<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997
REGISTRATION NO. 333-16269
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARV ASSISTED LIVING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 8261 33-016098
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NO.)
</TABLE>
------------------------
245 FISCHER AVENUE
COSTA MESA, CALIFORNIA 92626
(714) 751-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SHEILA M. MULDOON, ESQ.
GENERAL COUNSEL
245 FISCHER AVENUE
COSTA MESA, CALIFORNIA 92626
(714) 751-7400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
WILLIAM J. CERNIUS, ESQ.
DAVID L. KUIPER, ESQ.
LATHAM & WATKINS
650 TOWN CENTER DRIVE, 20TH FLOOR
COSTA MESA, CALIFORNIA 92626
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Approximate date of commencement of the proposed sale to the public:
ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
- ----------
$57,500,000
ARV ASSISTED LIVING, INC. [LOGO]
6 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
This Prospectus relates to the public offer and sale of up to $57,500,000
aggregate principal amount of 6 3/4% Convertible Subordinated Notes due 2006
(the "Convertible Notes") of ARV Assisted Living, Inc. ("ARV" or the "Company"),
and an indeterminate number of shares of the Company's common stock, no par
value (the "Common Stock"), as may be issued upon conversion of the Convertible
Notes (the "Conversion Shares"). The Convertible Notes and the Conversion Shares
(collectively referred to herein as the "Securities") may be offered from time
to time for the account of the holders thereof named herein (the "Selling
Securityholders"). See "Plan of Distribution." The Company will not receive any
proceeds from this Offering.
The Convertible Notes were originally issued by the Company in a private
placement in compliance with Rule 144A and Regulation S under the Securities Act
of 1933, as amended (the "Securities Act"). See "Prospectus Summary -- The
Private Placement." As of the date of this Prospectus, the aggregate principal
amount of Convertible Notes outstanding is $57,500,000 and no Convertible Notes
have been converted into Conversion Shares. Prior to the date of this
Prospectus, there has been no public market for the Convertible Notes and there
can be no assurance that an active trading market for the Convertible Notes will
develop.
The Convertible Notes are convertible into Common Stock at the option of
the holder thereof at any time prior to maturity, unless previously redeemed, at
a conversion price of $18.57 per share, subject to adjustment in certain events.
The Common Stock is traded on The Nasdaq National Market under the symbol
"ARVI." On January 13, 1997, the last reported sales price of the Common Stock
on The Nasdaq National Market was $11.625 per share. See "Price Range of Common
Stock and Dividend Policy."
The Company has been advised by the Selling Securityholders that the
Selling Securityholders, acting as principals for their own account, directly or
through agents, dealers, market makers or underwriters to be designated from
time to time, may sell the Convertible Notes and the Conversion Shares from time
to time on terms to be determined at the time of the sale through brokers or
private sales at market prices then prevailing or at negotiated prices then
obtainable. Each of the Selling Securityholders reserves the right to accept
and, together with its agents from time to time, to reject in whole or in part
any proposed purchase of the Convertible Notes or Conversion Shares to be made
directly or through agents. The aggregate proceeds to the Selling
Securityholders from the sale of the Convertible Notes and the Conversion Shares
offered by the Selling Securityholders hereby will be the purchase price of such
Convertible Notes or Conversion Shares less any discounts or commissions.
The Company will pay substantially all of the expenses incident to the
registration of the Securities, except for underwriting discounts and selling
commissions which shall be paid by the Selling Securityholders. For information
concerning indemnification arrangements between the Company and the Selling
Securityholders, see "Plan of Distribution."
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 JANUARY 14, 1997.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (together with all amendments
and exhibits, the "Registration Statement") under the Securities Act with
respect to the Convertible Notes and Conversion Shares. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and exhibits to the
Registration Statement. Copies of the information and the exhibits are on file
at the offices of the Commission and may be obtained, upon payment of the fees
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. All summaries of agreements contained in this Prospectus are
subject in all respects to the full text of such documents. Reference is made to
the copies of certain of those documents filed with the Commission for the
complete statement of their provisions.
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 periodic reports and other information with the Commission. Such
periodic reports and other information may 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 at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates, or from the Commission's Internet site at
http://www.sec.gov.
The Company has agreed that, if at any time while the Convertible Notes or
the Conversion Shares are "restricted securities" within the meaning of the
Securities Act, the Company is not subject to the reporting requirements of the
Exchange Act, the Company will furnish to holders of the Securities and to
prospective purchasers designated by such holders the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit
compliance with Rule 144A in connection with resales of the Securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference: (i) Annual Report of the Company on Form 10-K,
as amended, for the fiscal year ended March 31, 1996; (ii) Quarterly Reports of
the Company on Form 10-Q for the three months ended June 30, 1996, and for the
three months ended September 30, 1996; (iii) Current Reports of the Company on
Form 8-K or 8-K/A dated April 17, 1996, June 11, 1996, July 3, 1996, July 11,
1996, July 15, 1996, August 20, 1996, September 4, 1996, September 6, 1996,
September 9, 1996, September 10, 1996, September 11, 1996, October 9, 1996,
October 25, 1996, October 29, 1996, October 31, 1996, November 21, 1996,
December 6, 1996, and January 7, 1997; and (iv) the sections entitled
"Management," "Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners" and "Compensation of Executive Officers" from the Company's
Proxy Statement for its 1996 Annual Meeting of Shareholders.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Convertible Notes and the Conversion Shares
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents.
Any statement contained in 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 other subsequently filed document which also is or is deemed to be
incorporated by reference 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.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be submitted to Sheila M. Muldoon,
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Vice President, General Counsel and Secretary, ARV Assisted Living, Inc., 245
Fischer Avenue, Costa Mesa, California 92626 (Telephone: (714) 751-7400). In
order to ensure timely delivery of the documents, any request should be made at
least five business days prior to the date on which the final investment
decision must be made.
SUBSEQUENT EVENT
On December 10, 1996, an action was filed in the District Court of Harris
County, Texas, against the Company, Gary L. Davidson, Eric K. Davidson, a
Vice-President of the Company, and J. Scott Reid, the President of an affiliate
of the Company, by Medistar Corporation ("Medistar"). Medistar and the Company
are parties to an Acquisition and Development Agreement (the "Development
Agreement") whereby Medistar was to perform services for the Company including
development and construction of senior housing projects in exchange for certain
construction and development fees. The complaint alleges causes of action for
fraud, negligent misrepresentation, conspiracy to defraud, breach of fiduciary
duty involving good faith and fair dealing, unjust enrichment, tortious
interference with business relationship, breach of contract, accounting and
declaratory relief arising out of the Company's alleged breaches of the
Development Agreement and related conduct. The complaint seeks compensatory
damages ranging from $5 to $15 million and punitive damages in the amount of $10
million. The Company removed the action to the United States District Court for
the Southern District of Texas on December 19, 1996 and has filed a counterclaim
on behalf of all of the defendants for breach of contract and fraud arising out
of Medistar's failure to perform under the Development Agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The Company has made forward-looking statements in
this Prospectus concerning, among other things, the impact of future
acquisitions, if any, and the level of future capital expenditures. These
statements are only predictions, however; actual events or results may differ
materially as a result of risks facing the Company. These risks include, but are
not limited to: continuing capital requirements of the Company, a history of
losses, management of growth and integration of acquisitions, and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including without limitation under the
captions "Prospectus Summary," "Risk Factors" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
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<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors." Unless the context otherwise
requires, references in this Prospectus to the "Company" refer to ARV Assisted
Living, Inc. and its consolidated subsidiaries.
THE COMPANY
ARV Assisted Living, Inc. ("ARV" or the "Company") is one of the largest
operators of licensed assisted living facilities in the United States. The
Company is a fully integrated provider of assisted living accommodations and
services that operates, acquires and develops assisted living facilities
("ALFs"). The Company's operating objective is to provide high quality,
personalized assisted living services to senior elderly residents in a cost
effective manner, while maintaining residents' independence, dignity and quality
of life. ALFs comprise a combination of housing, personalized support services
and health care in a non-institutional setting designed to respond to the
individual needs of the senior elderly who need assistance with certain
activities of daily living, but who do not need the level of health care
provided in a skilled nursing facility.
The Company operates or is developing facilities in Arizona, California,
Colorado, Florida, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, New
York, Ohio, Texas and Virginia. As of October 31, 1996, the Company operated 41
ALFs containing 5,161 units. In addition, the Company has 16 ALFs expected to
contain 2,219 units under development. The Company operates 39 ALFs, either
directly for its own account or under long-term operating leases. The Company
also manages two ALFs which are owned by affiliated limited partnerships for
which the Company serves as managing general partner and facility manager. The
Company intends to continue to expand its existing portfolio through the
acquisition and development of directly owned ALFs ("Owned ALFs") as well as
through the development and operation of facilities under long-term operating
leases ("Leased ALFs"). This blend of ownership structures is anticipated by
management to allow the Company to fund its growth in a balanced and efficient
manner.
The Company's ALFs provide residents with a combination of living
accommodations, basic care services and assisted living services. The residents
of the Company's ALFs average 84 years of age and often require assistance with
certain activities of daily living. The Company provides its assisted living
residents with private or semi-private rooms or suites, meals in a communal
setting, housekeeping, linen and laundry services, activities programs,
security, utilities, and transportation in a Company van or minibus. The Company
also provides a three-tier assisted living service structure to which residents
can subscribe as they require assistance with other activities of daily living,
including personal care, assistance with medication, assistance with bathing,
grooming, dressing, personal hygiene and escort services to meals and
activities. Further, the Company has implemented a Wellness Program at all of
its 41 facilities, pursuant to which the Company arranges for the provision of
certain health care services to its residents.
The Company believes its assisted living business benefits from significant
trends affecting the long-term care industry. The first is an increase in the
demand for elder care resulting from the continued aging of the U.S. population,
with the average age of the Company's assisted living residents falling within
the fastest growing segments of the U.S. population. While increasing numbers of
Americans are living longer and healthier lives, many gradually require
increasing assistance with activities of daily living, and are not able to
continue to age in place at home. The second is the effort to contain health
care costs by the government, private insurers and managed care organizations by
limiting lengths of stay, services, and reimbursement amounts to persons in
acute care hospitals and skilled nursing facilities. Assisted living offers a
cost effective long-term care alternative while preserving a more independent
lifestyle for those senior elderly who do not require the broader array of
medical services that acute care hospitals and skilled nursing facilities are
required to provide. Other trends benefiting the Company include the increased
financial net worth of the elderly population, the increase in the population of
individuals living alone and the increasing number of women who work outside the
home and are therefore less able to care for their elderly relatives. The
Company believes that these trends will result in an increasing demand for
assisted living services and facilities to fill the gap between aging at home
and aging in more expensive skilled nursing facilities.
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<PAGE> 6
In addition to operating and managing ALFs, the Company has also acquired
or developed market rate senior apartments, as well as affordable senior and
multifamily apartment communities using the sale of tax credits under a federal
low income housing tax credit program (the "Federal Tax Credit Program") to
generate the equity funding for development. The Company does not intend to
expand its existing portfolio of market rate senior apartments or affordable
multifamily or senior apartments in the future.
The Company's principal executive offices are located at 245 Fischer
Avenue, Costa Mesa, California 92626, and its telephone number is (714)
751-7400.
THE PRIVATE PLACEMENT
In April of 1996, the Company completed a private placement (the "Private
Placement") of $57,500,000 in aggregate principal amount of the Convertible
Notes pursuant to a Purchase Agreement, dated as of March 28, 1996 (the
"Purchase Agreement"), between the Company and Salomon Brothers Inc (the
"Initial Purchaser"). The Convertible Notes were sold to qualified institutional
buyers pursuant to Rule 144A of the Securities Act and certain institutional
"accredited investors" pursuant to Regulation D under the Securities Act. The
net proceeds to the Company from the Private Placement was approximately $55.2
million, after deducting the discount to the Initial Purchaser and expenses.
Pursuant to a Registration Rights Agreement, dated as of March 28, 1996
(the "Registration Rights Agreement"), between the Company and the Initial
Purchaser, the Company has agreed to file the Registration Statement, of which
this Prospectus forms a part, relating to resales of the Securities. The Company
is required under the Registration Rights Agreement to maintain the
effectiveness of the Registration Statement until April 12, 1999 (or such
shorter period relating to resales of restricted securities as permitted by Rule
144(k) under the Securities Act) or, if shorter, (i) when all the Securities
have been sold pursuant to the Registration Statement or (ii) the date on which
there ceases to be outstanding any Securities. See "Description of Convertible
Notes -- Registration Rights."
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SUMMARY OF TERMS OF THE CONVERTIBLE NOTES
CONVERTIBLE NOTES OFFERED..... $57,500,000 principal amount of 6 3/4%
Convertible Subordinated Notes due 2006.
MATURITY...................... April 1, 2006.
INTEREST PAYMENTS............. April 1 and October 1 of each year, commencing
October 1, 1996.
CONVERSION.................... The Convertible Notes, unless previously
redeemed, are convertible at the option of the
holder at any time after 90 days following the
date of original issuance thereof and prior to
maturity into shares of Common Stock at a
conversion price of $18.57 per share, subject
to adjustment in certain events. See
"Description of Convertible
Notes -- Conversion."
OPTIONAL REDEMPTION........... The Convertible Notes may be redeemed, at the
Company's option, in whole or from time to time
in part, on at least 20 but not more than 60
days' prior notice, at any time on and after
April 1, 1999, at the redemption prices set
forth herein together with accrued interest.
See "Description of Convertible
Notes -- Optional Redemption."
RANKING....................... The Convertible Notes are unsecured obligations
of the Company and are subordinated in right of
payment to all existing and future Senior Debt
(as defined) of the Company. The Convertible
Notes also are structurally subordinated to all
liabilities of the Company's subsidiaries. The
Indenture contains no limitation on the
incurrence of Senior Debt or other liabilities
by the Company or its subsidiaries. See
"Description of Convertible
Notes -- Subordination of Convertible Notes."
DESIGNATED EVENTS............. Upon a Designated Event (as defined), holders
of the Convertible Notes will have the right,
subject to certain restrictions and conditions,
to require the Company to purchase all or any
part of their Convertible Notes at a purchase
price equal to 101% of the principal amount
thereof together with accrued and unpaid
interest thereon to the date of the purchase.
See "Description of Convertible
Notes -- Repurchase at Option of Holders."
REGISTRATION RIGHTS........... Pursuant to the Registration Rights Agreement,
the Company has agreed to file and keep
continuously effective for the time periods set
forth in the Registration Rights Agreement a
shelf registration statement relating to the
resale of the Convertible Notes and Conversion
Shares. The Company will pay liquidated Damages
to holders of the Convertible Notes if the
Company fails to keep the shelf requisition
statement effective in accordance with the
Registration Rights Agreement. See "Description
of Convertible Notes -- Registration Rights."
ABSENCE OF PUBLIC MARKET FOR
THE CONVERTIBLE NOTES......... There is no public market for the Convertible
Notes and no assurance can be given as to the
liquidity of, or trading market for, the
Convertible Notes. See "Plan of Distribution."
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<PAGE> 8
RISK FACTORS
Prospective investors should consider carefully the factors set forth below
together with the other information contained in this Prospectus before making a
decision to purchase the Convertible Notes or Conversion Shares.
CAPITAL REQUIREMENTS
In implementing its planned growth strategy by acquiring existing ALFs and
properties for development, and in funding development of acquired properties,
as of September 30, 1996, the Company has expended all of the $98.3 million net
proceeds received from the IPO Offering and the Private Placement. Additionally,
as of September 30, 1996, the Company had borrowed $25.2 million to partially
fund the costs of facility acquisitions. The Company has entered into separate
agreements with Health Care REIT, Inc., Bank United of Texas and Imperial Bank
to provide up to $105 million of additional financing for acquisitions,
development and general corporate purposes.
The Company estimates that the net proceeds of these financing agreements,
in conjunction with other financial resources, will provide adequate capital to
fund the Company's acquisition and development program for additional ALFs over
the next 12-18 months. The Company will be required from time to time to incur
additional indebtedness or issue additional debt or equity securities to finance
its growth strategy, including the acquisition and development of facilities as
well as other capital expenditures and additional funds to meet increased
working capital requirements. The Company may finance future acquisitions and
development through a combination of its cash reserves, its cash flows from
operations, utilization of its current lines of credit, sale/leaseback
arrangements with respect to its Owned ALFs ,and additional indebtedness or
public or private sales of debt securities or capital stock. There can be no
assurance, however, that funds will be available on terms favorable to the
Company, that such funds will be available when needed, or that the Company will
have adequate cash flows from operations for such requirements. See "-- History
of Losses."
HISTORY OF LOSSES
For the quarter ended September 30, 1996, the Company earned net income of
$747,000 compared to a net loss of $475,000 for the same period in the prior
year. At September 30, 1996, the Company's accumulated deficit was $7.0 million,
primarily as a result of losses in the three most recent fiscal years. The
Company experienced significant negative operating cash flow in the two most
recently completed fiscal years and had an accumulated deficit of $7.6 million
as of March 31, 1996. The Company's net losses have resulted principally from
(i) the development of its affordable apartment communities financed through the
Federal Tax Credit Program, in which the Company receives fees that are not
recognized under generally accepted accounting principles until certain risks
associated with the assumed operating deficits and tax credit guaranties have
been reduced to specified levels, (ii) the expansion of the Company's staffing
and infrastructure to accommodate the Company's acquisition and development
strategy and (iii) certain discontinued project costs. There can be no assurance
that the risks associated with the tax credit financed developments will be
reduced sufficiently to allow recognition of the associated fees, that other
similar costs and expenses or losses will not occur in the future or that other
expected revenue will be recognized when expected. See "-- Indebtedness, Lease
and Other Obligations of the Company" and "-- Tax Credit Properties."
RAPID GROWTH
Management of Growth. As part of its ongoing business, the Company has
experienced and expects to continue to experience rapid growth. The Company is
planning significant expansion both through internal expansion and acquisitions
and development. In order to maintain and improve operating results, the
Company's management must manage growth and expansion effectively. See "-- Risks
Common to the Company's Assisted Living Operations." The Company's ability to
manage its growth effectively requires it to continue to expand its operational,
financial and management information systems and to continue to attract, train,
motivate, manage and retain key employees. As the Company continues its
expansion, it may become
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<PAGE> 9
more difficult to manage geographically dispersed operations. The Company's
failure to effectively manage growth could have a material adverse effect on the
Company's results of operations.
External Growth. In line with its growth strategy, the Company has entered
into, and will continue to enter into, a number of agreements to acquire
properties for development and for the acquisition of existing ALFs which are
subject to certain conditions. There can be no assurance that one or more of
such acquisitions will be completed or that the Company will be able to find
additional suitable properties and ALFs to continue its current rate of growth.
The Company has recently experienced a slowing of its growth through acquisition
of ALFs due to what management believes is a current shortage of suitable ALFs
available for acquisition. Although management believes that this is a temporary
situation, there can be no assurance that suitable ALFs will become available
for future acquisition. Similarly, the Company has acquired a number of
properties to be developed into ALFs. The development of ALFs is subject to a
number of risks, many of which are outside the Company's control. There can be
no assurance that the Company will be able to complete its planned facilities in
the manner, for the amount, or in the time frame currently anticipated. Delays
in the progress or completion of development projects could affect the Company's
ability to generate revenue or to recognize revenue when anticipated. See
" -- Risks Common to the Company's Assisted Living and Apartment
Operations -- Development and Construction Risks."
COMPETITION
The health care industry is highly competitive and the Company expects that
the assisted living business in particular will become more competitive in the
future. The Company continues to face competition from numerous local, regional
and national providers of assisted living and long-term care whose facilities
and services are on either end of the senior care continuum from skilled nursing
facilities and acute care hospitals to companies providing home based health
care, and even family members. In addition, the Company expects that as assisted
living receives increased attention among the public and insurance companies,
competition from new market entrants, including companies focused on assisted
living, will grow. Some of the Company's competitors operate on a not-for-profit
basis or as charitable organizations, while others have, or may obtain, greater
financial resources than those of the Company.
Moreover, in the implementation of the Company's growth program, the
Company expects to face competition for the acquisition and development of ALFs.
Some of the Company's present and potential competitors are significantly larger
or have, or may obtain, greater financial resources than those of the Company.
Consequently, there can be no assurance that the Company will not encounter
increased competition in the future which could limit its ability to attract
residents or expand its business, or could increase the cost of future
acquisitions, each of which could have a material adverse effect on the
Company's financial condition, results of operations and prospects.
INDEBTEDNESS, LEASE AND OTHER OBLIGATIONS OF THE COMPANY
The Company has financed, and will continue to finance, the acquisition and
development of ALFs through a combination of loans, leases and other
obligations. As of September 30, 1996, the Company had outstanding consolidated
indebtedness of $93.0 million, including $57.5 million of the Company's
Convertible Notes, the holders of which have the right to convert such notes
into the Common Stock at any time on or before maturity of the notes. In
addition, at September 30, 1996, the Company had $8.3 million in notes maturing
within two years. As a result, a portion of the Company's cash flow will be
devoted to debt service. There is a risk that the Company will not be able to
generate sufficient cash flow from operations to cover required interest and
principal payments.
At September 30, 1996, approximately $15.0 million of the Company's
indebtedness bore interest at floating rates. Indebtedness that the Company has
since that date incurred and may incur in the future may also bear interest at a
floating rate or be fixed at some time in the future. Therefore, increases in
prevailing interest rates could increase the Company's interest payment
obligations and could have an adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company has
guaranteed mortgage and construction debt as well as credit lines for the
benefit of limited partnerships for
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which the Company serves as the managing general partner and facility manager
("Affiliated Partnerships") of up to approximately $57.4 million, including
$49.6 million outstanding as of September 30, 1996, of which $27.7 million will
become due and payable within the next two years. This effectively subjects the
Company to risks normally associated with leverage, including the risk that
Affiliated Partnerships will not be able to refinance this debt with permanent
financing, an increased risk of partnership cash flow deficits, and the risk
that if economic performance of any mortgaged asset declines, the obligation to
make payments on the mortgage debt may be borne by the Company, which could
adversely affect the Company's results of operations and financial condition.
Because certain of the indebtedness which the Company has guaranteed bears
interest at rates which fluctuate with certain prevailing interest rates,
increases in such prevailing interest rates could increase the Company's
interest payment obligations and could have an adverse effect on the Company's
results of operations and financial condition.
In addition, as of September 30, 1996, the Company is a party to long-term
operating leases for certain of its Leased ALFs, which leases require minimum
annual lease payments aggregating $10.9 million for fiscal year 1997, and
intends to enter into additional long-term operating leases in the future. These
leases typically have an initial term of 10 to 15 years, and in general are not
cancelable by the Company.
The Company also has entered into guarantees (the "Tax Credit Guarantees")
which extend 15 years after project completion, relating to certain developments
financed under the Federal Tax Credit Program with respect to (i) lien free
construction, (ii) operating deficits and (iii) maintenance of tax credit
benefits to certain corporate investors, the obligations under which, excluding
potential penalties and interest factors, could amount to an approximate limit
of $78.4 million as of September 30, 1996. There can be no assurance that the
Company will be able to generate sufficient cash flow from operations to cover
required interest, principal and lease payments, or to perform its obligations
under the guaranties to which it is party were it called on to do so.
If the Company were unable to meet interest, principal, lease or guarantee
payments in the future, there can be no assurance that sufficient financing
would be available to cover the insufficiency or, if available, the financing
would be on terms acceptable to the Company. In the absence of financing, the
Company's ability to make scheduled principal and interest payments on its
indebtedness to meet required minimum lease payments, to meet its obligations
under the guaranties, if any, to respond to changing business and economic
conditions, to fund scheduled investments, cash contributions and capital
expenditures, to make future acquisitions and to absorb adverse operating
results would be adversely affected. In addition, the terms of certain of the
Company's indebtedness have imposed, and may in the future impose, constraints
on the Company's operations.
GENERAL PARTNER LIABILITY AND STATUS
The Company, directly or through its subsidiaries, is a general partner in
21 partnerships. As a general partner, it is liable for partnership obligations
such as partnership indebtedness, which at September 30, 1996, was approximately
$50.5 million, potential liability for construction defects, including those
presently unknown or unobserved, and unknown or future environmental
liabilities. The cost of any such obligations or claims, if partially or wholly
borne by the Company, could materially adversely affect the Company's results of
operations and financial condition.
Each partnership property is managed by the Company pursuant to a written
management contract, some of which are cancelable on 30 or 60 days notice at the
election of the managing general partner of the partnership. Action can be taken
in each partnership by a majority in interest of limited partners on such
matters as the removal of the general partners, the request for or approval or
disapproval of a sale of a property owned by a partnership, or other actions
affecting the properties or the partnership. Where the Company is the general
partner of the partnership, termination of the contracts generally would require
removal of the Company as general partner by the vote of a majority of the
holders of limited partner interests and would result in loss of the management
fee income under those contracts.
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DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
On August 22, 1996, a wholly-owned subsidiary of the Company, ARV Health
Care, Inc., acquired all of the stock of SynCare, Inc., a California
corporation, and its three wholly-owned subsidiaries, BayCare Rehabilitative
Services Inc., a California corporation, and ProMotive Rehabilitation Services,
a California corporation (collectively, "Geri Care"), and Pro Motion Rehab, a
California corporation ("Pro Motion Rehab"). These entities specialize in
rehabilitative services, including speech, occupational and physical therapy.
Based on the billing records of Geri Care, revenue received directly or
indirectly from the Medicare program for Geri Care's services represent a
significant portion of Geri Care's net revenue. The Medicare program is subject
to statutory and regulatory changes, retroactive and prospective rate
adjustments, administrative rulings and funding restrictions, all of which could
have the effect of limiting or reducing reimbursement levels for Geri Care's
services. During late 1995, Congress considered (but did not enact) legislation
to reduce Medicare spending significantly. The Company cannot predict whether
any changes in this program will be adopted or, if adopted, the effect, if any,
such changes will have on the Company. Any significant decrease in Medicare
reimbursement levels could have a material adverse effect on the Company. There
can be no assurance that Geri Care will continue to receive Medicare payments at
current levels for rehabilitation management services performed at ALFs
(including 25 facilities owned, leased or managed by the Company).
In general, increases in the Company's allowable operating costs result in
higher payment rates under the Medicare program's allowable cost based
reimbursement formula. Allowable costs include general and administrative
expenses of ARVAL and Geri Care, as well as direct operating costs, interest and
depreciation. Interim payments are made by Medicare based on Company billings
for covered services to program patients during the year. Geri Care submits cost
reports to the Health Care Financing Administration ("HCFA") following the end
of the fiscal year. Medicare reimbursement is subject to a retrospective audit
of the allowable costs reported in the filed cost report. Following an audit of
the allowable costs, retroactive adjustments occur that may result in a
settlement requiring additional payments to the Company or a recoupment from the
Company. To the extent Medicare would deny reimbursement for such overhead, the
Company's general and administrative expenses will increase accordingly.
The Company has reviewed cost reports for Geri Care filed for fiscal years
prior to August 22, 1996. The Company is also preparing cost reports to be filed
for the period of July 1, 1996 to August 22, 1996. The Company has established
reserves for amounts which it reasonably believes may be adjusted by HCFA, but
there can be no certainty that the reserves established will be sufficient to
offset charges denied, which could materially adversely affect the Company's
results of operations and financial condition.
Additionally, approximately 7% of the Company's assisted living revenue is
derived from residents who are recipients of Supplemental Security Income
("SSI") payments. Revenue derived from these residents is generally lower than
that received from the Company's other residents and could be subject to payment
delay. There can be no assurance that the Company's proportionate percentage of
revenue received from SSI receipts will not increase, or that the amounts paid
under SSI programs will not be further limited. In addition, if the Company were
to become a provider of services under the Medicaid program, the Company would
be subject to Medicaid regulations designed to limit fraud and abuse, violations
of which could result in civil and criminal penalties and exclusion from
participation in the Medicaid program.
The Medicaid and Medicare programs provide criminal penalties for entities
that knowingly and willfully offer, pay, solicit or receive remuneration in
order to induce business that is reimbursed under these programs. The illegal
remuneration provisions of the Social Security Act, also known as the
"anti-kickback" statute, prohibit the payment or receipt of remuneration
intended to induce the purchasing, leasing, ordering or arranging for any good,
facility, service or item paid by Medicaid or Medicare programs. In addition,
certain states in which the Company's facilities are located have enacted
statutes which prohibit the payment of kickbacks, bribes and rebates for the
referral of such patients. Although the Company has contractual arrangements
with some health care providers, management believes it is in compliance with
the anti-kickback statute, and other provisions of the social Security Act and
the state statutes. However, there can be
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no assurance that government officials responsible for enforcing these statutes
will not assert that the Company or certain transactions in which it is involved
are in violation of these statutes.
INTEGRATION OF ACQUISITIONS
Prior to August 1996, the Company had not provided healthcare services
other than those associated with its assisted living licensure requirements. In
August 1996, the Company acquired Geri Care and ProMotion Rehab, which include
rehabilitation services and a Medicare Part B billing and supply component. Due
in part to differences between the historical core business of the Company and
those of the acquired businesses, such acquisitions have placed and may continue
to place significant demands on the Company's management and other resources.
There can be no assurance that these business can be integrated successfully,
that there will be any operating efficiencies between the businesses or that the
combined businesses can be operated profitably. The Company may acquire other
complementary businesses in the future. The failure to integrate and operate
these or other acquired companies successfully could have a material adverse
effect on the Company's business and future prospects.
GOVERNMENT REGULATION
Assisted Living. Health care is an area subject to extensive regulation and
frequent regulatory change. Currently, no federal rules explicitly regulate
assisted living. While a number of states have not yet enacted specific assisted
living regulation, the Company is and will continue to be subject to varying
degrees of regulation and licensing by health or social service agencies and
other regulatory authorities in the various states and localities in which it
operates or intends to operate. Changes in, or the adoption of, such laws and
regulations, or new interpretations of existing laws and regulations, could have
a significant effect on methods of doing business, costs of doing business and
amounts of reimbursement from governmental and other payors. In addition, the
President and Congress have in the past, and may in future, propose health care
reforms which could impose additional regulations on the Company or limit the
amounts that the Company may charge for its services. The Company cannot make
any assessment as to the ultimate timing and impact that any pending or future
health care reform proposals may have on the assisted living, nursing facility
and rehabilitation care industries, or on the health care industry in general.
No assurance can be given that any such reform will not have a material adverse
effect on the business, financial condition or results of operations of the
Company.
Rehabilitation Services. The cost of many of the services offered by Geri
Care and Pro Motion Rehab are reimbursed or paid for by Medicare and, therefore,
the corporations providing these services are subject to the Health Care
Financing Administration ("HCFA") rules governing survey and certification.
While the Company believes these corporations and the rehabilitation services
provided by them are in substantial compliance with program requirements, the
corporations could be subject to adjustments in reimbursement or penalties for
failing to comply with regulatory requirements.
SUBORDINATION OF NOTES
The Convertible Notes are unsecured and subordinated in right of payment in
full to all existing and future Senior Debt (as defined) of the Company. As a
result of such subordination, in the event of bankruptcy, liquidation or
reorganization of the Company, or upon the acceleration of any Senior Debt, the
assets of the Company will be available to pay obligations on the Convertible
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Convertible
Notes then outstanding. The Company expects from time to time to incur
additional indebtedness, including indebtedness that would constitute Senior
Debt. The Convertible Notes are also structurally subordinated to the
liabilities, including trade payables, of the Company's subsidiaries. The
Indenture (as defined) does not prohibit or limit the incurrence of additional
indebtedness, including Senior Debt, by the Company or its subsidiaries and the
incurrence of additional indebtedness by the Company or its subsidiaries could
adversely affect the Company's ability to pay its obligation on the Convertible
Notes. As of September 30, 1996, the Senior Debt (which includes guarantees of
indebtedness of partnerships affiliated with the Company) and the indebtedness
and all other liabilities of the Company's subsidiaries totalled $93.7 million.
See "Description of Convertible Notes -- Subordination of Convertible Notes."
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LIMITATIONS ON REPURCHASE OF CONVERTIBLE NOTES
Upon a Designated Event, which includes a Change of Control and a
Termination of Trading (each as defined), each holder of Convertible Notes will
have certain rights, at the holder's option, to require the Company to
repurchase all or a portion of such holder's Convertible Notes. If a Designated
Event were to occur, there can be no assurance that the Company would have
sufficient funds to pay the repurchase price for all Convertible Notes tendered
by the holders thereof. In addition, it is possible that the terms of future
indebtedness or lease obligations incurred by the Company may prohibit the
Company from purchasing any Convertible Notes and may also provide that a
Designated Event, as well as certain other change-of-control events with respect
to the Company, would constitute an event of default thereunder. If the Company
were prohibited from purchasing Convertible Notes tendered, this failure would
constitute an Event of Default under the Indenture, which may, in turn,
constitute a default under the terms of the other indebtedness or long-term
leases that the Company currently has or may enter into from time to time. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. See "Description of Convertible
Notes -- Repurchase at Option of Holders."
ABSENCE OF PUBLIC MARKET FOR THE CONVERTIBLE NOTES.
The Convertible Notes have no established trading market. The Company does
not intend to list the Convertible Notes on any national securities exchange or
to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation ("Nasdaq") system. The Company has been
advised by the Initial Purchaser that it intends to make a market in the
Convertible Notes. However, the Initial Purchaser is not obligated to do so and
any market-making activities may be discontinued 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, and may be limited during the pendency
of the Registration Statement. No assurance can be given that an active trading
market for the Convertible Notes will develop or, if such market develops, as to
the liquidity or sustainability of such market. If a trading market does not
develop or is not maintained, holders of the Convertible Notes may experience
difficulty in reselling the Convertible Notes or may be unable to sell them at
all. If a market for the Convertible Notes develops, future trading prices of
the Convertible Notes will depend on many factors, including, among other
things, prevailing interest rates, perceptions of the Company's
creditworthiness, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities, the financial condition of the Company and other factors, the
Convertible Notes may trade at a discount from their principal amount.
VOLATILITY OF STOCK PRICE
The Common Stock has experienced and can be expected to experience
substantial price volatility. It is likely that the market price for the
Convertible Notes will be affected by the market price of the Common Stock. See
"Price Range of Common Stock and Dividend Policy." Sales of substantial amounts
of shares of Common Stock in the public market or the perception that those
sales could occur could adversely affect the market price of the Common Stock
and the Company's ability to raise additional funds in the future in the capital
markets. The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including the liquidity
of the market for the shares of the Common Stock, variations in the Company's
operating results, changes in earnings estimates by securities analysts,
publicity regarding the industry or the Company and the adoption of new statutes
or regulations (or changes in the interpretation of existing statutes or
regulations) affecting the health care industry in general or the assisted
living industry in particular. In addition, the stock market in recent years has
experienced broad price and volume fluctuations that often have been unrelated
to the operating performance of particular companies. These market fluctuations
may adversely affect the market price of the shares of Common Stock.
RISKS COMMON TO THE COMPANY'S ASSISTED LIVING OPERATIONS
Staffing and Labor Costs. The Company competes with other providers of
assisted living and senior housing with respect to attracting and retaining
qualified personnel. The Company also is dependent upon the available labor pool
of employees. A shortage of qualified personnel may require the Company to
enhance its
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wage and benefits package in order to compete. In addition, many health care
workers in the nursing home industry are unionized. While none of the Company's
employees are currently unionized, any unionization or threat of unionization of
workers in the assisted living industry or at the Company's facilities could
increase the Company's labor costs. No assurance can be given that the Company's
labor costs will not increase, or that if they do increase, they can be matched
by corresponding increases in rental or management revenue.
Obtaining Residents and Maintaining Rental Rates. As of September 30, 1996,
the ALFs owned or operated by the Company had a combined occupancy rate of 89%.
Lease-up on development projects may take longer than assumed periods of time,
thereby lengthening the time in which newly developed ALFs are experiencing
start-up losses. The Company may revise its schedule of construction of new
developments in order to phase in start-up losses from new ALFs. Occupancy may
drop in ALFs acquired by the Company due to re-evaluation of residents regarding
retention criteria, changes in management and staffing, and implementation of
the Company's assisted living programs. There can be no assurance that, at any
time, any ALF will be substantially occupied at assumed rents. In addition,
lease-up and full occupancy may be achievable only at rental rates below those
assumed. If operating expenses increase, local rental market conditions may
limit the extent to which rents may be increased. Because rent increases
generally can only be implemented at the time of expiration of leases, rental
increases may lag behind increases in operating expenses. In addition, the
failure of the Company to generate sufficient revenue could result in an
inability to meet minimum rent obligations under the Company's long-term
operating leases and make interest and principal payments on its indebtedness.
General Real Estate Risks. The performance of the Company's ALFs is
influenced by factors affecting real estate investments, including the general
economic climate and local conditions, such as an oversupply of, or a reduction
in demand for, ALFs. Other factors include the attractiveness of properties to
tenants, zoning, rent control, environmental quality regulations or other
regulatory restrictions, competition from other forms of housing and the ability
of the Company to provide adequate maintenance and insurance and to control
operating costs, including maintenance, insurance premiums and real estate
taxes. At the time the Company acquires existing ALFs, budgets for known
rehabilitation expenses are prepared and funds therefore are reserved. Unknown
or unforeseen rehabilitation expenses may be incurred. Real estate investments
are also affected by such factors as applicable laws, including tax laws,
interest rates and the availability of financing. Real estate investments are
relatively illiquid and, therefore, limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. Any
failure by the Company to integrate or operate acquired ALFs effectively may
have a material adverse effect on the Company's business, financial condition
and results from operations. In addition, the Company currently leases
facilities from only two health care REITs. A third REIT has committed to
provide financing which is expected to close in January 1997. The lease
agreements with each of the health care REITs are interconnected in that the
Company will not be entitled to exercise its right to renew one lease with a
particular health care REIT without exercising its right to renew all other
leases with that health care REIT and that leases with each health care REIT
contain certain cross default provisions. Therefore, in order to exercise all
lease renewal terms with a particular health care REIT, the Company will be
required to maintain and rehabilitate the leased ALFs on a long-term basis. The
Company anticipates that similar renewal and cross-default provisions will be
included in leases with other health care REITs.
Bond Financing. The Company has entered into a long-term lease of an ALF,
the acquisition and construction of which are being financed by tax exempt
multi-unit housing revenue bonds. In order to meet the lease obligations and to
allow the landlord to continue to qualify for favorable tax treatment of the
interest payable on the bonds, the facility must comply with certain federal
income tax requirements, principally pertaining to the maximum income level of a
specified portion of the residents. The Company anticipates executing additional
leases for ALFs to be constructed with bond financing, and the same and possibly
additional restrictions are anticipated to be imposed for such facilities.
Failure to satisfy these requirements will constitute an event of default under
the lease, thereby accelerating its termination. Failure to obtain low-income
residents in the sequence and time required could materially affect the lease-up
schedule and, therefore, cash flow from such facilities.
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Development and Construction Risks. As part of its growth strategy during
the next few years, the Company plans to develop a number of new ALFs. The
Company's ability to achieve its development plans will depend upon a variety of
factors, many of which are beyond the Company's control. The successful
development of additional ALFs involves a number of risks, including the
possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. Development schedules may be
changed by the Company in order to accommodate requirements of staffing of new
ALFs and to allow a phase-in of start-up losses inherent in the marketing and
lease-up of new facilities. Certain construction risks are beyond the Company's
control, including strikes, adverse weather, natural disasters, supply of
materials and labor, and other unknown contingencies which could cause the cost
of construction and the time required to complete construction to exceed
estimates. If construction is not commenced or completed, or if there are unpaid
subcontractors or suppliers, or if required occupancy permits are not issued in
a timely manner, cash flow could be significantly reduced. In addition, any
property in construction carries with it its own risks such as construction
defects, cost overruns, adverse weather conditions, the discovery of geological
or environmental hazards on the property and changes in zoning restrictions or
the method of applying such zoning restrictions. The nature of licenses and
approvals necessary for development and construction, and the timing and
likelihood for obtaining them vary widely from state to state, and from
community to community within a state.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances including, without
limitation, asbestos-containing materials ("ACMs"), which could be located on,
in or under such property. Such laws and regulations often impose liability
whether or not the owner or operator know of, or was responsible for, the
presence of the hazardous or toxic substances. When acquiring land for
development or existing facilities, the Company typically obtains environmental
reports on the properties as part of its due diligence in order to lessen its
risk of exposure. Nonetheless, the costs of any required remediation or removal
of these substances could be substantial and the owner's liability as to any
property is generally not limited under such laws and regulations and could
exceed the value of the property and the aggregate assets of the owner or
operator. The presence of these substances or failure to remediate such
substances properly may also adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Under these
laws and regulations, an owner, operator, or any entity who arranges for the
disposal of hazardous or toxic substances such as ACMs at a disposal site may
also be liable for the costs of any required remediation or removal of the
hazardous or toxic substances at the disposal site. When entering into leases
with health care REITs and other landlords of facilities, the Company typically
enters into environmental indemnity agreements in which it agrees to indemnify
the landlord against all risk of environmental liability both during the term of
the lease and beyond such term. In connection with the ownership or operation of
its or its Affiliated Partnerships' properties, the Company could be liable for
these costs, as well as certain other costs, including governmental fines and
injuries to persons or properties.
Restrictions Imposed by Laws Benefitting Disabled Persons. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its properties are substantially in compliance with
present requirements or are exempt therefrom, and attempts to check for
compliance in all facilities it considers acquiring, if required changes involve
a greater expenditure than anticipated or must be made on a more accelerated
basis than anticipated, additional costs would be incurred by the Company.
Further legislation may impose additional burdens or restrictions with respect
to access by disabled persons and the costs of compliance therewith could be
substantial.
Geographic Concentration. A substantial portion of the business and
operations of the Company are conducted in California, where 29 of the 57
assisted living facilities operated, managed or in development by the Company
are located. Other regional concentrations of assisted living facilities are
planned for Florida,
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Texas, the Midwest and the Northeast. The creation of regions allows the Company
to manage the ALFs without undue increases in management personnel. The market
value of these properties and the income generated from properties managed or
leased by the Company could be negatively affected by changes in local and
regional economic conditions or the laws governing, and regulatory environment
in, states within those regions, and by acts of nature. There can be no
assurance that such geographic concentration will not have an adverse effect on
the Company's business, financial condition, results of operations and
prospects.
Insurance. 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's business entails an inherent risk of liability. In recent years,
participants in the assisted living industry, including the Company, have become
subject to an increasing number of lawsuits alleging negligence or related legal
theories, many of which may 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. There can be no assurance that claims will not arise which are
in excess of the Company's insurance coverage or are not covered by the
Company's insurance coverage. A successful claim against the Company not covered
by, or in excess of, the Company's insurance, could have a material adverse
effect on the Company's financial condition and results of operations. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect on the Company's ability to attract residents or
expand its business and would require management to devote time to matters
unrelated to the operation of the Company's business. In addition, the Company's
insurance policies must be renewed annually and there can be no assurance that
the Company will be able to continue to obtain liability insurance coverage in
the future or, if available, that such coverage will be available on acceptable
terms.
CONFLICTS OF INTEREST
Certain of the Company's executive officers and Directors may, by virtue of
their investment in or involvement with entities providing services, office
space or guaranties to the Company or to Company-sponsored partnerships, have an
actual or potential conflict of interest with the interests of the Company.
In addition, the Company is the managing general partner and facilities
manager for partnerships owning or leasing 13 ALFs and various apartment
communities. By serving in both capacities, the Company has conflicts of
interest in that it has both a duty to act in the best interests of the limited
partners of those partnerships and the desire to maximize earnings for the
Company's shareholders in the operation of those assisted living facilities and
apartment communities.
TAX CREDIT PROPERTIES
The Company's tax credit partnerships obtain equity capital to build
apartments through the sale of tax credits under the Federal Tax Credit Program.
In order to qualify for the Federal Tax Credit Program, the owner of the project
must agree to restrict the use of the property for moderate- to low-income
purposes for a period of 15 years. Some tax credit financed partnerships for
which the Company serves as general partner have entered into agreements
restricting use of their respective properties for moderate- to low-income
housing purposes for periods of up to 40 years beyond the base 15-year
compliance period. All tax credit projects must be placed in service by the end
of the second calendar year after the year in which the initial allocation of
tax credits was made. In addition, if all apartments in a project are not
initially occupied during the year in which tax credits are first taken, this
could cause a delay in the timing in which tax credits may be offset against
income and/or cause a forfeiture of some of the tax credits. Failure to place a
tax credit project in service or cause the apartments to be initially occupied
on a timely basis is likely to cause the forfeiture of some or all the tax
credits allocated and would trigger the Company's obligations under the Tax
Credit Guarantees (see "-- Indebtedness, Lease and Other Obligations of the
Company") or otherwise risk exposure of liability to limited partners of the tax
credit partnerships. In addition, projects financed under the Federal Tax Credit
Program are subject to detailed regulations concerning tenant income and other
requirements. The Internal Revenue Service has identified these regulations as
being the subject of increased scrutiny regarding compliance of applicable
regulations under the Internal Revenue Code of 1986 as amended (the "Code").
While the Company believes that it is currently in compliance with applicable
regulations, no assurance can be
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given that the Company will not be challenged in this regard. These restrictions
may limit the Company's management of and ability to sell properties developed
under the Federal Tax Credit Program.
Although the Company does not anticipate the development of new properties
under the Federal Tax Credit Program to be a significant source of its growth,
changes to federal or state tax laws or to the Federal Tax Credit Program could
reduce or eliminate the value or availability of the tax credits and,
accordingly, the Company's ability to engage in this aspect of its business.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1996, the Company had outstanding 9,646,127 shares of
Common Stock, assuming no conversion of the Convertible Notes or exercise of
outstanding warrants and options. Of these shares, 3,565,000 shares of Common
Stock sold in the IPO Offering, and 5,138,466 shares which became unrestricted
following the IPO Offering are tradable in calendar year 1996 without
restriction or limitation under the Securities Act, except for any shares owned
or purchased by "affiliates" of the Company which will be subject to the resale
limitations under Rule 144 of the Securities Act. The remaining 942,661
outstanding shares of Common Stock are "restricted securities" within the
meaning of Rule 144 (the "Restricted Shares"). The Restricted Shares may not be
sold except in compliance with the registration requirements of the Securities
Act or pursuant to an exemption, including that provided by Rule 144.
The Company issued 657,803 shares of Common Stock upon its call for
redemption of the 8% Convertible Redeemable Series A Preferred Stock (the
"Series A Preferred Stock") in 1996, of which approximately 78,422 shares were
tradable at December 31, 1995 and 579,381 shares will be tradable without
registration by December 31, 1996. The Company issued 903,373 shares of Common
Stock upon its call for redemption of its 1999 Convertible Notes in 1996, of
which approximately 53,441 and 849,932 shares have or will become tradable
without registration in 1996 and 1997, respectively. The Company issued an
aggregate of 85,146 restricted shares to the former shareholders of SynCare,
Inc. in 1996, all of which will be tradeable without registration in September
1998. The Company issued an aggregate of 7,583 restricted shares upon the
exercise of warrants held by certain broker-dealers, all of which will be
tradeable without registration by December 31, 1998.
The Commission has proposed to amend the holding period required by Rule
144 to permit sales of "restricted securities" after one year rather than the
current two years (and two years rather than three years for "non-affiliates"
who desire to trade free of other Rule 144 restrictions). If such proposed
amendment were enacted, the "restricted securities" described above would become
freely tradable (subject to any applicable contractual restrictions) at
correspondingly earlier dates.
In addition to the outstanding shares described above, options to purchase
a total of 406,384 shares of Common Stock and warrants to purchase a total of
162,248 shares of Common Stock are outstanding as of September 30, 1996. As of
September 30, 1996, none of the options or warrants to purchase shares of Common
Stock have been exercised.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS; ANTI-TAKEOVER MEASURES
As of September 30, 1996, the Company's Directors and executive officers
and their affiliates beneficially own approximately 28% of the Company's
outstanding shares of Common Stock. As a result, these stockholders, acting
together, would be able to significantly influence many matters requiring
approval by the stockholders of the Company, including the election of
Directors. The Company's articles of incorporation provide for authorized but
unissued preferred stock, the terms of which may be fixed by the Board of
Directors, and provide, among other things, that upon the satisfaction of
certain conditions specified in the California General Corporation Law relating
to the number of holders of Common Stock, the Board of Directors will be
classified and the holders of Common Stock will not be permitted to cumulate
votes. Such provisions could have the effect of delaying, deferring or
preventing a change of control of the Company.
16
<PAGE> 18
USE OF PROCEEDS
The Convertible Notes and the Conversion Shares are offered by the Selling
Securityholders and, accordingly, the Company will not receive any of the
proceeds from the sales thereof. Further, the Company will not receive any
proceeds from the issuance of Conversion Shares upon conversion of the
Convertible Notes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been traded on the Nasdaq National Market
under the Nasdaq symbol "ARVI" since the Company's initial public offering on
October 17, 1995. The following table sets forth, for the periods indicated, the
high and low prices for the Common Stock on the Nasdaq National Market. On
January 13, 1997, the closing price for the Common Stock on the Nasdaq National
Market was $11.625 per share. As of January 13, 1997, there were approximately
483 holders of record of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996
Third Quarter (from October 17, 1995).................... $15.25 $ 9.50
Fourth Quarter........................................... 18.50 10.38
FISCAL YEAR 1997
First Quarter............................................ $20.75 $15.00
Second Quarter........................................... 17.75 11.75
Third Quarter............................................ 15.25 9.88
Fourth Quarter (through January 13, 1997)................ 11.63 10.75
</TABLE>
The Company does not currently pay dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. It is the present
policy of the Company's Board of Directors to retain earnings, if any, to
finance the expansion of the Company's business.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated(1):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, SIX MONTHS ENDED
- ---------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1996
- ---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
(2) (2) (2) (2) (2) 1.4
</TABLE>
- ---------------
(1) The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings include income before income
taxes and fixed charges excluding capitalized interest. Fixed charges
include interest expense, capitalized interest, amortization of debt expense
and a portion of rent expense deemed representative of the interest factor.
(2) Earnings were insufficient to cover fixed charges by $247,000, $134,000,
$1,901,00, $4,728,000 and $590,000 for the fiscal years ended March 31,
1992, 1993, 1994, 1995 and 1996, respectively.
17
<PAGE> 19
CAPITAL STOCK OF THE COMPANY
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable California law and
to the provisions of the Company's Articles of Incorporation and Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of Preferred Stock in one
or more series. As of September 30, 1996, there were 9,646,127 shares of Common
Stock issued and outstanding, approximately 3,096,392 shares of Common Stock
issuable upon conversion of the Convertible Notes, 162,248 shares issuable upon
exercise of outstanding warrants, 406,384 shares issuable upon the exercise of
outstanding options, and 1,093,616 shares available for future grants under the
Company's 1995 Stock Incentive Plan.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share of record on
all matters to be voted upon by the shareholders. Holders will not have
cumulative voting rights in connection with the election of Directors (or any
other matter). Subject to the preferential rights of any preferred stock that
may at the time be outstanding, each share of Common Stock will have an equal
and ratable right to receive dividends when, if and as declared from time to
time by the Board of Directors out of funds legally available therefor. The
Company has been, and may in the future be, subject to certain agreements which
restrict the payment of dividends. The Company does not anticipate paying cash
dividends in the foreseeable future. See "Price Range of Common Stock" and
"Dividend Policy."
In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payments to creditors and after satisfaction of the liquidation
preference, if any, of any preferred stock that may at the time be outstanding.
Holders of Common Stock have no preemptive or redemption rights and are not
subject to further calls or assessments by the Company. All of the outstanding
shares of Common Stock are, and the Conversion Shares will be, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without any vote or
action by the shareholders, to issue up to 10,000,000 shares of preferred stock
in one or more series and to fix the designations, preferences, rights,
qualifications, limitations and restrictions thereof, including the voting
rights, dividends rights, dividend rate, conversion rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and number of shares constituting any series. Although it presently
has no intention to do so, the Board of Directors, without shareholder approval,
could issue preferred stock with voting and conversion rights that could
adversely affect the voting powers of the holders of the Common Stock and the
market price of the Common Stock. Issuance of preferred stock may also have the
effect of delaying, deferring or preventing the change of control of the Company
without further action by the shareholders and may discourage bids for the
Common Stock at a premium over the market price.
The Company has created one series of preferred stock consisting of
2,000,000 shares of Series A Preferred Stock. The Company issued 2,000,000
shares of Series A Preferred Stock through a private placement which concluded
in June 1994. Each share of Series A Preferred Stock (i) is convertible, unless
previously redeemed, at any time into .329 shares of Common Stock, subject to
adjustment; (ii) carries a preferred cumulative dividend of 8% per annum ($.20
per share) payable quarterly; (iii) retains a liquidation preference of $2.50
per share plus accumulated dividends; (iv) has no voting rights, except as
required by law; (v) is redeemable in whole or in part at the option of the
Company for cash at $2.50 per share plus accumulated dividends on 90 days'
notice; and (vi) contains a redemption or "put" option permitting each holder of
Series A Preferred Stock to present some or all of its shares to the Company at
any time after December 31, 1998, for redemption for cash at $2.50 per share
plus accumulated and unpaid dividends. In February 1996 the Company exercised
its right to redeem all outstanding shares of Preferred Stock. All
18
<PAGE> 20
holders of the 2,000,000 shares of Series A Preferred Stock elected to convert
their Series A Preferred Stock to Common Stock. As of September 30, 1996, no
shares of Series A Preferred Stock are outstanding.
WARRANTS
In connection with the distribution of Series A Preferred Stock in 1994,
the Company issued to certain participating brokerage firms warrants for the
purchase of an aggregate of 54,197 shares of Common Stock at a conversion ratio
equal to $7.60 per share. The warrants are exercisable at any time through March
31, 1997. As of September 30, 1996, 6,085 shares have been issued upon exercise
of these warrants.
In connection with the distribution of the 1999 Convertible Notes, the
Company issued to certain participating brokerage firms warrants for the
purchase of an aggregate of 123,355 shares of Common Stock at a conversion ratio
equal to $12.16 per share. The warrants are exercisable at any time until
December 31, 1999. As of September 30, 1996, 1,498 shares have been issued upon
exercise of these warrants.
LIMITATION ON DIRECTORS' LIABILITY
The Articles of Incorporation and the Bylaws of the Company limit the
liability of Directors and officers to the Company or its shareholders to the
fullest extent permitted by California Law. The inclusion of this provision in
the Articles and Bylaws may have the effect of reducing the likelihood of
derivative litigation against Directors or officers of the Company and may
discourage or deter shareholders or management from bringing a lawsuit against
Directors of the Company for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
shareholders.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Assuming conversion of all of the Convertible Notes into 3,096,392 shares
of Common Stock, there would be 87,257,481 shares of Common Stock available for
future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital or to facilitate corporate acquisitions. The Company
does not currently have plans to issue additional shares of capital stock, other
than shares of Common Stock which may be issued upon exercise of options or the
warrants.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, Los Angeles, California.
19
<PAGE> 21
DESCRIPTION OF CONVERTIBLE NOTES
GENERAL
The Convertible Notes were issued pursuant to an Indenture dated as of
April 3, 1996 (the "Indenture"), between the Company and The Chase Manhattan
Bank, N.A., as trustee (the "Trustee"). The following summary of certain
provisions of the Convertible Notes, the Indenture and the Registration
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Convertible Notes, the Indenture and the Registration
Agreement, respectively, including the definitions therein of certain terms used
below. The definitions of certain other terms used in the following summary are
set forth below under "-- Certain Definitions." Wherever particular provisions
or defined terms of the Indenture (or the form of Convertible Note which is a
part thereof) or the Registration Agreement are referred to, such provisions or
defined terms are incorporated herein by reference.
The Convertible Notes are unsecured general obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company to the extent set forth in the Indenture and limited to $57,500,000
aggregate principal amount. The Indenture does not limit the amount of other
Indebtedness or securities that may be issued by the Company or any of its
Subsidiaries. The Indenture does not contain any financial covenants or
restrictions on the payment of dividends, the incurrence of Senior Debt or
issuance or repurchase (other than the Convertible Notes) of securities of the
Company. The Indenture contains no covenants or other provisions to afford
protection to holders of Convertible Notes in the event of a highly leveraged
transaction or a change in control of the Company except to the extent described
under "Repurchase at Option of Holders."
PRINCIPAL, MATURITY AND INTEREST
The Convertible Notes bear interest from April 3, 1996 at 6 3/4% per annum
and will mature on April 1, 2006, unless earlier redeemed at the option of the
Company or at the option of the holder upon a Designated Event (as described
below).
Interest on the Convertible Notes is payable semiannually on April 1 and
October 1 of each year (each an "Interest Payment Date"), commencing on October
1, 1996, to holders of record at the close of business on the March 15 or
September 15 immediately preceding such Interest Payment Date (other than with
respect to a Convertible Note or portion thereof called for redemption on a
redemption date, or repurchased in connection with a Designated Event on a
repurchase date, during the period from (and including) a record date to (but
excluding) the next succeeding Interest Payment Date (in which case accrued
interest shall be payable (unless such Convertible Note or portion thereof is
converted) to the holder of the Convertible Note or portion thereof redeemed or
repurchased). Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months.
Interest on the Convertible Notes accrues from the most recent date to
which interest has been paid.
The Convertible Notes are payable as to principal, premium, if any, and
interest at the office or agency of the Company maintained for such purpose
within The City of New York or, at the option of the Company, payment of
interest may be made by check mailed to the holders of the Convertible Notes at
their respective addresses set forth in the register of holders of Convertible
Notes. Until otherwise designated by the Company, the Company's office or agency
in The City of New York will be the office of the Trustee maintained for such
purposes. The Convertible Notes have been issued in registered form, without
coupons, and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Convertible Notes will not be subject to redemption prior to April 1,
1999 and will be redeemable on such date and thereafter at the option of the
Company, in whole or in part (in any integral multiple of $1,000), upon not less
than 20 nor more than 60 days' prior notice by mail at the following prices
(expressed as percentages of the principal amount), together with accrued
interest to the redemption date (subject to the
20
<PAGE> 22
right of holders of record on the relevant record date to receive interest due
on an Interest Payment Date). If redeemed during the 12-month period beginning
April 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
1999.................................................... 104.725%
2000.................................................... 104.050%
2001.................................................... 103.375%
2002.................................................... 102.700%
2003.................................................... 102.025%
2004.................................................... 101.350%
2005.................................................... 100.675%
</TABLE>
If less than all Convertible Notes are to be redeemed, the Trustee will
select the Convertible Notes to be redeemed by lot, pro rata or by such other
method as the Trustee shall deem fair and equitable. On or after the redemption
date, interest will cease to accrue on the Convertible Notes, or portion
thereof, called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Convertible Notes.
REPURCHASE AT OPTION OF HOLDERS
Upon the occurrence of a Designated Event, each holder of Convertible Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Convertible Notes
pursuant to the offer described below (the "Designated Event Offer") at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest thereon to the Designated Event Payment Date (the
"Designated Event Payment"). Within 30 days following any Designated Event, the
Company will mail a notice to each holder describing the transaction or
transactions that constitute the Designated Event and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice.
The Company will comply with the requirements of Rules 13E-4 and 14-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Convertible Notes in connection with a Designated Event.
On the Designated Event Payment Date, the Company will, to the extent
lawful, (1) accept for payment Convertible Notes or portions thereof tendered
pursuant to the Designated Event Offer, (2) deposit with the Paying Agent an
amount equal to the Designated Event Payment in respect of all Convertible Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Convertible Notes so accepted together with an Officers' Certificate
stating the Convertible Notes or portions thereof tendered to the Company. The
Paying Agent will promptly mail to each holder of Convertible Notes so accepted
payment in an amount equal to the purchase price for such Convertible Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each holder a new Convertible Note equal in principal amount to
any unpurchased portion of the Convertible Notes surrendered, if any, provided,
that each such new Convertible Note shall be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
the Designated Event Offer as soon as practicable after the Designated Event
Payment Date. There can be no assurance that the Company will have the financial
resources necessary to repurchase the Convertible Notes in such circumstances.
Except as described above with respect to a Designated Event, the Indenture
does not contain any other provisions that permit the holders of the Convertible
Notes to require that the Company repurchase or redeem
21
<PAGE> 23
the Convertible Notes in the event of a takeover, recapitalization or similar
restructuring. In addition, the foregoing provisions would not necessarily
afford holders of the Convertible Notes protection in the event of highly
leveraged or other transactions involving the Company that may adversely affect
holders. There are no restrictions in the Indenture on the creation of Senior
Debt (or any other indebtedness) and, under certain circumstances, the
incurrence of significant amounts of additional indebtedness could have an
adverse effect on the Company's ability to service its indebtedness, including
the Convertible Notes.
The Designated Event purchase feature of the Convertible Notes may in
certain circumstances make 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 Designated Event purchase feature, however, is not the result of
management's knowledge of any specific effort to accumulate the Company's stock
or to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
antitakeover provisions. Instead, the Designated Event purchase feature is a
result of negotiations between the Company and the Initial Purchaser. Management
has no present intention to engage in a transaction involving a Designated
Event, although it is possible that the Company could decide to do so in the
future. Subject to the limitations on mergers, consolidations and sale of assets
described herein, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Designated Event under the Indenture, but that could
increase the amount of Indebtedness (including Senior Debt) outstanding at such
time or otherwise affect the Company's capital structure or credit ratings, or
substantially reduce or eliminate the Company's assets. The payment of the
Designated Event Payment is subordinated to the prior payment of Senior Debt as
described under "-- Subordination of Convertible Notes" below.
Any future credit agreements or other agreements relating to Indebtedness
of the Company or lease obligations may contain prohibitions or restrictions on
the Company's ability to effect a Designated Event Payment. In the event a
Designated Event occurs at a time when such prohibitions or restrictions are in
effect, the Company could ask the consent of its lenders and lessors, as
applicable, to the purchase of Convertible Notes or could attempt to refinance
or renegotiate the agreements that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings or otherwise renegotiate the
agreements containing such prohibitions, the Company will be effectively
prohibited from purchasing Convertible Notes. In such case the Company's failure
to purchase tendered Convertible Notes would constitute an Event of Default
under the Indenture, and may constitute a default under the terms of other
indebtedness or long-term leases that the Company may enter into from time to
time. In such circumstances, the subordination provisions in the Indenture would
likely restrict payments to the holders of Convertible Notes.
A "Designated Event" will be deemed to have occurred upon a Change of
Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred when; (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 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) the
Company consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets (other than to a
wholly-owned subsidiary of the Company) or any other corporation merges into the
Company, and, in the case of any such transaction, the outstanding Common Stock
of the Company is reclassified into or exchanged for any other property or
security, unless the stockholders of the Company immediately before such
transaction own, directly or indirectly immediately following such transaction,
at least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from, or to which its assets were
conveyed, transferred or leased in connection with, such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction or (iii) any time the Continuing Directors
do not constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided, that a Change of
Control shall not be deemed to have occurred if
22
<PAGE> 24
either (x) the last sale price of the Common Stock for any five trading days
during the ten trading days immediately preceding the Change of Control is at
least equal to 105% of the Conversion Price in effect on the date of such Change
of Control or (y) at least 90% of the consideration (excluding cash payments for
fractional shares) in the transaction or transactions constituting the Change of
Control consists of shares of common stock that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United
States.
The definition of Change of Control includes a phrase relating to the
lease, transfer or conveyance of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Convertible Notes
to require the Company to repurchase such Convertible Notes as a result of a
lease, transfer or conveyance of less than all of the assets of the Company to
another person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the Common
Stock (or other common stock into which the Convertible 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.
REGISTRATION RIGHTS
Pursuant to the Registration Agreement, the Company agreed for the benefit
of the holders of the Convertible Notes, that (i) it would at its cost, no later
than November 15, 1996, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales of the
Convertible Notes and the Conversion Shares, (ii) within 60 days after the date
such Shelf Registration Statement is filed with the Commission, such Shelf
Registration Statement would be declared effective by the Commission and (iii)
the Company will maintain such Shelf Registration Statement continuously
effective under the Securities Act until April 12, 1999 (or such shorter period
as may then be applicable under the Securities Act regarding the holding period
for securities under Rule 144(k) of the Securities Act or any successor rule) or
such earlier date as of which all the Convertible Notes or the Conversion Shares
have been sold pursuant to such Shelf Registration Statement. If the Company had
failed to comply with clause (i) above then, at such time, the Company would
have paid additional Liquidated Damages to the then holders of Convertible Notes
as described in the Indenture. If the Shelf Registration Statement had not been
declared effective as provided in clause (ii) above, then, at such time and on
each date that would have been the successive 30th day following such time, the
Company would have paid additional Liquidated Damages to the then holders of
Convertible Notes as described in the Indenture. Pursuant to clause (iii) above,
however, if the Company fails to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time as the
Shelf Registration Statement is no longer effective and on each date thereafter
that is the successive 30th day subsequent to such time and until the earlier of
(i) the date that the Shelf Registration Statement is again deemed effective or
(ii) April 12, 1999 (or such shorter period as may then be applicable under the
Securities Act regarding the holding period for securities under Rule 144(k) of
the Securities Act or any successor rule) or (iii) the date as of which all of
the Convertible Notes and/or the Conversion Shares are sold pursuant to the
Shelf Registration Statement, the Company will pay Liquidated Damages to the
then holders of Convertible Notes in an amount as described in the Indenture.
The Company has agreed to provide or cause to be provided to each holder of
the Convertible Notes or the Conversion Shares copies of this Prospectus, which
is a part of such Shelf Registration Statement, notify or cause to be notified
each such holder when such Shelf Registration Statement for the Convertible
Notes or the Conversion Shares has become effective and take certain other
actions as are required to permit unrestricted resales of the Convertible Notes
or the Conversion Shares. A holder of Convertible Notes or
23
<PAGE> 25
Conversion Shares that sells such Securities pursuant to the Shelf Registration
Statement is required to be named as a Selling Securityholder in this Prospectus
and to deliver this Prospectus to purchasers, is subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
is bound by the provisions of the Registration Agreement that are applicable to
such holder (including certain indemnification and contribution rights and
obligations).
The Company may suspend the use of this Prospectus under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. The Company will pay all expenses of the
Shelf Registration Statement, provide to each registered holder of Convertible
Notes and Conversion Shares copies of this Prospectus, notify each such
registered holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the Convertible Notes and the Conversion Shares.
CONVERSION
The holder of any Convertible Note will have the right, exercisable at any
time after 90 days following the date of original issuance thereof and prior to
maturity, to convert the principal amount thereof (or any portion thereof that
is an integral multiple of $1,000) into shares of Common Stock at a conversion
price equal to $18.57 per share subject to adjustment as described below (the
"Conversion Price"), except that if a Convertible Note is called for redemption,
the conversion right will terminate at the close of business on the third
Business Day immediately preceding the date fixed for redemption. Except as
described below, no adjustment will be made on conversion of any Convertible
Notes for interest accrued thereon or for dividends on any Common Stock issued.
If Convertible Notes not called for redemption are converted after a record date
for the payment of interest and prior to the next succeeding Interest Payment
Date, such Convertible Notes must be accompanied by funds equal to the interest
payable on such succeeding Interest Payment Date on the principal amount so
converted. No fractional shares will be issued upon conversion but a cash
adjustment will be made for any fractional interest. A Convertible Note in
respect of which a holder is exercising its option to require repurchase may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Indenture.
The Conversion Price is subject to adjustment (under formulae set forth in
the Indenture) upon the occurrence of certain events, including: (i) the
issuance of shares of Common Stock as a dividend or distribution on the Common
Stock; (ii) the subdivision or combination of the outstanding Common Stock;
(iii) the issuance to substantially all holders of Common Stock of rights or
warrants to subscribe for or purchase Common Stock (or securities convertible
into Common Stock) at a price per share less than the then current market price
per share, as defined; (iv) the distribution of shares of capital stock of the
Company (other than Common Stock), evidences of indebtedness or other assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above and dividends and distributions in connection
with the liquidation, dissolution or winding up of the Company or paid
exclusively in cash out of current or retained earnings) to all holders of
Common Stock; (v) the distribution, by dividend or otherwise, of cash (excluding
any cash portion of distributions referred to in clause (iv)) to all holders of
Common Stock in an aggregate amount that, together with the aggregate of any
other distributions of cash that did not trigger a Conversion Price adjustment
to all holders of its Common Stock within the 12 months preceding the date fixed
for determining the stockholders entitled to such distribution and all Excess
Payments (as defined) in respect of each tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for Common Stock concluded
within the preceding 12 months not triggering a Conversion Price adjustment,
exceeds 15% of the product of the current market price per share (determined as
set forth below) on the date fixed for the determination of stockholders
entitled to receive such distribution times the number of shares of Common Stock
outstanding on such date; (vi) payment of an Excess Payment in respect of a
tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Stock, if the aggregate amount of such Excess Payment,
together with the aggregate amount of cash distributions made within the
preceding 12 months not triggering a Conversion Price adjustment and all Excess
Payments in respect of each tender offer or other negotiated transaction by the
Company or any of its Subsidiaries for Common Stock concluded within the
preceding 12 months not triggering a Conversion Price adjustment, exceeds 15% of
the
24
<PAGE> 26
product of the current market price per share (determined as set forth below) on
the expiration of such tender offer times the number of shares of Common Stock
outstanding on such date; and (vii) the distribution to substantially all
holders of Common Stock of rights or warrants to subscribe for securities (other
than those securities referred to in clause (iii) above). In the event of a
distribution to substantially all holders of Common Stock of rights to subscribe
for additional shares of the Company's capital stock (other than those
securities referred to in clause (iii) above), the Company may, instead of
making any adjustment in the Conversion Price, make proper provision, so that
each holder of a Convertible Note who converts such Convertibles Note after the
record date for such distribution and prior to the expiration or redemption of
such rights shall be entitled to receive upon such conversion, in addition to
shares of Common Stock, an appropriate number of such rights. No adjustment of
the Conversion Price will be made until cumulative adjustments amount to one
percent or more of the Conversion Price as last adjusted.
If the Company reclassifies or changes its outstanding Common Stock, or
consolidates with or merges into any person or transfers or leases all or
substantially all its assets, or is a party to a merger that reclassified or
changes its outstanding Common Stock, the Convertible Notes will become
convertible into the kind and amount of securities, cash or other assets which
the holders of the Convertible Notes would have owned immediately after the
transaction if the holders had converted the Convertible Notes immediately
before the effective date of the transaction (assuming, in a case in which the
Company's stockholders may exercise rights of election, that a holder of
Convertible Notes would not have exercised any rights of election as to the
stock, other securities or other property or assets receivable in connection
therewith and received per share the kind and amount received per share by a
plurality of non-electing shares). Certain of the foregoing events may also
constitute or result in a Designated Event requiring the Company to offer to
repurchase the Convertible Notes. See "-- Repurchase at Option of Holders."
In the event of a taxable distribution to holders of Common Stock (or other
transaction) that results in any adjustment of the Conversion Price, the holders
of Convertible 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 United States Federal
Income Tax Considerations."
The Indenture also provides that if rights, warrants or options expire
unexercised the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the Indenture, the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the Daily Market Prices for the
shorter of (i) 30 consecutive business days ending on the last full trading day
on the exchange or market referred to in determining such Daily Market Prices
prior to the time of determination (as defined in the Indenture) or (ii) the
period commencing on the date next succeeding the first public announcement of
the issuance of such rights or warrants or such distribution through such last
full trading day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash and fair
market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the market value of such acquired shares after
giving effect to the completion of the tender offer or other negotiated
transaction.
The Company from time to time may to the extent permitted by law reduce the
Conversion Price 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 reduction, if the Board
of Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the Conversion Price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain United States Federal Income Tax
Considerations."
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No adjustment in the Conversion Price will be required unless such
adjustment would require a change of at least 1% of the Conversion Price then in
effect; provided that any adjustment that would otherwise be required to 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.
SUBORDINATION OF CONVERTIBLE NOTES
The payment of the principal of, interest on or any other amounts due on
the Convertible Notes is subordinated in right of payment to the prior payment
in full of all Senior Debt of the Company (whether outstanding on the date of
the Indenture or thereafter incurred). No payment on account of principal,
redemption, interest or any other amounts due on the Convertible Notes,
including, without limitation, any payments on the Designated Event Offer, and
no redemption, purchase or other acquisition of the Convertible Notes may be
made unless (i) full payment of amounts then due on all Senior Debt have been
made or duly provided for pursuant to the terms of the instrument governing such
Senior Debt, and (ii) at the time for, or immediately after giving effect to any
such payment, redemption, purchase or other acquisition, there shall not exist
under any Senior Debt or any agreement pursuant to which any Senior Debt has
been issued, any default which shall not have been cured or waived and which
shall have resulted in the full amount of such Senior Debt being declared due
and payable. In addition, the Indenture provides that if any of the holders of
any issue of Designated Senior Debt notify (the "Payment Blockage Notice") the
Company and the Trustee that a default has occurred giving the holders of such
Designated Senior Debt the right to accelerate the maturity thereof, no payment
on account of principal, redemption, interest or any other amounts due on the
Convertible Notes and no purchase, redemption or other acquisition of the
Convertible Notes will be made for the period (the "Payment Blockage Period")
commencing on the date notice is received and ending on the earlier of (A) the
date on which such event of default shall have been cured or waived or (B) 179
days from the date notice is received (unless the default is a payment default).
Notwithstanding the foregoing (but subject to the provisions contained in the
first sentence of this Section), unless the holders of such Designated Senior
Debt or the Representative of such holders shall have accelerated the maturity
of such Designated Senior Debt (unless the default is a payment default), the
Company may resume payments on the Convertible Notes after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice may be given
in any consecutive 360-day period, irrespective of the number of defaults with
respect to Senior Debt during such period.
Upon any distribution of its assets in connection with any dissolution
winding-up, liquidation or reorganization of the Company or acceleration of the
principal amount due on the Convertible Notes because of an Event of Default,
all Senior Debt must be paid in full before the holders of the Convertible Notes
are entitled to any payments whatsoever.
If payment of the Convertible Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of Senior
Debt or the trustee(s) for such Senior Debt of the acceleration. The Company may
not pay the Convertible Notes until five days after such holders or trustee(s)
of Senior Debt receive notice of such acceleration and, thereafter, may pay the
Convertible Notes only if the subordination provisions of the Indenture
otherwise permit payment at that time.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Convertible Notes may recover ratably less
than general creditors of the Company.
The Convertible Notes are obligations exclusively of the Company. Since the
operations of the Company are partially conducted through Subsidiaries, the cash
flow and the consequent ability to service debt, including the Convertible
Notes, of the Company, are partially dependent upon the earnings of its
Subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those Subsidiaries to, the Company. The payment of
dividends and the making of loans and advances to the Company by its
Subsidiaries may be subject to statutory or contractual restrictions, are
dependent upon the earnings of those Subsidiaries and are subject to various
business considerations.
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Any right of the Company to receive assets of any of its Subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Convertible Notes to participate in those 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 subordinated 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, 1996, the Senior Debt, which includes guaranties of
indebtedness of partnerships affiliated with the Company, and the indebtedness
and all other liabilities of the Company's subsidiaries totalled $93.7 million.
The Indenture does not limit the amount of additional indebtedness, including
Senior Debt, that the Company can create, incur, assume or guarantee, nor will
the Indenture limit the amount of indebtedness and other liabilities that any
Subsidiary can create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Convertible 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 to the Convertible Notes before all Senior Debt
is paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of holders of Senior Debt, and will be immediately paid
over or delivered to the holders of Senior Debt or their representative or
representatives to the extent necessary to make payment in full of all Senior
Debt remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior Debt.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties of assets unless (i) (a) the Company is the surviving or
continuing corporation or (b) the person formed by or surviving any such
consolidation or merger (if other than the Company) or the person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or person formed by or surviving any such
consolidation or merger (if other than the Company) assumes all the obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Convertible Notes and the Indenture;
(iii) such sale, assignment, transfer, lease, conveyance or other disposition of
all or substantially all of the Company's properties or assets shall be as an
entirety or virtually as an entirety to one person and such person shall have
assumed all the obligations of the Company, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, under the Convertible Notes
and the Indenture; (iv) immediately after such transaction no Default or Event
of Default exists; and (v) the Company or such person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such transaction and the supplemental indenture comply with the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Convertible Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Convertible Notes unless such consideration is offered
to be paid or agreed to be paid to all holders of the Convertible Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Convertible Notes; (ii) default in payment when due of principal
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on the Convertible Notes; (iii) failure by the Company to comply with the
provisions described under "Designated Event"; (iv) failure by the Company for
60 days after notice to comply with any other covenants and agreements contained
in the Indenture or the Convertible Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Material Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Material Subsidiaries), whether such Indebtedness or
guaranty now exists or is created after the date on which the Convertible Notes
are first authenticated and issued, which default (a) is caused by a failure to
pay when due principal or interest on such Indebtedness within the grace period
provided in such Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (b) result in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $7 million or more; (vi) failure by
the Company or any Material Subsidiary of the Company to pay final judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $5 million, which judgments are not
stayed within 60 days after their entry; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Convertible
Notes may declare all the Convertible Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Material Subsidiary, all outstanding Convertible Notes will become due and
payable without further action or notice. Holders of the Convertible Notes may
not enforce the Indenture or the Convertible Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Convertible Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Convertible Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Convertible
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Convertible Notes waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of the Designated Event Payment of interest on, or the
principal of, the Convertible Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is 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.
BOOK-ENTRY; DELIVERY AND FORM; MATTERS PERTAINING TO DTC
The Convertible Notes sold within the United States to qualified
institutional buyers (as defined in Rule 144A under the Securities Act)
("Qualified Institutional Buyers" or "QIBs") have been issued in the form of
Rule 144A Global Notes. The Rule 144A Global Notes have been deposited with, or
on behalf of, DTC and registered in the name of The Depository Trust Company,
New York, New York ("DTC") or its nominee. Except as set forth below, the Rule
144A Global Notes may be transferred, in whole and not in part, only to DTC or
another nominee of DTC.
Any beneficial interest in one of the Rule 144A Global Notes (each a
"Global Note") that is transferred to a person who takes delivery in the form of
an interest in another Global Note will, upon transfer, cease to be an interest
in such Global Note and become an interest in such other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records
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maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). QIBs may hold their interests in a Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
Convertible Notes originally purchased by or transferred to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act and referred to as "Institutional Accredited Investors") who are
not Qualified Institutional Buyers have been issued and registered in
certificated form without coupons and bear a legend containing restrictions on
transfers (a "Restrictive Legend") (the "Certificated Convertible Notes").
Certificated Convertible Notes are not eligible to be exchanged for an interest
in a Global Note.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Convertible Notes represented by such Global Note
for all purposes under the Indenture and the Convertible Notes. No beneficial
owner of an interest in a Global Note will be able to transfer the interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Indenture.
Payments of the principal of, liquidated damages or premium, if any, and
interest on, a Global Note will be made to DTC or its nominee, as the case may
be, as the registered owner thereof. Neither the Company, the Trustee nor any
Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of a
certificated note for any reason, including to sell Convertible Notes to persons
in jurisdictions which require such delivery of such Convertible Notes or to
pledge such Convertible Notes, such holder must transfer its interest in a
Global Note in accordance with the normal procedures of DTC and the procedures
set forth in the Indenture. Once an interest in a Global Note is delivered as a
certificated note to an Institutional Accredited Investor, such certificated
note may not be exchanged for an interest in a Global Note.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the Global
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Company expects that DTC will take any action permitted to be taken by
a holder of Convertible Notes (including the presentation of Convertible Notes
for exchange as described below) only at the direction of one or more
participants to whose account DTC interests in a Global Note is credited and
only in respect of such portion of the aggregate principal amount of the
Convertible Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default (as defined below)
under the Convertible Notes, DTC will exchange a Global Note for certificated
notes, which it will distribute to its participants and which will be legended
as set forth under "Notice to Investors."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the
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meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities and effect transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations. Certain of such participants (or
their representatives), together with other entities, own DTC. Indirect access
to the DTC system is available to others such as banks, brokers and dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although the Company expects that DTC will agree to the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Company nor the Trustee will have any responsibility for the performance by
DTC or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for a
Global Note and a successor depositary is not appointed by the Company within 90
days, the Company will issue certificated notes in exchange for a Global Note
which will bear the legend referred to under "Notice to Investors," subject to
the provisions of such legend.
SETTLEMENT AND PAYMENT
Settlement for the Convertible Notes will be made in immediately available
funds. Payments by the Company in respect of the Convertible Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) will be
made in immediately available funds as provided above. The Convertible Notes are
eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity of the Convertible Notes will, therefore, be
required by DTC to be settled in immediately available funds. No assurance can
be given as to the effect, if any, of such settlement arrangements on trading
activity in the Convertible Notes.
Because of time-zone differences, the securities account of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Note from a participant that is not a Member Organization will be
credited during the securities settlement processing day (which must be a
business day for Euroclear or Cedel Bank, as the case may be) immediately
following the DTC settlement date. Transactions in interests in a Global Note
settled during any securities settlement processing day will be reported to the
relevant Member Organization on the same day. Cash received in Euroclear or
Cedel Bank as a result of sales of interests in a Global Note by or through a
Member Organization to a DTC Participant that is not a Member Organization will
be received with value on the DTC settlement date, but will not be available in
the relevant Euroclear or Cedel Bank cash account until the business day
following settlement in DTC.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Convertible Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Convertible Note selected for redemption or repurchase. Also, the Company is
not required to transfer or exchange any Convertible Note for a period of 15
days before a selection of Convertible Notes to be redeemed.
The registered holder of a Convertible Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Convertible Notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the then
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outstanding Convertible Notes (including consents obtained in connection with a
tender offer or exchange offer for Convertible Notes), and any existing default
or compliance with any provision of the Indenture or the Convertible Notes may
be waived with the consent of the holder of a majority in principal amount of
the then outstanding Convertible Notes (including consents obtained in
connection with a tender offer or exchange offer for Convertible Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Convertible Notes held by a nonconsenting holder of
Convertible Notes): (i) reduce the amount of Convertible Notes whose holders
must consent to an amendment, supplement or waiver, (ii) reduce the principal or
change the fixed maturity of any Convertible Note or alter the provisions with
respect to the redemption of the Convertible Notes, (iii) reduce the rate or
change the time for payment of interest on any Convertible Note, (iv) waive a
default in the payment of principal of or interest on any Convertible Notes
(except a rescission of acceleration of the Convertible Notes by the holders of
at least a majority in aggregate principal amount of the Convertible Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Convertible Note payable in money other than that stated in the Convertible
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Convertible Notes to
receive payments of principal or interest on the Convertible Notes, (vii) waive
a redemption payment with respect to any Convertible Note, (viii) impair the
right to convert the Convertible Notes into Common Stock, (ix) modify the
conversion or subordination provisions of the Indenture in a manner adverse to
the holders of the Convertible Notes or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Convertible Notes, the Company and the Trustee may amend or supplement the
Indenture or the Convertible Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Convertible Notes in addition to or
in place of certificated Convertible Notes, to provide for the assumption of the
Company's obligations to holders of the Convertible Notes in the case described
under "-- Merger, Consolidation or Sale of Assets," to make any change that
would provide any additional rights or benefits to the holders of the
Convertible Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, to comply with requirements of the Commission in
order to qualify, or maintain the qualification of, the Indenture under the
Trust Indenture Act or to reduce the Conversion Price.
CONCERNING THE TRUSTEE
The Indenture 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. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Trustee shall provide written notice to the holders of the Convertible
Notes of any Default of which the Trustee has knowledge within ninety days of
its occurrence unless it determines in good faith that withholding notice is in
their interest. The holders of a majority in principal amount of the then
outstanding Convertible Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The Indenture provides that, in case an
Event of Default shall occur (which shall not be cured) the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Except during the continuance of an Event
of Default, the Trustee need perform only those duties specifically set forth in
the Indenture. Subject to such provisions, the Trustee may refrain from
exercising any of its rights or powers under the Indenture at the request of any
holder of Convertible Notes, unless upon the Trustee's request, the Trustee is
furnished with an Officer's Certificate or Opinion of Counsel, or both, and/or
the Trustee receives security and indemnity satisfactory to it against any loss,
liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture or
the Registration Agreement without charge by writing to the Trustee.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of equity interests in any entity,
including, without limitations corporate stock and partnership interests.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Designated Senior Debt" means any Senior Debt which, at the date of
determination, has an aggregate principal amount outstanding of, or commitments
to lend up to, at least $2 million and is specifically designated in the
instrument evidencing or governing such Senior Debt as "Designated Senior Debt"
for purposes of the Indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Guaranty" means a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any person, all Obligations, whether
or not contingent, of such person (i) (a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of such person which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guaranties, bankers' acceptances or
guaranties related to tax credit partnerships, (e) with respect to Indebtedness
secured by a mortgage, pledge, lien, encumbrance, charge or adverse claim
affecting title or resulting in an encumbrance to which the property or assets
of such person are subject, whether or not the obligation secured thereby shall
have been assumed or guaranteed by or shall otherwise be such person's legal
liability, (f) in respect of the balance of deferred and unpaid purchase price
of any property or assets, (g) under interest rate or currency swap agreements,
cap, floor and collar agreements, spot and forward contracts and similar
agreements and arrangements; (ii) with respect to any obligation of others of
the type described in the preceding clause (i) or under clause (iii) below
assumed by or guaranteed in any manner by such person or in effect guaranteed by
such person through an agreement to purchase (including, without limitation,
"take or pay" and similar arrangements), contingent or otherwise (and the
obligations of such person under any such assumptions, guaranties or other such
arrangements); and (iii) any and all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements to,
any of the foregoing.
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<PAGE> 34
"Material Subsidiary" means any Subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act (as such Regulation is in effect on the date
hereof).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means a single permanent global note that is
deposited with and registered in the name of DTC or its nominee, representing
the Convertible Notes sold in reliance on Rule 144A.
"Senior Debt" means the principal of, interest on and other amounts due on
Indebtedness of the Company, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed by the Company; unless, in
the instrument creating or evidencing or pursuant to which Indebtedness is
outstanding, it is expressly provided that such Indebtedness is not senior in
right of payment to the Convertible Notes. Senior Debt includes, with respect to
the obligations described above, interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether or
not post-filing interest is allowed in such proceedings at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness
of or amounts owed by the Company for compensation to employees, or for goods,
services or materials purchased in the ordinary course of business; (b)
Indebtedness of the Company to a Subsidiary of the Company or any officer,
director or employee of the Company or Subsidiary thereof; (c) any liability for
federal, state, local or other taxes, owed or owing by the Company; or (d)
Indebtedness evidenced by the 1999 Convertible Notes.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustee thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof.
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<PAGE> 35
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain of the material United
States federal income tax consequences expected to result to holders from the
purchase, ownership, conversion and disposition of the Convertible Notes. The
summary is based upon current provisions of the Code, applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders.
The following summary is for general information only and 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 Convertible Notes. The tax
treatment of a holder of Convertible Notes may vary depending upon such holder's
particular situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States (except to
the extent discussed under the heading "Certain United States Tax Consequences
to Non-United States Holders") or persons that will hold the Convertible Notes
as a position in a "straddle," as part of a "synthetic security" or "hedge," as
part of a "conversion transaction" or other integrated investment, or as other
than a capital asset) may be subject to special rules not discussed below. EACH
PURCHASER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, HOLDING, CONVERTING AND
DISPOSING OF THE CONVERTIBLE NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES,
AS WELL AS THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
STATED INTEREST
Holders of Convertible Notes will be required to include stated interest in
gross income in accordance with their methods of accounting for tax purposes.
LIQUIDATED DAMAGES
The Company intends to take the position that the Liquidated Damages
described above under "Description of Convertible Notes--Registration Rights"
will be taxable to the holder as ordinary income in accordance with the holder's
method of accounting for tax purposes. The Internal Revenue Service, however,
may take a different position, which could affect the timing of the holder's
income and the amount and timing of the Company's deduction with respect to the
Liquidated Damages.
CONVERSION
A holder of a Convertible Note will not recognize gain or loss on the
conversion of a Convertible Note solely into Common Stock except with respect to
cash received in lieu of fractional shares. To the extent the Convertible Notes
converted are subject to accrued market discount, the amount of the accrued
market discount will carry over to the Common Stock on conversion and will be
treated as interest income on disposition of the Common Stock. If Common Stock
is received by a holder without recognition of gain or loss, the holding period
of the Common Stock received upon conversion of a Convertible Note will include
the period during which the Convertible Note was held (provided the Convertible
Note was a capital asset in the hands of the holder prior to the conversion),
and the holder's aggregate tax basis in such Common Stock will be equal to his
or her tax basis in the Convertible Note exchanged therefor (less a portion
thereof allocable to any fractional share). A holder will recognize taxable gain
or loss on cash received in lieu of fractional shares of Common Stock in an
amount equal to the difference between the amount of cash received and the
portion of the holder's adjusted tax basis in the Convertible Note allocable to
the fractional shares. Such gain or loss should be capital gain or loss if the
fractional shares are capital assets in the hands of the holder and be long-term
capital gain or loss if the fractional shares have been deemed held for more
than one year.
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<PAGE> 36
Adjustments in the conversion price of the Convertible Notes made pursuant
to the anti-dilution provisions thereof to reflect distributions to holders of
Common Stock may result in constructive distributions to holders that could be
taxable to them as dividends pursuant to Section 305 of the Code.
MARKET DISCOUNT
Purchasers of Convertible Notes should be aware that an acquisition of
Convertible Notes may be affected by the market discount provisions of the Code.
These rules generally provide that, subject to a statutorily-defined de minimis
exception, if a holder of a debt instrument purchases it at a market discount
and thereafter recognizes gain on a disposition of the debt instrument
(including a gift), the lesser of such gain (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the debt
instrument was held by such holder will be treated as ordinary interest income
at the time of the disposition. For this purpose, a purchase at a market
discount includes a purchase at or after the original issue at a price below the
stated redemption price at maturity. The market discount rules also provide that
a holder who acquires a debt instrument at a market discount (and who does not
elect to include such market discount in income on a current basis) may be
required to defer a portion of any interest expense that may otherwise 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.
The Convertible Notes provide that they may be redeemed, in whole or in
part, before maturity. If some or all of the Convertible Notes are redeemed in
part, each holder of a Convertible Note acquired at a market discount would be
required to treat the principal payment as ordinary interest income to the
extent of any accrued market discount on such Convertible Note.
A holder of a debt instrument acquired at a market discount may elect to
have the market discount accrue on a constant interest rate basis (as opposed to
a straight line basis). In addition, a holder of a debt instrument acquired at a
market discount may elect to include the market discount in income as the
discount thereon accrues, either on a straight line basis or, if elected, on a
constant interest rate basis. The current inclusion election, once made, applies
to all market discount obligations acquired by such holder on or after the first
day of the first taxable year to which the election applies, and may not be
revoked without the consent of the Service. If a holder of a Convertible Note
elects to include the market discount in income in accordance with the preceding
sentence, the foregoing rules with respect to the recognition of ordinary income
on a sale or certain other dispositions of such Convertible Note with the
deferral of interest deductions on indebtedness related to such Convertible Note
would not apply.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess may
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his or her
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his or her tax basis in the related obligation
by the amount of the aggregate deductions allowable for amortizable bond
premium.
In the case of a debt instrument, such as a Convertible Note, that may be
called or submitted for redemption at a premium prior to maturity, an earlier
call date of the debt instrument is treated as the maturity date of the debt
instrument and the amount of bond premium is determined by treating the amount
payable on such call date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium than the method
described in the preceding paragraph. If a holder of a debt instrument is
required to amortize and deduct the bond premium by reference to a certain call
date, the debt instrument will be treated as maturing on such date for the
amount payable, and, if not redeemed on such date, the debt instrument will be
treated as reissued on such date of the amount so payable. If a debt instrument
purchased at a premium is redeemed prior to its maturity, a purchaser who has
elected to deduct the bond premium may be permitted to deduct any remaining
unamortized bond premium as an ordinary loss in the taxable year of redemption.
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<PAGE> 37
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each purchaser
is urged to consult his or her tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
DISPOSITION
In general, a holder of a Convertible Note will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of the Convertible
Note measured by the difference between (i) the amount of cash and the fair
market value of property received and (ii) the holder's tax basis in the
Convertible Note (as increased by any market discount previously included in
income by the holder and decreased by any amortizable bond premium deducted over
the term of the Convertible Note). Subject to the market discount and
amortizable bond premium rules discussed above, any such gain or loss will
generally be long-term capital gain or loss, provided the Convertible Note was a
capital asset in the hands of the holder and had been held for more than one
year.
BACKUP WITHHOLDING
A holder of Convertible Notes may be subject to backup withholding at the
rate of 31% with respect to interest paid on and gross proceeds of a sale of the
Convertible Notes, unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder of a Convertible Note who
does not provide the Company with his or her correct taxpayer identification
number may be subject to penalties imposed by the Service.
The Company will report to the holders of the Convertible Notes and the
Service the amount of any "reportable payments" (including stated interest on
the Convertible Notes) and any amount withheld with respect to the Convertible
Notes during the calendar year.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
General. The following is a general discussion of certain United States
federal income and estate tax consequences of the acquisition, ownership and
disposition of Convertible Notes by a "Non-United States Holder" and does not
deal with tax consequences arising under the laws of any foreign, state, or
local jurisdiction. As used herein, a "Non-United States Holder" is a person or
entity that, for United States federal income tax purposes, is not a citizen or
resident of the United States, a corporation, partnership, or other entity
created or organized under the laws of the United States or a political
subdivision thereof, or an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source, or that
otherwise is subject to United States federal income taxation on a net basis in
respect of the Convertible Notes. The tax treatment of the holders of the
Convertible Notes may vary depending upon their particular situations. Certain
holders (including insurance companies, tax exempt organizations, financial
institutions and broker-dealers) may be subject to special rules not discussed
below. Prospective investors who are Non-United States Holders are urged to
consult their tax advisors regarding the United States federal tax consequences
of acquiring, holding and disposing of Convertible Notes, as well as any tax
consequences that may arise under the laws of any foreign, state, local or other
taxing jurisdiction.
Interest on Convertible Notes. Interest paid by the Company to a Non-United
States Holder will not be subject to United States federal income or withholding
tax if such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-United States Holder and (i) the
Non-United States Holder does not actually or constructively own 10% or more of
the total voting power of all voting stock of the Company and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code and (ii) the beneficial owner of the
Convertible Notes certifies, under penalties of perjury, that the beneficial
owner is not a United States person and provides the beneficial owner's name and
address.
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<PAGE> 38
Gain on Disposition of Convertible Notes. A Non-United States Holder will
generally not be subject to United States federal income tax on gain recognized
on a sale, redemption or other disposition of a Convertible Note unless (i) the
gain is effectively connected with the conduct of a trade or business within the
United States by the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is a nonresident alien individual and holds the Convertible
Note as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are met.
Dividends on Common Stock. The Company does not currently intend to pay
dividends on shares of Common Stock. In the event that dividends are paid on
shares of Common Stock, except as described below, such dividends paid to a
Non-United States Holder of Common Stock will be subject to withholding of
United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the Non-United
States Holder within the United States. If the dividend is effectively connected
with the conduct of a trade or business of the Non-United States Holder within
the United States, the dividend would be subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate rates
and would be exempt from the 30% withholding tax described above. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations, not currently in effect, however, a Non-United States
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements. Certain certification and disclosure requirements must be complied
with in order to be exempt from withholding under the effectively connected
income exemption discussed above.
A Non-United States Holder of Common Stock that is eligible for a reduced
rate of United States withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for refund with the United States Internal Revenue Service.
Gain on Disposition of Common Stock. A Non-United States Holder generally
will not be subject to United States federal income tax on any gain recognized
on a disposition of a share of Common Stock unless (i) subject to the exception
discussed below, the Company is or has been a "United States real property
holding corporation" (a "USRPHC") within the meaning of Section 897(c)(2) of the
Code at any time within the shorter of the five-year period preceding such
disposition or such Non-United States Holder's holding period (the "Required
Holding Period"), (ii) the gain is effectively connected with the conduct of a
trade or business within the United States of the Non-United States Holder and,
if a tax treaty applies, attributable to a permanent establishment maintained by
the Non-United States Holder, (iii) the Non-United States Holder is an
individual who holds the share of Common Stock as a capital asset and is present
in the United States for 183 days or more in the taxable year of the disposition
and either (a) such individual has a "tax home" (as defined for United States
federal income tax purposes) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iv) the Non-United States Holder is
subject to tax pursuant to the Code provisions applicable to certain United
States expatriates. If an individual Non-United States Holder falls under
clauses (ii) or (iv) above, he or she will be taxed on his or her net gain
derived from the sale under regular United States federal income tax rates. If
the individual Non-United States Holder falls under clauses (iii) above, he or
she will be subject to a flat 30% tax on the gain derived from the sale which
may be offset by United States capital losses (notwithstanding the fact that he
or she is not considered a resident of the United States). If a Non-United
States Holder that is a foreign corporation falls under clause (ii) above, it
will be taxed on its gain under regular graduated United States federal income
tax rates and, in addition, will under certain circumstances be subject to the
branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable income
tax treaty.
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A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. While not free from doubt, the Company
believes that it currently is a USRPHC; however, a Non-United States Holder
would generally not be subject to tax or withholding in respect of such tax on
gain from a sale or other disposition of Common Stock by reason of the Company's
USRPHC status if the Common Stock is regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
sale or disposition occurs provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during the
Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-United States Holder owns in excess of 5% of the fair market value
of Common Stock (as described in the preceding paragraph), such Non-United
States Holder of Common Stock will be subject to United States federal income
tax at regular graduated rates under certain rules ("FIRPTA tax") on gain
recognized on a sale or other disposition of such Common Stock. In addition, if
the Company is or has been a USRPHC within the Required Holding Period and if
the Common Stock were not treated as regularly traded, a Non-United States
Holder (without regard to its ownership percentage) is subject to withholding in
respect of FIRPTA tax at a rate of 10% of the amount realized on a sale or other
disposition of Common Stock in USRPHCs and will be further subject to FIRPTA tax
in excess of the amounts withheld. Any amount withheld pursuant to such
withholding tax will be creditable against such Non-United States Holder's
United States federal income tax liability. Non-United States Holders are urged
to consult their tax advisors concerning the potential applicability of these
provisions.
Federal Estate Taxes. A Convertible Note beneficially owned by an
individual who is a Non-United States Holder at the time of his or her death
generally will not be subject to United States Federal estate tax as a result of
such individual's death, provided that (i) such individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote within the meaning of Section 871(h)(3)
of the Code, and (ii) interest payments with respect to the Convertible Notes
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a trade or business within the United
States by such individual. Common Stock owned, or treated as owned, by a
non-resident alien individual (as specifically determined for United States
federal estate tax purposes) at the time of death will be included in such
holder's gross estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. The Company must report
annually to the Service and to each Non-United States Holder the amount of
interest and dividends paid to such holder and the amount of any tax withheld.
These information reporting requirements apply regardless of whether withholding
is required. Copies of the information returns reporting such interest and
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-United States Holder resides under the provisions
of an applicable income tax treaty.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Convertible Notes by or
through a United States office of a United States or foreign broker, unless the
holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup withholding, will
also apply to a payment of the proceeds of a disposition of the Convertible
Notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States. Neither
information reporting nor backup withholding generally will apply to a payment
of the
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<PAGE> 40
proceeds of a disposition of the Convertible Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
United States backup withholding tax generally will not apply to (a) the
payment of dividends paid on Common Stock to a Non-United States Holder at an
address outside the United States or (b) the payment of the proceeds of the sale
of Common Stock to or through the foreign office of a broker. In the case of the
payment of proceeds from such a sale of Common Stock through a foreign office of
a broker that is a United States person or a "U.S. related person," however,
information reporting (but not backup withholding) is required with respect to
the payment unless the broker has documentary evidence in its files that the
owner is a Non-United States Holder and certain other requirements are met or
the holder otherwise establishes an exemption. For this purpose, a "U.S. related
person" is (i) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has been
in existence) is derived from activities that are effectively connected with the
conduct of a United States trade or business. The payment of the proceeds of a
sale of shares of Common Stock to or through a United States office of a broker
is subject to information reporting and possible backup withholding unless the
owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information and backup withholding rules are under review by the
United States Treasury and their application to the Bonds could be changed by
future regulations. On April 15, 1996, the Internal Revenue Service issued
proposed Treasury Regulations concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
The proposed regulations would, among other changes, eliminate the presumption
under current regulations with respect to dividends paid to addresses outside
the United States. The proposed Treasury Regulations, if adopted in their
present form, would be effective for payments made after December 15, 1997.
Prospective Purchasers of Convertible Notes should consult their tax advisors
concerning the potential adoption of such Treasury Regulations.
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<PAGE> 41
SELLING SECURITYHOLDERS
The Convertible Notes were originally issued by the Company in a private
placement and were resold by the initial purchaser thereof to qualified
institutional buyers (within the meaning of Rule 144A under the Securities Act)
or other institutional accredited investors (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) in transactions exempt from registration
under the Securities Act. The Convertible Notes and the Conversion Shares that
may be offered pursuant to this Prospectus will be offered by the Selling
Securityholders. The following table sets forth certain information as of
December 20, 1996 concerning the principal amount of Convertible Notes held of
record by certain financial institutions on behalf of the Selling
Securityholders. To the Company's knowledge, other than as a result of the
ownership indicated below, none of the Selling Securityholders has had any
position, office or other material relationship with the Company or any of its
affiliates within the past three years.
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF PERCENTAGE OF CONVERSION PERCENTAGE
CONVERTIBLE CONVERTIBLE SHARES OF
NOTES THAT NOTES THAT MAY COMMON STOCK
NAME MAY BE SOLD OUTSTANDING BE SOLD(1) OUTSTANDING(2)
- ----------------------------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Bank of New York............................... $ 6,155,000 10.7 331,448 3.3
Bankers Trust Company.......................... 5,150,00 9.0 277,329 2.8
Bear Stearns Securities Corp. ................. 3,700,000 6.4 199,246 2.0
Boston Safe Deposit & Trust Co. ............... 6,205,000 10.8 334,141 3.3
Bradford (J.C.) & Co. ......................... 100,000 * 5,385 *
Brown Brothers Harriman & Co. ................. 5,000,000 8.7 269,251 2.7
Chase Manhattan Bank........................... 6,800,000 11.8 366,182 3.7
Custodial Trust Company........................ 1,345,000 2.3 72,428 *
First National Bank of Maryland (The).......... 150,000 * 8,077 *
Mercantile, Safe Deposit and Trust Company..... 1,665,000 2.9 89,660 *
NBD Bank....................................... 590,000 1.0 31,771 *
PNC National Association....................... 100,000 * 5,385 *
Republic New York Securities Corp. ............ 1,340,000 2.3 72,159 *
Salomon Brothers Inc. ......................... 2,125,000 3.7 114,431 1.2
Sanwa Bank of California....................... 480,000 * 25,848 *
Smith Barney, Inc. ............................ 1,500,000 2.6 80,775 *
SSB-Custodian.................................. 5,635,000 9.8 303,446 3.0
UMB Bank, N.A. ................................ 8,000,000 13.9 430,802 4.3
Wagner, Stott & Co. ........................... 1,460,000 2.5 78,621 *
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes conversion of the full amount of Convertible Notes held by such
holder at the initial conversion price of $18.57 per share; such conversion
price is subject to adjustment as described under "Description of
Convertible Notes -- Conversion." Accordingly, the number of shares of
Common Stock issuable upon conversion of the Convertible Notes may increase
or decrease from time to time. Under the terms of the Indenture, fractional
shares will not be issued upon conversion of the Convertible Notes; cash
will be paid in lieu of fractional shares, if any.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the Exchange
Act and based upon 9,646,127 shares of Common Stock outstanding as of
January 7, 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 Convertible Notes but not assuming the
conversion of the Convertible Notes of any other holder.
The preceding table has been prepared based upon the information furnished
to the Company by the Trustee and by The Depository Trust Company.
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<PAGE> 42
Because the Selling Securityholders may offer all or some of the
Convertible Notes that they hold and/or Conversion Shares pursuant to the
offering contemplated by this Prospectus, no estimate can be given as to the
amount of the Convertible Notes or Conversion Shares that will be held by the
Selling Securityholders upon the termination of this offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
The Selling Securityholders may sell all or a portion of the Convertible
Notes and the Conversion Shares offered hereby from time to time while the
Registration Statement of which this Prospectus is a part remains effective.
Pursuant to the Registration Rights Agreement, the Company is obligated to
maintain the effectiveness of the Registration Statement for a period of three
years from the completion of the Private Placement (or such shorter period as
may then be applicable under Rule 144(k) with respect to the holding periods for
restricted securities) or, if shorter, when (i) all the Securities have been
sold pursuant to the Registration Statement or (ii) the date on which there
ceases to be any outstanding Securities. The Selling Securityholders may sell
Convertible Notes or Conversion Shares on terms to be determined at the times of
such sales through customary brokerage channels, negotiated transactions or by a
combination of these methods, at fixed prices that may be changed, at market
prices then prevailing or at negotiated prices then obtainable. There is no
assurance that the Selling Securityholders will sell any or all of the
Convertible Notes or Conversion Shares offered pursuant to this Prospectus. Each
of the Selling Securityholders reserves the right to accept and, together with
its agents from time to time, to reject in whole or in part any proposed
purchase of the Convertible Notes or Conversion Shares to be made directly or
through agents. The Company will not receive any of the proceeds from the sale
of Convertible Notes or Conversion Shares pursuant to this Prospectus. The
aggregate proceeds to the Selling Securityholders from the sale of the
Convertible Notes and the Conversion Shares offered by the Selling
Securityholders hereby will be the purchase price of such Convertible Notes or
Conversion Shares less any discounts or commissions.
The Company has been advised by the Selling Securityholders that the
Selling Securityholders, acting as principals for their own account, may sell
Convertible Notes or Conversion Shares from time to time directly to purchasers.
Alternatively, the Selling Securityholders may, from time to time, sell
Convertible Notes or Conversion Shares through agents, dealers, market makers or
underwriters to be designated by the Selling Securityholders from time to time
who may receive compensation in the form of underwriting discounts, commissions
or concessions from the Selling Securityholders and the purchasers of the
Convertible Notes or Conversion Shares for whom they may act as agent. To the
extent required, the aggregate principal amount of the Convertible Notes and the
number of Conversion Shares to be sold, the names of the Selling
Securityholders, the purchase price, the name of any agent, dealer, market maker
or underwriter and any applicable commissions with respect to a particular offer
will be set forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. The Selling Securityholders and any agents, broker-dealers or
underwriters that participate with the Selling Securityholders in the
distribution of the Convertible Notes or the Conversion Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, in which event any
discounts, commissions or concessions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Convertible Notes or the
Conversion Shares purchased by them may be deemed to be underwriting discounts,
or commissions under the Securities Act.
A Selling Securityholder may elect to engage a broker or dealer to effect
sales in one or more of the following transactions: (a) block trades in which
the broker or dealer so engaged will attempt to sell the Securities as agent but
may position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, brokers and dealers engaged by Selling Securityholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from Selling Securityholders in amounts to be
negotiated (and, if such broker-dealer acts as agent for the purchaser of such
Securities, from such purchaser). Broker-dealers may agree with the Selling
Securityholders to sell a specified number of such Securities at a stipulated
price and, to the extent such broker-dealer is unable to do so acting
41
<PAGE> 43
as agent for a Selling Securityholder, to purchase as principal any unsold
Securities at the price required to fulfill the broker-dealer commitment to such
Selling Securityholder. Broker-dealers who acquire Securities as principal may
thereafter resell such Securities from time to time in transactions (which may
involve crosses and block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Securities commissions as described above.
A Selling Securityholder may also elect to sell Convertible Notes or
Conversion Shares without use of this Prospectus or reliance on the Registration
Statement in accordance with Rule 144.
The Securities originally issued by the Company in the Private Placement
contained legends as to their restricted transferability. Upon the effectiveness
of the Registration Statement of which this Prospectus is a part, these legends
will no longer be necessary. Upon the transfer by the Selling Securityholders of
any of the Securities, new certificates representing such Securities will be
issued to the transferee, free of any such legends.
To comply with the securities laws of certain states, if applicable, the
Convertible Notes and the Conversion Shares will be sold in such states only
through registered or licensed brokers of dealers. In addition, in certain
states the Convertible Notes and the Conversion Shares may not be offered or
sold unless they have been registered or qualified for sale in such state or an
exemption from the registration or qualification requirements is available and
is complied with.
The Company will pay all expenses incident to the offering and sale of the
Convertible Notes and the Conversion Shares to the public other than
underwriting discounts, selling commissions and fees. Pursuant to the
Registration Rights Agreement, the Company and Selling Securityholders have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
Prior to the date hereof, there has been no public market for the
Convertible Notes and there can be no assurance as to the liquidity of, or
trading market for, the Convertible Notes. The Company has been advised by the
Initial Purchaser that it intends to make a market in the Convertible Notes.
However, the Initial Purchaser is not obligated to do so and any market-making
activities with respect to the Convertible Notes may be discontinued at any time
without notice. Accordingly, no assurance can be given as to the liquidity of or
the trading market for the Convertible Notes.
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon by Latham & Watkins, Costa Mesa, California.
EXPERTS
The financial statements of ARV Assisted Living, Inc. as of March 31, 1996
and 1995, and for each of the years in the three-year period ended March 31,
1996, American Retirement Villas Properties II as of December 31, 1995 and 1994
and for each of the years in the three-year period ended December 31, 1995, San
Gabriel Retirement Villa, dba Villa Colima as of December 31, 1995 and 1994 and
for each of the years in the three-year period ended December 31, 1995, and
SynCare, Inc. and subsidiaries as of June 30,1996 and for the year then ended
have been incorporated by reference herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended September 30, 1996 and 1995, incorporated by reference herein, the
independent certified public accountants have reported that they applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report included in the Company's quarterly
report on Form 10-Q for the quarter
42
<PAGE> 44
ended September 30, 1996, and incorporated by reference herein, states that they
did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of sections 7 and 11 of the Act.
43
<PAGE> 45
- ------------------------------------------------------
- ------------------------------------------------------
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 IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Available Information.......... Inside Cover
Incorporation of Certain
Documents by Reference....... Inside Cover
Subsequent Event............... 3
Special Note Regarding Forward-
Looking Statements........... 3
Prospectus Summary............. 4
Risk Factors................... 7
Use of Proceeds................ 17
Price Range of Common Stock and
Dividend Policy.............. 17
Capital Stock of the Company... 18
Description of Convertible
Notes........................ 20
Certain United States Federal
Income Tax Considerations.... 34
Selling Securityholders........ 40
Plan of Distribution........... 41
Legal Matters.................. 43
Experts........................ 43
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$57,500,000
ARV ASSISTED LIVING, INC.
6 3/4% CONVERTIBLE SUBORDINATED
NOTES DUE 2006
[LOGO]
------------------------
PROSPECTUS
------------------------
DATED JANUARY 14, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Company in connection with the issuance and distribution of the Common Stock
being registered (all amounts are estimated except the SEC registration fee):
<TABLE>
<S> <C>
SEC registration fee........................................... $ 17,424
Printing expenses.............................................. 15,000
Legal fees and expenses........................................ 25,000
Accounting fees and expenses................................... 35,000
Transfer agent................................................. 5,000
Miscellaneous.................................................. $ 5,000
----------
Total................................................ $ 102,424
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporation Law provides that California
corporations may include provisions in their articles of incorporation relieving
Directors of monetary liability for breach of their fiduciary duty as Directors,
except for the liability of a Director resulting from (i) any transaction from
which the Director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a Director believes to be contrary to the best
interests of the Company or its shareholders or that involves the absence of
good faith on the part of the Director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the Director's
duty to the Company or its shareholders, (v) acts or omissions showing a
reckless disregard for the Director's duty to the Company or its shareholders in
circumstances in which the Director was aware or should have been aware, in the
ordinary course of performing a Director's duties, of a risk of serious injury
to the Company or its shareholders, (vi) any improper transaction between a
Director and the Company in which the Director has a material financial
interest, or (vii) the making of an illegal distribution to shareholders or an
illegal loan or guaranty. The Company's Articles of Incorporation provide that
the Company's Directors are not liable to the Company or its shareholders for
monetary damages for breach of their fiduciary duties to the fullest extent
permitted by California law.
The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
Directors and may discourage or deter shareholders or management from bringing a
lawsuit against Directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Company and its
shareholders.
II-1
<PAGE> 47
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<C> <S>
4.1* Form of Indenture Agreement between ARV Assisted Living, Inc. and the Initial
Purchaser of the Company's $57.5 million 6 3/4% Convertible Subordinated Notes
due 2006, incorporated by reference to Exhibit 4.2 of the Company's Form 10-K
filed July 1, 1996
4.2 Form of Registration Agreement between ARV Assisted Living, Inc. and the Initial
Purchaser
5.1 Opinion of Latham & Watkins regarding the validity of the Securities being
registered
12.1* Statement re: computation of ratios
15.1 Letter re: unaudited interim financial information
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Latham & Watkins (included as part of Exhibit 5.1)
24.1* Power of Attorney
25 Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee on Form T-1
27* Financial Data Schedule, incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K filed July 1, 1996 and the Company's
Quarterly Report on Form 10-Q filed November 14, 1996
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules Included in Part II: None
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities as that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer or controlling
person of the Registrant in the
II-2
<PAGE> 48
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) 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
Securities Act that is incorporated by reference in this 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> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Costa Mesa, State of California, on
January 14, 1997.
ARV ASSISTED LIVING, INC.,
a California corporation
By: /s/ GARY L. DAVIDSON
--------------------------------
Gary L. Davidson
President and Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on January 14, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- -------------------------------------
<C> <S> <C>
/s/ GARY L. DAVIDSON President, Chairman of the Board and
- --------------------------------------- Director (Principal Executive
Gary L. Davidson Officer)
/s/ DAVID P. COLLINS* Senior Executive Vice President and
- --------------------------------------- Director
David P. Collins
/s/ GRAHAM P. ESPLEY-JONES* Chief Financial Officer (Principal
- --------------------------------------- Financial and Accounting Officer)
Graham P. Espley-Jones
/s/ JOHN A. BOOTY* Vice Chairman of the Board and
- --------------------------------------- Director
John A. Booty
/s/ R. BRUCE ANDREWS* Director
- ---------------------------------------
R. Bruce Andrews
/s/ MAURICE J. DEWALD* Director
- ---------------------------------------
Maurice J. DeWald
/s/ JAMES M. PETERS* Director
- ---------------------------------------
James M. Peters
/s/ JOHN J. RYDZEWSKI* Director
- ---------------------------------------
John J. Rydzewski
* By: /s/ GARY L. DAVIDSON
----------------------------------
Gary L. Davidson
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-----
<C> <S>
4.1* Form of Indenture Agreement between ARV Assisted Living, Inc. and the Initial
Purchaser of the Company's $57.5 million 6 3/4% Convertible Subordinated Notes
due 2006, incorporated by reference to Exhibit 4.2 of the Company's Form 10-K
filed July 1, 1996
4.2 Form of Registration Agreement between ARV Assisted Living, Inc. and the Initial
Purchaser
5.1 Opinion of Latham & Watkins regarding the validity of the Securities being
registered
12.1* Statement re: computation of ratios
15.1 Letter re: unaudited interim financial information
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Latham & Watkins (included as part of Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee on Form T-1
27* Financial Data Schedule, incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K filed July 1, 1996 and the Company's
Quarterly Report on Form 10-Q filed November 14, 1996
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 4.2
Execution Copy
ARV Assisted Living, Inc.
$50,000,000
6 3/4% Convertible Subordinated Notes Due 2006
REGISTRATION AGREEMENT
New York, New York
March 28, 1996
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
ARV Assisted Living, Inc., a California corporation (the "Company"),
proposes to issue and sell to you (the "Purchaser"), upon the terms set forth
in a purchase agreement of even date herewith (the "Purchase Agreement"),
$50,000,000 principal amount (plus an additional $7,500,000 principal amount to
cover over-allotments, if any) of its 6 3/4% Convertible Subordinated Notes due
2006 (the "Securities") (the "Initial Placement"). The Securities will be
convertible into shares of Common Stock, no par value (the "Common Stock"), of
the Company at the conversion price set forth in the Final Memorandum. As an
inducement to the Purchaser to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and (ii) for the benefit of the holders of the
Securities or the Common Stock issuable upon conversion of the Securities
(including you) from time to time until such time as such Securities or Common
Stock issued upon conversion of such Securities have been sold pursuant to the
Shelf Registration Statement (as defined below) (each of the foregoing a
"Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the commission promulgated thereunder.
<PAGE> 2
"Affiliate" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Securities, to be
entered into by the Company and The Chase Manhattan Bank, N.A., as trustee, as
the same may be amended from time to time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of Securities registered under a Shelf Registration Statement
provided that Holders of Common Stock issued upon conversion of Securities
shall be deemed to be Holders of the aggregate principal amount of Securities
from which such Common Stock was converted.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering
of the securities covered by the Shelf Registration Statement.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or Common Stock issuable upon
conversion thereof, covered by such Shelf Registration Statement, and all
amendments and supplements to the Prospectus, including post-effective
amendments.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
-2-
<PAGE> 3
"Shelf Registration Period" has the meaning set forth in Section 2(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 2 hereof which covers some
or all of the Securities and the Common Stock issuable upon conversion thereof,
as applicable, on an appropriate form under Rule 415 under the Act or any
similar rule that may be adopted by the Commission, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Trustee" means the trustee with respect to the Securities under the
Indenture.
"Underwriter" means any underwriter of Securities or Common Stock
issuable upon conversion thereof in connection with an offering thereof under a
Shelf Registration Statement.
2. Shelf Registration; Suspension of Use of Prospectus.
(a) The Company shall prepare and file with the Commission and
thereafter, but no later than January 15, 1997, shall cause to be declared
effective under the Act a Shelf Registration Statement relating to the offer
and sale of the Securities and the Common Stock issuable upon conversion
thereof by the Holders from time to time in accordance with the methods of
distribution elected by such Holders and set forth in such Shelf Registration
Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of three years (or
such shorter period relating to resales of restricted securities as shall be
permitted under the Act) from the date the Shelf Registration Statement is
declared effective by the Commission or such shorter period that will terminate
when all the Securities or Common Stock issuable upon conversion thereof
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have used its
best efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
Holders of securities covered thereby not being able to offer and sell such
securities during that period, unless such action is (i) required by applicable
law or (ii) pursuant to Section 2(c) hereof, and, in either case, so long as
the Company promptly thereafter complies with the requirements of Section 3(i)
hereof, if applicable.
(c) The Company may suspend the use of the Prospectus for a period
not to exceed 45 days in any three month period or two periods not to exceed an
aggregate of 75 days in any 12 month period for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, public filings with the Commission,
pending corporate developments and similar events.
-3-
<PAGE> 4
3. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing thereof
with the Commission, a copy of any Shelf Registration Statement, and each
amendment thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as you reasonably
may propose.
(b) The Company shall ensure that (i) any Shelf Registration
Statement and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto complies in all material respects with the
Act and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(c) (1) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto has
become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration Statement or
the initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the securities
included in any Shelf Registration Statement for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(iii) of the suspension of the use of the Prospectus
pursuant to Section 2(c) hereof or of the happening of any event that
requires the making of any changes in the Shelf
-4-
<PAGE> 5
Registration Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein (in the case of the Prospectus, in light
of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made); provided
that such notice shall not be required to specify the nature of the
event giving rise to the notice requirement hereunder.
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Shelf Registration
Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders of securities in
connection with the offering and sale of the securities covered by the
Prospectus or any amendment or supplement thereto.
(g) Prior to any offering of securities pursuant to any Shelf
Registration Statement, the Company shall register or qualify or cooperate with
the Holders of securities included therein and their respective counsel in
connection with the registration or qualification of such securities for offer
and sale under the securities or blue sky laws of such jurisdictions as any
such Holders reasonably request in writing and do any and all other acts or
things reasonably necessary or advisable to enable the offer and sale in such
jurisdictions of the securities covered by such Shelf Registration Statement;
provided, however, that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process or to taxation
in any such jurisdiction where it is not then so subject.
(h) The Company shall cooperate with the Holders of the Securities
or the Common Stock issued upon conversion thereof to facilitate the timely
preparation and delivery of certificates representing the Securities or the
Common Stock issued upon conversion thereof to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior to
sales of securities pursuant to such Shelf Registration Statement.
-5-
<PAGE> 6
(i) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall, if required pursuant to the Act or
paragraph (c)(2)(iii) above, promptly prepare a post-effective amendment to any
Shelf Registration Statement or an amendment or supplement to the related
Prospectus or file any other required document so that, as thereafter delivered
to purchasers of the securities included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) Not later than the effective date of any Shelf Registration
Statement hereunder, the Company shall (i) use its commercially reasonable best
efforts to arrange for the assignment of a CUSIP number for the Securities
registered under such Shelf Registration Statement that will be of the type of
CUSIP numbers commonly assigned to unrestricted securities and to cause The
Depository Trust Company ("DTC") to reflect the assignment of such new CUSIP
number in its electronic records with respect to such Securities and (ii)
provide the Trustee with printed certificates for such Securities, in a form
eligible for deposit with DTC.
(k) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act in a timely manner.
(l) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such securities as the
Company may from time to time reasonably require for inclusion in such Shelf
Registration Statement. Any Holder who fails to provide such information shall
not be entitled to use the Prospectus and may not require any Liquidated
Damages (as specified in Section 11 of the Securities) to be paid until such
time as the information is provided.
(m) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority Holders
reasonably agree should be included therein and shall make all required filings
of such Prospectus supplement or post-effective amendment as soon as notified
of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(n) The Company shall enter into such agreements (including
underwriting agreements) and take all other appropriate actions in order to
expedite or facilitate the registration or the disposition of the Securities or
the Common Stock issuable upon conversion thereof, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set
forth in Section 5 (or such other provisions and procedures acceptable to the
Majority Holders and the Managing Underwriters, if any), with respect to all
parties to be indemnified pursuant to Section 5 from Holders of the Securities
or the Common Stock issuable upon conversion thereof to the Company.
(o) The Company shall (i) make reasonably available for inspection
by the Holders of securities to be registered thereunder, any underwriter
participating in any disposition pursuant to
-6-
<PAGE> 7
such Shelf Registration Statement, and any attorney, accountant or other agent
retained by the Holders or any such underwriter all relevant financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries; (ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or any such
underwriter, attorney, accountant or agent in connection with such Shelf
Registration Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing by the
Company, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by the Holders or any such underwriter,
attorney, accountant or agent, unless disclosure thereof is made in connection
with a court proceeding or required by law, or such information has become
available (not in violation of this Agreement) to the public generally or
through a third party without an accompanying obligation of confidentiality;
(iii) if requested to do so in writing by a Holder, make such representations
and warranties to the Holders of securities registered thereunder and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering matters
including, but not limited to, those set forth in the Purchase Agreement; (iv)
if requested to do so in writing by a Holder, obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Managing Underwriters, if
any) addressed to each selling Holder and the underwriters, if any, covering
such matters as are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Holders
and underwriters; (v) if requested to do so in writing by a Holder, obtain
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Shelf Registration Statement),
addressed to each selling Holder of securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 3(i) and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 3(p) shall be performed at (A) the
effectiveness of such Shelf Registration Statement and each post-effective
amendment thereto and (B) each closing under any underwriting or similar
agreement as and to the extent required thereunder.
4. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2
and 3 hereof and shall reimburse the Holders for the reasonable and duly
documented fees and disbursements of one firm or counsel designated by the
Majority Holders to act as counsel for the Holders in connection therewith.
5. Indemnification and Contribution. (a) In connection with any
Shelf Registration Statement, the Company agrees to indemnify and hold harmless
each Holder of securities covered thereby (including the Purchaser), the
directors, officers, employees and agents of each such Holder
-7-
<PAGE> 8
and each person who controls any such Holder within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
in the Shelf Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in (i) the Shelf Registration Statement as
originally filed or in any amendment thereof a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Prospectus or in any amendment thereof or supplement thereto a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company will not be liable in any case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder or
underwriter or Managing Underwriter specifically for inclusion therein, (ii)
the Company shall not be liable to any indemnified party under this indemnity
agreement with respect to any Shelf Registration Statement or Prospectus to the
extent that any such loss, claim, damage or liability of such indemnified party
results solely from an untrue statement of a material fact contained in, or the
omission of a material fact from, the Shelf Registration Statement or
Prospectus which untrue statement or omission was corrected in an amended or
supplemented Shelf Registration Statement or Prospectus, if the person alleging
such loss, claim, damage or liability was not sent or given, at or prior to the
written confirmation of such sale, a copy of the amended or supplemented Shelf
Registration Statement or Prospectus if the Company had previously furnished
copies thereof to such indemnified party and if such delivery of a Prospectus
is finally judicially determined to be required by the Act and was not so made
and (iii) the Company will not be liable to any indemnified party under this
indemnity agreement with respect to any Shelf Registration Statement or
Prospectus to the extent that any such loss, claim, damage or liability of such
indemnified party results (A) from the use of a Shelf Registration Statement
during a period when a stop order has been issued in respect thereof or any
proceedings for that purpose have been initiated or (B) from the use of the
Prospectus during a period when the use of the Prospectus has been suspended in
accordance with Section 2(c) hereof, provided, in each case, that Holders
received prior notice of such stop order, initiation of proceedings or
suspension. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses, as
provided in Section 5(d), of any underwriters of the Securities or the Common
Stock issued upon conversion thereof registered under a Shelf Registration
Statement, their officers and directors and each person who controls such
underwriters on substantially the same basis as that of the indemnification of
the Purchaser and the
-8-
<PAGE> 9
selling Holders provided in this Section 5(a) and shall, if requested by any
Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 3(o) hereof.
(b) Each Holder of securities covered by a Shelf Registration
Statement (including the Purchaser) severally agrees to indemnify and hold
harmless (i) the Company, (ii) each of its directors, (iii) each of its
officers who signs such Shelf Registration Statement and (iv) each person who
controls the Company within the meaning of either the Act or the Exchange Act
to the same extent as the foregoing indemnity from the Company to each such
Holder, but only with reference to written information relating to such Holder
furnished to the Company by or on behalf of such Holder specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any such Holder
may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 5, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth
below); provided, however, that such counsel shall be reasonably satisfactory
to the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel (and local counsel) if (i) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising, out of such claim, action,
-9-
<PAGE> 10
suit or proceeding. An indemnified party will not, without the prior written
consent of the indemnifying parties, settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnifying parties are actual or
potential parties to such claim or action) unless such settlement, compromise
or consent includes an unconditional release of each indemnifying party from
all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 5 is unavailable to or insufficient to hold harmless an
indemnified party each of the indemnifying parties jointy and severally shall
be obligated to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending the same) (collectively "Losses") to
which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from the
Initial Placement and the Shelf Registration Statement which resulted in such
Losses; provided, however, that in no case shall the Purchaser or any
subsequent Holder of any Security or the Common Stock issued upon conversion
thereof be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, as set forth on
the cover page of the Final Memorandum, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or commission
applicable to the securities purchased by such underwriter under the Shelf
Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal
to the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest which the Company was not required
to pay as a result of registering the securities covered by the Shelf
Registration Statement which resulted in such Losses. Benefits received by the
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum. Benefits
received by any other Holders shall be deemed to be equal to the market price
obtained by such Holder on the resale of the Securities or Common Stock issued
on conversion of Securities held thereby that were registered under the Act,
less any underwriting discounts, commissions or expenses paid thereby in
connection with such resale and less the price paid by such Holder in acquiring
such Securities. Benefits received by any underwriter shall be deemed to be
equal to the total underwriting discounts and commissions, as set forth on the
cover page of the Prospectus forming a part of the Shelf Registration Statement
which resulted in such Losses. Relative fault shall be determined by reference
to whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the
-10-
<PAGE> 11
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each person who controls a
Holder within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of such Holder shall have the same rights
to contribution as such Holder, and each person who controls the Company within
the meaning of either the Act or the Exchange Act, each officer of the Company
who shall have signed the Shelf Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred
to in Section 5 hereof, and will survive the sale by a Holder of securities
covered by a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreement. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent with
the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Majority Holders of the then outstanding aggregate principal
amount of Securities and the Common Stock issued upon conversion thereof;
provided that, with respect to any matter that directly or indirectly affects
the rights of the Purchaser hereunder, the Company shall obtain the written
consent of the Purchaser. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Shelf Registration Statement and that
does not directly or indirectly affect the rights of other Holders may be given
by the Majority Holders, determined on the basis of securities being sold
rather than registered under such Shelf Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section 6(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to Salomon Brothers Inc;
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<PAGE> 12
(2) if to you, initially at the address set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth
in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent
by the Company thereto, subsequent Holders of Securities or the Common Stock
issuable upon conversion thereof. The Company hereby agrees to extend the
benefits of this Agreement to any Holder of Securities and any such Holder may
specifically enforce the provisions of this Agreement as if an original party
hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed in said State.
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Securities
or the Common Stock issued upon conversion thereof is required hereunder,
Securities or the Common Stock issued upon conversion thereof held by the
Company or its Affiliates (other than subsequent Holders of Securities or the
Common Stock issuable upon conversion thereof if such subsequent Holders are
deemed to be Affiliates solely by reason of their holdings of such Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
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<PAGE> 13
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
ARV ASSISTED LIVING, INC.
By
----------------------------
Name:
Title:
Accepted in New York, New York
SALOMON BROTHERS INC
By
---------------------------
Name:
Title:
13
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
January 14, 1997
ARV Assisted Living, Inc.
245 Fischer Avenue
Suite D-1
Costa Mesa, California 92626
Re: Registration on Form S-3 of $57,500,000 Convertible
Subordinated Notes Due 2006 and Shares of Common Stock
Issuable upon Conversion Thereof
Ladies and Gentlemen:
In connection with the registration of $57,500,000 aggregate
principal amount of Convertible Subordinated Notes due 2006 (the "Convertible
Notes") of ARV Assisted Living, Inc. (the "Company") and of that certain number
of shares of common stock of the Company, no par value, as may be issuable upon
conversion of the Convertible Notes (the "Shares") as provided in the Indenture
between the Company and The Chase Manhattan Bank, N.A., as Trustee, dated April
3, 1996 (the "Indenture"), under the Securities Act of 1933, as amended (the
"Act"), pursuant to a Registration Statement on Form S-3 (Registration No.
333-16269) filed with the Securities and Exchange Commission (the "Commission")
on November 15, 1996, as amended (the "Registration Statement"), you have
requested our opinion with respect to the matters set forth below.
In our capacity as your counsel in connection with such
registration, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
<PAGE> 2
ARV Assisted Living, Inc.
January 14, 1997
Page 2
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject transaction
only of the internal laws of the State of California, and with respect to the
opinions expressed in paragraph 1 (with respect to enforceability) the internal
laws of the State of New York. We express no opinion with respect to the
applicability thereto, or the effect thereon, of any other laws or as to any
matters of municipal law or the laws of any other local agencies within any
state.
Subject to the foregoing and the other matters set forth herein, it
is our opinion that:
1. The Convertible Notes have been duly authorized and legally
issued, are fully paid and nonassessable, and are binding obligations of the
Company subject to the following exceptions, limitations and qualifications: (a)
the effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors; (b) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought; (c)
the unenforceability under certain circumstances under law or court decisions of
provisions providing for the indemnification of or contribution to a party with
respect to a liability, where such indemnification or contribution is contrary
to public policy; and (d) we express no opinion concerning the enforceability of
the waiver of rights or defenses contained in Section 4.04 of the Indenture.
2. The Shares have been duly authorized and reserved for issuance
upon conversion of the Convertible Notes and, when issued upon conversion of the
Convertible Notes in accordance with the terms of the Indenture, will be legally
issued, fully paid and nonassessable.
To the extent that the obligations of the Company under the Indenture may
be dependent upon such matters, we assume for purposes of this opinion that the
Trustee is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes a
legal, valid and binding obligation of the Trustee enforceable against the
Trustee in accordance with its terms; the Trustee is in compliance, generally
and with respect to acting as trustee under the Indenture, with all applicable
laws and regulations; and that the
<PAGE> 3
ARV Assisted Living, Inc.
January 14, 1997
Page 3
Trustee has the requisite organizational and legal power and authority to
perform its obligations under the Indenture.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 15.1
ARV Assisted Living, Inc.
Costa Mesa, CA
Ladies and Gentlemen:
Re: Registration Statement No. 2-15026
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated November 11, 1996 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
KPMG PEAT MARWICK LLP
Orange County, California
January 14, 1997
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
ARV Assisted Living, Inc.:
We consent to the use of our audit reports incorporated herein by reference
to the financial statements of ARV Assisted Living, Inc. as of March 31, 1996
and 1995, and for each of the years in the three-year period ended March 31,
1996, American Retirement Villas Properties II and San Gabriel Retirement Villa,
dba Villa Colima both as of December 31, 1995 and 1994 and for each of the years
in the three-year period ended December 31, 1995 and SynCare, Inc. and
subsidiaries as of June 30, 1996 and for the year then ended and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Orange County, California
January 14, 1997
<PAGE> 1
EXHIBIT 25
Securities Act of 1933 File Number 333-5828
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) [ ]
--------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
13-4994650
(I.R.S. Employer Identification Number)
270 PARK AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
10017
(Zip Code)
--------------------
ARV ASSISTED LIVING, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 33-016098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 FISCHER AVENUE
COSTA MESA, CALIFORNIA 92626
(TELEPHONE 714-751-7400)
(Address, including zip code, and telephone number,
including area code of obligor's principal executive offices)
--------------------
6 3/4% CONVERTIBLE NOTES DUE 2006
(Title of the Securities)
- -------------------------------------------------------------------------------
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany,
New York 12110.
Board of Governors of the Federal Reserve System,
Washington, D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, NY.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
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Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated herein by reference).
2. A copy of the Certificate of Authority of the Trustee to commence
business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated herein by reference. On July 14,
1996, in connection with the merger of Chemical Bank and The Chase Manhattan
Bank (National Association), Chemical Bank, the surviving corporation, was
renamed The Chase Manhattan Bank.
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing by-laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated herein by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and the Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank.
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
On July 14, 1996, in connection with the merger of Chemical Bank and The Chase
Manhattan Bank (National Association), Chemical Bank, the surviving corporation,
was renamed The Chase Manhattan Bank.
8. Not applicable.
9. Not applicable.
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<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 21st day
of November, 1996.
THE CHASE MANHATTAN BANK
/s/ KEVIN BINNIE
------------------------
By: Kevin Binnie
Vice President
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EXHIBIT 7
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business June 30, 1996, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
DOLLAR AMOUNTS
ASSETS IN MILLIONS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............ $ 4,167
Interest-bearing balances..................................... 5,094
Securities:
Held to maturity securities................................... 3,367
Available for sale securities................................. 27,786
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold............................................ 7,204
Securities purchased under agreements to resell............... 136
Loans and lease financing receivables:
Loans and leases, net of unearned income............. $67,215
Less: Allowance for loan and lease losses............ 1,768
Less: Allocated transfer risk reserve................ 75
-------
Loans and leases, net of unearned income, allowance
and reserve................................................. 65,372
Trading Assets.................................................. 28,610
Premises and fixed assets (including capitalized
leases)....................................................... 1,326
Other real estate owned......................................... 26
Investments in unconsolidated subsidiaries and
associated companies.......................................... 68
Customer's liability to this bank on acceptances
outstanding................................................... 995
Intangible assets............................................... 309
Other assets.................................................... 6,993
--------
TOTAL ASSETS.................................................... $151,453
========
<PAGE> 6
LIABILITIES
Deposits
In domestic offices.............................................. $ 46,917
Noninterest-bearing.................................... $16,711
Interest-bearing....................................... 30,206
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's...................................................... 31,577
Noninterest-bearing.................................... $ 2,197
Interest-bearing....................................... 29,380
-------
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBF's Federal
funds purchased.................................................. 12,155
Securities sold under agreements to repurchase................... 8,536
Demand notes issued to the U.S. Treasury........................... 1,000
Trading liabilities................................................ 20,914
Other Borrowed money:
With a remaining maturity of one year or less.................... 10,018
With a remaining maturity of more than one year.................. 192
Mortgage indebtedness and obligations under capitalized
leases........................................................... 12
Bank's liability on acceptances executed and outstanding........... 1,001
Subordinated notes and debentures.................................. 3,411
Other liabilities.................................................. 8,091
--------
TOTAL LIABILITIES.................................................. $143,824
EQUITY CAPITAL
Common stock....................................................... 620
Surplus............................................................ 4,664
Undivided profits and capital reserves............................. 2,970
Net unrealized holding gains (Losses) on
available-for-sale securities.................................... (633)
Cumulative foreign currency translation adjustments................ 8
--------
TOTAL EQUITY CAPITAL............................................... 7,629
--------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL......................................... $151,453
========
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
EDWARD D. MILLER )DIRECTORS
THOMAS G. LABRECQUE )
