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As filed with the Securities and Exchange Commission on December 5, 1997
Registration No. 333-37173
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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NATIONAL HEALTH REALTY, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Maryland 6798 52-2059888
(State or other jurisdiction of (Primary Standard (I.R.S. Employer Identification No.)
incorporation or organization) Industrial Classification
Code Number)
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100 Vine Street, Suite 1400
Murfreesboro, Tennessee 37130
(615) 890-2020
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
Richard F. LaRoche, Jr.
Senior Vice President and Secretary
National Health Realty, Inc.
100 Vine Street, Suite 1400
Murfreesboro, Tennessee 37130
(615) 890-2020
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copy to:
Ernest E. Hyne II
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238
(615) 256-0500
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement and all
other conditions to the Plan of Restructure have been satisfied.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. Statutory Provisions.
Section 2-418 of the Maryland General Corporation Law provides as
follows:
(a) DEFINITIONS. In this section the following words have the meanings
indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of director
in the corporation; and
(ii) When used with respect to a person other than a director as
contemplated in subsection (j), the elective or appointive office in the
corporation held by the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative.
(b) PERMITTED INDEMNIFICATION OF DIRECTOR.
(1) A corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity if the director:
(i) Acted in good faith;
(ii) Reasonably believed:
1. In the case of conduct in the director's official capacity
with the corporation, that the conduct was in the best interests of the
corporation; and
2. In all other cases, that the conduct was at least not
opposed to the best interests of the corporation; and
(iii) In the case of any criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful.
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(2) (i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of the
corporation, indemnification may be made only against reasonable expenses and
may not be made in respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation.
(3) The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
creates a rebuttable presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(c) NO INDEMNIFICATION OF DIRECTOR LIABLE FOR IMPROPER PERSONAL
BENEFIT. A director may not be indemnified under subsection (b) of this section
in respect of any proceeding charging improper personal benefit to the director,
whether or not involving action in the director's official capacity, in which
the director was adjudged to be liable on the basis that personal benefit was
improperly received.
(d) REQUIRED INDEMNIFICATION AGAINST EXPENSES INCURRED IN SUCCESSFUL
DEFENSE. -- Unless limited by the charter:
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in subsection (b) of
this section shall be indemnified against reasonable expenses incurred by the
director in connection with the proceeding.
(2) A court of appropriate jurisdiction, upon application of a
director and such notice as the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is entitled to reimbursement under
paragraph (1) of this subsection, the court shall order indemnification, in
which case the director shall be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director has met the standards of conduct set forth in subsection (b)
of this section or has been adjudged liable under the circumstances described in
subsection (c) of this section, the court may order such indemnification as the
court shall deem proper. However, indemnification with respect to any proceeding
by or in the right of the corporation or in which liability shall have been
adjudged in the circumstances described in subsection (c) shall be limited to
expenses.
(3) A court of appropriate jurisdiction may be the same court in
which the proceeding involving the director's liability took place.
(e) DETERMINATION THAT INDEMNIFICATION IS PROPER.
(1) Indemnification under subsection (b) of this section may not
be made by the corporation unless authorized in the specific case after a
determination has been made that indemnification of the director is permissible
in the circumstances because the director has met the standard of conduct set
forth in subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full board in which the designated directors who are parties may
participate;
(ii) By special legal counsel selected by the board of directors or
a committee of the board by vote as set forth in subparagraph (i) of this
paragraph, or, if the requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
board in which directors who are parties may participate; or
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(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
(4) Shares held by directors who are parties to the proceeding
may not be voted on the subject matter under this subsection.
(f) PAYMENT OF EXPENSES IN ADVANCE OF FINAL DISPOSITION OF ACTION.
(1) Reasonable expenses incurred by a director who is a party to
a proceeding may be paid or reimbursed by the corporation in advance of the
final disposition of the proceeding, after a determination that the facts then
known to those making the determination would not preclude indemnification under
this section, upon receipt by the corporation of:
(i) A written affirmation by the director of the director's good
faith belief that the standard of conduct necessary for indemnification by the
corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1)
of this subsection shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial ability
to make the repayment.
(3) Determinations and authorizations of payments under this
subsection shall be in the manner specified in subsection (e) of this section.
(g) VALIDITY OF INDEMNIFICATION PROVISION. A provision for the
corporation to indemnify a director who is made a party to a proceeding, whether
contained in the charter, the bylaws, a resolution of stockholders or directors,
an agreement or otherwise, except as contemplated by subsection (k) of this
section, is not valid unless consistent with this section or, to the extent that
indemnity under this section is limited by the charter, consistent with the
charter.
(h) REIMBURSEMENT OF DIRECTOR'S EXPENSES INCURRED WHILE APPEARING AS
'WITNESS. This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance as a
witness in a proceeding at a time when the director has not been made a named
defendant or respondent in the proceeding.
(i) DIRECTOR'S SERVICE TO EMPLOYEE BENEFIT PLAN. For purposes of this
section:
(1) The corporation shall be deemed to have requested a director
to serve an employee benefit plan where the performance of the director's duties
to the corporation also imposes duties on, or otherwise involves services by,
the director to the plan or participants or beneficiaries of the plan;
(2) Excise taxes assessed on a director with respect to an
employee benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the director with respect to an
employee benefit plan in the performance of the director's duties for a purpose
reasonably believed by the director to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
(j) OFFICER, EMPLOYEE OR AGENT. Unless limited by the charter:
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(1) An officer of the corporation shall be indemnified as and to
the extent provided in subsection (d) of this section for a director and shall
be entitled, to the same extent as a director, to seek indemnification pursuant
to the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses
to an officer, employee, or agent who is not a director to such further extent,
consistent with law, as may be provided by its charter, bylaws, general or
specific action of its board of directors, or contract.
(k) INSURANCE. A corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the corporation would have the power to indemnify against liability under the
provisions of this section.
(l) REPORT OF INDEMNIFICATION TO STOCKHOLDERS. Any indemnification of,
or advance of expenses to, a director in accordance with this section, if
arising out of a proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the next
stockholders' meeting or prior to the meeting.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of the Registration Statement.
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the SEC upon request.
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EXHIBIT
NO. DESCRIPTION
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* 2.1 Plan of Restructure
* 2.2 Agreement of Merger
* 3.1 Articles of Incorporation of National Health Realty, Inc.
* 3.2 Bylaws of National Health Realty, Inc.
* 3.3 Limited Partnership Agreement of NHR/OP, L.P.
* 4 Indenture of Trust and Security Agreement dated as of December 1, 1990
by and among National Health Corporation Leveraged Employee Stock
Ownership Trust, National Health Corporation, and National HealthCorp
L.P. to State Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Barnett Banks Trust Company,
National Association, as Florida Co-Indenture Trustee
* 5 Legal Opinion of McGuire, Woods, Battle and Boothe, counsel to the
Registrant, as to the due formation of the REIT
* 8.1 Legal Opinion of Goodwin Procter & Hoar, counsel to the Registrant,
as to qualification as a REIT
8.2 Legal Opinion of Harwell Howard Hyne Gabbert & Manner, counsel to the
Registrant, as to the tax effect to security holders
*10.1 Master Agreement of Lease effective as of January 1, 1998 by and among
National Health Realty, Inc., NHR/OP, L.P. and National HealthCare
Corporation.
*10.2 Advisory, Administrative Services and Facilities Agreement effective as
of January 1, 1998 between National Health Realty, Inc., NHR/OP, L.P.
and National HealthCare Corporation.
*10.3.2 Form of National Health Realty, Inc. 1997 Stock Option and Stock
Appreciation Rights Plan
*10.4 Loan Agreement dated as of April 21, 1995 by and between National
HealthCare L.P. and First American National Bank
*10.5 Credit Agreement dated as of December 31, 1996 by and among National
HealthCare L.P., The Banks, and SunTrust Bank, Nashville, N.A., as
Agent
*10.6 Reimbursement and Letter of Credit Agreement dated as of June 1, 1989
among West Plains Manor, National HealthCare L.P. and The Bank of
Tokyo, Ltd. New York Agency
*10.7 Guaranty Agreement dated as of June 1, 1989 by and between National
HealthCare L.P. and The Bank of Tokyo, Ltd., New York Agency
*21 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP, independent public accountants.
*23.2 Consent of Arthur Andersen LLP, independent public accountants.
*23.3 Consent of McGuire, Woods, Battle and Boothe (contained in Exhibit 5)
*23.4 Consent of Goodwin Procter & Hoar (contained in Exhibit 8.1)
23.5 Consent of Harwell Howard Hyne Gabbert & Manner, P.C. (contained in
Exhibit 8.2)
*24 Power of Attorney (included on the signature page hereto)
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* Previously filed.
(b) The 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.
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ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3; and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statement and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
5. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
6. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
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7. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
8. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
9. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
10. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became Effective.
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11. The undersigned registrant hereby undertakes to provide to the transfer
agent as requested, certificates in such denominations and registered in such
names as required by the transfer agent to permit the prompt delivery to
stockholders.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 4 to Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Murfreesboro, State of Tennessee on the 5th day of December, 1997.
NATIONAL HEALTH REALTY, INC.
By: /s/ W. Andrew Adams
-------------------------------------
W. Andrew Adams
President and Chief Executive Officer
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Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Andrew Adams Chairman, Chief Executive December 5, 1997
- ------------------------------ Officer and Director (Chief
W. Andrew Adams Executive Officer)
/s/ Donald K. Daniel Vice President, Controller, (Chief December 5, 1997
- ------------------------------ Financial Officer and Chief
Donald K. Daniel Accounting Officer)
* Director December 5, 1997
- ------------------------------
J. K. Twilla
* Director December 5, 1997
- ------------------------------
Olin O. Williams
* Director December 5, 1997
- ------------------------------
Robert G. Adams
*
- ------------------------------ Director December 5, 1997
Ernest G. Burgess
</TABLE>
/s/ Richard F. LaRoche, Jr.
- -----------------------------------------------
* By Richard F. LaRoche, Jr., attorney-in-fact
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November 19, 1997
HAND DELIVERED
National HealthCare L.P.
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Richard F. LaRoche, Jr.
Senior Vice President and Secretary, NHC, Inc.
Managing General Partner
Re: National HealthCare L.P. Plan of Restructure
Gentlemen:
We have served as tax counsel to National HealthCare L.P., a Delaware
limited partnership ("NHC"), in connection with (i) its incorporation of
National Health Realty, Inc., a Maryland corporation that is intended to qualify
as a real estate investment trust for federal income tax purposes (the "REIT"),
(ii) its proposed formation of NHR/OP, L.P., a Delaware limited partnership (the
"Operating Partnership"), (iii) its proposed contribution (subject to certain
liabilities) of certain real properties, mortgage notes and other assets (the
"REIT Assets") to the REIT and the Operating Partnership in exchange for one
hundred percent (100%) of the issued and outstanding capital stock of the REIT
and approximately six hundred forty-three thousand seven hundred forty-eight
(643,748) units of limited partnership interest in the Operating Partnership,
(iv) its proposed distribution of all REIT stock to the NHC unitholders and its
Operating Partnership units to National Health Corporation, a Tennessee
corporation and NHC's administrative general partner ("National"), (v) its
incorporation of National HealthCare Corporation, a Delaware corporation (the
"Corporation"), and (vi) the proposed merger of NHC with and into the
Corporation, all as more particularly described in the Proxy Statement and Joint
Form S-4 described below.
In connection with these transactions, you have asked us to render our
opinion regarding certain federal income tax consequences. At your request, we
have also participated in the preparation of the federal income tax
considerations discussion contained in the Joint Form S-4 described below.
Subject to the assumptions, qualifications and limitations contained therein,
said discussion fully and fairly addresses the federal income tax issues
material to NHC unitholders in connection with the Plan of Restructure as
defined in said Joint Form S-4. Said discussion, however, should be read in its
entirety and is supported by the opinion of counsel, which is set forth
below. Tax counsel consents to the inclusion of a copy of this opinion as an
exhibit to said Joint Form S-4 as filed with the Securities and Exchange
Commission. We further consent to being named as Tax Counsel in the Joint Form
S-4 and to references to our firm as such in the Joint S-4.
In response to your request, our opinion is set forth below.
This opinion is based upon the provisions of the Internal Revenue Code
of 1986, as amended to the date of this letter (the "Code"), the existing U.S.
Treasury Regulations (the "Regulations") and proposed Regulations thereunder,
judicial decisions and currently published administrative rulings generally
available as of the date of this letter. Any such authority may be changed,
perhaps retroactively. Therefore, no assurance can be given that any such
changes would not adversely affect the accuracy of the conclusions stated
herein. Furthermore, we undertake no responsibility to advise
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National HealthCare L.P.
November 19, 1997
Page 2
you of any new developments in the application or interpretation of the federal
income tax laws to the transactions discussed herein. The Internal Revenue
Service (the "IRS") is not bound by our opinion.
In rendering this opinion, we have reviewed the Proxy Statement for
Special Meeting of Partners of NHC and Joint Form S-4 of the REIT and the
Corporation (Registration Statement Nos. 333-37173 and 333-37185 under the
Securities Act of 1933) filed with the Securities and Exchange Commission on
October 3, 1997, as amended (the "Joint Form S-4"), and exhibits attached
thereto.
In rendering our opinion, we have assumed: (i) the genuineness of all
signatures on documents we have examined, (ii) the authenticity of all documents
submitted to us as originals, (iii) the conformity to the original documents of
all documents submitted to us as copies, (iv) the conformity of final documents
to all documents submitted to us as drafts, (v) the due execution of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof, (vi) the authority and capacity of the individual or
individuals who execute any such documents on behalf of any person or entity,
(vii) the factual accuracy of all representations, warranties and other
statements made by all persons in connection with the transactions described in
the Joint Form S-4, (viii) that the transactions contemplated by the Joint Form
S-4 will be consummated as described therein and, as relevant, summarized below,
and (ix) that NHC, the REIT, the Operating Partnership and the Corporation have
the legal right and power under all applicable laws and regulations to enter
into, execute and consummate such transactions. We have also relied upon and our
opinion assumes the accuracy of certain written representations made to us by
NHC.
BRIEF SUMMARY OF FACTS
NHC is a Delaware limited partnership that principally operates
residential care facilities, long-term healthcare centers and home healthcare
centers and programs throughout the southeastern United States. Units of limited
partnership interest in NHC are traded over the American Stock Exchange. NHC
intends to transfer most of the REIT Assets to the REIT, a recently formed
Maryland corporation, and a small portion of the REIT Assets to the Operating
Partnership, a yet to be formed Delaware limited partnership, in exchange for
all of the issued and outstanding capital stock of the REIT, the assumption by
the REIT of certain liabilities secured by the REIT Assets, and approximately
six hundred forty-three thousand seven hundred forty-eight (643,748) units of
limited partnership interest in the Operating Partnership. NHC intends to
distribute all of the REIT stock to NHC's unitholders on the basis of one REIT
share per one NHC unit; provided, however, National shall receive all of NHC's
Operating Partnership units on the basis of one such unit for each NHC unit held
by National, which distribution shall thereby reduce the REIT shares National
would otherwise receive on a one for one basis. The REIT intends to satisfy the
requirements of Part 2 of subchapter M of the Code, so as to qualify and be
taxed for federal income tax purposes as a real estate investment trust.
Immediately following the distribution of the REIT stock and the
Operating Partnership units to the NHC unitholders, NHC will merge with and into
National HealthCare Corporation, a recently formed Delaware corporation.
Pursuant to the merger, each outstanding unit of NHC will represent the right to
receive one share of common stock of the Corporation. Following the merger, NHC
will cease to exist.
DISCUSSION AND OPINIONS
NHC'S CONTRIBUTION OF ASSETS TO THE REIT
Nonrecognition Rule of Code Section 351. Under the general rule of Code
section 351, no gain or loss is recognized upon the transfer of property to a
corporation by the transferors of such property solely in exchange for stock in
the corporation if immediately thereafter the transferors are in control of the
corporation. Control is defined in Code section 368(c) as the ownership of
eighty percent (80%) of the voting stock and eighty percent (80%) of each class
of non-voting stock of a corporation.
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National HealthCare L.P.
November 19, 1997
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In exchange for its contribution to the REIT of most of the REIT
Assets, NHC will receive one hundred percent (100%) of the REIT's outstanding
capital stock. NHC will then immediately distribute all of the REIT stock to
NHC's unitholders. Although NHC will hold the REIT shares immediately after its
transfer of such assets to the REIT, it will hold them only for an instant.
Whether a transaction involving two or more steps (e.g., NHC's contribution of
assets to the REIT in exchange for REIT stock and the distribution of such REIT
stock to NHC's unitholders) should be collapsed or integrated for purposes of
determining whether the "immediately after" requirement of section 351 has been
satisfied has frequently been the subject of interpretation by the IRS and
courts.
In the case of a partnership that contributes assets to a corporation
in exchange for corporate stock and immediately thereafter liquidates by
distributing the stock to its partners "in proportion to their partnership
interests," the IRS has ruled that the "immediately after" requirement of
section 351 is satisfied. Revenue Ruling 84-111, 1984-2 C.B. 88. This is so even
though the identities of the actual contributor or transferor of property to the
corporation (the partnership) and the ultimate recipient of the corporate stock
(the partners) were not the same. As discussed below, NHC's distribution of the
REIT stock and Operating Partnership units followed immediately by NHC's merger
into the Corporation will be treated as a liquidation of NHC. Accordingly, it is
the opinion of Tax Counsel that, if challenged, it is more likely than not that
the general nonrecognition rule of section 351 would apply to NHC's contribution
of REIT Assets to the REIT, except as otherwise provided below.
Investment Company Exception. An exception to the general
nonrecognition rule of Code section 351 is found in section 351(e), which
provides that section 351 shall not apply to a "transfer of property to an
investment company." The Regulations state that a transfer is considered to be
to an investment company if: (i) the transfer is to, among others, a real estate
investment trust, and (ii) the transfer results, directly or indirectly, in the
diversification of the transferors' interests. Regulation ss. 1.351-1(c)(1).
As described in the Joint Form S-4, NHC and the REIT intend that the
REIT qualify and be taxed as a real estate investment trust. In that regard, an
opinion of Goodwin, Procter & Hoar LLP, Boston, Massachusetts, special counsel
to the REIT, that the form of organization and proposed operations of the REIT
are such as to enable it to be classified as a real estate investment trust for
federal income tax purposes is attached as an Exhibit to the Joint Form S-4.
Based upon that opinion, we anticipate that one of the two investment company
definitional requirements would be met with respect to NHC's contribution of
assets to the REIT.
With respect to the second requirement, a transfer ordinarily results
in the diversification of the transferors' interests if two or more persons
transfer non-identical assets to a corporation in the exchange. Regulation ss.
1.351-1(c)(5).
Although section 1002(a) of the Taxpayer Relief Act of 1997 amended
Code section 351(e) to change, according to the Conference Committee Report,
"the types of assets considered in the definition of an investment company in
the present Treasury regulations" (which changes are inapplicable if the
transfer is to a real estate investment trust), the new legislation "does not
override. . . the requirement that a contribution of property to an investment
company result in diversification in order for gain to be recognized."
Since NHC is the only transferor of assets to the REIT for purposes of
Code section 351, we are of the opinion that the second definitional requirement
of an investment company is absent, and therefore, it is more likely than not
that the investment company exception of section 351(e) would not apply to NHC's
contribution of assets to the REIT.
Exception for Liabilities in Excess of Basis. A further exception to
the general nonrecognition rule of Code section 351 is found in section 357(c).
Under section 357(c), if the sum of the liabilities assumed by the transferee
corporation plus the liabilities to which the property contributed to the
transferee corporation are subject exceed the total adjusted tax basis of the
property contributed to the transferee corporation by the transferor, then the
transferor must
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November 19, 1997
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recognize gain in an amount equal to such excess. Although the REIT will assume
certain liabilities in connection with NHC's contribution of assets to the REIT
and the property to be contributed by NHC to the REIT will be subject to
certain liabilities, NHC has represented in writing that such liabilities will
not exceed the adjusted tax basis of the assets to be contributed to the REIT.
Notwithstanding that Code section 357(c) limits any gain recognized to
the amount that the liabilities exceed the transferor's basis in the contributed
property, gain in an amount equal to the liabilities in full, not just the
excess, would be recognized by a transferor in a section 351 transaction if the
transferor's principal purpose, with respect to the transferee's assumption of
liabilities or acquisition of property subject to liabilities, is to avoid
federal income tax or if no bona fide business purpose exists for such
assumption or acquisition. NHC has represented that the REIT's assumption of
liabilities and NHC's transfer of assets to the REIT subject to certain
liabilities is not for the purpose of avoiding federal income tax and that bona
fide business purposes for the transaction exist, which purposes are set forth
in substantial detail in the Joint Form S-4.
Accordingly, and based solely upon NHC's representations, section
357(c) would be inapplicable to NHC's contribution of assets to the REIT.
NHC'S CONTRIBUTION OF ASSETS TO THE OPERATING PARTNERSHIP
Under the general rule of Code section 721, no gain or loss is
recognized to a partnership or its partners upon a partner's transfer or
contribution of property to the partnership in exchange for an interest in the
partnership. In contrast to Code section 351, section 721 does not impose a
requirement that the transferors be in control of the partnership immediately
after the transfer.
Simultaneously with NHC's contribution of a portion of the REIT assets
to the Operating Partnership, the REIT will contribute to the Operating
Partnership those REIT Assets contributed to it by NHC. In exchange for its
contribution to the Operating Partnership, NHC will receive approximately six
hundred forty-three thousand seven hundred forty-eight (643,748) units of
limited partnership interest in the Operating Partnership. NHC will then
immediately distribute all of said Operating Partnership units to National.
Since section 721 does not impose an immediately after control requirement as
does section 351, Tax Counsel is of the opinion that NHC's distribution of the
Operating Partnership units to National will not affect the application of Code
section 721 to NHC's contribution of assets to the Operating Partnership.
Accordingly, Tax Counsel is of the opinion that, if challenged, it is more
likely than not that the general nonrecognition rule of Code section 721 would
apply to NHC's contribution of assets to the Operating Partnership.
NHC'S DISTRIBUTION OF REIT SHARES & OPERATING PARTNERSHIP UNITS TO ITS
UNITHOLDERS
As noted above, immediately following the contribution of the REIT
Assets to the REIT and the Operating Partnership, NHC will distribute all of the
REIT shares and Operating Partnership units that NHC receives upon such
contributions to the NHC unitholders. Code section 731(b) provides that a
partnership will not recognize gain or loss upon its distribution of property or
money to its partners. As to the partners, Code section 731(a) generally
provides that no gain or loss shall be recognized by a partner upon the
distribution to the partner of property other than money.
For purposes of section 731(a), "marketable securities" are generally
treated as money. Marketable securities are defined in section 731(c) to
include, in part, (i) stock that is, as of the date of distribution, actively
traded within the meaning of Code section 1092(d)(1), and (ii) other equity
interests that, pursuant to their terms or any other arrangement, are readily
convertible into, or exchangeable for, money or marketable securities.
Regulations promulgated under section 731(c) provide that stock is actively
traded if it is of a type that is, as of the date of distribution, listed on a
national securities exchange. It is anticipated that as of the Effective Time
(as defined in the Joint Form S-4) the REIT shares will be approved for listing
on the American Stock Exchange, though such listing will
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November 19, 1997
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not be effective until some time after the Effective Time. Furthermore, while
the Operating Partnership units will not be listed on an exchange, they will be
convertible into REIT shares.
However, section 741(c)(4) of the Uruguay Round Agreements Act, which
amended Code section 731 to include marketable securities within the definition
of money, provides that such amendments do not apply to the distribution of
marketable securities in a "qualified partnership liquidation" if (i) such
securities were received by the partnership in a nonrecognition transaction for
substantially all of the partnership's assets, (ii) such securities are
distributed by the partnership within 90 days after their receipt by the
partnership, and (iii) the partnership is liquidated before the beginning of the
partnership's first taxable year beginning after December 31, 1997. For purposes
of this transitional rule, a "qualified partnership liquidation" is a complete
liquidation of a publicly traded partnership as defined in Code section 7704(b)
that is an existing partnership as defined in section 10211(c)(2) of the Revenue
Act of 1987.
NHC is a publicly traded and existing partnership as so defined. The
REIT shares, the Operating Partnership units and stock in the Corporation will
be issued to NHC in exchange for all of NHC's assets under the nonrecognition
provisions of sections 351 and 721 and will be distributed by NHC to its
unitholders within 90 days of their receipt by NHC. As discussed below, the
distribution by NHC of the REIT stock and the Operating Partnership units
followed immediately by the merger of NHC into the Corporation will be treated
for federal income tax purposes as a complete termination and liquidation of
NHC, which is to be effective prior to NHC's first taxable year after December
31, 1997.
Accordingly, Tax Counsel believes it is more likely than not that Code
section 731(c) would not apply to NHC's distribution of the REIT shares and
Operating Partnership units. Therefore, subject to the limitations, facts and
assumptions expressed herein, Tax Counsel is of the opinion that it is more
likely than not that neither NHC nor its unitholders will recognize gain upon
NHC's distribution of the REIT shares and Operating Partnership units to NHC's
unitholders.
MERGER OF NHC INTO THE CORPORATION
Incorporation of the Corporation. The incorporation of the Corporation
by NHC is intended to qualify as a tax free incorporation under Code section
351. It is the opinion of Tax Counsel that neither the Corporation nor NHC would
recognize gain upon the formation of the Corporation and that the Corporation
will be taxed as a corporation for federal income tax purposes.
The Merger: Constructive Contribution of Assets and Code Section 351.
The merger of NHC into the Corporation immediately following the distribution by
NHC of the REIT stock and the Operating Partnership units will be treated for
federal income tax purposes as a complete termination and liquidation of NHC in
which NHC unitholders receive shares in the Corporation and REIT shares in
exchange for their units (though National will also receive Operating
Partnership units). The merger of NHC into the Corporation will be treated as a
contribution by NHC of its assets (other than those contributed to the REIT or
the Operating Partnership) to the Corporation and the distribution by NHC of the
Corporation's stock (with the REIT stock and Operating Partnership units) to
NHC's unitholders. As noted above, under the general rule of Code section 351,
no gain or loss is recognized upon the transfer of property to a corporation by
the transferors of such property solely in exchange for stock in the corporation
if immediately thereafter the transferors are in control, as defined in section
368(c), of the corporation.
As discussed above, in Revenue Ruling 84-111 the IRS ruled that the
"immediately after" requirement of section 351 is satisfied if a partnership
contributes its assets to a corporation in exchange for corporate stock and
immediately thereafter liquidates by distributing the stock to its partners "in
proportion to their partnership interests." Although NHC will actually merge
into the Corporation, NHC will cease to exist as a separate entity and, for
federal income tax purposes, be treated as liquidating. Therefore, Tax Counsel
is of the opinion that, if challenged, it is more
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November 19, 1997
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likely than not that the general nonrecognition rule of Code section 351 would
apply to NHC's "constructive contribution" of assets to the Corporation.
As noted above, Code section 357 generally permits a corporation, in
addition to issuing stock in a section 351 transaction, to assume liabilities of
the transferor or acquire property from the transferor subject to liabilities,
without causing the transferor to recognize gain or be precluded from obtaining
the benefits of Code section 351. This rule does not apply, however, if either
(i) the principal purpose for the assumption or acquisition was tax avoidance
(or was not a bona fide business purpose), or (ii) such liabilities exceed the
transferor's basis in the contributed assets. NHC has represented that the
liabilities to be assumed by the Corporation or to which assets constructively
contributed to the Corporation are subject do not exceed NHC's adjusted tax
bases in such assets. NHC has also represented that the principal purpose of the
Corporation's assumption of such liabilities and acquisition of properties
subject to liabilities is a bona fide business purpose and not the avoidance of
taxes.
Accordingly, and based solely upon NHC's representations, section
357(c) would be inapplicable to NHC's constructive contribution of assets to the
Corporation.
As discussed in detail above, the investment company exception to the
nonrecognition rule of Code section 351 precludes section 351's application to a
"transfer of property to an investment company." The Regulations provide that a
transfer shall be considered to be made to an investment company if the
transferee is, among others, a corporation more than eighty percent (80%) the
value of which consists of assets held for investment that are readily
marketable stocks or securities or interests in regulated investment companies
or real estate investment trusts.
The Taxpayer Relief Act of 1997 amended Code section 351 to expand the
assets to be considered in determining whether a corporation is an investment
company beyond those currently listed in the Regulations. Under Code section
351(e) as amended, an investment company includes any corporation if more than
eighty percent (80%) of its assets by value consist of money, stocks and other
corporate equity interests, evidences of indebtedness, options, forward or
future contracts, notational principal contracts or derivatives, foreign
currency, certain interests in precious metals, interests in real estate
investment trusts and regulated investment companies, common trust funds, and
publicly-traded partnership or other interests in non-corporate entities that
are convertible into or exchangeable for any asset of a type previously listed.
NHC has represented that the value of the Corporation's assets of the types
listed will not equal or exceed eighty percent (80%) of the Corporation's value.
As discussed above, to be a transfer to an investment company, the
transfer must (i) be to, among others, a regulated investment company, a real
estate investment trust, or a company more than eighty percent (80%) the value
of which consists of assets of the types listed, and (ii) results, directly or
indirectly, in the diversification of the transferor's interests.
As noted above, a transfer ordinarily results in the diversification of
the transferors' interest if two or more persons transfer non-identical assets
to a corporation in the exchange. According to the Conference Committee Report,
the changes to Code section 351(e) made by section 1002(a) of the Taxpayer
Relief Act of 1997 do "not override. . . the requirement that a contribution of
property to an investment company result in diversification in order for gain to
be recognized."
Accordingly, based on NHC's representation with regard to the value of
the investment company type assets to be held by the Corporation and since NHC
is the only transferor of assets to the Corporation for purposes of Code section
351, Tax Counsel is of the opinion that, if challenged, it is more likely than
not that the investment company exception of section 351(e) would not apply to
NHC's constructive contribution of assets to the Corporation.
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The Merger: Constructive Distribution of Corporation Stock. Although
NHC will, for purposes of state law, merge into the Corporation, NHC will be
deemed to distribute to NHC's unitholders the Corporation stock it receives upon
its constructive contribution of assets to the Corporation (with the REIT stock
and Operating Partnership units) in complete liquidation of NHC and of the
partnership interests of its unitholders.
Code section 731(b) provides that a partnership will not recognize gain
upon its distribution of property or money to its partners. As to the partners,
Code section 731(a)(1) generally provides that no gain or loss shall be
recognized by a partner upon a distribution to him of property, other than
money, the definition of which includes "marketable securities" as discussed
above. It is anticipated that as of the Effective Time the Corporation's shares
will be approved for listing on the American Stock Exchange, though such listing
will not be effective until some time thereafter.
However, the definition of money does not include marketable securities
if such are distributed in a "qualified partnership liquidation" that satisfies
the requirements of the transitional rule of section 741(c)(4) of the Uruguay
Round Agreements Act discussed above. For these purposes, a "qualified
partnership liquidation" is a complete liquidation of a publicly traded
partnership as defined in Code section 7704(b) that is an existing partnership
as defined in section 10211(c)(2) of the Revenue Act of 1987. NHC is such a
"publicly traded" "existing" partnership.
The REIT shares, the Operating Partnership units and the Corporation
stock will be issued to NHC in exchange for all of its assets under the
nonrecognition rules of sections 351 and 721 and will be distributed within 90
days of their receipt by NHC. NHC's distribution of the REIT stock and the
Operating Partnership units and its merger into the Corporation will be treated
for federal income tax purposes as a complete termination and liquidation of
NHC, which is to be effective prior to NHC's first taxable year after December
31, 1997. Accordingly, Tax Counsel is of the opinion that, if challenged, it is
more likely than not that Code section 731(c) would not apply to the merger, and
that, under Code section 731, NHC's unitholders would not recognize gain upon
the complete liquidation of their limited partnership interests in NHC in
exchange for the REIT shares, the Operating Partnership units and the
Corporation's stock.
Our opinion is rendered as of the date of this letter and is based on
existing statutes, administrative rules and regulations, court decisions, and
general legal principles, any of which could be changed at any time. Any such
changes may apply retroactively, and could significantly modify our conclusions
set forth above. Our opinion is limited to the specific matters described
herein, and only represents Tax Counsel's best legal judgment of the application
to the transactions described herein of federal income tax laws, existing
judicial decisions, administrative regulations and published rulings and
procedures; it has no binding effect or official status, and no assurance can be
given that the conclusions reached in this opinion would be sustained by a court
of law if contested. We undertake no obligation to update this opinion at any
time. All opinions expressed herein relate only to matters governed by the laws
of the United States of America. In the event any one of the statements,
representations, warranties or assumptions upon which we have relied to issue
this opinion is incorrect, our opinion might be adversely affected and may not
be relied upon.
This opinion is being rendered to NHC in connection with the transactions
contemplated in the Joint Form S-4. Tax Counsel consents to the inclusion of a
copy of this opinion as an exhibit to said Joint Form S-4, which opinion is
otherwise not to be quoted or relied upon by any other party without our prior
written consent.
Very truly yours,
HARWELL HOWARD HYNE GABBERT & MANNER, P.C.
