Registration No. 333-38113
As filed with the Securities and Exchange Commission on December 9, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAREMATRIX CORPORATION
(Exact name of registrant as specified in charter)
Delaware 04-3069586
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
197 First Avenue
Needham, MA 02194
(781) 433-1000
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
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Robert M. Kaufman Copies to:
Chief Executive Officer Michael J. Bohnen, Esq.
CareMatrix Corporation Nutter, McClennen & Fish, LLP
197 First Avenue One International Place
Needham, MA 02194 Boston, MA 02110-2699
(781) 433-1000 (617) 439-2000
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement, as determined by
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 a post-effective amendment filed pursuant to Rule 426(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered Per Share (1) Offering Price (1) Fee
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<S> <C> <C> <C> <C>
6-1/4% Convertible
Subordinated Notes due 2004 $115,000,000 100% $115,000,000 $34,849(3)
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Shares of Common Stock,
$.05 par value 3,982,683 shares(2) not applicable not applicable None
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</TABLE>
(1) Determined pursuant to Rule 457(i) under the Securities Act of 1933, as
amended, for the purpose of calculating the registration fee.
(2) Includes the number of shares of Common Stock into which the Notes being
registered hereunder may be converted at the initial conversion price,
together with such additional indeterminate number of shares as may become
issuable upon conversion by reason of adjustments to the conversion price.
No registration fee is required for Common Stock reserved for conversion,
because such shares will be issued for no additional consideration.
(3) Previously paid.
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 9, 1997
PROSPECTUS
[CAREMATRIX LOGO]
$115,000,000
6-1/4% Convertible Subordinated Notes due 2004
3,982,684 Shares of Common Stock, par value $.05 per share
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This Prospectus relates to the resale of $115,000,000 aggregate principal
amount of 6-1/4% Convertible Subordinated Notes due 2004 (the "Notes") of
CareMatrix Corporation, a Delaware corporation (sometimes referred to herein as
the "Company"), issued to the initial purchasers of the Notes (the "Initial
Purchasers") in private placements consummated on August 18, 1997 and October
1, 1997 (the "Debt Offering"), and the resale of up to 3,982,684 shares of the
common stock, par value $.05 per share (the "Common Stock"), of the Company
which are initially issuable upon conversion of Notes by any holders of Notes
that did not purchase the Notes under this Registration Statement (of which
this Prospectus is a part). The Notes and such shares of Common Stock issued
upon conversion of the Notes may be offered from time to time for the accounts
of holders of Notes named herein or in supplements to this Prospectus (the
"Selling Securityholders"). See "Plan of Distribution." Information concerning
the Selling Securityholders may change from time to time and will be set forth
in Supplements to this Prospectus. The Company will not receive any proceeds
from the sale of the Notes and shares of Common Stock offered under this
Prospectus.
The Notes are convertible into Common Stock of CareMatrix Corporation at
any time through the close of business on the final maturity date, unless
previously redeemed, at a conversion price of $28.875 per share, subject to
adjustment in certain events. The Common Stock of the Company is traded on the
American Stock Exchange under the symbol "CMD." On December 8, 1997, the
closing price of the Common Stock as reported by the American Stock Exchange
was $28.625 per share.
The Notes do not provide for a sinking fund. The Notes are not redeemable
by the Company prior to August 18, 2000. Thereafter, the Notes are redeemable
at the option of the Company, in whole or in part, at anytime, at declining
redemption prices set forth in this Prospectus, together with accrued and
unpaid interest. Upon a Repurchase Event (as defined herein), each holder may
require the Company to repurchase all or a portion of such holder's Notes for
cash or, at the Company's option, Common Stock (valued at 95% of the average
closing price for the five trading days immediately preceding and including the
third trading day prior to the repurchase date) at a repurchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest to the
repurchase date. See "Description of Notes--Repurchase at Option of Holders
Upon a Repurchase Event."
The Notes are unsecured obligations of the Company and are subordinated to
all present and future Senior Indebtedness (as defined herein) of the Company,
and effectively subordinated to all liabilities of the Company's subsidiaries.
As of September 30, 1997, the Company had approximately $2.4 million of Senior
Indebtedness and the Company's subsidiaries had approximately $2.7 million of
indebtedness and other liabilities to which the Notes would have been
effectively subordinated. The Indenture contains no limitation on the
incurrence of any other indebtedness or liabilities by the Company or its
subsidiaries. See "Description of Notes--Subordination."
(continued on page 3)
See "Risk Factors" beginning on Page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the securities offered
hereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The Date of this Prospectus is , 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
(continued from cover)
All of the Notes were issued initially pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof or Regulation D thereunder
and, to the Company's knowledge, were transferred to the Selling
Securityholders pursuant to Rule 144A or Regulation S under the Securities Act
or to Selling Securityholders meeting the definition of institutional
accredited investors under Rule 501(a)(1),(2),(3) or (7) under the Securities
Act. Notes resold pursuant to the Registration Statement (of which this
Prospectus is a part) will no longer be eligible for trading in Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market.
The Selling Securityholders, acting as principals for their own account,
directly, through agents designated from time to time, or through brokers,
dealers, agents or underwriters also to be designated, may sell all or a
portion of the Notes or shares of Common Stock which may be offered hereby by
them from time to time on terms to be determined at the time of sale. The
aggregate proceeds to the Selling Securityholders from the sale of Notes and
Common Stock which may be offered hereby by the Selling Securityholders will be
the purchase price of such Notes or Common Stock less commissions, if any. For
information concerning indemnification arrangements between the Company and the
Selling Securityholders, see "Plan of Distribution."
The Selling Securityholders and any brokers, dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Notes or shares of Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Notes or shares of Common Stock purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
The Company intends that the Registration Statement of which this
Prospectus is a part will remain effective until August 18, 1999 or such
earlier date as of which such Registration Statement is no longer required for
the transfer of the subject securities. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Notes and Common
Stock being offered by the Selling Securityholders.
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<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of any offer to buy the
securities described herein by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making the offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Under no circumstances shall the delivery
of this Prospectus or any sale made pursuant to this Prospectus create any
implication that the information contained in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Available Information ....................................... 5
Documents Incorporated by Reference ........................ 5
Risk Factors ................................................ 6
The Company ................................................ 12
Use of Proceeds ............................................. 12
Ratio of Earnings to Fixed Charges ........................ 12
Selling Securityholders .................................... 13
Plan of Distribution ....................................... 16
Description of Notes ....................................... 16
Certain United States Federal Income Tax Consequences ...... 27
Legal Matters ............................................. 29
Experts ................................................... 29
</TABLE>
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AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 (together
with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act covering the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, and the exhibits and schedules thereto. For
further information, with respect to the Company and the Common Stock,
reference is made to the Registration Statement, and the exhibits and schedules
thereto, which can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048 and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy statements and
information statements and other information filed electronically by the
Company with the Commission are available at the Commission's worldwide web
site at http://www.sec.gov. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and
information statements and other information with the Commission. Such reports,
proxy statements and information statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission referenced above.
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 1996, as amended by the Company's
Annual Report on Form 10-K/A filed with the Commission on April 14, 1997
(including those portions of the Company's definitive proxy statement for the
Annual Meeting of Stockholders held on June 16, 1997 incorporated by reference
therein), (ii) the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997, as amended by the Company's Quarterly Report on
Form 10-Q/A filed with the Commission on August 12, 1997, (iii) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997, (iv)
the Company's Current Report on Form 8-K filed August 5, 1997, (v) the
Company's current report on Form 8-K filed August 19, 1997, (vi) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997,
and (vii) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, declared effective October 23,
1996.
All reports filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to any
termination of the offering of the Notes and shares of Common Stock covered by
this Prospectus are deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the respective dates of filing. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document that is also incorporated herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents) will be provided without charge to each
person who receives a copy of this Prospectus on written or oral request to
Investor Relations, CareMatrix Corporation, 197 First Avenue, Needham, MA
02194, or by telephone at (781) 433-1000.
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RISK FACTORS
In addition to the other information contained in this Prospectus, before
purchasing the Notes and shares of Common Stock offered hereby, prospective
purchasers should carefully consider the factors set forth below. Such factors
could cause the Company's actual results or other events to differ materially
from the results or events anticipated in certain forward-looking statements
contained or incorporated by reference herein. Such forward-looking statements
involve risks and uncertainties.
History of Losses From Operations; Accumulated Deficit. Although the
Company recorded net earnings for the nine months ended September 30, 1997 of
$3,978,095, from its inception on June 24, 1994 through December 31, 1996, the
Company experienced significant losses from operations. Through December 31,
1996, the Company's accumulated deficit was $16.4 million. For the year ended
December 31, 1996, the Company incurred losses from operations of $6.0 million.
As of September 30, 1997, the Company's accumulated deficit was $12.4 million.
There can be no assurance that the Company will be able to continue to generate
income from operations or net income at any time, whether from its existing
operations or from any facilities that are operated in the future. Failure of
the Company to achieve profitability could have a material adverse effect on
the future viability of the Company.
Dependence by the Company on Related Party Agreements. The Company has
entered and expects to continue to enter into agreements with related parties
in connection with a significant number of transactions, including development,
management and lease agreements. Generally, the Company will enter into
development agreements whereby construction financing is obtained by the
related or third parties. The Company expects that risks related to
construction and the initial operation of the facilities it develops will be
borne primarily by such related or third parties. The Company has not, and
expects in the future that it will not, enter into agreements with these
parties until six months prior to completion of the construction of such
facilities or upon acquisition of completed facilities. These management
agreements would generally be for a ten-year period, with annual fees
approximating 5% of gross revenues (less contractual adjustments for
uncollectible accounts). The Company has and expects in the future to have the
option to convert such management agreements into fair market value leases
(which will be a negotiated percentage of total project costs) for a 15-year
initial term with three to four five-year fair market value renewal options.
Abraham D. Gosman is the principal owner, and certain members of the Company's
senior management and stockholders also have an ownership interest in,
Chancellor Senior Housing Group, Inc. and certain like entities (collectively
referred to herein as "Chancellor"), with which the Company has entered and
expects to enter into most such agreements. Failure of the Company to continue
to enter into such agreements with Chancellor or other such related parties, or
the inability of Chancellor to secure all necessary financing at acceptable
terms, could have a material adverse effect on the Company. See "--Need for
Additional Financing."
Need for Additional Financing. The Company's development and acquisition
strategy will require substantial capital resources. The estimated cumulative
cost to complete approximately 60 new facilities, with an aggregate capacity of
approximately 7,200 residents, targeted for completion over the next three
years is between $700 million and $800 million, which substantially exceeds the
financial resources of the Company and Chancellor. The Company's future growth
will depend primarily on the ability of related parties, such as Chancellor,
for whom the Company develops facilities to obtain financing on acceptable
terms. To finance its capital needs, the Company plans both to incur
indebtedness and to issue, from time to time, additional debt or equity
securities, including Common Stock or convertible notes, in connection with its
acquisitions and affiliations. If additional funds are raised through the
issuance of equity securities, dilution to the Company's stockholders may
result, and if additional funds are raised through the incurrence of debt, the
Company would likely become subject to certain covenants that impose
restrictions on its operations and finances. There can be no assurance that the
Company or such related parties will be able to raise additional capital when
needed, on satisfactory terms or at all. Prior to its secondary offering in
October 1996, the Company had relied upon equity and loans provided primarily
by Abraham D. Gosman, the Company's Chairman of the Board and principal
stockholder, or companies affiliated with him. See "--Substantial Debt and
Lease Obligations." There can be no assurance that any additional financing
from Mr. Gosman, Chancellor or any other sources will be available in the
future. Any limitation on the Company's ability to obtain additional financing
could have a material adverse effect on the Company.
Substantial Debt and Lease Obligations; Increased Leverage. At September
30, 1997, the Company's debt was $102.4 million. Debt service and annual
operating lease payment obligations are expected to increase significantly as
the Company pursues its growth strategy. There can be no assurance that the
Company will generate
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sufficient cash flow to meet its obligations. Any payment default or other
default with respect to such obligations could cause a lender to foreclose upon
any collateral securing the 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. Moreover, because certain of the Company's mortgages, debt
instruments and leases may contain cross-default and cross-collateralization
provisions, a default by the Company on one of its payment obligations could
result in acceleration of other obligations and adversely affect a significant
number of the Company's other facilities.
In connection with the Debt Offering, the Company incurred $115 million in
additional indebtedness which increased the ratio of its long-term debt to its
total capitalization from 8.9% at December 31, 1996, to 54.3%, on a pro forma
basis, at September 30, 1997. As a result of this increased leverage, the
Company's principal and interest obligations increased substantially. The
degree to which the Company is leveraged could adversely affect the Company's
ability to obtain additional financing for working capital, acquisitions or
other purposes and could make it more vulnerable to economic downturns and
competitive pressures. The Company's increased leverage could also adversely
affect its liquidity, as a substantial portion of available cash from
operations may have to be applied to meet debt service requirements and, in the
event of a cash shortfall, the Company could be forced to reduce other
expenditures and forego potential acquisitions to be able to meet such
requirements.
Subordination. The Notes are unsecured obligations of the Company and
subordinated in right of payment in full to all existing and future Senior
Indebtedness (as defined) of the Company. As a result of such subordination, in
the event of any insolvency, liquidation or reorganization of the Company,
payment default on Senior Indebtedness and certain other events, the assets of
the Company will be available to pay obligations on the Notes only after all
Senior Indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then
outstanding. The Notes are effectively subordinated to the liabilities,
including trade payables, of the Company's subsidiaries. The Indenture does not
prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company or its subsidiaries,
and the incurrence of additional indebtedness and other liabilities by the
Company or its subsidiaries could have a material adverse effect on the
Company's ability to pay its obligations on the Notes. As of September 30,
1997, the Company had approximately $2.4 million of outstanding indebtedness
which would have constituted Senior Indebtedness, and the subsidiaries of the
Company had approximately $2.7 million of indebtedness and other liabilities
(excluding intercompany liabilities) to which the Notes would have been
effectively subordinated. The Company anticipates that, from time to time, it
and its subsidiaries will incur additional indebtedness, including Senior
Indebtedness. Moreover, the cash flow and consequent ability of the Company to
service debt, including the Notes, is partially dependent upon the earnings
from the business conducted by the Company through its subsidiaries and the
distribution of those earnings, or upon loans or other payments of funds, by
those subsidiaries to the Company. The subsidiaries of the Company are separate
and distinct legal entities and have no obligation to pay any amounts due
pursuant to the Notes (which are obligations exclusively of the Company) or to
make any funds available therefor, whether by dividends, loans or other
payments. In addition, the payment of dividends or distributions and the making
of loans or other payments to the Company by any such subsidiaries could be
subject to statutory and contractual restrictions, are dependent upon the
earnings of such subsidiaries and are subject to various business
considerations. See "Description of Notes--Subordination."
Development and Construction Risks. During the next three years, the
Company plans to develop approximately 60 new facilities with a resident
capacity of approximately 7,200 residents. The Company's ability to achieve its
development goals will depend upon a variety of factors, many of which are
beyond the Company's control. There can be no assurance that the Company will
not suffer delays in its development program. The successful development of
additional facilities will involve a number of risks, including the possibility
that the Company may be unable to locate suitable sites at acceptable prices or
may be unable to obtain, or may experience delays in obtaining, necessary
certificates of need, zoning, land use, building, occupancy, licensing and
other required governmental permits and authorizations. The Company may also
incur construction costs that exceed original estimates or even so-called
guaranteed maximum cost construction contracts, and may not complete
construction projects on schedule. The Company will rely on third-party general
contractors to construct its new facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors
and subcontractors, which could result in increased construction costs and
delays. Further, facility development is subject to a number of contingencies
over which the Company will have little control and that could have a material
adverse effect on project cost and completion time, including shortages of, or
the inability to obtain, labor or materials, the inability of the general
contractor or subcontractors to perform under their contracts, strikes,
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adverse weather conditions and changes in applicable laws or regulations or in
the method of applying such laws and regulations. Failure of the Company to
achieve its development goals could have a material adverse effect on the
Company. Accordingly, there can be no assurance that the Company's facilities
in development or under construction will ultimately be completed.
Risks Related to Acquisition Strategy. The Company's strategy includes
growth through acquisition. The Company is subject to various risks associated
with its acquisition growth strategy, including the risk that the Company will
be unable to identify or acquire suitable acquisition candidates or to
integrate the acquired companies into the Company's operations. Any failure of
the Company to identify and consummate economically feasible acquisitions could
have a material adverse effect on the Company. There can be no assurance that
the Company will be able to achieve and manage its planned acquisition growth,
that the liabilities assumed by the Company in any acquisition will not have a
material adverse effect on the Company or that the addition of facilities will
be profitable for the Company.
Dependence on Attracting Seniors with Sufficient Resources to Pay. The
Company expects to rely primarily on the ability of its residents to pay for
services from their own and their families' financial resources. Generally,
only seniors with income or assets meeting or exceeding the comparable median
in the regions where the Company's assisted living facilities are located can
afford the applicable fees for its facilities for an extended period of time.
Any difficulty in attracting seniors with adequate resources to pay for the
Company's services could have a material adverse effect on the Company.
Inflation or other circumstances which adversely affect the ability of the
Company's residents and potential residents to pay for assisted living services
could also have a material adverse effect on the Company.
Dependence Upon Key Personnel. The Company is dependent upon the ability
and experience of its executive officers, including its Chairman, and there can
be no assurance that the Company will be able to retain all of such officers.
The failure of such officers to remain active in the Company's management could
have a material adverse effect on the Company. There can be no assurance that
the anticipated contributions of senior management will be realized, and the
failure of such contributions to be realized could have a material adverse
effect on the Company.
Risks Related to Goodwill. At September 30, 1997, the Company's total
assets were approximately $210.3 million, of which approximately $27.2 million,
or approximately 12.9% of total assets, was goodwill. Goodwill is the excess of
cost over the fair value of the net assets of businesses acquired. There can be
no assurance that the value of such goodwill will ever be realized by the
Company. This goodwill is being amortized on a straight-line basis over 25
years. The Company evaluates on a regular basis whether events and
circumstances have occurred that indicate all or a portion of the carrying
amount of goodwill may no longer be recoverable, in which case an additional
charge to earnings would become necessary. Although at September 30, 1997 the
net unamortized balance of goodwill is not considered to be impaired, any such
future determination requiring the write-off of a significant portion of
unamortized goodwill could have a material adverse effect on the Company.
Competition. The assisted living industry is highly competitive and, given
the relatively low barriers to entry and continuing healthcare cost containment
pressures, the Company expects that it will become increasingly competitive in
the future. The Company competes with other companies providing assisted living
services as well as numerous other companies providing similar service and care
alternatives, such as home health care agencies, congregate care facilities,
retirement communities and skilled nursing facilities. While the Company
believes there is a need for additional assisted living residences in the
markets where it intends to develop facilities, the Company expects that, as
assisted living facilities receive increased attention, competition will
increase from new market entrants. Moreover, in implementing its growth
strategy, the Company expects to face competition for development and
acquisition opportunities from local developers and regional and national
assisted living companies. Some of the Company's present and potential
competitors have, or may have access to, greater financial resources than those
of the Company. Consequently, increased competition in the future could limit
the Company's ability to attract and retain residents, to maintain or increase
resident service fees or to expand its business. As a result, any increased
competition could have a material adverse effect on the Company.
Limited Experience with New Service Models and Facility Designs. The
Company's success is dependent, in part, on its ability to develop and offer
new service models and facility designs to prospective residents of its
facilities. Currently, the Company does not have extensive operating experience
with these new service models and
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facility designs, and the failure of the Company to successfully implement and
integrate these new service models and facility designs could have a material
adverse effect on the Company.
Potential Conflicts of Interest. Abraham D. Gosman, the Company's
principal stockholder and Chairman, and certain members of the Company's senior
management, have a controlling ownership interest in Chancellor with which the
Company has entered and expects to enter into development, management and lease
agreements. These agreements are and will be on terms that the Company believes
will be fair and no less favorable to the Company than those which the Company
could have obtained from unaffiliated third parties. Such ownership interests
in Chancellor and other healthcare entities that compete with the Company,
however, may create actual or potential conflicts of interest on the part of
these members of the Company's management. In the case of such related party
transactions, it is the Company's policy to require that any such transactions
be approved by a majority of the disinterested members of the Executive
Committee of the Board of Directors.
Control by Management. As of September 30, 1997, members of the Board of
Directors and management are the beneficial owners of approximately 48.2% of
the outstanding Common Stock of the Company. As of June 30, 1997, Abraham D.
Gosman, together with his sons, Andrew D. Gosman and Michael M. Gosman, all of
whom are members of the Board of Directors and executive officers of the
Company, are the beneficial owners of approximately 44.9% of the outstanding
Common Stock. Accordingly, management and the Gosmans may have the ability, by
voting shares of Common Stock, to determine (i) the election of the Company's
Board of Directors and, thus, the direction and future operations of the
Company, and (ii) the outcome of all other matters submitted to the Company's
stockholders, including mergers, consolidations and the sale of all or
substantially all of the Company's assets.
Residence Staffing and Labor Costs. The Company competes with other
providers of assisted living services with respect to attracting and retaining
qualified and skilled personnel. The Company is dependent upon its ability to
attract and retain management personnel responsible for the day-to-day
operations of each of the Company's facilities. In addition, a possible
shortage of nurses or other 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 upon the available labor pool of semi-skilled
and unskilled employees in each of the markets in which it will operate. 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.
Government Regulation. Health care is an area of extensive and frequent
regulatory change. The assisted living industry is relatively new, and,
accordingly, the manner and extent to which it is regulated at the Federal and
state levels are evolving. Changes in the laws or new interpretations of
existing laws may have a significant impact on the Company's methods and costs
of doing business. The Company is subject to varying degrees of regulation and
licensing by health or social service agencies and other regulatory authorities
in the various states and localities where it operates or intends to operate.
The Company's success will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses in rapidly changing regulatory environments. Any failure to satisfy
applicable regulations or to procure or maintain a required license could have
a material adverse effect on the Company. Furthermore, certain regulatory
developments such as revisions in building code requirements for assisted
living facilities, mandatory increases in the scope and quality of care to be
offered to residents and revisions in licensing and certification standards
could have a material adverse effect on the Company. There can be no assurance
that Federal, state or local laws or regulations will not be imposed or
expanded which would have a material adverse effect on the Company. The
Company's operations are also subject to health and other state and local
government regulations.
In addition, in most states in which the Company participates in
government reimbursement programs, the Company's operations are subject to
Federal and/or state requirements or provisions which prohibit certain business
practices and relationships that might affect the provision and cost of health
care services reimbursable under Medicaid. The Company's failure to comply with
the regulations and requirements applicable to a facility could result in the
imposition of significant fines and increased costs, a revocation of the
Company's license to operate that facility, and, if sufficiently serious in
nature, the inability of the Company to maintain or obtain licenses to operate
other facilities. Any such event could have a material adverse effect on the
Company.
9
<PAGE>
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, 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
healthcare items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between
healthcare providers and sources of patient referral. Similar state laws vary
from state to state, are sometimes vague and seldom have been interpreted by
courts or regulatory agencies. Violation of these laws can result in loss of
licensure, civil and criminal penalties, and exclusion of healthcare providers
or suppliers from participation in (i.e., furnishing covered items or services
to beneficiaries of) the Medicare and Medicaid programs. It is expected that
the Company will be subject to these laws. There can be no assurance that such
laws will be interpreted in a manner consistent with the practices of the
Company, and any interpretation inconsistent with the practices of the Company
could have a material adverse effect on the Company.
Environmental Risks. Under various Federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including, without limitation,
asbestos-containing materials, that could be located on, in or under such
property. As a result, the presence, with or without the Company's knowledge,
of hazardous or toxic substances at any property held or operated by the
Company, or acquired or operated by the Company in the future, could have a
material adverse effect on the Company. Environmental audits performed on
properties leased or managed by the Company have not revealed any significant
environmental liability that management believes would have a material adverse
effect on the Company; however, there can be no assurance that existing
environmental audits with respect to any of the properties leased or managed by
the Company have revealed all environmental liabilities.
Liability and Insurance. The Company's business entails an inherent risk
of liability. In recent years, participants in the assisted living and
long-term care industry, including the Company, have become subject to an
increasing number of lawsuits alleging negligence or related legal theories,
many of which involve large claims and significant legal costs. The Company is
from time to time subject to such suits as a result of the nature of its
business. The Company currently maintains insurance policies in amounts and
with such coverage and deductibles as it believes are adequate, based on the
nature and risks of its business, historical experience and industry standards.
The Company currently maintains professional liability insurance and general
liability insurance. There can be no assurance that claims will not arise which
are in excess of the Company's insurance coverage or are not covered by the
Company's insurance. Any successful claim against the Company not covered by,
or in excess of, the Company's insurance could have a material adverse effect
on the Company. Claims against the Company, regardless of their merit or
eventual outcome, may also have a material adverse effect on the Company's
ability to attract residents or expand its business and would require
management to devote time to matters unrelated to the operation of the
Company's business. In addition, the Company's insurance policies must be
renewed annually, and there can be no assurance that the Company will be able
to continue to obtain liability insurance coverage in the future or, if
available, that such coverage will be available on acceptable terms. Any
failure of the Company to retain liability insurance coverage or to obtain such
coverage on acceptable terms could have a material adverse effect on the
Company.
Dependence on Reimbursement by Third-Party Payors. The Company's revenues
from the services it provides for skilled nursing facilities are dependent upon
reimbursement from third-party payors, including Medicare, state Medicaid
programs and private insurers. There can be no assurance that such revenues
will fully pay the cost of providing services to residents covered by Medicare
and Medicaid. Although in 1996 a substantial portion of the Company's revenue
was derived from Medicare and Medicaid payments, the Company anticipates that
in 1997 and going forward, revenue from sources other than Medicare and
Medicaid will constitute a substantially greater portion of overall revenue.
The revenues and profitability of the Company will be affected by the
continuing efforts of governmental and private third-party payors to contain or
reduce the costs of health care by attempting to lower reimbursement rates,
increasing case management review of services and negotiating reduced contract
pricing. In an attempt to reduce the Federal and certain state budget deficits,
there have been, and management expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid reimbursement in general.
Adoption of any such proposals at either the Federal or the state level could
have a material adverse effect on the Company.
10
<PAGE>
Certain Anti-takeover Provisions. Certain provisions of the Company's
Restated Certificate of Incorporation and By-laws and of Delaware General
Corporation Law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares
of the Common Stock. Certain of these provisions provide for the issuance,
without further stockholder approval, of preferred stock with rights and
privileges which could be senior to the Common Stock, the payment of a "fair"
price (or Board approval by continuing directors) in connection with certain
business combinations with interested stockholders, no right of the
stockholders to call a special meeting of stockholders, restrictions on the
ability of stockholders to nominate directors and submit proposals to be
considered at stockholders' meetings, and a super-majority voting requirement
in connection with the removal of directors and the adoption of stockholders'
amendments to the By-laws. The Company also is subject to Section 203 of the
Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested" stockholder for a period of three
years following the date that such stockholder became an interested
stockholder.
Limitations on Repurchase of Notes. If a Repurchase Event (as defined)
were to occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing to pay the
repurchase price in cash for all Notes tendered by holders thereof. The
Company's ability to repurchase Notes with cash may also be limited or
prohibited by the terms of its then-existing borrowing arrangements due to
dividend restrictions. Moreover, although under the Indenture the Company may
elect, subject to satisfaction of certain conditions, to pay the repurchase
price for the Notes using shares of Common Stock, any future credit agreements
or other agreements relating to other indebtedness (including other Senior
Indebtedness) to which the Company becomes a party may contain restrictions on
or prohibitions of the repurchase of the Notes by the Company that apply even
if the purchase price is paid with shares of capital stock. In the event a
Repurchase Event occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to the
repurchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company dos not obtain such a consent or repay
such borrowings, the Company would remain prohibited from repurchasing Notes.
In such case, the Company's failure to repurchase the Notes would constitute an
Event of Default under the Indenture whether or not payment of the repurchase
price is permitted by the subordination provisions of the Indenture. Any such
default may, in turn, cause a default under Senior Indebtedness of the Company.
Moreover, the occurrence of a Repurchase Event in and of itself may constitute
an event of default under Senior Indebtedness of the Company. As a result, in
either case, payment of the repurchase price of the Notes with cash would,
absent a waiver, be prohibited under the subordination provisions of the
Indenture until the Senior Indebtedness is paid in full. See "Description of
Notes--Subordination" and "--Subordination."
No Notes may be repurchased at the option of holders upon a Repurchase
Event if there has occurred and is continuing an Event of Default described
under "Description of Notes--Events of Default and Remedies" (other than a
default in the payment of the repurchase price with respect to such Notes on
the repurchase date).
Possible Volatility of Notes and Stock Price. Economic or other external
factors may have a significant impact on CareMatrix's business and on the
market price of the Notes and the Common Stock into which the Notes are
convertible. Fluctuations in financial performance from period to period also
may have a significant impact on the market price of the Notes and the Common
Stock.
Absence of Active Public Market for the Notes. There is currently no
active public market for the Notes. Although the Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes,
they are not obligated to do so and may discontinue such market making at any
time without notice. In addition, such market making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act. Accordingly,
there can be no assurance that any active market for the Notes will develop or
that any market which does develop will be maintained. The failure of an active
market for the Notes to develop or to be sustained could have a material
adverse effect on the trading price of such Notes could be adversely affected.
Prior to the resale thereof pursuant to this Prospectus each of the Notes was
eligible for trading in Private Offerings, Resales and Trading through the
PORTAL Market. Notes sold pursuant to this Prospectus will no longer be
eligible for trading in PORTAL Market. The Company does not intend to apply for
listing of the Notes on any securities exchange.
11
<PAGE>
THE COMPANY
The Company is a provider of assisted living services, and owns, leases or
manages its facilities. The Company's strategy is to provide a full range of
assisted living and related services across a range of pricing options. The
Company expects its assisted-living facilities to serve as the foundation from
which it will provide a continuum of care for its residents. When its assisted
living facilities are integrated with supportive independent living facilities,
skilled nursing/rehabilitation facilities and Alzheimer's care programs, the
Company believes that it will have the ability to provide a less stressful
transition for those of its residents who need a higher degree of care to more
supportive environments either within the same facility, in a campus setting or
in a nearby facility.
The Company's principal place of business is 197 First Avenue, Needham,
Massachusetts 02194; and its telephone number at that address is (781)
433-1000. Unless otherwise indicated or required by the context, references to
the "Company" include its consolidated subsidiaries.
USE OF PROCEEDS
The Notes and shares of Common Stock offered by the Selling
Securityholders are not being sold by the Company, and the Company will not
receive any proceeds from the sale thereof.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------- June 24, 1994
Nine months ended (inception) to
September 30, 1997 1996 1995 December 31, 1994
-------------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Ratio ...... 2.92 less than 1.0 less than 1.0 less than 1.0
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
represent income from operations before income taxes, plus fixed charges.
Earnings also includes interest, amortization of financing costs, and the
portion of operating rental expense which management believes is representative
of the interest component of rental expense. For the period from June 24, 1994
(inception) to December 31, 1994, and the years ended December 31, 1995 and
1996, for the purposes of computing the ratio of earnings to fixed charges, the
Company had earnings deficiencies of $2.6 million, $7.2 million, and $6.6
million, respectively.
12
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth information concerning the principal amount
of Notes beneficially owned by each Selling Securityholder or record holder of
Notes and the number of shares of Common Stock issuable upon conversion of the
Notes (the "Conversion Shares") which may be offered from time to time pursuant
to this Prospectus. The table has been prepared based on information furnished
to the Company by the Depository Trust Company and/or by or on behalf of the
Selling Securityholders.
<TABLE>
<CAPTION>
Principal Amount Number of
of Debentures Percentage of Conversion Percentage of
Beneficially Owned Debentures Shares That Common Stock
Name(1) That May Be Sold(1) Outstanding(1) May Be Sold(2) Outstanding(3)
- - --------------------------------------- --------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Argent Classic Convertible Arbitrage
Fund L.P. ........................... 5,000,000 4.4% 173,160 1.0%
Argent Classic Convertible Arbitrage
Fund (Bermuda) L.P. ............... 5,300,000 4.6% 183,550 1.1%
Arkansas PERS ........................ 1,215,000 1.1% 42,078 *
BancAmerica Robertson Stephens ...... 4,755,000 4.1% 164,675 1.0%
Bank of America Personal Trust ...... 545,000 * 18,874 *
Bank of New York ..................... 7,500,000 6.5% 259,740 1.5%
Bankers Trust Company ............... 130,000 * 4,502 *
Baptist Health of Miami ............ 153,000 * 5,299 *
BCB FBO Fund ........................ 50,000 * 1,732 *
Bear, Stearns Securities Corp. ...... 895,000 * 30,996 *
BNP Arbitrage SNC .................. 5,900,000 5.1% 204,329 1.2%
Boston Museum of Fine Art ............ 65,000 * 2,251 *
Boston Safe Deposit and
Trust Company ..................... 155,000 * 5,368 *
Brown Brothers Harriman & Co. ...... 4,000,000 3.5% 138,528 *
Chase Manhattan Bank ............... 4,139,000 3.6% 143,341 *
Chase Manhattan Bank, Trust ......... 911,000 1.0% 39,826 *
Chrysler Corporation Master
Retirement Trust ..................... 1,905,000 1.7% 65,974 *
Combined Insurance Company
of America ........................... 500,000 * 17,316 *
Declaration of Trust for the
Defined Benefit Plans of
ICI American Holdings Inc. ........... 540,000 * 18,701 *
Delcaration of Trust for the
Defined Benefit Plans of ZENECA
Holdings Inc. ........................ 370,000 * 12,814 *
Delaware PERS ........................ 1,040,000 * 36,017 *
Delaware State Employees Retirement
Fund ................................. 1,770,000 1.5% 61,299 *
Delta Airlines Master Trust ........... 1,160,000 1.0% 40,173 *
D.E. Shaw Investments L.P. ............ 600,000 * 20,779 *
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Number of
of Debentures Percentage of Conversion Percentage of
Beneficially Owned Debentures Shares That Common Stock
Name(1) That May Be Sold(1) Outstanding(1) May Be Sold(2) Outstanding(3)
- - -------------------------------------------- --------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
D.E. Shaw Portfolios International,
LLC ................................. 400,000 * 13,852 *
D.E. Shaw Securities L.P. ............ 1,000,000 * 34,632 *
Donaldson, Lufkin and Jenrette
Securities Corp. .................. 2,642,000 2.3% 91,498 *
Engineers Joint Pension Fund ......... 239,000 * 8,277 *
First National Bank of Maryland, N.A. 160,000 * 5,541 *
Forest Convertible Opportunity Fund ...... 250,000 * 8,658 *
Forest Fulcrum Fund LP .................. 2,800,000 2.4% 96,969 *
Forest Global Convertible Fund
Series A5 .............................. 1,550,000 1.4% 53,852 *
Fox Family Portfolio Partnership ......... 200,000 * 6,926 *
General Motors Employees Domestic
Group Trust ............................... 6,300,000 5.5% 218,182 1.3%
Goldman, Sachs & Co. ..................... 8,850,000 7.7% 306,494 1.8%
Hawaiian Airlines Pension Plan--IAM 100,000 * 3,463 *
Hawaiian Airlines Pension Plan for
Salaried Employees ........................ 20,000 * 693 *
Hillside Capital Incorporated
Corporate Account ......................... 160,000 * 5,541 *
Hughes Aircraft Company Master
Retirement Trust .......................... 1,010,000 * 34,978 *
ICI American Holdings Pension Trust ...... 415,000 * 14,372 *
J.W. McConnell Family Foundation ........... 350,000 * 12,121 *
KA Management Ltd. ........................ 900,010 * 31,169 *
KA Trading L.P. ........................... 899,990 * 31,168 *
Kapiolani Medical System .................. 200,000 * 6,926 *
Lewco Securities Corp. .................. 100,000 * 3,463 *
LLT Limited .............................. 145,000 * 6,926 *
Mainstay Convertible ..................... 1,000,000 * 34,632 *
NALCO Chemical Retirement Trust ............ 190,000 * 6,580 *
Natwest Securities Corporation ............ 4,500,000 3.9% 155,844 *
Nicholas-Applegate Income &
Growth Fund .............................. 1,514,000 1.3% 52,433 *
Northern Trust Company .................. 390,000 * 13,506 *
The Northwestern Mutual Life
Insurance Company ........................ 3,000,000 2.6% 103,896 *
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Number of
of Debentures Percentage of Conversion Percentage of
Beneficially Owned Debentures Shares That Common Stock
Name(1) That May Be Sold(1) Outstanding(1) May Be Sold(2) Outstanding(3)
- - -------------------------------------------- --------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Occidental College Endowment ............ 142,000 * 4,918 *
OCM Convertible Limited Partnersip ......... 250,000 * 8,658 *
OCM Convertible Trust ...................... 2,470,000 2.2% 85,541 *
Oregon Public Employee Retirement
Fund .................................... 5,000,000 4.3% 173,160 1.0%
PaineWebber Incorporated .................. 300,000 * 10,389 *
Partner Reinsurance Company, Ltd. .......... 205,000 * 7,100 *
Pension Reserves Investment Trust ......... 1,630,000 1.4% 56,450 *
PNC Bank, N.A. ........................... 760,000 * 26,320 *
PRIM Board ................................. 1,630,000 1.4% 56,450 *
Q Investments, L.P. ..................... 1,600,000 1.4% 55,411 *
R(2) Investments, L.P. ................... 400,000 * 13,852 *
Retirement Plan for Pilots of Hawaiian
Airlines ................................. 150,000 * 5,195 *
San Diego County Convertible ............ 2,035,000 1.8% 70,476 *
San Diego City Retirement ............... 477,000 * 16,519 *
Shepherd Investments
International, Ltd. ..................... 1,000,000 * 34,632 *
Societe Generale Securities Corp. ......... 600,000 * 20,779 *
Stark International ..................... 1,000,000 * 34,632 *
State Employees' Retirement Fund for
the State of Delaware ..................... 760,000 * 26,320 *
State of Connecticut Combined
Investment Funds .......................... 1,850,000 1.6% 64,069 *
State of Oregon/SAIF Corporation ......... 3,000,000 2.6% 103,896 *
Summer Hill Global Partners, L.P. .......... 40,000 * 1,385 *
Thermo Electron Balanced Investment Fund ... 470,000 * 16,277 *
Trefoil Garnet Capital Partners, L.P. ...... 520,000 * 18,008 *
Vanguard Convertible Securities Fund, Inc. . 1,640,000 1.4% 56,797 *
Wake Forest University .................. 375,000 * 12,987 *
Warakirri-Paul J. Schupf Associates ...... 1,750,000 1.5% 60,606 *
Zeneca Holdings Pension Trust ............ 415,000 * 14,372 *
</TABLE>
- - ----------------
* Less than 1%
15
<PAGE>
(1) The information set forth herein is as of December 8, 1997, is based upon
$115,000,000 aggregate principal amount of Notes outstanding.
(2) Assumes conversion of the full amount of Notes held by such holder at the
initial rate of $28.875 in principal amount of Notes per share of Common
Stock. Under the terms of the Indenture (as defined herein), fractional
shares will not be issued upon conversion of the Notes; cash will be paid
in lieu of fractional shares, if any.
(3) Based on the 17,222,476 shares of Common Stock outstanding as of December
2, 1997, treating as outstanding the number of Conversion Shares shown as
being issuable upon the assumed conversion by the named holder of the full
amount of such holder's Notes, but not assuming the conversion of the
Notes of any other holder.
Other than their ownership of the Company's securities, none of the
Selling Securityholders or record holders listed above has had any material
relationship with the Company within the past three years, other than Morgan
Stanley & Co. Incorporated, Natwest Securities Corporation, PaineWebber
Incorporated and BancAmerica Robertson Stephens, each of which has acted as an
Initial Purchaser and/or underwriter for the Company. In addition, BancAmerica
Robertson Stephens has entered into a Securities Loan Agreement with certain
shareholders of the Company with respect to their shares of Common Stock of the
Company, which shares of Common Stock may become registered under the
Securities Act.
The information concerning the Selling Securityholders may change from
time to time and will be set forth in supplements to this Prospectus. In
addition, the per share conversion price and, therefore, the number of shares
of Common Stock issuable upon conversion of the Notes is subject to adjustment
under certain circumstances as specified in the Indenture. Accordingly, the
number of shares of Common Stock issuable upon conversion of the Notes may
change. In addition, the aggregate principal amount of the Notes is subject to
change as a result of redemptions and conversions under the terms of the
Indenture. As of the date of this Prospectus, the aggregate principal amount of
Debentures outstanding is $115,000,000, which may be converted into 3,982,684
shares of Common Stock.
Because the Selling Securityholders may offer all or some of the Notes and
shares of Common Stock issued upon conversion thereof pursuant to the offering
contemplated by this Prospectus, and to the Company's knowledge there are
currently no agreements, arrangements or understandings with respect to the sale
of any of the Notes or shares of Common Stock that may be held by the Selling
Securityholders after completion of this offering, no estimate can be given as
to the principal amount of the Notes or shares of Common Stock that will be held
by Selling Securityholders after completion of this offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
The Selling Securityholders may sell all or a portion of the Notes and
shares of Common Stock beneficially owned by them and which may be offered
hereby from time to time on any exchange or market on which the securities are
listed or quoted, as applicable, on terms to be determined at the times of such
sales. The Selling Securityholders may also make private sales directly or
through a broker or brokers. Alternatively, any of the Selling Securityholders
may from time to time offer the Notes or shares of Common Stock which may be
offered hereby through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, commissions or concessions
from the Selling Securityholders and the purchasers of the Notes or shares of
Common Stock for whom they may act as agent. Such underwriters, dealers or
agents may include the Initial Purchasers of the Notes, which may perform
investment banking or other services for or engage in other transactions with
the Company from time to time in the future. The Notes and shares of Common
Stock which may be offered hereby may also be sold in transactions pursuant to
exemptions from registration under the Securities Act which may be available
from time to time.
To the extent required, the aggregate principal amount of Notes and number
of shares of Common Stock to be sold hereby, the names of the Selling
Securityholders, the purchase price, the name of any such agent, dealer or
underwriter and any applicable commissions, discounts or other terms
constituting compensation with respect to a particular offer will be set forth
in an accompanying Prospectus Supplement. The aggregate proceeds to the Selling
Securityholders from the sale of the Notes or shares of Common Stock offered by
them hereby will be the purchase price of such Notes or shares of Common Stock
less discounts and commissions, if any.
The Notes and the shares of Common Stock which may be offered hereby may
be sold from time to time in one or more transactions at fixed offering prices,
which may be changed, or at varying prices determined at the
16
<PAGE>
time of sale or at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders and underwriters
or dealers who receive fees or commissions in connection therewith.
The outstanding Common Stock is listed for trading on the American Stock
Exchange, and the shares of Common Stock issuable upon conversion of the Notes
have been authorized for listing on the American Stock Exchange. There is no
assurance as to the development or liquidity of any trading market that may
develop for the Notes.
In order to comply with the securities laws of certain states, if
applicable, the Notes and shares of Common Stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states, the Notes and shares of Common Stock offered
hereby may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and compliance with same is effected.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or shares of Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such broker-dealers, agents or
underwriters and any profit on the resale of the Notes or shares of Common
Stock offered hereby and purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
BancAmerica Robertson Stephens has entered into a Securities Loan
Agreement with certain shareholders of the Company with respect to their shares
of Common Stock of the Company, which shares of Common Stock may become
registered under the Securities Act.
The Company has agreed to indemnify the Selling Securityholders against
certain liabilities arising under the Securities Act. The Company has agreed to
pay all expenses incident to the offer and sale of the Notes and Common Stock
offered hereby by the Selling Securityholders to the public, other than selling
commissions and fees.
DESCRIPTION OF NOTES
The Notes were initially issued under an indenture dated as of August 15,
1997 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"). The terms of the Notes include those stated
in the Indenture and those stated in the Registration Rights Agreement dated
August 15, 1997 (the "Registration Rights Agreement") between the Company and
Initial Purchasers. The following summaries of certain provisions of the Notes,
the Indenture and the Registration Rights Agreement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Notes, the Indenture and the Registration Rights
Agreement, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or defined
terms of the Indenture (or of the form of Note which is a part thereof) or the
Registration Rights Agreement are referred to, such provisions or defined terms
are incorporated herein by reference. Copies of the Indenture, Note and
Registration Rights Agreement are available from the Company upon request. As
used in this Description of Notes, the "Company" refers only to CareMatrix
Corporation and does not, unless the context otherwise indicates, include any of
its subsidiaries.
General. The Notes represent unsecured, general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "--Subordination," and convertible into Common Stock as
described under "--Conversion." The Notes are limited to $115,000,000 aggregate
principal amount, issued in fully registered form only in denominations of
$1,000 or any multiple thereof and will mature on August 15, 2004, unless
earlier redeemed at the option of the Company or repurchased by the Company at
the option of the holder upon a Repurchase Event (as defined).
The Notes bear interest from August 18, 1997 at the annual rate set forth
on the cover page hereof, payable semi-annually on February 15 and August 15,
commencing on February 15, 1998, to holders of record at the close of business
on the preceding February 1 and August 1, respectively (subject to certain
exceptions in the case of conversion, redemption or repurchase of such Notes
prior to the applicable interest payment date). Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without
service charge, at the office of the Company maintained by the Company for such
purposes in the Borough of Manhattan, The City of New York, which is currently
an office or agency of the Trustee. In addition, interest may, at the Company's
option, be paid by check mailed to such holder, provided that
17
<PAGE>
a holder of Notes with an aggregate principal amount in excess of $2,000,000
will be paid by wire transfer in immediately available funds at the election of
such holder. Reference is made to "--Form, Denomination and Registration" for
information as to Notes held by "qualified institutional buyers" and "Non-U.S.
persons."
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of Senior Indebtedness or other indebtedness. The Indenture contains
no covenants or other provisions to afford protection to holders of Notes in
the event of a highly leveraged transaction or a change in control of the
Company except to the limited extent described under "--Repurchase at Option of
Holders Upon a Repurchase Event" below.
No service charge will be made for any registration or transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. The
Company is not required to exchange or register the transfer of: (i) any Note
for a period of 15 days next preceding any selection of Notes to be redeemed,
(ii) any Note or portion thereof selected for redemption, (iii) any Note or
portion thereof surrendered for conversion, or (iv) any Note or portion thereof
surrendered for repurchase (and not withdrawn) in connection with a Repurchase
Event.
Conversion. The holders of Notes will be entitled at any time through the
close of business on the final maturity date of the Notes, subject to prior
redemption or repurchase, to convert any Notes or portions thereof (in
denominations of $1,000 or multiples thereof) into Common Stock of the Company,
at the conversion price set forth on the cover page of this Prospectus, subject
to adjustment as described below. Except as described below, no adjustment will
be made on conversion of any Notes for interest accrued thereon or for dividends
on any Common Stock issued. If Notes are converted after a record date for the
payment of interest and prior to the next succeeding interest payment date, such
Notes, other than Notes called for redemption pursuant to a redemption notice
mailed to the holders by the Company in accordance with the Indenture, must be
accompanied by funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. The Company is not required
to issue fractional shares of Common Stock upon conversion of Notes and, in lieu
thereof, will pay a cash adjustment based upon the market price of the Common
Stock on the last business day prior to the date of conversion. In the case of
Notes called for redemption, conversion rights will expire at the close of
business on the business day preceding the date fixed for redemption, unless the
Company defaults in payment of the redemption price. A Note for which a holder
has delivered a Repurchase Event purchase notice exercising the option of such
holder to require the Company to repurchase such Note may be converted only if
such notice is withdrawn by a written notice of withdrawal delivered by the
holder to the Company prior to the close of business on the business day
immediately preceding the date fixed for repurchase.
The right of conversion attaching to any Note may be exercised by the
holder by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issuance or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issuance or delivery of the Common Stock in a name other than
that of the holder of the Note. Certificates representing shares of Common
Stock will not be issued or delivered unless all taxes and duties, if any,
payable by the holder have been paid.
The initial conversion price of $28.875 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock; (ii) certain subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock at less than the current market
price of the Common Stock; (iv) the dividend or other distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock) or evidences of indebtedness of the Company or assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above or paid exclusively in cash); (v) dividends or other
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common Stock to the
extent that such distributions, combined together with (A) all other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made plus (B) any cash and the fair market value of
other consideration payable in respect
18
<PAGE>
of any tender offers by the Company or any of its subsidiaries for Common Stock
concluded within the preceding 12 months in respect of which no adjustment has
been made, exceeds 10% of the Company's market capitalization (being the product
of the then current market price of the Common Stock times the number of shares
of Common Stock then outstanding) on the record date for such distribution; (vi)
the purchase of Common Stock pursuant to a tender offer made by the Company or
any of its subsidiaries to the extent that the same involves an aggregate
consideration that, together with (X) any cash and the fair market value of any
other consideration payable in any other tender offer by the Company or any of
its subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer; and (vii) payment in respect of a tender offer or exchange
offer by a person other than the Company or any subsidiary of the Company in
which, as of the closing of the offer, the Board of Directors is not
recommending rejection of the offer. The adjustment referred to in clause (vii)
above will only be made if the tender offer or exchange offer is for an amount
which increases that person's ownership of Common Stock to more than 25% of the
total shares of Common Stock outstanding, and only if the cash and value of any
other consideration included in such payment per share of Common Stock exceeds
the current market price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange. The adjustment referred to in clause (vii) above will
not be made, however, if, as of the closing of the offer, the offering documents
with respect to such offer disclose a plan or an intention to cause the Company
to engage in any transaction described below in "--Consolidation, Merger or
Assumption."
The Indenture provides that if the Company implements a stockholders'
rights plan, such rights plan must provide that upon conversion of the Notes
the holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or resulting from a subdivision or combination)
or (ii) a consolidation, merger or combination involving the Company or a sale
or conveyance to another corporation of the property and assets of the Company
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock shall be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, the holders of the Notes then outstanding will
be entitled thereafter to convert such Notes into the kind and amount of shares
of stock, other securities or other property or assets (including cash) which
they would have owned or been entitled to receive upon such reclassification,
change, consolidation, merger, combination, sale or conveyance had such Notes
been converted into Common Stock immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance (assuming, in a
case in which the Company's stockholders may exercise rights of election, that a
holder of Notes would not have exercised any rights of election as to the stock,
other securities or other property or assets (including cash) receivable in
connection therewith and received per share the kind and amount received per
share by a plurality of non-electing shares).
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"Certain Federal Income Tax Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least l% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to
19
<PAGE>
be made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
Optional Redemption by the Company. The Notes are not redeemable at the
option of the Company prior to August 18, 2000. At any time on or after that
date, the Notes may be redeemed at the Company's option on at least 20 but not
more than 60 days' notice, as a whole or, from time to time in part, at the
following prices (expressed in percentages of the principal amount), together
with accrued interest to, but excluding, the date fixed for redemption;
provided that if a redemption date is an interest payment date, the semi-annual
payment of interest becoming due on such date shall be payable to the holder of
record as of the relevant record date.
If redeemed during the 12-month period beginning August 15 (August 18,
2000 through August 14, 2001 in the case of the first such period):
<TABLE>
<CAPTION>
Year Redemption Price
- - ---------------------------- -----------------
<S> <C>
2000 .................. 103.571%
2001 .................. 102.679
2002 .................. 101.786
2003 .................. 100.893
and 100% at August 15, 2004.
</TABLE>
If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed in principal amounts of $1,000 or multiples thereof by
lot or on a pro rata basis or by a method the Trustee considers fair and
appropriate (as long as such method is not prohibited by the rules of any
United States national securities exchange or of an established automated
over-the-counter trading market in the United States on which the Notes are
then listed). If any Note is to be redeemed in part only, a new Note or Notes
in principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a holder's Notes is selected for partial redemption and
such holder converts a portion of such Notes, such converted portion shall be
deemed to be taken from the portion selected for redemption.
No sinking fund is provided for the Notes.
Repurchase at Option of Holders Upon a Repurchase Event. The Indenture
provides that if a Repurchase Event (as defined) occurs, each holder of Notes
shall have the right, at the holder's option, to require the Company to
repurchase all of such holder's Notes, or any portion thereof that is an
integral multiple of $1,000, on the date (the "repurchase date") that is 40
calendar days (or, if such 40th day is not a Business Day, the next succeeding
Business Day) after the date of the Company Notice (as defined), for cash at a
price equal to 100% of the principal amount of the Notes, together with accrued
interest, if any, to the repurchase date (the "repurchase price"), provided,
however, that if a repurchase date is an interest payment date, the semi-annual
payment of interest becoming due on such date shall be payable to the holder of
record as of the relevant record date.
The Company may, at its option, in lieu of paying the repurchase price in
cash, pay the repurchase price in Common Stock valued at 95% of the average of
the closing prices of the Common Stock for the five consecutive trading days
ending on and including the third trading day preceding the repurchase date.
Payment may not be made in Common Stock unless the Company satisfies certain
conditions with respect to such payment as provided in the Indenture.
Within 15 calendar days after the occurrence of a Repurchase Event, the
Company is obligated to mail to all holders of record of the Notes a notice
(the "Company Notice") of the occurrence of such Repurchase Event and of the
repurchase right arising as a result thereof. The Company must deliver a copy
of the Company Notice to the Trustee and cause a copy or a summary of such
notice to be published in a newspaper of general circulation in the city of New
York. To exercise the repurchase right, a holder of such Notes must deliver, on
or before the 35th day after the Company Notice, written notice to the Company
(or an agent designated by the Company for such purpose) and the Trustee of the
holder's exercise of such right, together with the Notes with respect to which
the right is being exercised, duly endorsed for transfer.
"Repurchase Event" means a Change in Control (as defined) or a Termination
of Trading (as defined).
"Change in Control" will be deemed to have occurred when (i) any "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules
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<PAGE>
13d-3 and 13d-5 under the Exchange Act) of shares representing more than 50% of
the combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"); (ii)
approval by stockholders of the Company of any plan or proposal for the
liquidation, dissolution or winding up of the Company; (iii) the Company (A)
consolidates with or merges into any other corporation or any other corporation
merges into the Company, and in the case of any such transaction, the
outstanding Common Stock of the Company is changed or exchanged into or for
other assets or securities as a result, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly immediately
following such transaction, at least 51% of the combined voting power of the
outstanding voting securities of the corporation resulting from such transaction
in substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction or (B) conveys, transfers or leases all or
substantially all of its assets to any person; or (iv) any time Continuing
Directors (as defined) do not constitute a majority of the Board of Directors of
the Company (or, if applicable, a successor corporation to the Company);
provided that a Change in Control shall not be deemed to have occurred if either
(x) the last sale price of the Common Stock for any five trading days during the
ten trading days immediately preceding the Change in Control is at least equal
to 105% of the conversion price in effect on such day or (y) in the case of a
merger or consolidation otherwise constituting a Change in Control, all of the
consideration (excluding cash payments for fractional shares) in such merger or
consolidation constituting the Change in Control consists of common stock traded
on a United States national securities exchange or quoted on the Nasdaq National
Market (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) and as a result of such transaction or
transactions such Notes become convertible solely into such common stock. A
Change in Control also shall not be deemed to have occurred if Abraham D. Gosman
or a group (within the meaning of Section 13(d) of the Exchange Act) that
includes Abraham D. Gosman (a "Permitted Investor") becomes the beneficial owner
of more than 50% of the Voting Stock, provided that, if as a consequence of any
transaction involving a Permitted Investor, or in which a Permitted Investor has
an interest, less than 30% of the number of shares of Common Stock outstanding
upon the issuance of the Notes are neither listed for trading upon a national
securities exchange nor approved for trading or quoted for trading on the Nasdaq
National Market, then a Change in Control shall be deemed to have occurred upon
the consummation of such transaction.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on August 18, 1997 or (ii) who was
nominated or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or
election or such lesser number comprising a majority of a nominating committee
if authority for such nominations or elections has been delegated to a
nominating committee whose authority and composition has been approved by at
least a majority of the directors who were continuing directors at the time such
committee was formed. (Under this definition, if the current Board of Directors
of the Company were to approve a new director or directors and then resign, no
Change in Control would occur even though the current Board of Directors would
thereafter cease to be in office).
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change in Control, is likely to be interpreted by
reference to applicable state law at the relevant time, and will be dependent
on the facts and circumstances existing at such time. As a result, there may be
a degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
A "Termination of Trading" shall have occurred if the Common Stock (or
other common stock into which the Notes are then convertible) is neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.
If a Repurchase Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price in cash for all Notes tendered by
holders thereof. The Company's ability to repurchase Notes with cash may also
be limited or prohibited by the terms of its then-existing borrowing
arrangements due to dividend restrictions. Moreover, although under the
Indenture the Company may elect, subject to satisfaction of certain conditions,
to pay the repurchase price for the Notes using shares of Common Stock, any
future credit agreements or other agreements relating to other indebtedness
(including other Senior Indebtedness) to which the Company becomes a party may
contain restrictions on or prohibitions of the repurchase of the Notes by the
Company that apply even if the purchase price is paid with shares of capital
stock. In the event a Repurchase Event occurs at a time when the Company is
prohibited from repurchasing Notes, the Company could seek the consent of its
lenders to repurchase the Notes or could attempt
21
<PAGE>
to refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company would remain
prohibited from repurchasing Notes. In such case, the Company's failure to
repurchase the Notes would constitute an Event of Default under the Indenture
whether or not payment of the repurchase price is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness of the Company. Moreover, the occurrence of a
Repurchase Event may, in turn, cause a default under Senior Indebtedness of the
Company. As a result, in either case, payment of the repurchase price of the
Notes with cash would, absent a waiver, be prohibited under the subordination
provisions of the Indenture until the Senior Indebtedness is paid in full. See
"--Subordination" below and "Risk Factors Subordination."
No Notes may be repurchased at the option of holders upon a Repurchase
Event if there has occurred and is continuing an Event of Default described
under "--Events of Default and Remedies" below (other than a default in the
payment of the repurchase price with respect to such Notes on the repurchase
date).
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, a change in control
of the Company or other transactions involving the Company that may adversely
affect holders. The Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would
not constitute a Change in Control but that would increase the amount of Senior
Indebtedness (or other indebtedness) outstanding at such time. There are no
restrictions in the Indenture or the Notes on the creation of additional Senior
Indebtedness (or any other indebtedness of the Company or any of its
subsidiaries) and the incurrence of significant amounts of additional
indebtedness could have an adverse impact on the Company's ability to service
its debt, including the Notes. The Notes are subordinate in right of payment to
all existing and future Senior Indebtedness as described under
"--Subordination" below.
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the repurchase right. The Indenture does not provide the Company's Board
of Directors with the right to limit or waive the repurchase right in the event
of any such leveraged transaction. The right to require the Company to
repurchase Notes as a result of a Repurchase Event could have the effect of
delaying, deferring or preventing a Change in Control or other attempts to
acquire control of the Company unless arrangements have been made to enable the
Company to repurchase all of the Notes at the repurchase date. Consequently, the
right may render more difficult or discourage a merger, consolidation or tender
offer (even if such transaction is supported by the Company's Board of Directors
or is favorable to the stockholders), the assumption of control by a holder of a
large block of the Company's shares and the removal of incumbent management. The
Repurchase Event repurchase right, however, is not the result of management's
knowledge of any specific effort to accumulate shares of Common Stock or to
obtain control of the Company by means of a merger, tender offer, solicitation
or otherwise. Instead, the Repurchase Event repurchase right is a standard term
contained in other similar debt offerings and the terms of such feature have
resulted from negotiations between the Company and the Initial Purchasers.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
Subordination. The indebtedness evidenced by the Notes is, to the extent
provided in the Indenture, subordinate to the prior payment in full of all
Senior Indebtedness (as defined) whether presently outstanding or hereafter
incurred or created. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, the
payment of the principal of, or premium, if any, and interest on the Notes is
to be subordinated to the extent provided in the Indenture in right of payment
to the prior payment in full, in cash or in such other form of payment as may
be acceptable to the holders thereof, of all Senior Indebtedness. Moreover, in
the event of any acceleration of the Notes because of an Event of Default, the
holders of any Senior Indebtedness then outstanding would be entitled to
payment in full of all obligations in respect of such Senior Indebtedness
before the holders of the Notes are entitled to receive any payment or
distribution in respect thereof.
The Company may also not make any payment upon or in respect of the Notes
if (i) a default in the payment of principal of, premium, if any, interest, or
other payment due on Senior Indebtedness occurs and is continuing beyond any
applicable period of grace or (ii) any other default occurs and is continuing
with respect to Designated Senior Indebtedness (as defined) that permits
holders of the Designated Senior Indebtedness as to which such default related
to accelerate its maturity and the Trustee and the Company receive a notice of
such default (a "Payment
22
<PAGE>
Blockage Notice") from a person permitted to give such notice under the
Indenture. Payments on the Notes may and shall be resumed (a) in case of payment
default, on the date on which such default is cured or waived or ceases to exist
and (b) in case of a nonpayment default with respect to Designated Senior
Indebtedness, on the earlier of the date on which such nonpayment default is
cured or waived or ceases to exist or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced pursuant to a Payment Blockage Notice unless (i) 365
days have elapsed since the first day of the effectiveness of the immediately
prior Payment Blockage Notice, and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have become due have been paid
in full in cash. No default (whether or not such event of default is on the same
issue of Designated Senior Indebtedness) that existed or was continuing on the
date of delivery of any Payment Blockage Notice shall be, or shall be made, the
basis for a subsequent Payment Blockage Notice.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created: (a) all indebtedness of
the Company for money borrowed or evidenced by notes, debentures, bonds or other
securities (including, but not limited to, those which are convertible or
exchangeable for securities of the Company) and all other obligations of the
Company constituting the deferred purchase price of property or assets; (b) all
indebtedness of the Company due and owing with respect to letters of credit
(including, but not limited to, reimbursement obligations with respect thereto);
(c) all indebtedness or other obligations of the Company due and owing with
respect to interest rate and currency swap agreements, cap, floor and collar
agreements, currency spot and forward contracts and other similar agreements and
arrangements; (d) all indebtedness consisting of commitment or standby fees due
and payable to lending institutions with respect to credit facilities or letters
of credit available to the Company; (e) all obligations of the Company under
leases required or permitted to be capitalized under generally accepted
accounting principles or under any lease or related document (including a
purchase agreement) that provides that the Company is contractually obligated to
purchase or cause a third party to purchase and thereby guarantee a minimum
residual value of the lease property to the lessor and the obligations of the
Company under such lease or related document to purchase or to cause a third
party to purchase such leased property; (f) all indebtedness or obligations of
others of the kinds described in any of the preceding clauses (a), (b), (c), (d)
or (e) assumed by or guaranteed in any manner by the Company or in effect
guaranteed (directly or indirectly) by the Company through an agreement to
purchase, contingent or otherwise, and all obligations of the Company under any
such guarantee or other arrangements; and (g) all renewals, extensions,
refundings, deferrals, amendments or modifications of indebtedness or
obligations of the kinds described in any of the preceding clauses (a), (b),
(c), (d), (e) or (f); unless in the case of any particular indebtedness,
obligation, renewal, extension, refunding, amendment, modification or
supplement, the instrument or other document creating or evidencing the same or
the assumption or guarantee of the same expressly provides that such
indebtedness, obligation, renewal, extension, refunding, amendment, modification
or supplement is subordinate to, or is not superior to, or is pari passu with,
the Notes; provided that Senior Indebtedness shall not include (i) any
indebtedness of any kind of the Company to any subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company, (ii) indebtedness for trade payables or constituting the deferred
purchase price of assets or services incurred in the ordinary course of
business, or (iii) the Notes.
The term "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such Senior Indebtedness shall
be "Designated Senior Indebtedness" for purposes of the Indenture (provided
that such instrument, agreement or other document may place limitations and
conditions on the right of holders of such Senior Indebtedness to exercise the
rights of Designated Senior Indebtedness).
Notwithstanding the foregoing, in the event that the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of the holders of Senior Indebtedness of the Company, and will
be immediately paid over or delivered to the holders of Senior Indebtedness of
the Company or their respective representative or representatives,
23
<PAGE>
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, as calculated by the Company, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to make payment in full of all Senior Indebtedness of the Company
remaining unpaid, after giving effect to any concurrent payment or distribution,
or provision therefor, to or for the holders of Senior Indebtedness of the
Company.
The Notes are obligations exclusively of the Company. Since the
consolidated operations of the Company are partially conducted through
subsidiaries, the cash flow and the consequent ability to service debt,
including the Notes of the Company, are partially dependent upon the earnings
of such subsidiaries and the distribution of those earnings to, or upon loans
or other payments of funds by those subsidiaries to the Company. The
subsidiaries of the Company are separate and distinct legal entities and have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans or
other payments. In addition, the payment of dividends and the making of loans
and other payments to the Company by any such subsidiaries could be subject to
statutory and contractual restrictions, are dependent upon the earnings of such
subsidiaries and are subject to various business considerations. Any right of
the Company to receive assets of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in these assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company.
As of September 30, 1997, the Company had approximately $2.4 million of
indebtedness outstanding (excluding accrued interest) that would have
constituted Senior Indebtedness. As of September 30, 1997, there was also
outstanding approximately $2.7 million in liabilities of subsidiaries of the
Company (excluding intercompany liabilities and liabilities of a type not
required to be reflected as liabilities on the balance sheet of such
subsidiaries in accordance with generally accepted accounting principles). The
Indenture will not limit the amount of additional indebtedness, including
Senior Indebtedness, which the Company can create, incur, assume or guarantee,
nor will the Indenture limit the amount of indebtedness which any subsidiary of
the Company can create, incur, assume or guarantee.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on, the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any default or Event of Default or limit the rights of any holder
of Notes to pursue any other rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings or an assignment for the benefit of the creditors of the Company or
a marshaling of assets or liabilities of the Company and its subsidiaries,
holders of the Notes may receive ratably less than other creditors.
Events of Default and Remedies. An Event of Default is defined in the
Indenture as being: (i) a default in payment of the principal of, or premium,
if any, on the Notes (whether or not such payment is prohibited by the
subordination provisions of the Indenture); (ii) default for 30 days in payment
of any installment of interest on the Notes (whether or not such payment is
prohibited by the subordination provisions of the Indenture); (iii) default by
the Company for 45 days after notice given in accordance with the Indenture in
the observance or performance of any other covenants in the Indenture; (iv)
default in the payment of the repurchase price in respect of the Note on the
repurchase date therefor (whether or not such payment in cash of the repurchase
price is prohibited by the subordination provisions of the Indenture); (v)
failure to provide timely notice of a Repurchase Event; (vi) failure of the
Company or any Significant Subsidiary (as defined) to make any payment at
maturity, including any applicable grace period, in respect of Indebtedness
(which term as used in the Indenture means obligations of, or guaranteed or
assumed by, the Company or any Significant Subsidiary for borrowed money), in
an amount in excess of $5,000,000 and continuance of such failure for 30 days
after notice given in accordance with the Indenture; (vii) default by the
Company or any Significant Subsidiary with respect to any Indebtedness, which
default results in the acceleration of Indebtedness in an amount in excess of
$5,000,000 without such Indebtedness having been discharged or such
acceleration having been rescinded or annulled for 30 days after notice given
in accordance with the Indenture; or (viii) certain events involving
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary.
24
<PAGE>
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Notes notice of
all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest to such registered 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 Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture provides that if any Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of interest on, premium, if any,
and principal of any Notes which shall have become due by acceleration) and
certain other conditions are met, such declaration may be canceled and past
defaults may be waived by the holders of a majority in principal amount of
Notes then outstanding. If an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization were to occur, all unpaid principal of
and accrued interest on the outstanding Notes will become due and payable
immediately without any declaration or other act on the part of the Trustee or
any holders of Notes, subject to certain limitations.
The Indenture provides that the holders of a majority in principal amount
of the outstanding Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee, subject to certain limitations specified in
the Indenture. Before proceeding to exercise any right or power under the
Indenture at the direction of such holders, the Trustee shall be entitled to
receive from such holders reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. The right of a holder to institute a proceeding with respect to
the Indenture is subject to certain conditions precedent, including the written
notice by such holder of an Event of Default and an offer to indemnify to the
Trustee, along with the written request by the holders of not less than 25% in
principal amount of the outstanding Notes that such a proceeding be instituted,
but the holder has an absolute right to institute suit for the enforcement of
payment of the principal of, and premium, if any, and interest on, such
holder's Notes when due and to convert such Notes.
The holders of not less than a majority in principal amount of the
outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except (i) a default in payment of the principal of, or premium, if
any, or interest on, any Note when due, (ii) a failure by the Company to convert
any Notes into Common Stock, or (iii) a default in respect of certain provisions
of the Indenture which cannot be modified or amended without the consent of the
holder of each outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually within 120 days
of the end of the fiscal year a statement of certain officers of the Company
stating whether or not to the best of their knowledge the Company is in default
in the performance and observation of certain terms of the Indenture and, if
they have knowledge that the Company is in default, specifying such default.
The Company is also required, upon becoming aware of any default or Event of
Default, to deliver to the Trustee a statement specifying such default or Event
of Default and the action the Company has taken, is taking or proposes to take
with respect thereto.
Consolidation, Merger or Assumption. The Indenture provides that the
Company may not, directly or indirectly, consolidate with or merge with or into
another person or sell, lease, convey or transfer all or substantially all of
its assets, whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons, unless (i)
either (a) in the case of a merger or consolidation that does not involve a
transfer of all or substantially all of the Company's assets, the Company is
the surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by written agreement all of the
obligations of the Company in connection with the Notes and the Indenture; (ii)
no default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; and (iii) certain other
conditions are satisfied.
Modifications of the Indenture. The Indenture contains provisions
permitting the Company and the Trustee, with the consent of the holders of not
less than a majority in principal amount of the Notes at the time outstanding,
to modify the Indenture or any supplemental indenture or the rights of the
holders of the Notes, except that no such modification shall (i) extend the
fixed maturity of any Note, reduce the rate or extend the time or payment of
interest thereon, reduce the principal amount thereof or premium, if any,
thereon, reduce any amount payable upon redemption or repurchase thereof,
impair, or change in any respect adverse to the holders of Notes, the
obligation
25
<PAGE>
of the Company to repurchase any Note upon the happening of a Repurchase Event,
impair or adversely affect the right of a holder to institute suit for the
payment thereof, change the currency in which the Notes are payable, or impair,
or change in any respect adverse to the holder of the Notes, the right to
convert the Notes into Common Stock subject to the terms set forth in the
Indenture or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the holders of the Notes,
without the consent of the holder of each Note so affected, or (ii) reduce the
aforesaid percentage of Notes, without the consent of the holders of all of the
Notes then outstanding.
Registration Rights. The Company has filed a Registration Statement, of
which this Prospectus forms a part (the "Registration Statement"), pursuant to
the terms of the Registration Rights Agreement. Under the Registration Rights
Agreement, the Company agreed to file, at its expense, with the Commission as
promptly as practicable after the earliest date of initial issuance of any of
the Notes, the Registration Statement (of which this Prospectus forms a part)
covering resales of Transfer Restricted Securities by the holders thereof and
to use all commercially reasonable efforts to cause the Registration Statement
to become effective as promptly as is practicable and to keep the Registration
Statement effective until the earlier of such date that is two years after the
latest date of initial issuance of any of the Notes or until the Registration
Statement is no longer required for transfer of any Transfer Restricted
Securities. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note and share of Common Stock issued upon conversion thereof until
the date on which such Note or share of Common Stock has been effectively
registered under the Securities Act and disposed of in accordance with this
Shelf Registration Statement or the date on which such Note or share of Common
Stock is distributed to the public pursuant to Rule 144 under the Securities
Act or is salable pursuant to Rule 144(k) under the Securities Act (or any
similar provisions then in force) or the date on which such Note or share of
Common Stock ceases to be outstanding, whichever date is earliest.
The Registration Rights Agreement provides that if the Registration
Statement, of which this prospectus is a part, ceases to be effective or usable
(without being succeeded immediately by an additional shelf registration
statement filed and declared effective which is then available for effecting
resales of Transfer Restricted Securities) for a period of time which shall
exceed 90 days in the aggregate in any period of 365 consecutive days (a
"Registration Default"), the Company will pay liquidated damages to each holder
of Securities, during the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $0.05 per week per
$1,000 principal amount of Notes and, if applicable, on an equivalent basis per
share (subject to adjustment in the event of stock splits, stock recombinations,
stock dividends and the like) of Common Stock constituting Transfer Restricted
Securities held by such holder. The rate of accrual of the liquidated damages
will increase by an additional $0.05 per week per $1,000 principal amount of
Notes and, if applicable, by an equivalent amount per week per share (subject to
adjustment as set forth above) of Common Stock constituting Transfer Restricted
Securities for each subsequent 90-day period following the occurrence of such
Registration Default until the applicable registration statement is filed, the
applicable registration statement is declared effective and becomes available
for effecting sales of securities, or the Registration Statement again becomes
effective and becomes available for effecting sales of securities, as the case
may be, up to a maximum amount of liquidated damages of $0.25 per week per
$1,000 principal amount of Notes or if applicable, an equivalent amount per week
per share (subject to adjustment as set forth above) of Common Stock
constituting Restricted Securities. Following the cure of a Registration
Default, liquidated damages will cease to accrue with respect to such
Registration Default (without in any way limiting the effect of any subsequent
Registration Default). All accrued liquidated damages shall be paid to the
holders of Notes or shares of Common Stock (as applicable) in the same manner as
interest payments on the Notes on semiannual payment dates which correspond to
interest payment dates for the Notes. The use of the Registration Statement for
effecting resales of Transfer Restricted Securities may be suspended in certain
circumstances described in the Registration Rights Agreement upon notice by the
Company to the holders of the Transfer Restricted Securities, subject to the
rights of the holders of Transfer Restricted Securities to receive liquidated
damages if the aggregate number of days of such suspensions in any year exceeds
the periods described above.
Taxation of Notes. See "Certain Federal Income Tax Considerations" for a
discussion of certain federal tax aspects which will apply to holders of Notes.
Satisfaction and Discharge. The Company may discharge its obligations
under the Indenture while Notes remain outstanding if (i) all outstanding Notes
will become due and payable at their scheduled maturity within one
26
<PAGE>
year or (ii) all outstanding Notes are scheduled for redemption within one year,
and, in either case, the Company has deposited with the Trustee an amount
sufficient to pay and discharge all outstanding Notes on the date of their
scheduled maturity or the scheduled date of redemption.
Governing Law. The Indenture, the Registration Rights Agreement and the
Notes are governed by and construed in accordance with the laws of the State of
New York.
Concerning the Trustee. State Street Bank and Trust Company, the Trustee
under the Indenture, has been appointed by the Company as the initial paying
agent, conversion agent, registrar and custodian with regard to the Notes. The
Company may maintain deposit accounts and conduct other banking transactions
with the Trustee or its affiliates in the ordinary course of business, and the
Trustee and its affiliates may from time to time in the future provide banking
and other services to the Company in the ordinary course of their business.
During the existence of an Event of Default, the Trustee will exercise
such rights and powers vested in it under the Indenture and use the same degree
and care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and the Trust Indenture Act of 1939, as amended (the "TIA"),
contains certain limitations on the rights of the Trustee, should it become a
creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received in respect of any such claim as security
or otherwise. Subject to the TIA, the Trustee will be permitted to engage in
other transactions, provided, however, that if it acquires any conflicting
interest (as described in the TIA), it must eliminate such conflict or resign.
27
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. This discussion does not purport to deal
with all aspects of federal income taxation that may be relevant to a
particular investor's decision to purchase the Notes, and it is not intended to
be wholly applicable to all categories of investors, some of which, such as
dealers in securities, banks, insurance companies, tax-exempt organizations and
non-United States persons, may be subject to special rules. In addition, this
discussion is limited to persons that purchase the Notes in this offering and
hold the Notes as a "capital asset" within the meaning of Section 1221 of the
Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
Conversion of Notes into Common Stock. In general, no gain or loss will be
recognized for federal income tax purposes on a conversion of the Notes into
shares of Common Stock. However, cash paid in lieu of a fractional share of
Common Stock will likely result in taxable gain (or loss), which will be
capital gain (or loss), to the extent that the amount of such cash exceeds (or
is exceeded by) the portion of the adjusted basis of the Note allocable to such
fractional share. The adjusted basis of shares of Common Stock received on
conversion will equal the adjusted basis of the Note converted, reduced by the
portion of adjusted basis allocated to any fractional share of Common Stock
exchanged for cash. The holding period of an investor in the Common Stock
received on conversion will include the period during which the converted Notes
were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion." Section 305 of the Code
and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company current earnings and profits as
of the end of the taxable year to which the constructive distribution relates
and/or accumulated earnings and profits, if and to the extent that certain
adjustments in the conversion price that may occur in limited circumstances
(particularly an adjustment to reflect a taxable dividend to holders of Common
Stock) increase the proportionate interest of a holder of Notes in the fully
diluted Common Stock, whether or not such holder ever exercises its conversion
privilege. Moreover, if there is not a full adjustment to the conversion price
of the Notes to reflect a stock dividend or other event increasing the
proportionate interest of the holders of outstanding Common Stock in the assets
or earnings and profits of the Company, then such increase in the proportionate
interest of the holders of the Common Stock generally will be treated as a
distribution to such holders, taxable as ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) to the extent of
the Company current earnings and profits as of the end of the taxable year to
which the constructive distribution relates and/or accumulated earnings and
profits.
Market Discount. Investors acquiring Notes pursuant to this Prospectus
should note that the resale of such Notes may be adversely affected by the
market discount provisions of sections 1276 through 1278 of the Code. Under the
market discount rules, if a holder of a Note purchases it at market discount
(i.e., at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized
or the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
on a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions (e.g., gifts). Any accrued
market discount not previously taken into income prior to a conversion of a
Note, however, is likely to carry over to the Common Stock received on
conversion and be treated as ordinary income upon a subsequent disposition of
such Common Stock to the extent of any gain recognized on such disposition. In
addition, absent an election to include market discount in income as it
accrues, a holder of a market discount debt instrument may be required to defer
a portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry such debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
Taxation of Interest. Interest paid on the Notes will be included in the
income of a holder as ordinary income at the time it is treated as received or
accrued, in accordance with the holder's regular method of tax accounting.
28
<PAGE>
Failure of the Company to file, cause to be declared effective or maintain
effective a Shelf Registration Statement as described under "Description of
Notes--Registration Rights" will cause additional interest to accrue on the
Notes in the manner described therein. According to Treasury Regulations, the
possibility of a change in the interest rate will not affect the amount of
interest income recognized by a holder (or the timing of such recognition) if
the likelihood of the change, as of the date the Notes are issued, is remote.
The Company believes that the likelihood of a change in the interest rate on
the Notes is remote and does not intend to treat the possibility of a change in
the interest rate as affecting the yield to maturity of any Note. In the
unlikely event that the interest rate on the Notes is increased, then such
increased interest may be treated as original issue discount, includible by a
holder in income as such interest accrues, in advance of receipt of any cash
payment thereof.
Sale, Exchange or Retirement of Notes. Each holder of Notes generally will
recognize gain or loss upon the sale, exchange, redemption, repurchase,
retirement or other disposition of those Notes measured by the difference (if
any) between (i) the amount of cash and the fair market value of any property
received (except to the extent that such cash or other property is attributable
to the payment of accrued interest not previously included in income, which
amount will be taxable as ordinary income) and (ii) the holder's adjusted tax
basis in those Notes (including any market discount previously included in
income by the holder). Each holder of Common Stock into which the Notes are
converted, in general, will recognize gain or loss upon the sale, exchange,
redemption, or other disposition of the Common Stock measured under rules
similar to those described in the preceding sentence for the Notes. Special
rules may apply to redemptions of Common Stock which may result in different
treatment. Any such gain or loss recognized on the sale, exchange, redemption,
repurchase, retirement or other disposition of a Note or share of Common Stock
should be capital gain or loss (except as discussed under "--Market Discount"
above), and would be long-term capital gain or loss if the Note or the Common
Stock or the combined holding period of both the Notes and the Common Stock
into which such Notes were converted had been held for or equalled more than
one year at the time of the sale or exchange. An investor's initial basis in a
Note will be the cash price paid therefor.
Back-Up Withholding. A holder of Notes or Common Stock may be subject to
"back-up withholding" from a reportable payment at a rate of 31 percent if,
among other things, (i) the holder fails to furnish a social security number or
other taxpayer identification number ("TIN") to the Company certified under
penalties of perjury within a reasonable time after the request therefor; (ii)
the IRS notifies the Company that the TIN furnished by the holder is incorrect;
(iii) the IRS notifies the Company that backup withholding should be commenced
because the holder has failed to properly report interest or dividends; or (iv)
when required to do so, the holder fails to certify under penalties of perjury
that such holder is not subject to backup withholding or that the TIN provided
to the Company is correct. Reportable payments include interest payments,
dividend payments and, under certain circumstances, principal payments on the
Notes. A holder who does not provide the Company with its correct TIN also may
be subject to penalties imposed by the IRS. Any amount withheld from a payment
to a holder under the back-up withholding rules is creditable against the
holder's federal income tax liability, provided the required information is
furnished to the IRS. Back-up withholding will not apply, however, with respect
to payments made to certain holders, including corporations, tax-exempt
organizations and certain Non-U.S. persons, provided their exemption from
back-up withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to
the IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to such payments.
29
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Notes and the shares of
Common Stock being offered hereby will be passed upon by Nutter, McClennen &
Fish, LLP, Boston, MA 02110. Michael J. Bohnen, a partner at Nutter, McClennen
& Fish, LLP, is the Assistant Secretary of the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended, and the combined financial statements of the
Company as of December 31, 1995 and for the year ended December 31, 1995 and
the period from June 24, 1994 (inception) to December 31, 1994, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of said firm as experts in accounting and auditing.
30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the offering to which this Registration
Statement relates, other than commissions, are to be borne by the Company. All
of the amounts shown are estimated except the Securities and Exchange
Commission registration fee:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ...... $ 34,849
Accounting Fees .......................................... 15,000
Legal Fees ................................................ 35,000
Printing Expenses ....................................... 35,000
Miscellaneous Expense .................................... 20,151
---------
Total ................................................... $140,000
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law, as amended, which provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite an adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Article 11 of the Company's Third Restated Certificate of Incorporation
eliminates the personal liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty to the full
extent permitted by Delaware law. Article VII of the Company's By-Laws provides
that the Company indemnify its officers and directors to the full extent
permitted by the Delaware General Corporation Law.
The Company has entered into indemnification agreements with each of its
directors. The Company may also enter into similar agreements with certain of
its officers who are not also directors. Generally, the Company's By-Laws and
the indemnification agreements attempt to provide the maximum protection
permitted by Delaware law with respect to indemnification of directors and
officers.
The indemnification agreements provide that the Company will pay certain
amounts incurred by a director or officer in connection with any civil or
criminal action or proceeding, and specifically including actions by or in the
name of the Company (derivative suits), where the individual's involvement is
by reason of the fact that he is or was a director or officer of the Company.
Such amounts include, to the maximum extent permitted by law,
II-1
<PAGE>
attorney's fees, judgments, civil or criminal fines, settlement amounts, and
other expenses customarily incurred in connection with legal proceedings. Under
the indemnification agreements and the Company's By-Laws, a director or officer
will not receive indemnification if he is found not to have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
Item 16. List of Exhibits.
<TABLE>
<CAPTION>
Exhibit No.
<S> <C> <C>
* 4.1 Indenture dated as of August 15, 1997
* 4.2 Registration Rights Agreement dated as of August 15, 1997
* 5.1 Opinion of Nutter, McClennen & Fish, LLP
+ 12.1 Computation of Ratios
+ 23.1 Consent of Coopers & Lybrand L.L.P.
* 23.2 Consent of Nutter, McClennen & Fish, LLP (included in Exhibit 5.1)
* 24.1 Power of Attorney (contained in Page II-4)
* 25.1 Statement of Eligibility of Trustee
</TABLE>
- - ----------------
+ Filed herewith.
* Previously filed.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the 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 Commission such indemnification is against
public policy as expressed in the 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 against 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Act.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the ow or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distrubition not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering; and
II-2
<PAGE>
(4) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
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 Needham, Commonwealth of Massachusetts on this 9th
day of December 1997.
CAREMATRIX CORPORATION
By: /s/ Robert M. Kaufman
----------------------------------
Robert M. Kaufman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ ABRAHAM D. GOSMAN* December 9, 1997
- - ---------------------------------
Abraham D. Gosman
Chairman of the Board of Directors
/s/ ANDREW D. GOSMAN* December 9, 1997
- - ---------------------------------
Andrew D. Gosman,
Director and President
/s/ MICHAEL M. GOSMAN* December 9, 1997
- - ---------------------------------
Michael M. Gosman,
Director, Executive Vice President and
Vice Chairman of the Board of Directors
/s/ ROBERT CATALDO* December 9, 1997
- - ---------------------------------
Robert Cataldo,
Director
/s/ DONALD J. AMARAL* December 9, 1997
- - ---------------------------------
Donald J. Amaral,
Director
/s/ H. LOY ANDERSON, JR.* December 9, 1997
- - ---------------------------------
H. Loy Anderson, Jr.,
Director
/s/ BEDROS BAHARIAN* December 9, 1997
- - ---------------------------------
Bedros Baharian,
Director
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
/s/ STEPHEN E. RONAI* December 9, 1997
- - ---------------------------------
Stephen E. Ronai,
Director
/s/ ROBERT M. KAUFMAN December 9, 1997
- - ---------------------------------
Robert M. Kaufman,
Chief Executive Officer and
Principal Accounting Officer
*By: /s/ ROBERT M. KAUFMAN December 9, 1997
-----------------------------
Robert M. Kaufman
Attorney-in-Fact
</TABLE>
Powers of Attorney have been filed with this Registration Statement.
II-5
Exhibit 12.1
CareMatrix Corporation
Ratio of earnings to fixed charges
<TABLE>
<CAPTION>
Nine months Year ended December 31, June 24, 1994
ended (inception) to
September 30, 1997 1996 1995 December 31, 1994
-------------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Pre-tax earnings (loss) from
continuing operations ............ $ 6,682,224 ($ 6,579,392) ($ 7,206,243) ($ 2,555,352)
Add back fixed charges deducted
from earnings (loss) ............ 3,470,994 1,816,163 917,431 155,993
Less pre-tax equivalent of preferred
stock dividends .................. (29,891) (66,222) -- --
----------- ----------- ----------- -----------
$10,123,327 ($ 4,829,451) ($ 6,288,813) ($ 2,399,359)
=========== =========== =========== ===========
Fixed charges:
Interest expense .................. 1,428,600 1,137,974 543,571 55,856
Portion of operating lease rentals
deemed to represent in ......... 2,012,503 611,967 373,860 100,137
Pre-tax equivalent of preferred
stock dividends .................. 29,891 66,222 -- --
----------- ----------- ----------- -----------
$ 3,470,994 $ 1,816,163 $ 917,431 $ 155,993
=========== =========== =========== ===========
Ratio of earnings to fixed charges 2.92
===========
Deficiency of earnings available
to cover fixed charges ......... ($ 6,645,614) ($ 7,206,243) ($ 2,555,352)
=========== =========== ===========
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of CareMatrix Corporation on Form S-3 of our report dated February 7, 1997, on
our audits of the consolidated financial statements of CareMatrix Corporation
as of December 31, 1996 and for the year then ended, and the combined financial
statements of CareMatrix Corporation as of December 31, 1995 and for the year
ended December 31, 1995 and the period from June 24, 1994 (inception) to
December 31, 1994. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand, L.L.P.
Boston, Massachusetts
December 9, 1997
