or (ii) the affirmative
vote of a majority of the entire Board of Directors then in office. The overall
effect of these provisions in the Company's Charter and Bylaws may be to render
more difficult a change in control of the Company or the removal of incumbent
management.
Advance Notice for Shareholder Proposals or Making Nominations at Meetings
The Bylaws establish an advance notice procedure for shareholder proposals
to be brought before a meeting of shareholders of the Company and for
nominations by shareholders of candidates for election as directors at an annual
meeting or a special meeting at which directors are to be elected. Subject to
any other applicable requirements, only such business may be conducted at a
meeting of shareholders as has been brought before the meeting by, or at the
direction of, the Board of Directors, or by a shareholder who has given to the
Secretary of the Company timely written notice, in proper form, of the
shareholder's intention to bring that business before the meeting. The presiding
officer at such meeting has the authority to make such determinations. Only
persons who are selected and recommended by the Board of Directors, or the
committee of the Board of Directors designated to make nominations, or who are
nominated by a shareholder who has given timely written notice, in proper form,
to the Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of the Company.
To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of the Company not later than 120
days in advance of the anniversary date of the Company's proxy statement for the
previous year's annual meeting or, in the case of special meetings, at the close
of business on the tenth day following the date on which notice of such meeting
is first given to shareholders.
The notice of any shareholder proposal or nomination for election as
director must set forth various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on the Company's books (if they so appear) and the class and number
of shares of the Company's capital stock that are beneficially owned by them.
Amendment of the Bylaws and Charter
The Bylaws provide that a majority of the members of the Board of Directors
who are present at any regular or special meeting or, subject to greater voting
requirements imposed by the Charter, the holders of a majority of the voting
power of all shares of the Company's capital stock represented at a regular or
special meeting have the power to amend, alter, change, or repeal the Bylaws.
Any proposal to amend, alter, change, or repeal provisions of the Charter
relating to staggered terms for directors, and limitations on the ability of
shareholders to call a shareholders' meeting or to remove directors require
approval by the affirmative vote of both a majority of the members of the Board
of Directors then in office and the holders of three-fourths of the voting power
of all of the shares of the Company's capital stock entitled to vote on the
amendments. Other amendments to the Charter require the affirmative vote of both
a majority of the members of the Board of Directors then in office and the
holders of a majority of the voting power of all of the shares of the Company's
capital stock entitled to vote on the amendments, with shareholders entitled to
dissenters' rights as a result of the Charter amendment voting together as a
single class. Shareholders entitled to dissenters' rights as a result of a
Charter amendment are those whose rights
17
<PAGE> 19
would be materially and adversely affected because the amendment (i) alters or
abolishes a preferential right of the shares; (ii) creates, alters, or abolishes
a right in respect of redemption; (iii) alters or abolishes a preemptive right;
(iv) excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or (v) reduces the number of
shares held by such holder to a fraction if the fractional share is to be
acquired for cash. In general, however, under the TBCA no shareholder is
entitled to dissenters' rights if the security he or she holds is listed on a
national securities exchange, such as the NYSE.
Anti-Takeover Legislation
The Tennessee Business Combination Act (the "Combination Act") provides,
among other things, that any corporation to which the Combination Act applies,
including the Company, shall not engage in any "business combination" with an
"interested shareholder" for a period of five years following the date that such
shareholder became an interested shareholder unless prior to such date the board
of directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder. The Combination Act defines "business combination," generally, to
mean any: (i) merger or consolidation; (ii) share exchange; (iii) sale, lease,
exchange, mortgage, pledge, or other transfer (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder; (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder. The Combination Act defines "interested shareholder,"
generally, to mean any person who is the beneficial owner, either directly or
indirectly, of 10% or more of any class or series of the outstanding voting
stock, or any affiliate or associate of the corporation who has been the
beneficial owner, either directly or indirectly, of 10% or more of the voting
power of any class or series of the corporation's stock at any time within the
five year period preceding the date in question. Consummation of a business
combination that is subject to the five-year moratorium is permitted after such
period if the transaction (i) complies with all applicable charter and bylaw
requirements and applicable Tennessee law and (ii) is approved by at least
two-thirds of the outstanding voting stock not beneficially owned by the
interested shareholder, or when the transaction meets certain fair price
criteria. The fair price criteria include, among others, the requirement that
the per share consideration received in any such business combination by each of
the shareholders is equal to the highest of (i) the highest per share price paid
by the interested shareholder during the preceding five-year period for shares
of the same class or series plus interest thereon from such date at a treasury
bill rate less the aggregate amount of any cash dividends paid and the market
value of any dividends paid other than in cash since such earliest date, up to
the amount of such interest; (ii) the highest preferential amount, if any, such
class or series is entitled to receive on liquidation; or (iii) the market value
of the shares on either the date the business combination is announced or the
date when the interested shareholder reaches the 10% threshold, whichever is
higher, plus interest thereon less dividends as noted above.
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested shareholders of the corporation. The Company has elected not
to make the Acquisition Act applicable to the Company. No assurance can be given
that such election, which must be expressed in a charter or bylaw amendment,
will not be made in the future.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned such securities for less than two years,
unless such purchase has been approved by the affirmative vote of a majority of
the outstanding shares of each class of
18
<PAGE> 20
voting stock issued by the Company or the Company makes an offer of at least
equal value per share to all holders of shares of such class.
The effect of the Combination Act, the Acquisition Act, and the Greenmail
Act may be to render more difficult a change of control of the Company.
REGISTRATION RIGHTS
Certain beneficial holders of shares of Common Stock issued pursuant to the
Reorganization have contractual rights with respect to the registration of the
sale thereof. Beginning May 30, 1998, holders of shares of Common Stock issued
in the Reorganization that may not otherwise be sold pursuant to Rule 144 of the
Securities Act will be entitled to two demand registrations upon the written
demand to the Company to register the sale of 25% or more of such shares;
provided, however, that in no event will any holder of such shares participating
in such demand registrations be permitted to sell in excess of 20% of such
holder's shares. In addition, until May 30, 1999, holders of shares of Common
Stock issued in the Reorganization that may not otherwise be sold pursuant to
Rule 144 of the Securities Act may require the Company to include all or a
portion of such holder's Reorganization Shares in a registration statement filed
by the Company for its own account to issue Common Stock for cash, provided,
among other conditions, that the managing underwriter (if any) of such offering
has the right, subject to certain conditions, to limit the number of such shares
or other shares of Common Stock subject to registration rights granted by the
Company included in such registration statement. In general, all fees, costs,
and expenses of such registrations (other than the underwriting commissions,
dealers' fees, brokers' fees, and concessions applicable to Common Stock) will
be borne by the Company.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an indenture (the "Indenture")
to be executed by the Company and a specified trustee (the "Trustee"), a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summaries of certain anticipated provisions
of the Indenture and the Debt Securities do not purport to be complete. The
particular terms of the Debt Securities offered by any Prospectus Supplement
(which terms may be different than those stated below) and the extent, if any,
to which such general provisions may apply to the Debt Securities so offered
will be described in the Prospectus Supplement relating to such Debt Securities.
Accordingly, for a description of the terms of a particular issue of Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and the following description. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Indenture. Whenever
particular sections or defined terms of the Indenture are referred to, it is
intended that such sections or defined terms shall be incorporated herein by
reference.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provides that Debt Securities may
be issued from time to time in one or more series. The Prospectus Supplement
will describe certain terms of any Debt Securities offered thereby, including
(i) the title of such Debt Securities; (ii) any limit on the aggregate principal
amount of such Debt Securities and their purchase price; (iii) the date or dates
on which such Debt Securities will mature; (iv) the rate or rates per annum (or
manner in which interest is to be determined) at which such Debt Securities will
bear interest, if any, and the date from which such interest, if any, will
accrue; (v) the dates on which such interest, if any, on such Debt Securities
will be payable and the regular record dates for such interest payment dates;
(vi) any mandatory or optional sinking fund or analogous provisions; (vii)
additional provisions, if any, for the defeasance of such Debt Securities;
(viii) the date, if any, after which and the price or prices at which such Debt
Securities may, pursuant to any optional or mandatory redemption or repayment
provisions, be redeemed and the other detailed terms and provisions of any such
optional or mandatory redemption or repayment provisions; (ix) whether such Debt
Securities are to be issued in whole or in part in registered form represented
by one or more registered global securities (a "Registered Global Security")
and, if so, the
19
<PAGE> 21
identity of the depository for such Registered Global Security or Debt
Securities; (x) certain applicable United States federal income tax
consequences; (xi) any provisions relating to security for payments due under
such Debt Securities; (xii) any provisions relating to the conversion or
exchange of such Debt Securities into or for shares of Common Stock or Debt
Securities of another series; (xiii) any provisions relating to the ranking of
such Debt Securities in right of payment as compared to other obligations of the
Company; (xiv) the denomiations in which such Debt Securities are authorized to
be issued; (xv) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; and (xvi) any other
specific term of such Debt Securities, including any additional events of
default or covenants provided for with respect to such Debt Securities, and any
terms that may be required by or advisable under applicable laws or regulations.
The Indenture does not contain any provision requiring the Company to
repurchase the Debt Securities of any series at the option of the holders
thereof in the event of a leveraged buyout, recapitalization or similar
restructuring of the Company, even though the Company's creditworthiness and the
market value of the Debt Securities may decline significantly as a result of
such transaction. The Indenture does not protect holders of the Debt Securities
of any series against any decline in credit quality, whether resulting from any
such transaction or from any other cause. The Company may at any time buy Debt
Securities of any series on the open market.
CONVERSION RIGHTS
The terms, if any, on which Debt Securities of any series may be exchanged
for or converted into shares of Common Stock or Debt Securities of another
series will be set forth in the Prospectus Supplement relating thereto.
The conversion price will be subject to adjustment under certain
conditions, including (i) the payment of dividends (and other distributions) in
shares of Common Stock on any class of capital stock of the Company; (ii)
subdivisions, combinations, and reclassifications of the Common Stock; (iii) the
issuance to all or substantially all holders of Common Stock of rights or
warrants entitling them to subscribe for or purchase shares of Common Stock at a
price per share (or having a conversion price per share) less than the then
current market price; and (iv) distributions to all or substantially all holders
of shares of Common Stock of evidences of indebtedness or assets (including
securities, but excluding those rights, warrants, dividends, and distributions
referred to above and dividends and distributions not prohibited under the terms
of the Indenture) of the Company, subject to the limitation that all adjustments
by reason of any of the foregoing would not be made until they result in a
cumulative change in the conversion price of at least 1.0%. No adjustments in
the conversion price of the Debt Securities will be made for regular quarterly
or other periodic or recurring cash dividends or distributions. In the event the
Company shall effect any capital reorganization or reclassification of its
shares of Common Stock or shall consolidate or merge with or into any trust or
corporation (other than a consolidation or merger in which the Company is the
surviving entity) or shall sell or transfer substantially all of its assets to
any other trust or corporation, the holders of the Debt Securities of any series
shall, if entitled to convert such Debt Securities at any time after such
transaction, receive upon conversion thereof, in lieu of each share of Common
Stock into which the Debt Securities of such series would have been convertible
prior to such transaction, the same kind and amount of stock and other
securities, cash, or property as shall have been issuable or distributable in
connection with such transaction with respect to each share of Common Stock.
A conversion price adjustment made according to the provisions of the Debt
Securities of any series (or the absence of provisions for such an adjustment)
might result in a constructive distribution to the holders of Debt Securities of
such series or holders of shares of Common Stock that would be subject to
taxation as a dividend. The Company may, at its option, make such reductions in
the conversion price, in addition to those set forth above, as the Board of
Directors of the Company deems advisable to avoid or diminish any income tax to
holders of shares of Common Stock resulting from any dividend or distribution of
shares of Common Stock (or rights to acquire shares of Common Stock) or from any
event treated as such for income tax purposes or for any other reason. The Board
of Directors will also have the power to resolve any ambiguity or
20
<PAGE> 22
correct any error in the adjustments made pursuant to these provisions and its
actions in so doing shall be final and conclusive.
Fractional shares of Common Stock will not be issued upon conversion but,
in lieu thereof, the Company will pay a cash adjustment based upon market price.
The holders of Debt Securities of any series at the close of business on an
interest payment record date shall be entitled to receive the interest payable
on such Debt Securities on the corresponding interest payment date
notwithstanding the conversion thereof. Debt Securities surrendered for
conversion during the period from the close of business on any record date for
the payment of interest to the opening of business on the corresponding interest
payment date, however, must be accompanied by payment of an amount equal to the
interest payable on such interest payment date. Holders of Debt Securities of
any series who convert Debt Securities of such series on an interest payment
date will receive the interest payable by the Company on such date and need not
include payment in the amount of such interest upon surrender of such Debt
Securities for conversion. Except as set forth above, no payment or adjustment
is to be made on conversion for interest accrued on the Debt Securities of any
series or for dividends on shares of Common Stock.
OPTIONAL REDEMPTION
The Debt Securities of any series may be subject to redemption as permitted
or required by the terms of such Debt Securities on at least 30 days' prior
notice by mail.
SUBORDINATION
The indebtedness evidenced by the Debt Securities of any series may be
subordinated and junior in right of payment to the extent set forth in the
Indenture to the prior payment in full of amounts then due or thereafter created
on all Senior Indebtedness (as defined). The terms, if any, on which the Debt
Securities of any series may be subordinated and junior in right of payment to
the prior payment in full of amounts then due or thereafter created on all
Senior Indebtedness will be set forth in the Prospectus Supplement relating
thereto. No payment shall be made by the Company on account of principal of (or
premium, if any) or interest on the Debt Securities of any series or on account
of the purchase or other acquisition of Debt Securities of any series, if there
shall have occurred and be continuing a default with respect to any Senior
Indebtedness permitting the holders to accelerate the maturity thereof or with
respect to the payment of any Senior Indebtedness, and such default shall be the
subject of a judicial proceeding or the Company shall have received notice of
such default from any holder of Senior Indebtedness, 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, payment of principal
of (and premium, if any) and interest on the Debt Securities of any series 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 Debt Securities 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 Debt Securities of any series or the Trustee are entitled to
receive or retain any assets so distributed in respect of the Debt Securities.
By reason of this provision, in the event of insolvency, holders of the Debt
Securities of any series may recover less, ratably, than holders of Senior
Indebtedness.
"Senior Indebtedness" is defined to mean the principal, premium, if any,
and interest on, and all other amounts payable under or in respect of,
Indebtedness of the Company (other than Indebtedness owed to a subsidiary of the
Company, Indebtedness of the Company that is expressly pari passu with the Debt
Securities, or Indebtedness that is expressly subordinated to the Debt
Securities). There is no limit on the amount of Senior Indebtedness that the
Company may incur.
21
<PAGE> 23
"Indebtedness" with respect to any Person is defined to mean:
(i) all indebtedness for money borrowed whether or not evidenced by a
promissory note, draft, or similar instrument;
(ii) that portion of obligations with respect to any lease that is
properly classified as a liability on a balance sheet in accordance with
generally accepted accounting principles;
(iii) notes payable and drafts accepted representing extensions of
credit;
(iv) any balance owed for all or any part of the deferred purchase
price of property or services, which purchase price is due more than six
months from the date of incurrence of the obligation in respect thereof
(except any such balance that constitutes (a) a trade payable or an accrued
liability arising in the ordinary course of business or (b) a trade draft
or note payable issued in the ordinary course of business in connection
with the purchase of goods or services), if and to the extent such debt
would appear as a liability upon a balance sheet of such person prepared in
accordance with generally accepted accounting principles;
(v) tenant deposits;
(vi) any debt of others described in the preceding clauses (i) though
(v) that such person has guaranteed or for which it is otherwise liable;
and
(vii) any deferral, amendment, renewal, extension, supplement, or
refunding of any of the foregoing indebtedness described in any of the
preceding clauses (i) through (vi);
provided, however, that, in computing the "Indebtedness" of any Person, there
shall be excluded any particular indebtedness if, upon or prior to the maturity
thereof and at the time of determination of such indebtedness, there shall have
been deposited with a depositary in trust money (or evidence of indebtedness if
permitted by the instrument creating such indebtedness) in the necessary amount
to pay, redeem, or satisfy such indebtedness as it becomes due, and the amount
so deposited shall not be included in any computation of the assets of such
Person.
DIVIDENDS, DISTRIBUTIONS, AND ACQUISITIONS OF COMMON STOCK
The Company will not (i) declare or pay any dividend, or make any
distribution on its Common Stock to its shareholders (other than dividends or
distributions payable in Common Stock of the Company) 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 Debt Securities of any series or any other convertible
indebtedness of the Company that is neither secured nor subordinated to the Debt
Securities of any series), if at the time of such action an Event of Default has
occurred and is continuing or would exist immediately after such action. The
foregoing, however, will not prevent (i) the payment of any dividend within 60
days after the date of declaration when the payment would have complied with the
foregoing provision on the date of declaration; or (ii) the Company's retirement
of any of its Common Stock by exchange for, or out of the proceeds of the
substantially concurrent sale of, other Common Stock.
ADDITIONAL COVENANTS
Any additional covenants of the Company with respect to a series of the
Debt Securities will be set forth in the Prospectus Supplement relating thereto.
MODIFICATION OF THE INDENTURE
Under the Indenture, with certain exceptions, the rights and obligations of
the Company with respect to any series of Debt Securities and the rights of
Holders of such series may only be modified by the Company and the Trustee with
the consent of the Holders of at least a majority in principal amount of the
outstanding Debt Securities of such series. Without the consent of each Holder
of any Debt Securities affected, however,
22
<PAGE> 24
an amendment, waiver, or supplement may not (i) reduce the principal of, or rate
of interest on, any Debt Securities; (ii) change the stated maturity date of the
principal of, or any installment of interest on, any Debt Securities; (iii)
waive a default in the payment of the principal amount of, or the interest on,
or any premium payable on redemption of, any Debt Securities; (iv) change the
currency for payment of the principal of, or premium or interest on, any Debt
Securities; (v) impair the right to institute suit for the enforcement of any
such payment when due; (vi) adversely affect any right to convert any Debt
Securities; (vii) reduce the amount of outstanding Debt Securities necessary to
consent to an amendment, supplement, or waiver provided for in the Indenture; or
(viii) modify any provisions of the Indenture relating to the modification and
amendment of the Indenture or waivers of past defaults, except as otherwise
specified.
EVENTS OF DEFAULT, NOTICE, AND WAIVER
Except as otherwise set forth in the accompanying Prospectus Supplement,
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 any
series of Debt Securities: (i) default in the payment of interest on the Debt
Securities of such series when due and payable, which continues for 30 days;
(ii) default in the payment of principal of (and premium, if any) on the Debt
Securities 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 Debt Securities of
such series that continues for 60 days after written notice as provided in the
Indenture; (iv) default under any bond, debenture or other Indebtedness (as
defined in the Indenture) of the Company or any subsidiary if (a) either (x)
such Event of Default results from the failure to pay any such Indebtedness at
maturity or (y) as a result of such Event of Default, the maturity of such
Indebtedness has been accelerated prior to its expressed maturity and such
acceleration shall not be rescinded or annulled or the accelerated amount paid
within ten days after notice to the Company of such acceleration, or such
Indebtedness having been discharged, and (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal or interest thereon, or the maturity of
which has been so accelerated, aggregates $10.0 million or more; 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 Debt
Securities of any series, either the Trustee or the Holders of a majority in
aggregate principal amount of the outstanding Debt Securities of such series may
declare the Debt Securities due and payable immediately.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any Default or Event of Default with respect to the Debt
Securities of any series, give to the Holders of Debt Securities notice of all
uncured Defaults and Events of Default known to it, but the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such Holders, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any of the Debt Securities of such series.
The Indenture provides that the Holders of a majority in aggregate
principal amount of the Debt Securities of any series then outstanding may
direct the time, method, and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Debt Securities of such series. The right of a
Holder to institute a proceeding with respect to the Indenture is subject to
certain conditions precedent including notice and indemnity to the Trustee, but
the Holder has an absolute right to receipt of principal of (and premium, if
any) and interest on such Holder's Debt Securities on or after the respective
due dates expressed in the Debt Securities, and to institute suit for the
enforcement of any such payments.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series then outstanding may on behalf of the Holders of all
Debt Securities of such series waive certain past defaults, except a default in
payment of the principal of (or premium, if any) or interest on any Debt
Securities of such series or in respect of certain provisions of the Indenture
that cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security of such series affected thereby.
23
<PAGE> 25
The Company will be required to furnish to the Trustee annually a statement
of certain officers of the Company stating whether or not they know of any
Default or Events of Default and, if they have knowledge of a Default or Event
of Default, a description of the efforts to remedy the same.
CONSOLIDATION, MERGER, SALE, OR CONVEYANCE
The Indenture provides that the Company may merge or consolidate with, or
sell or convey all, or substantially all, of its assets to any other trust or
corporation, provided that (i) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) shall be any entity
organized and existing under the laws of the United States or a state thereof or
the District of Columbia (although it may, in truth, be owned by a foreign
entity) and such entity shall expressly assume by supplemental indenture all of
the obligations of the Company under the Debt Securities of any series and the
Indenture; (ii) immediately after giving effect to such transactions, no Default
or Event of Default shall have occurred and be continuing; and (iii) the Company
shall have delivered to the Trustee an Officers' Certificate and opinion of
counsel, stating that the transaction and supplemental indenture comply with the
Indenture.
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in global form (the
"Global Securities"). The Global Securities will be deposited with a depository
(the "Depository"), or with a nominee for a Depository, identified in the
Prospectus Supplement. In such case, one or more Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding Debt Securities to be represented by
such Global Security or Securities. Unless and until it is exchanged in whole or
in part for Debt Securities in definitive form, a Global Security may not be
transferred except as a whole by the Depository for such Global Security to a
nominee of such Depository or by a nominee of such Depository to such Depository
or another nominee of such Depository or by such Depository or any such nominee
to a successor for such Depository or a nominee of such successor.
The specific material terms of the depository arrangement with respect to
any portion of a series of Debt Securities to be represented by a Global
Security will be described in the Prospectus Supplement related thereto. The
Company anticipates that the following provisions will apply to all depository
arrangements.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee as the
case may be, will be considered the sole owner or Holder of the Debt Securities
represented by such Global Security for all purposes under the Indenture;
provided, however, that for purposes of obtaining any consents or directions
required to be given by the Holders of the Debt Securities, the Company, the
Trustee, and its agents will treat a person as the holder of such principal
amount of Debt Securities as specified in a written statement of the Depository.
Principal, premium, if any, and interest payments, if any, on Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made directly to the owners of beneficial
interests of such Global Security, except as may be limited by the terms of the
resolution of the Board of Directors of the Company that authorizes such series
of Debt Securities.
The Company expects that the depository for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal, premium, if any,
or interest will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depository. The
Company also expects that payments by participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names," and will be the
responsibility of such participants.
If the Depository for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as Depository and a successor
Depository is not appointed by the Company within 90 days, the Company will
issue each Debt Security in definitive form to the beneficial owners thereof in
exchange for such Global Security. In addition, the Company may at any time and
in its sole discretion determine not to
24
<PAGE> 26
have any of the Debt Securities of a series represented by one or more Global
Securities and, in such event, will issue Debt Securities of such series in
definitive form in exchange for all of the Global Security or Securities
representing such Debt Securities.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York.
PLAN OF DISTRIBUTION
The Company may sell Securities in any of three ways: (i) directly to
investors; (ii) through underwriting syndicates represented by one or more
managing underwriters, or by one or more underwriters without a syndicate; or
(iii) through agents designated from time to time. The names of any underwriters
or agents of the Company involved in the sale of the Securities in respect of
which this Prospectus is being delivered and any applicable commissions or
discounts will be set forth in the Prospectus Supplement. The net proceeds to
the Company from each such sale will also be set forth in the Prospectus
Supplement.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may engage in transactions with or perform
services for the Company in the ordinary course of business.
LEGAL MATTERS
The validity of the Securities offered from time to time hereby will be
passed upon for the Company by Bass, Berry & Sims PLC, Nashville, Tennessee. H.
Lee Barfield II, a member of Bass, Berry & Sims PLC, is a director of the
Company. Mr. Barfield and his wife and children beneficially own 625,577 shares
of Common Stock.
EXPERTS
The Consolidated and Combined Financial Statements of American Retirement
Corporation and subsidiaries and American Retirement Communities, L.P. and its
consolidated entities as of December 31, 1997 and 1996, for each of the years
ended December 31, 1997 and 1996, for the three months ended March 31, 1995, and
the nine months ended December 31, 1995 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the Consolidated and
Combined Financial Statements contains an explanatory paragraph that refers to a
change in the presentation of the cost basis of financial information for
periods subsequent to a purchase business combination effected on April 1, 1995.
The Combined Financial Statements of Freedom Group, Inc. and subsidiaries
and Freedom Village of Holland, Michigan, a general partnership, as of December
31, 1997 and for the year then ended have been incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1997
Combined Financial Statements contains an explanatory paragraph that states that
the Company has entered into an agreement and plan of merger for the merger of
the Company with an unrelated party. The sale has not been finalized and no
adjustments to the combined financial statements have been made.
25
<PAGE> 27
======================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR 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 THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER TO, OR SOLICITATION
OF, ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
Risk Factors......................... 4
Forward-Looking Statements........... 10
The Company.......................... 11
Ratios of Earnings to Fixed
Charges............................ 12
Use of Proceeds...................... 12
Description of Capital Stock......... 13
Description of Debt Securities....... 19
Plan of Distribution................. 25
Legal Matters........................ 25
Experts.............................. 25
</TABLE>
======================================================
======================================================
AMERICAN RETIREMENT CORPORATION (LOGO)
SECURITIES
------------------------
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 estimated costs and expenses of the
Registrant in connection with the offering described in the Registration
Statement.
<TABLE>
<S> <C>
SEC registration fee........................................ $103,250
NYSE fee.................................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Blue Sky fees and expenses.................................. *
Transfer agent fees and expenses............................ *
Miscellaneous expenses...................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any director or officer against liability incurred in connection
with a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interest, or, in all other cases, that his or her conduct was
not opposed to the best interests of the corporation, and (iii) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the TBCA provides that no indemnification may
be made if the director or officer is adjudged to be liable to the corporation.
Similarly, the TBCA prohibits indemnification in connection with any proceeding
charging improper personal benefit to a director or officer, if such director or
officer is adjudged liable on the basis that a personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as a director or officer of a corporation, the TBCA mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court of competent jurisdiction, upon application, may order that a
director or officer be indemnified for reasonable expense if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, whether or not the standard
of conduct set forth above was met.
The Charter and Bylaws of the Company provide that the Company will
indemnify from liability, and advance expenses to, any present or former
director or officer of the Company to the fullest extent allowed by the TBCA, as
amended from time to time, or any subsequent law, rule, or regulation adopted in
lieu thereof. Additionally, the Charter provides that no director of the Company
will be personally liable to the Company or any of its shareholders for monetary
damages for breach of any fiduciary duty except for liability arising from (i)
any breach of a director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) any unlawful distributions, or (iv)
receiving any improper personal benefit.
The Company has purchased a directors and officers insurance policy
providing for $10.0 million in coverage for certain liabilities of the Company's
directors and officers. The policy expires in May 2000.
II-1
<PAGE> 29
The proposed form of the Underwriting Agreement to be filed as Exhibit 1 to
this Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company and its
controlling persons.
ITEM 16. EXHIBITS.
(a) The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement***
2.1 -- Limited Partnership Agreement of American Retirement
Communities, L.P., dated February 7, 1995, as amended April
1, 1995*
2.2 -- Articles of Share Exchange between American Retirement
Communities, L.P., and American Retirement Corporation,
dated March 31, 1995 (including attached Plan and Agreement
of Share Exchange)*
2.3 -- Reorganization Agreement, dated February 28, 1997*
4.1 -- Specimen Common Stock certificate*
4.2 -- Article 8 of the Charter of the Registrant*
4.3 -- Form of Indenture between the Company and IBJ Schroder Bank
and Trust Company, as Trustee, relating to the 5 3/4%
Convertible Subordinated Debentures Due 2002 of the
Company**
4.4 -- Form of Indenture between the Company and , as
Trustee, relating to the Debt Securities that are, among
other securities, the subject of this Registration
Statement***
5 -- Opinion of Bass, Berry & Sims PLC
12 -- Computation of ratios of earnings to fixed charges
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 5)
24 -- Power of Attorney (included on page II-4)
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-23197).
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-34339).
*** To be filed by amendment.
(b) Financial Statement Schedules
Not applicable
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
II-2
<PAGE> 30
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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this 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 this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that clauses (1)(i) and (1)(ii) do not apply if this
Registration Statement is on Form S-3, and the information required to be
included in the post-effective amendment by those clauses is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this 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
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 31
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 Brentwood, State of Tennessee, on this 29th day of
May, 1998.
AMERICAN RETIREMENT CORPORATION
By: /s/ W.E. SHERIFF
------------------------------------
W.E. Sheriff
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby constitutes and appoints W.E. Sheriff and George T. Hicks, and each of
them, with full power to act without the other, as his or her attorney-in-fact,
with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities (until revoked in writing)
to sign any and all amendments to this Registration Statement (including
post-effective amendments and amendments thereto), and any registration
statement relating to the same offering as this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and each of them full power and authority to do and
perform each and every act and thing, ratifying and confirming all that said
attorney-in-fact or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ W.E. SHERIFF Chairman and Chief Executive May 29, 1998
- ----------------------------------------------------- Officer (Principal Executive
W.E. Sheriff Officer)
/s/ GEORGE T. HICKS Executive Vice President -- May 29, 1998
- ----------------------------------------------------- Finance, Chief Financial
George T. Hicks Officer (Principal Financial
and Accounting Officer)
/s/ H. LEE BARFIELD II Director May 29, 1998
- -----------------------------------------------------
H. Lee Barfield II
/s/ JACK O. BOVENDER, JR. Director May 29, 1998
- -----------------------------------------------------
Jack O. Bovender, Jr.
/s/ FRANK M. BUMSTEAD Director May 29, 1998
- -----------------------------------------------------
Frank M. Bumstead
/s/ CHRISTOPHER J. COATES Director May 29, 1998
- -----------------------------------------------------
Christopher J. Coates
</TABLE>
II-4
<PAGE> 32
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director
- -----------------------------------------------------
Robin G. Costa
/s/ CLARENCE EDMONDS Director May 29, 1998
- -----------------------------------------------------
Clarence Edmonds
/s/ JOHN A. MORRIS, JR., M.D. Director May 29, 1998
- -----------------------------------------------------
John A. Morris, Jr., M.D.
/s/ DANIEL K. O'CONNELL Director May 29, 1998
- -----------------------------------------------------
Daniel K. O'Connell
/s/ NADINE C. SMITH Director May 29, 1998
- -----------------------------------------------------
Nadine C. Smith
/s/ LAWRENCE J. STUESSER Director May 29, 1998
- -----------------------------------------------------
Lawrence J. Stuesser
</TABLE>
II-5
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement***
2.1 -- Limited Partnership Agreement of American Retirement
Communities, L.P., dated February 7, 1995, as amended April
1, 1995*
2.2 -- Articles of Share Exchange between American Retirement
Communities, L.P., and American Retirement Corporation,
dated March 31, 1995 (including attached Plan and Agreement
of Share Exchange)*
2.3 -- Reorganization Agreement, dated February 28, 1997*
4.1 -- Specimen Common Stock certificate*
4.2 -- Article 8 of the Charter of the Registrant*
4.3 -- Form of Indenture between the Company and IBJ Schroder Bank
and Trust Company, as Trustee, relating to the 5 3/4%
Convertible Subordinated Debentures Due 2002 of the
Company**
4.4 -- Form of Indenture between the Company and , as
Trustee, relating to the Debt Securities that are, among
other securities, the subject of this Registration
Statement***
5 -- Opinion of Bass, Berry & Sims PLC
12 -- Computation of ratios of earnings to fixed charges
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of KPMG Peat Marwick LLP
23.3 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 5)
24 -- Power of Attorney (included on page II-4)
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-23197).
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-34339).
*** To be filed by amendment.
<PAGE> 1
Exhibit 5
[BASS, BERRY & SIMS PLC LETTERHEAD]
May 29, 1998
American Retirement Corporation
111 Westwood Place, Suite 402
Brentwood, Tennessee 37027
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as your counsel in connection with your preparation of a
Registration Statement on Form S-3 (the "Registration Statement") to be filed by
you with the Securities and Exchange Commission relating to up to $350,000,000
aggregate offering price of securities of the Company ("Securities"), consisting
of one or more series of debt securities (the "Debt Securities"), one or more
classes or series of shares of preferred stock, no par value per share (the
"Preferred Stock"), or shares of common stock, par value $.01 per share (the
"Common Stock").
In our capacity as your counsel in connection with such registration,
we are familiar with the action taken and proposed to be taken by the Company in
connection with the authorization and issuance of the Securities and, for
purposes of this opinion, have assumed such proceedings will be timely completed
in the manner presently proposed. In connection with this opinion, we have also
examined and relied upon such records, documents, certificates, and other
instruments as in our judgment are necessary or appropriate in order to express
the opinions hereinafter set forth and have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
Based on the foregoing and such other matters as we have deemed
relevant, we are of the opinion that:
1. When the issuance and sale of Common Stock by the Company has been
authorized, including any shares of Common Stock that may be
issuable pursuant to the conversion of any Debt Securities or
shares of Preferred Stock, and upon issuance, delivery, and
payment therefor in the manner contemplated by the Registration
Statement, such Common Stock will be validly issued, fully paid,
and nonassessable.
2. When the issuance and sale of any Debt Securities by the Company
has been authorized, when an indenture relating to such Debt
Securities (the "Indenture") shall have been duly executed and
delivered by the Company, and when such Debt
<PAGE> 2
Securities shall have been established by the Indenture, duly
authenticated by the trustee under the Indenture and executed
and delivered on behalf of the Company against payment therefor
in accordance with the terms of the Indenture and as contemplated
by the Registration Statement, such Debt Securities will be
validly issued and constitute valid and binding obligations of the
Company, subject to (a) the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance,
fraudulent transfer and other similar laws relating to or
affecting the rights of creditors and (b) general principles of
equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible
unavailability of specific performance, injunctive relief and
other equitable remedies), regardless of whether considered in a
proceeding at law or equity.
3. When the issuance and sale of Preferred Stock by the Company has
been authorized, when the relative rights, preferences and other
terms such Preferred Stock has been established in accordance with
the terms of the Company's Charter and applicable law, and upon
issuance, delivery, and payment therefor in the manner
contemplated by the Registration Statement, such Preferred Stock
will be validly issued, fully paid, and nonassessable.
To the extent that the obligations of the Company under an Indenture may be
dependent upon such matters, we assume for purposes of this opinion that the
trustee under the Indenture is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its organization; that the
trustee is duly qualified to engage in the activities contemplated by the
Indenture; that the Indenture has been duly authorized, executed, and delivered
by the trustee and constitutes the legally valid, binding, and enforceable
obligation of the trustee enforceable against the trustee in accordance with its
terms; that the trustee is in compliance, generally, with respect to acting as a
trustee under the Indenture, with all applicable laws and regulations; and that
the Trustee has the requisite organizational and legal power and authority to
perform its obligations under the Indenture.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
Exhibit 12
AMERICAN RETIREMENT CORPORATION
STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
of the Predecessor Entities, the Predecessor, and the Company. The ratios as of
and for the years ended December 31, 1993 and 1994 and the three months ended
March 31, 1995 are derived from the combined financial statements of the
Predecessor Entities. The ratios as of and for the nine months ended December
31, 1995 and as of and for the year ended December 31, 1996 are derived from the
consolidated financial statements of the Predecessor. The ratios as of and for
the three months ended March 31, 1997, as of and for the year ended December 31,
1997, and as of and for the three months ended March 31, 1998 are derived from
the consolidated financial statements of the Company and include the operations
of the Predecessor for the period January 1, 1997 through May 28, 1997 and the
Company for the period May 29, 1997 through March 31, 1998.
<TABLE>
<CAPTION>
Combined Consolidated
------------------------------ ----------------------------------------------------
Predecessor Entities Predecessor Company
------------------------------ ------------------------ --------------------------
Years Ended Years Ended Three Months Ended
December 31, Three Months Nine Months Ended December 31, March 31,
------------ Ended March 31, December 31, ------------- ------------------
1993 1994 1995 1995 1996 1997 1997 1998
---- ---- --------------- ----------------- ---- ---- --------- -------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) ..................... $ 714 $ 162 $(1,268) $3,296 $3,198 $(4,800) $ 975 $ 1,517
Income tax expense (benefit) ...... -- -- 20 55 (920) 4,340 0 0
Interest expense .................. 3,569 5,354 2,370 7,930 12,160 14,863 3,257 3,578
Portion of rent expense that is
representative of interest factor -- -- -- -- -- 3,405 528 1,685
Amortization of capitalized
financing costs .................. 262 326 124 499 686 328 34 220
Extraordinary item ................ -- -- -- -- 2,335 6,334 0 0
----- ----- ------- ------ ------ ------- ------ -------
Earnings .............................. 4,545 5,842 1,246 11,780 17,459 24,470 4,794 7,000
===== ===== ======= ====== ====== ======= ====== =======
Interest expense ...................... 3,569 5,354 2,370 7,930 12,160 14,863 3,257 3,578
Capitalized interest .................. -- -- -- -- -- 554 0 452
Amortization of capitalized
financing costs ..................... 262 326 124 499 686 328 34 220
Portion of rent expense that is
representative of interest factor ... -- -- -- -- -- 3,405 528 1,685
----- ----- ------- ------ ------ ------- ------ -------
Fixed charges ......................... 3,831 5,680 2,494 8,429 12,846 19,150 3,819 5,935
===== ===== ======= ====== ====== ======= ====== =======
Ratio of earnings to fixed charges..... 1.2 1.0 0.5 1.4 1.4 1.3 1.3 1.2
===== ===== ======= ====== ====== ======= ====== =======
Earnings inadequate to cover fixed
charges -- -- 1,248 -- -- -- -- --
===== ===== ======= ====== ====== ======= ====== =======
</TABLE>
<PAGE> 1
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
American Retirement Corporation:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report refers to a change in the presentation of the cost basis of financial
information for periods subsequent to a purchase business combination effected
on April 1, 1995.
KPMG PEAT MARWICK LLP
Nashville, Tennessee
May 29, 1998
<PAGE> 1
Exhibit 23.2
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Freedom Group, Inc. and Subsidiaries:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report contains an explanatory paragraph that states that the Company has
entered into an agreement and plan of merger for the merger of the Company with
an unrelated party. The sale has not been finalized and no adjustments to the
combined financial statements have been made.
KPMG PEAT MARWICK LLP
St. Petersburg, Florida
May 29, 1998
