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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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)
MARYLAND 52-2059888
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 VINE STREET, SUITE 1402
MURFREESBORO, TENNESSEE 37130
TELEPHONE: (615) 890-2020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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RICHARD F. LAROCHE, JR.
100 VINE STREET, SUITE 1402
MURFREESBORO, TENNESSEE 37130
TELEPHONE: (615) 890-2020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SUSAN V. SIDWELL
HARWELL HOWARD HYNE GABBERT & MANNER, P.C.
1800 FIRST AMERICAN CENTER
NASHVILLE, TENNESSEE 37238
(615) 256-0500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, 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
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) 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 delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE FEE
SHARE OFFERING PRICE (1)
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<S> <C> <C> <C> <C>
Common stock, no par value 1,310,194 $10.75 $14,084,585.50 $ 3,915.51
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</TABLE>
(1) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee based on the closing price of National
Health Realty on July 9, 1999.
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NATIONAL HEALTH REALTY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
NATIONAL HEALTH REALTY SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE
IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC,
ACTING PURSUANT TO SAID SECTION 8 (A), MAY DETERMINE.
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SUBJECT TO COMPLETION
JULY 13, 1999
1,310,194 SHARES
NATIONAL HEALTH REALTY, INC.
COMMON STOCK
This prospectus relates to our possible issuance of up to 1,215,754
shares of our common stock, par value $0.01 per share, from time to time to
National Health Corporation, AdamsMark L.P., or any permitted transferee of
National Health Corporation, or AdamsMark L.P., (the "Limited Partners") if and
to the extent the Limited Partners elect to request the redemption of limited
partnership units in NHR/OP, L.P. a Delaware limited partnership and our
operating entity. This prospectus also relates to the possible offer and sale of
those shares of common stock from time to time by the Limited Partners and to
the possible offer and sale of 94,440 shares of our common stock held by NHC.,
Inc.; The SARA Group; The Adams Group; Panther Creek Inv.; E. Rutherford Inv.;
Daniel Family Partnership; S.C. Garrison; D. Doran Johnson Assoc.; James O.
Keathley; Shannon Assoc.; Julia W. Powell; Charlotte A. Swafford; J.K. Twilla;
and Riverview Assoc. (collectively with the Limited Partners, the "Selling
Holders"). This registration statement does not necessarily mean that we will
issue any shares of our common stock or that the Selling Holders will offer or
sell any of the shares of common stock.
The limited partnership units in NHR/OP, L.P. were issued to National
Health Corporation, AdamsMark L.P. and NHC, Inc. on December 31,1997 in
connection with our formation and the contribution of certain real property
assets by National HealthCare, L.P. Beginning on December 31, 1998, the limited
partnership units held by the Selling Holders may be presented for redemption by
the Selling Holders. In lieu of issuing cash upon the redemption, we may, at our
option, cause the limited partnership units to be redeemed in exchange for our
common stock on a one-to-one basis, subject to adjustment in the event we pay a
dividend or distribution on our common stock in shares of common stock, split or
subdivide our outstanding common stock, or effect a reverse stock split or other
combination of our common stock into a smaller number of shares. In the first
quarter of 1999, NHC, Inc. requested the redemption of its 94,440 limited
partnership units and received 94,440 shares of our common stock. NHC, Inc.
subsequently distributed the 94,440 shares of our common stock to its
stockholders. We anticipate that we will elect to issue common stock rather than
pay cash upon the redemption of any additional limited partnership units
tendered, to the extent allowed without jeopardizing our real estate investment
trust status under the Internal Revenue Code. The terms and conditions
associated with the redemption of the limited partnership units are more fully
described later in this prospectus under the heading "Redemption of Limited
Partnership Units."
Our principal offices are located at 100 Vine Street, Suite 1402,
Murfreesboro, Tennessee 37130 and our telephone number is (615) 890-2020. Our
common stock is listed on the American Stock Exchange under the symbol "NHR." To
assist us in qualifying as a real estate investment trust, the transfer of
shares of our capital stock is restricted, and beneficial ownership by any
person is limited to 9.8% of the number of our voting shares of capital stock.
We will receive any limited partnership units redeemed upon the
issuance of the shares of common stock registered by this prospectus, but will
not receive any of the proceeds upon the sale of shares of common stock by the
Selling Holders.
THESE SECURITIES ARE SUBJECT TO CERTAIN RISKS. SEE RISK FACTORS ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is _________, 1999.
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TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION.......................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 1
FORWARD-LOOKING STATEMENTS................................................... 2
RISK FACTORS................................................................. 3
USE OF PROCEEDS..............................................................11
OUR BUSINESS.................................................................12
RELATIONSHIP WITH NATIONAL HEALTHCARE CORPORATION............................13
DESCRIPTION OF CAPITAL STOCK.................................................15
NHR/OP, L.P. PARTNERSHIP AGREEMENT...........................................20
REDEMPTION OF LIMITED PARTNERSHIP UNITS......................................23
SELLING HOLDERS..............................................................24
PLAN OF DISTRIBUTION.........................................................25
LEGAL MATTERS................................................................26
EXPERTS......................................................................26
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information filed by us at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 with
respect to the common stock offered by this prospectus. As allowed by the SEC,
this prospectus does not contain all the information you can find in the
registration statement. Statements contained in the prospectus as to the
contents of any contract, agreement or other document filed with the
registration statement as exhibits are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the copy of
the applicable document filed as an exhibit to the registration statement. For
further information about us and the securities offered hereby, reference is
made to the registration statement and to the consolidated financial statements,
schedules and exhibits filed as a part of such registration statement or
incorporated by reference into such registration statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means important information may be disclosed to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in (or incorporated by reference in)
this prospectus.
You can obtain any of the documents incorporated by reference through
either us or the SEC. Documents incorporated by reference are available from us
at no cost to you, including any exhibit that we have specifically incorporated
by reference in this prospectus. In order to obtain such documents incorporated
by reference in this prospectus you may request them in writing or by telephone
from the appropriate party at the following address:
National Health Realty, Inc.
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Richard F. LaRoche, Jr., Shareholder Relations
(615) 890-2020
This prospectus incorporates by reference the documents set forth
below:
NATIONAL HEALTH REALTY SEC FILINGS (File No. 001-13487)
- Our Annual Report on Form 10-K for the year ended December 31, 1998;
- Our Quarterly Reports on Form 10-Q for the quarter ended March 31,
1999
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- Our Proxy Statement dated March 1, 1999 relating to our annual
meeting held on April 26, 1999;
- The description of our common stock contained in our Registration
Statement on Form 10 filed on December 5, 1997;
We are also incorporating by reference additional documents that we may
file with the SEC after the date of this prospectus.
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus constitute forward-looking
statements. We intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and we are including this paragraph for
purposes of complying with these safe harbor provisions. The forward-looking
statements include, among other things, statements regarding our intent, belief
or expectations of our Company and its officers. You can identify these
statements by the use of terminology such as "may," "will," "expect," "believe,"
"intend," "plan," "estimate," "should" and other comparable terms or the
negative thereof. In addition, we, through our senior management, from time to
time make forward-looking oral and written public statements concerning our
expected future operations and other developments. Forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of National Health Realty or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Such factors include, among others:
- the effect of existing or future governmental regulation and
federal and state legislative and enforcement initiatives in the
health care industry which increase the costs of or otherwise
affect the operations of our lessees
- changes in the reimbursement available to our lessees and
mortgagors by governmental or private payors, including changes
in Medicare and Medicaid payment levels and the availability and
cost of third party insurance coverage
- competition for lessees and mortgagors, including with respect to
new leases and mortgages and the renewal or roll-over of existing
leases
- the ability of our lessees and mortgagors to operate our
properties in a manner sufficient to maintain or increase
revenues and to generate sufficient income to make rent and loan
payments
- general economic and business conditions, both nationally and in
regions where we own property, including changes in interest
rates and the availability and cost of capital to us
Some of these factors are discussed in more detail elsewhere in the
prospectus. There can be no assurance that the forward-looking statements
included in the prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved. See "Risk Factors."
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RISK FACTORS
WE RELY ON NATIONAL HEALTHCARE CORPORATION ALMOST EXCLUSIVELY FOR OUR
REVENUE AND INCOME. The health care facilities owned by us consist of 16 skilled
nursing centers, six assisted living centers and one retirement center each of
which is leased to, and operated by, National HealthCare Corporation. In
addition, we have made loans to third party owners of nursing centers managed by
National HealthCare Corporation, which are secured by promissory notes. Because
of this, our financial returns and our condition are dependent upon National
HealthCare Corporation's successful operation of the health care facilities
owned by us and the health care facilities securing the notes. If National
HealthCare Corporation is unable to operate the health care facilities owned by
us or the 23 facilities securing the notes in such a manner that the health care
facilities are able to generate sufficient cash flow to pay the rent due under
the leases or the interest and principal payments under the notes, it would have
an adverse effect on our results of operation and the market value of our stock.
IF NATIONAL HEALTHCARE CORPORATION VOLUNTARILY OR INVOLUNTARILY
DEFAULTS UNDER THE TERMS OF A LEASE, WE WILL NEED TO FIND ANOTHER HEALTH CARE
PROVIDER TO LEASE AND OPERATE THE FACILITY. As a real estate investment trust,
we cannot operate a health care facility. Therefore, if National HealthCare
Corporation defaulted on a lease, we would have to negotiate new lease terms
with a new tenant, including rentals due, which terms may be less favorable than
those of the defaulted lease. Also, we only own the real estate for the
facilities. All of the equipment, furnishings and personal property belong to
National HealthCare Corporation, and in the event a lease is terminated for any
reason, either we or a new tenant will have to replace all equipment and
furnishings. Any default under or termination of a lease could result in a
reduction in revenue derived from the affected lease and any default under the
leases at the same time could have an adverse effect on our results of
operations and on the market value of our stock.
WE ARE DEPENDANT ON NATIONAL HEALTHCARE CORPORATION AS OUR ADVISOR
UNDER THE ADVISORY AGREEMENT, WHICH AGREEMENT CAN BE TERMINATED ON SHORT NOTICE.
We have no employees to provide the services currently being provided by
National HealthCare Corporation, our manager. We are advised by National
HealthCare Corporation, under the supervision of our board of directors, which
is ultimately responsible for our management. This advisory agreement can be
terminated within 90 days; however, we have no other possible managers under
consideration. In addition, all services provided by National HealthCare
Corporation are actually by employees of National Health Corporation, since
National HealthCare Corporation has no employees. Therefore, the termination of
the advisory agreement by National HealthCare Corporation, or the termination by
National Health Corporation of its employee services agreement would leave us
with no employees to perform services for the company. Although we believe we
could replace such employees, the termination of either of those agreements
could have an adverse effect on our results of operation and the market value of
our stock.
SINCE ALL OF OUR DIRECTORS ALSO OCCUPY SIMILAR POSITIONS WITH NATIONAL
HEALTHCARE CORPORATION, THERE WILL BE CONFLICTS OF INTEREST IN THEIR DUTIES TO
NATIONAL HEALTHCARE CORPORATION'S STOCKHOLDERS AND OUR STOCKHOLDERS. In the
future, we are likely to purchase additional equity interests in real estate
from, or make additional mortgage loans to, National HealthCare Corporation. Our
directors will have a conflict of interest in assessing the quality of the
management services, determining if the advisory agreement should be terminated,
determining the price to be paid by us for additional assets which may be
purchased from
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National HealthCare Corporation and the terms of any leases to be entered into
between us and National HealthCare Corporation. Again, these future transactions
between us and National HealthCare Corporation will not be negotiated on an
arm's length basis and no assurance can be given that our directors will demand
the same terms as might be demanded by a board of directors that was not
involved in both sides of the transaction.
Also, two of our directors who are also our executive officers are
either directors or executive officers of National Health Investors, a real
estate investment trust that is also advised by National HealthCare Corporation.
This overlap of directors and executive officers may cause a conflict in the
determination of our long term goals. These goals may include whether to
terminate the advisory agreement and seek to expand our portfolio beyond the
properties leased to National HealthCare Corporation, and whether we should
consider a potential sale of all or substantially all of our assets or a
potential merger with another real estate investment trust other than National
Health Investors. These conflicts could have an adverse effect on our results of
operation and the market value of our stock.
PURSUANT TO THE ADVISORY AGREEMENT, WE HAVE AGREED TO ONLY DO BUSINESS
WITH NATIONAL HEALTHCARE CORPORATION AND NOT TO COMPETE WITH NATIONAL HEALTH
INVESTORS AS LONG AS NATIONAL HEALTHCARE CORPORATION HAS ADVISORY RELATIONSHIPS
WITH BOTH COMPANIES. Therefore, there may be situations where we have cash
available (such as from prepayments, insurance proceeds or condemnation
settlements or receipt of normal payments on principal) at a time when National
HealthCare Corporation does not have a need for additional funds. In these
situations, we may not be able to invest such cash in an efficient manner which
could have a material adverse impact on our results of operations and the market
value of our stock. In addition, we are severely limited in our ability to grow
and expand our business. Our board of directors does not intend to seek to
expand our investments. Such a restriction could have an adverse effect on our
results of operation and the market value of our stock.
THERE MAY FROM TIME TO TIME BE DISPUTES BETWEEN US AS LESSOR AND
NATIONAL HEALTHCARE CORPORATION AS LESSEE THAT ARE NOT RECOGNIZED AS CONFLICTS
OR DEALT WITH IN AN INDEPENDENT MANNER. Since all of our board members are also
board members of National HealthCare Corporation, it is uncertain whether
potential disputes will be recognized as conflicts or that we will recognize a
need for independent persons to determine how to resolve such disputes. When
recognized, these disputes will be settled by binding arbitration; however, no
assurance can be given that our board of directors will recognize conflicts
between us and National HealthCare Corporation to the same extent that a group
of independent directors might recognize conflicts. This failure to recognize
conflicts between us and National HealthCare Corporation could result in us not
making demands on National HealthCare Corporation which an independent board
would make. Depending on the circumstances of such potential conflicts, failure
to make certain demands could have an adverse effect on our results of operation
and the market value of our stock.
CHANGES IN GOVERNMENT REIMBURSEMENT AND PAYMENT POLICIES COULD
MATERIALLY IMPACT OUR LESSEES AND MORTGAGORS AND THEIR ABILITY TO MAKE THE LEASE
AND DEBT PAYMENTS TO US. Our properties are all involved in the health care
industry. All of our lessees and mortgagors derive a substantial portion of
their revenue from governmental programs. Such programs are highly regulated and
are subject to frequent and substantial changes. In recent years, changes in
Medicare and Medicaid programs have resulted in limitations on, and reduced
levels of, payment
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and reimbursement for a substantial portion of hospital procedures and costs.
Congress recently enacted the Balanced Budget Act of 1997, which establishes a
plan to balance the federal budget by fiscal year 2002, and includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.
These include among others, payment reductions directly affecting nursing homes
and assisted living centers, establishment of prospective payment systems for
skilled nursing facilities and home health agencies under Medicare. This
legislation also repealed the federal payment standard (the "Boren Amendment")
for nursing facilities under Medicaid, increasing states' discretion over the
administration of Medicaid programs.
Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as our
lessees and mortgagors and increase patient co-payments and deductibles. In
addition, a number of states are considering legislation designed to reduce
their Medicaid expenditures and to provide universal coverage and additional
care for certain populations and/or to impose additional taxes on hospitals to
help finance or expand the states' Medicaid programs. Significant additional
reductions in payment levels could have a material adverse effect on the ability
of our lessees and mortgagors ability to make lease and debt payments to us.
AS OF MARCH 31, 1999, OUR DEBT REPRESENTS APPROXIMATELY 44% OF OUR
TOTAL CAPITALIZATION. This debt level was primarily because National HealthCare
L.P.'s contribution of the health care facilities to us resulted in our
accounting for the health care facilities at the same book value as National
HealthCare L.P.'s depreciated cost, and because such contribution is subject to
certain assumed liabilities. In addition, there is no restriction in our
articles of incorporation or our management policy limiting the amount of debt
we may incur, although there are limits on us incurring additional debt beyond
certain limits under our Bank Credit Agreement. If we are unable to meet our
obligations under the various mortgage loans and guarantees, and if there are
foreclosures or conveyances in lieu of foreclosure, we could lose our interest
in certain promissory notes and our equity investment in the affected health
care facilities we own.
DURING 1999, A SIGNIFICANT AMOUNT OF OUTSTANDING LOANS MAY BE PREPAID,
LEAVING US WITH CASH THAT MAY NOT BE ABLE TO BE SUCCESSFULLY INVESTED. At
December 31, 1998, we had outstanding loans of approximately $73.5 million to
Florida Convalescent Centers, Inc., a Florida corporation which operates 16
licensed nursing homes that are managed by National HealthCare Corporation. On
October 30, 1998, National HealthCare Corporation announced terms of its
settlement of the litigation with Florida Convalescent. Under the terms of the
settlement, we may receive prepayments of up to $62.8 million and National
HealthCare Corporation is expected to assume the remaining $10.7 million. We
will attempt to reinvest any amounts repaid, but as noted above, there are
restrictions on our ability to do so. In addition, our credit facility requires
a portion of the prepayment be used to reduce the bank debt, although we may
seek a waiver of this requirement. If there is a significant prepayment and we
cannot successfully reinvest the money or must use it to reduce existing debt,
there will be a reduction of cash flow.
THE HEALTH CARE FACILITIES ARE LOCATED IN THE STATES OF ALABAMA,
FLORIDA, MISSOURI, SOUTH CAROLINA AND TENNESSEE, ALL WITHIN THE SOUTHEASTERN
UNITED STATES AND, THUS, SUBJECT TO POSSIBLE NEGATIVE GEOGRAPHICAL CONCENTRATION
CONDITIONS. In addition, all but one of the notes are secured by health care
facilities in Florida. Therefore, we will be subject to conditions
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in these geographic areas, such as local economies, natural disasters, real
estate values, state regulation and reimbursement. The concentration of our
assets in five states make us more susceptible to local conditions than if our
property was spread over a wide geographic area.
WE DO NOT HAVE WARRANTIES OF TITLE FOR SOME OF THE HEALTH CARE
FACILITIES WE OWN. Certain health care facilities were transferred by a
"quitclaim" deed and others by a fifty (50) year lease with a purchase option
exercisable at any time by us for a nominal sum. Although National HealthCare
Corporation has warranted good title to the extent described below, we have not
obtained policies insuring title to the health care facilities. As a result, in
the event of a title dispute, we have recourse solely to National HealthCare
Corporation. With respect to any title problem or dispute, National HealthCare
Corporation has agreed to indemnify, defend and hold us harmless only to the
maximum extent National HealthCare Corporation has a claim against a
predecessor-in-title or a title insurance company. We have no title insurance
and could suffer significant losses if a title claim does not give rise to a
claim against National HealthCare Corporation under its limited indemnity
described in the foregoing sentence. Such a title claim could have an adverse
effect on our results of operation and the market value of our stock.
WE HAVE NOT SOUGHT, NOR WILL WE SEEK, A RULING FROM THE INTERNAL
REVENUE SERVICE WITH RESPECT TO OUR QUALIFICATION AS A REAL ESTATE INVESTMENT
TRUST. We were organized and intend to conduct our operations so as to qualify
for federal income taxation as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code. Although management believes that we
were organized and will continue to operate in such a manner, no assurance can
be given that we will be able to operate in a manner so as to qualify or remain
qualified. Qualification as a real estate investment trust involves the
satisfaction of numerous requirements established under highly technical and
complex code provisions for which there are only limited judicial and
administrative interpretations. These requirements also involve the
determination of various factual matters and circumstances not entirely within
our control. For example, in order to qualify as a real estate investment trust,
at least 95% of our gross income in any year must be derived from qualifying
sources, and we must pay distributions to stockholders aggregating annually at
least 95% of our taxable income (excluding capital gains). The complexity of
these provisions and of the applicable treasury regulations that have been
promulgated under the code is greater in the case of a real estate investment
trust that holds its assets in partnership form. No assurance can be given that
legislation, new regulation administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
real estate investment trust or the federal income tax consequences of such
qualification. We, however, are not aware of any pending tax legislation that
would adversely affect our ability to operate as a real estate investment trust.
If we were to fail to qualify as a real estate investment trust in any
taxable year, we would be subject to federal income tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Also, unless entitled to relief under certain statutory provisions, we
also would be disqualified from treatment as a real estate investment trust for
the four taxable years following the year during which qualification was lost.
This treatment would significantly reduce our net earnings available for
investment or distribution to stockholders because of the additional tax
liability to us for the years involved. In addition, distributions to
stockholders would no longer be required to be made.
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THE IRS COULD CHALLENGE OUR STATUS AS THE OWNER OF THE HEALTH CARE
FACILITIES AND THE STATUS OF THE LEASES AS TRUE LEASES. If such a challenge were
successful, we would not be entitled to claim depreciation with respect to any
of the health care facilities. As a result, our taxable income might increase
and we might fail to meet the 95% distribution requirement necessary to be taxed
as a real estate investment trust. Even if such requirement were met, then a
larger percentage of distributions from us might constitute ordinary dividend
income, instead of a partial return of capital to our stockholders, or we could
be subject to an excise tax. We have not sought, and will not seek, a ruling
from the IRS with respect to our status as a real estate investment trust or the
status of the leases.
NATIONAL HEALTHCARE CORPORATION IS CURRENTLY PARTY TO A QUI TAM LAW
SUIT, WHICH, IF DETERMINED ADVERSELY TO NATIONAL HEALTHCARE CORPORATION, COULD
IMPACT ITS ABILITY TO SERVICE ITS LEASE PAYMENTS TO US. The law suit alleges
that National HealthCare Corporation submitted cost reports and routine cost
limit exception requests containing "fraudulent allocation of routine nursing
services to ancillary service cost centers" and also alleges that National
HealthCare Corporation improperly allocated skilled nursing service hours in
four managed centers, all in the state of Florida. The suit was filed under the
Qui Tam provisions of the Federal False Claims Act, commonly referred to as the
"Whistleblower Act". National HealthCare Corporation has denied all allegations.
National HealthCare Corporation will continue to fully cooperate with the
government in an attempt to determine dollar amounts involved, and will and is
aggressively pursuing an amicable settlement. National HealthCare Corporation
cannot predict at this time the ultimate outcome of the suit. An adverse
determination in the lawsuit could subject National HealthCare Corporation to
repayments, fines and/or penalties which could have a material negative impact
on the financial position, cash flow or results of operations of National
HealthCare Corporation and could impact its ability to service its lease
payments to us.
THE HEALTH CARE FACILITIES ARE, AND ANY SUBSEQUENTLY ACQUIRED
PROPERTIES WILL BE, SUBJECT TO VARIOUS REAL ESTATE RELATED RISKS. The value of
any property owned by us may not appreciate or the value of any property
securing our mortgage loans may depreciate. The acquisition of additional
properties may be subject to our ability to borrow amounts sufficient to enable
us to pay the properties' purchase price. There can be no assurance that any
such acquisition will not be made on terms less favorable than the terms for the
health care facilities and the notes.
There can be no assurance that rates payable by National HealthCare
Corporation under the leases would be paid by an independent lessee. Therefore,
in the event National HealthCare Corporation defaults on or terminates a lease
prior to its expiration, or in the event that a lease expires, there can be no
assurance that a substitute lessee could be found nor that such a lessee, if
found, would pay the same rent set forth in the relevant leases.
Any lease arrangement creates the possibility that a tenant may either
default on the lease or fail to exercise an option to renew the lease and in
such event, we may be unable to lease such property to another tenant or, even
if we could, such lease may be on less favorable terms than those of the
original lease. There can be no assurance that National HealthCare Corporation
will exercise its options to renew the leases upon the expiration of the initial
terms or that, if such failure to renew were to occur, we could lease the
property to others on favorable terms. In such
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an instance, we would continue to be responsible for payment of any indebtedness
we had incurred with respect to such property.
OUR STOCK IS SUBJECT TO CERTAIN TRANSFER AND OWNERSHIP LIMITATIONS IN
OUR ARTICLES OF INCORPORATION. Provisions of our articles of incorporation,
primarily intended to enable us to maintain our status as a real estate
investment trust, authorize us to refuse to transfer our stock to, or prohibit
exercise of rights by, any person who as a result would beneficially own,
directly or indirectly by attribution, shares of our stock in excess of 9.8% of
the outstanding stock or any person whose accumulation of such stock would, in
the opinion of our Board of Directors, jeopardize our status as a real estate
investment trust including as a result of a violation of the "related party
tenant rules." Our articles of incorporation also authorize us to redeem excess
stock, the accumulation of which would jeopardize our status as a real estate
investment trust. In addition, our articles of incorporation prevents a
stockholder from owning at any time, directly or indirectly by attribution, more
than 9.8% of our outstanding stock. If these transfer or ownership restrictions
are declared to be void as a matter of law or are violated by any person, common
stock acquired in excess of these limits shall be deemed to have been acquired
by and to be held on behalf of us and, as the equivalent of treasury shares for
such purpose, shall not be considered to be outstanding for quorum or voting
purposes and shall not be entitled to receive distributions.
For us to qualify as a real estate investment trust in any taxable year
(other than the first year for which we elect to be taxed as a real estate
investment trust), no more than 50% of our outstanding stock may be owned,
directly or indirectly by attribution, by five or fewer individuals (which for
this purpose includes pension funds and certain other tax exempt entities) at
any time during the second half of our taxable year. In addition, our stock must
be owned by 100 or more persons during at least 335 days of a taxable year of
twelve months or during a proportionate part of a short taxable year. Further,
in all taxable years a large percentage (at least 75% and more likely 95%) of
our income must generally be derived from lessees in which we do not own,
directly or indirectly by attribution, a 10% or greater interest. We would be
generally deemed to own that percentage interest in a lessee (including National
HealthCare Corporation) owned by one of our stockholders who owned, directly or
indirectly by attribution, 10% or more of our stock.
The limitations on ownership of our stock set forth in our articles of
incorporation are intended to reduce the possibility of us failing to meet the
percentage ownership requirements for qualification as a real estate investment
trust. However, such provisions may inhibit market activity with respect to our
stock and the resulting opportunity for stockholders to receive a premium for
their stock that might otherwise exist if an individual were attempting to
assemble a block of our stock in excess of the applicable percentage limitation.
Also, there can be no assurance that such provisions will in fact prevent us
from failing to meet such ownership requirements. Accordingly, our articles of
incorporation restricts stock ownership, directly or indirectly by attribution,
to 9.8%.
These provisions would also make us an unsuitable investment for any
person seeking to obtain ownership of more than 9.8% of our outstanding voting
equity. Although we do not anticipate that we will redeem or otherwise reduce
the amount of outstanding stock except for excess shares, if such number of
shares were reduced, the percentage limitation might be exceeded by a
stockholder without any action on his part.
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AS THE OWNER OF THE HEALTH CARE FACILITIES, WE ARE SUBJECT TO POTENTIAL
LIABILITIES UNDER ENVIRONMENTAL LAWS. Pursuant to the terms of the leases, we do
not have control over the operational activities of National HealthCare
Corporation, nor do we monitor National HealthCare Corporation with respect to
environmental matters. Under various federal, state and local environmental
laws, ordinances and regulations, such as the Resource Conservation and Recovery
Act of 1976, the Solid Waste Disposal Act, the Hazardous and Solid Waste
Amendments of 1984, the Clean Water Act, the Clean Air Act, the Superfund
Amendments and the Reauthorized Act of 1986, the Emergency Planning and Right to
Know Act, State Superfund Laws, and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, an owner of real property (such as us)
may be liable in certain circumstances for the costs of removal or remediation
of certain hazardous or toxic substances at, under or disposed of in connection
with such property. In addition, we may become subject to certain other
potential costs such as provided under the Toxic Substance Control Act dealing
with the disposal of hazardous waste (including government fines and injuries to
persons and adjacent property) and OSHA rules and regulations. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence or disposal of such substances and liability may
be imposed on the owner in connection with the activities of an operator of the
property. The cost of any required remediation, removal, fines or personal or
property damages and the owner's liability therefore could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn, would
reduce our revenues and ability to make distributions. The master lease between
the parties provides that National HealthCare Corporation will indemnify us for
any environmental matters arising on or after January 1, 1998, but we are liable
for any such matters arising before such date. Significant environmental
problems on the health facilities could cause a significant reduction in the
value of such property and could impose significant liability.
WE BELIEVE WE DEPEND SUBSTANTIALLY ON ACTIVE INVOLVEMENT OF OUR SENIOR
MANAGERS, INCLUDING OUR TWO EXECUTIVE OFFICERS W. ANDREWS ADAMS AND RICHARD F.
LAROCHE, JR. (NEITHER OF WHICH ARE OUR EMPLOYEES). The loss of one or more of
such officers could have a material adverse effect on our business and future
operations. We do not maintain key-man insurance on the lives of our executive
officers. We do not have employment agreements with our executive officers. The
agreement by which such persons are made available to us is between National
HealthCare Corporation and National Health Corporation and is outside our
control. This agreement could be terminated between National HealthCare
Corporation and National Health Corporation without our approval and without our
involvement.
IF OUR INFORMATION SYSTEMS EXPERIENCE INTERRUPTIONS DUE TO YEAR 2000
NON- COMPLIANCE, OUR OPERATIONS MAY BE AFFECTED. We have developed a plan to
address our Year 2000 issues, and we are utilizing our internal resources to
assess, remediate and test our systems. As a result of our advisory agreement
with National HealthCare Corporation, we are completely reliant upon National
HealthCare Corporation for our information technology systems and embedded
technology. National HealthCare Corporation is also our sole lessee. National
HealthCare Corporation is currently performing an evaluation of its information
technology and embedded technology that are utilized in our operations. The Year
2000 readiness plan that we and National HealthCare Corporation have developed
includes an inventory and review of all core application systems, networks,
desktop systems, infrastructure and critical supply chains.
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Our Year 2000 readiness plan is focused on addressing Year 2000 readiness in the
following four categories: (1) mainframe computer operations, critical
applications and related networks, (2) personal computer hardware and software,
(3) third party mortgagees and lessees, and (4) other third party vendors that
provide such services as telecommunications and electrical power.
For each of the above categories, we, through our advisor (National
HealthCare Corporation), will perform or have performed the phases of
assessment, remediation and testing of the applicable hardware, software or
equipment, as applicable. Our assessment of all of the above categories is
expected to be completed by October 1, 1999 with remediation and testing to be
completed by December 31, 1999. We have also requested all mortgagees, lessees
and other third party vendors (financial institutions, electrical providers,
etc.) to disclose their current Year 2000 readiness and their plan for achieving
Year 2000 readiness. Responses have been received from most vendors and third
parties. For those vendors and third parties that have not yet responded, we are
in the process of sending out additional requests. Although most third party
vendors have indicated that they are currently Year 2000 compliant or expect to
be compliant prior to January 1, 2000, there can be no assurance that such third
parties will achieve Year 2000 compliance by January 1, 2000.
Our sole lessee, National HealthCare Corporation, is currently in the
process of evaluating its Year 2000 issues. National HealthCare Corporation has
formed an internal task force and is utilizing its internal resources to assess,
remediate and test its systems. National HealthCare Corporation has completed
the assessment phase related to its mainframe computer operations and related
networks. Although the majority of National HealthCare Corporation's information
technology applications are already Year 2000 compliant, National HealthCare
Corporation is currently modifying or replacing applications and hardware as
necessary. National HealthCare Corporation is expected to complete the
remediation and testing of any non-compliant applications and hardware by
October 1, 1999. National HealthCare Corporation is currently in the assessment
phase of its plan for personal computer applications and hardware, internal
equipment utilizing embedded technology, third party payors and other third
party vendors. National HealthCare Corporation is expected to complete the
assessment phase for its personal computer applications and hardware and for its
internal equipment by October 1, 1999 and to complete remediation and testing by
December 31, 1999. It is expected that the assessments of National HealthCare
Corporation's third party payors and third party vendors will be an ongoing
process that will continue through December 31, 1999.
As a result of our advisory agreement with National HealthCare
Corporation, costs related to our Year 2000 readiness plan have not been
material and are not expected to be material in future periods. No additional
advisory fees have been charged to us related to the assessment, remediation or
testing of our Year 2000 compliance.
Our Year 2000 efforts are ongoing and our overall plan and cost
estimations will continue to evolve as new information becomes available. The
costs of our Year 200 compliance plan and the date on which we expect to
complete it are based on current estimates, which reflect numerous assumptions
about future events, including the continued availability of certain resources,
the timing and effectiveness of third party remediation plans and other factors.
We can give no assurance that these estimates will be achieved, and actual
results could differ materially from our plans. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
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locate and correct relevant computer source codes and embedded technology, the
results of internal assessment, remediation and testing and the timeliness and
effectiveness of remediation efforts of third parties. In addition, our analyses
of our Year 2000 issues are based in part on information from third parties.
There can be no assurance that such information is accurate or complete.
OUR ARTICLES OF INCORPORATION CONTAINS CERTAIN PROVISIONS WHICH COULD
MAKE AN ATTEMPTED TAKEOVER MORE DIFFICULT. We are authorized to issue up to
5,000,000 shares of preferred stock, the rights of which may be fixed by the
board of directors without stockholder approval and 20,000,000 shares of excess
stock. Our articles of incorporation provides for the classification of our
board of directors into three classes, with each class of directors serving
staggered terms of three years. The articles of incorporation also requires the
approval of 70% of our outstanding stock to approve certain transactions and
amend certain provisions of the articles of incorporation. The foregoing matters
may have the effect of discouraging or making more difficult an acquisition or
change of control. In addition, certain provisions of Maryland law regarding
business combinations require approval of the holders of 80% of our outstanding
voting shares.
USE OF PROCEEDS
The shares of common stock will be issued, if at all, upon the
redemption of outstanding NHR/OP L.P. units. We will receive any limited
partnership units tendered for redemption if we elect to use our common stock to
pay the redemption price or redeem the units for cash. We will not receive any
other proceeds from the issuance of the shares of our common stock or from the
sale of the shares of our common stock by the Selling Holders.
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OUR BUSINESS
GENERAL
We are a Maryland real estate investment trust that was incorporated on
September 26, 1997. NHR/OP, L.P., a Delaware limited partnership, is our
operating entity and is 89% owned by us. We had no operations from the date of
incorporation through December 31, 1997. At December 31, 1997, National
HealthCare L.P. transferred certain assets and liabilities to us and NHR/OP,
L.P. in exchange for 8,237,423 shares of our common stock and 1,310,194 limited
partnership units of NHR/OP, L.P. National HealthCare L.P. then distributed our
common stock and the limited partnership units of NHR/OP, L.P. to National
HealthCare L.P.'s unitholders at the rate of one share or one unit for each
National HealthCare L.P. unit outstanding on the record date of December 31,
1997. The limited partnership units of NHR/OP, L.P. were distributed to National
Health Corporation, AdamsMark L.P. and NHC, Inc. in order to protect our real
estate investment trust status.
On December 31, 1997, through our subsidiary NHR/OP, L.P., we acquired
ownership of 16 licensed skilled nursing facilities, one 160 bed certificate of
need (now sold), six assisted living facilities and one independent living
center (the "Health Care Facilities"). We additionally and simultaneously
acquired 50 first and second mortgage secured promissory notes with a then
outstanding balance of $94.4 million (the "Notes") from our then sole owner
National HealthCare L.P. We then leased the Health Care Facilities to National
HealthCare Corporation, a successor by merger to National HealthCare L.P. (the
"Leases"). We also assumed certain debt of approximately $86.4 million. During
1998, we increased our investment in the HealthCare Facilities by $20.9 million,
with a corresponding increase in rental income. Our revenues are derived
primarily from National HealthCare Corporation under the Leases and the interest
payments of the Notes.
Forty-three of the Notes (representing approximately $73.0 million the
principal amount and collateralized with 16 nursing facilities) are from Florida
Convalescent Centers, Inc., and are currently managed by National HealthCare
Corporation, but may remain outstanding even if National HealthCare Corporation
is not the manager. The Florida Convalescent Center Notes bear interest at
10.25% and are due in 2004; however, we anticipate that they will be prepaid,
without penalty as early as this year. We will make every effort to reinvest any
amounts prepaid. However, if we use the money to reduce existing debt, this will
result in a reduction of cash flow which may cause the dividend paid by us to
remain flat for the near future. The balance of the Notes are secured by seven
nursing facilities and seven separate makers and guarantors.
ASSUMED LIABILITIES.
We assumed approximately $86.4 million of debt from National HealthCare
L.P. but immediately refinanced approximately $75.0 million from a 9 member
commercial bank group with Bank of Tokyo/Mitsubishi as Agent on a 5 year term
loan of $75.0 million. An additional revolving line of credit of $20 million was
also made available by this group, all but $4.5 million of which had been drawn
by March 31, 1999. The interest rates on $11.7 million of the remaining assumed
liabilities, $9.9 million as of March 31, 1999, include fixed rates of 8.4% and
8.3%. The interest rate on $3.2 million of the remaining assumed liabilities is
at a variable rate (5.0% at March 31, 1999). The term loan and revolving line of
credit currently bear interest at
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LIBOR plus 1.25% but the rate is subject to change based on our ratio of debt to
capitalization. The bank loans require quarterly principal repayments beginning
March, 2000 with a final maturity of December 31, 2002. In addition, the term
loan requires that 60% of principal payments received by us with respect to the
mortgages (other than regularly scheduled amortization payments) and 100% of the
net proceeds from the sale of any of the owned Healthcare Facilities must be
applied by us to prepayment of the outstanding principal of the term loan.
OUR INVESTMENT AND OTHER POLICIES.
General. Our investment objectives are:
- to provide current income for distribution to stockholders,
- to provide the opportunity for additional returns to investors by
participating in any increase in the operating revenues of our
leased properties;
- to provide the opportunity to realize capital growth resulting
from appreciation, if any, in the value of our portfolio
properties, and
- to preserve and protect stockholders' capital.
There is no assurance that these objectives will be realized.
Objectives and Policies. We were organized to own the Healthcare
Facilities and Notes. Because of the competitive restrictions contained in the
Advisory Agreement, we do not intend to seek further health care-related
investment opportunities or to provide lease or mortgage financing for such
investments. We expect to continue to engage in transactions with National
HealthCare Corporation, but do not anticipate purchasing from, leasing to or
financing other operators' facilities. Subject to the Advisory Agreement, the
Board of Directors may alter our investment policies if they determine in the
future that such a change is in the best interests of us and our stockholders.
The methods of implementing our investment policies may vary as new investment
and financing techniques are developed or for other reasons.
Federal Income Tax. We believe that we have operated our business so as
to qualify as a real estate investment trust under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, and we intend to continue to
operate in such a manner, but no assurance can be given that we will be able to
qualify at all times. As a real estate investment trust, we will generally not
be subject to federal corporate income taxes provided we distribute at least 95%
of our annual taxable income to our stockholders and meet other requirements to
continue to qualify as a real estate investment trust. This treatment
substantially eliminates the "double taxation" (at the corporate and stockholder
levels) that typically applies to corporate dividends.
RELATIONSHIP WITH NATIONAL HEALTHCARE CORPORATION
NATIONAL HEALTHCARE CORPORATION MASTER AGREEMENT TO LEASE
The Master Agreement to Lease (the "Master Agreement") with National
HealthCare Corporation regarding the Health Care Facilities, sets forth certain
terms and conditions applicable to all leases entered into by and between us and
National HealthCare Corporation.
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The Leases are for an initial term expiring on December 31, 2007 with two
five-year renewal options at the election of National HealthCare Corporation
which allow for the renewal of the leases on an all-or-nothing basis only.
During the initial term and each of the renewal terms (if applicable), National
HealthCare Corporation is obligated to pay annual base rent for the respective
Health Care Facilities plus additional rent described below. In addition, in
each year after 1999, National HealthCare Corporation is obligated to pay us a
percentage rent equal to 3% of the amount by which gross revenues of each Health
Care Facility in such later year exceeds the gross revenues of such Health Care
Facility in 1999.
The Master Agreement is a "triple net lease", under which National
HealthCare Corporation is responsible to pay all taxes, utilities, insurance
premium costs, repairs (including structural portions of the buildings,
constituting a part of the Health Care Facilities) and other charges relating to
the ownership and operation of the Health Care Facilities. National HealthCare
Corporation is obligated at its expense to keep all improvements and fixtures
and other components of the Health Care Facilities covered by "all risk"
insurance in an amount equal to the full replacement costs thereof, insurance
against boiler explosion and similar insurance, flood insurance if the land
constituting the Health Care Facility is located within a designated flood plain
area and to maintain specified minimal personal injury and property damage
insurance, protecting us as well as National HealthCare Corporation at such
Health Care Facility. National HealthCare Corporation is also obligated to
indemnify and hold us harmless from all claims resulting from the use and
occupancy of each Health Care Facility by National HealthCare Corporation or
persons claiming under National HealthCare Corporation and related activities,
as well as to indemnify us against, all costs related to any release, discovery,
cleanup and removal of hazardous substances or materials on, or other
environmental responsibility with respect to, each Health Care Facility leased
by National HealthCare Corporation.
ADVISORY AGREEMENT
We entered into the Advisory Agreement with National HealthCare
Corporation as "Advisor" under which National HealthCare Corporation provides us
management and advisory services during the term of the Advisory Agreement. We
believe the Advisory Agreement benefits us by providing access to National
HealthCare Corporation's extensive experience in the ownership and management of
long-term care facilities and retirement centers. In performing its obligations
under the Advisory Agreement, National HealthCare Corporation is subject to the
supervision of and policies established by our Board of Directors. Under the
Advisory Agreement, we engaged National HealthCare Corporation to use its best
efforts to:
- present to us a continuing and suitable investment program
consistent with our investment policies adopted by the Board of
Directors from time to time;
- manage our day-to-day affairs and operations; and
- provide administrative services and facilities appropriate for
such management.
This agreement also provides that prior to the earlier to occur of (A)
the termination of the Advisory Agreement for any reason and (B) National
HealthCare Corporation ceasing to be actively engaged as the investment advisor
for National Health Investors, Inc., we will not (without the prior approval of
National Health Investors) transact business with any party, person, company or
firm other than National HealthCare Corporation. It is the intent of this
restriction that we will not be actively or passively engaged in the pursuit of
additional
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investment opportunities, but rather will focus upon our capacities as landlord
and note holder of those certain assets initially conveyed to it.
The Advisory Agreement was initially for a stated term which expires
January 1, 2000. The Agreement thereafter is on a year to year term with a 90
day termination period at any time by either party without cause. We may
terminate the Advisory Agreement for cause at any time. For its services under
the Advisory Agreement, the Advisor is entitled to annual compensation of the
greater of 2% of our gross consolidated revenues or the actual expense incurred
by National HealthCare Corporation. The actual amount paid to National
HealthCare Corporation in 1998 was $471,000. Either party may terminate the
Advisory Agreement on 90 days notice after January 1, 2000.
Pursuant to the Advisory Agreement, National HealthCare Corporation
manages all of our day-to-day affairs and provides all such services through its
personnel. The Advisory Agreement provides that without regard to the amount of
compensation received by National HealthCare Corporation under the Advisory
Agreement, National HealthCare Corporation shall pay all expenses in performing
its obligations including the employment expenses of the officers and directors
and personnel of National HealthCare Corporation providing services to us. The
Advisory Agreement further provides that we shall pay the expenses incurred with
respect to and allocable to the prudent operation of our business, including any
fees, salaries, and other employment costs, taxes and expenses paid to our
directors, officers and employees who are not also employees of National
HealthCare Corporation. Currently, other than the directors who are not
employees of National HealthCare Corporation, we do not have any officers or
employees who are not also employees of National HealthCare Corporation. Our
three executive officers, Mr. W. Andrew Adams, Mr. Robert G. Adams and Mr.
LaRoche are employees of National HealthCare Corporation and all of their fees,
salaries and employment costs are paid by National HealthCare Corporation,
although a portion is allocated for their services to us.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
We are authorized to issue 75,000,000 shares of common stock, par value
$.01 per share, 5,000,000 shares of preferred stock, par value $0.1 per share
and 20,000,000 excess shares. As of April 30, 1999, there were 9,588,823 shares
of common stock, no shares of preferred stock and no excess shares outstanding.
Each share of common stock is entitled to one vote on each matter
submitted to a vote of stockholders. There is no right of cumulative voting in
connection with the election of directors. Any of the shares of common stock
issued and sold hereunder will be fully paid and nonassessable. Holders of our
common stock are entitled to receive, pro rata, dividends declared by our board
of directors out of funds legally available therefor. In the event of any
liquidation, dissolution or winding up of us, our stockholders are entitled to
share ratably in the assets available for distribution to stockholders. There
are no pre-emptive or other subscription rights, conversion rights, or
redemption or sinking fund provisions with respect to the common stock.
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PREFERRED STOCK
Our board of directors is authorized to issue preferred stock in one or
more series and, with respect to each series, to determine the number of shares
constituting any series, and the preferences, conversion and other rights,
voting powers, restrictions and limitations as to dividends, qualifications and
terms and conditions of redemption.
The preferred stock and the variety of characteristics available for it
offers us flexibility in financing and acquisition transactions. An issuance of
preferred stock could dilute the book value or adversely affect the relative
voting power of the common stock. The issuance of such shares could be used to
discourage unsolicited business combinations, for example, by providing for
class voting rights which would enable the holder to block such a transaction.
Although our board of directors is required when issuing such stock to act based
on its judgment as to the best interests of our stockholders, the board of
directors could act in a manner that would discourage or prevent a transaction
some stockholders might believe is in our best interests or in which
stockholders could or would receive a premium for their common stock over the
market price.
Our board of directors has authority to classify or reclassify
authorized but unissued shares of preferred stock by setting or changing the
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications, and terms and conditions of
redemption of stock.
EXCESS SHARES AND REAL ESTATE INVESTMENT TRUST PROVISIONS
Our articles of incorporation contains certain limitations on the
number of shares of the common stock that any one stockholder may own, which
limitations are designed to ensure that we maintain our status as a real estate
investment trust.
Upon demand of our board of directors, each stockholder must disclose
to us such information with respect to direct and indirect ownership of stock
owned (or deemed to be owned after applying the rules applicable to real estate
investment trusts under the Code) as our board of directors deems reasonably
necessary in order that we may fully comply with the real estate investment
trust provisions of the Code. Proposed transferees of stock must also satisfy
the board, upon demand, that such transferees will not cause us to fall out of
compliance with such provisions.
The Code generally prevents a company from qualifying as a real estate
investment trust if more than 50% in value of its stock is owned, directly or
indirectly, by five or fewer individuals, which includes certain entities
treated as individuals (the "Closely-Held Rule"). Our articles of incorporation
also limits any holder from owning, or being deemed to own after applying the
constructive ownership provisions of the Code described above, shares of common
stock having a value that is more than 9.8% (the "Ownership Limit") of the value
of all outstanding stock. Under our articles of incorporation, any transfer of
stock or any security convertible into stock that would create direct or
indirect ownership of stock in excess of the Ownership Limit (a "prohibited
transfer") shall be null and void, and the intended transferee will acquire no
rights to the stock. Shares of stock owned, or deemed to be owned, or
transferred to a stockholder in excess of the Ownership Limit will automatically
be exchanged for Excess Shares that will be transferred, by operation of law, to
an unaffiliated trustee to be named by our Board
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of Directors for the exclusive benefit (except to the extent described below) of
one or more charitable beneficiaries designated from time to time by us. The
Excess Shares held in trust will be considered as issued and outstanding shares
of stock, will be entitled to receive distributions authorized and declared by
us and may be voted by the trustee for the exclusive benefit of the charitable
beneficiary. Any dividend or distribution paid to a purported transferee of
Excess Shares prior to the discovery that stock has been transferred in a
prohibited transfer shall be repaid to us upon demand and thereupon paid over by
us to the trustee. Subject to applicable law, any votes of holders of shares of
stock purported to have been cast by a purported transferee prior to such
discovery of a prohibited transfer will be retroactively deemed not to have been
cast and may be recast by the trustee for the benefit of the charitable
beneficiary, but said retroactive nullification or recast of the vote of the
relevant shares of stock shall not adversely affect the rights of any person
(other than the purported transferee) who has relied in good faith upon the
effectiveness of the matter that was the subject of the stockholder action as to
which such votes were cast.
Excess Shares are not transferable. Subject to our redemption rights,
discussed below, the trustee of the trust may, however, sell and transfer the
interest in the trust to a transferee in whose hands the interest in the trust
representing Excess Shares would not be an interest in Excess Shares, and upon
such sale the shares of Excess Shares represented by the sold interest shall be
automatically exchanged for shares of stock of the class that was originally
exchanged into such Excess Shares. Upon such sale, the trustee shall distribute
to the purported transferee only so much of the sales proceeds as is not more
than the price paid by the purported transferee in the prohibited transfer that
resulted in the exchange of Excess Shares for the stock purported to have been
transferred (or, if the purported transferee received such stock by gift, devise
or otherwise without giving value for such stock, only an amount that does not
exceed the market price for such stock, as determined in the manner set forth in
our articles of incorporation, at the time of the prohibited transfer), and the
trustee shall distribute all remaining proceeds from such sale to the charitable
beneficiary.
In addition to the foregoing transfer restrictions, we have the right,
for a period of 90 days during the time any Excess Shares are held by the
trustee, to purchase all or any portion of the Excess Shares from the trustee
for the lesser of the price paid for the stock by the original purported
transferee (or, if the purported transferee received such stock by gift, devise
or otherwise without giving value for such stock, the market price of the stock
as determined in the manner set forth in our articles of incorporation at the
time of such prohibited transfer) or the market price (as so determined) of the
stock on the date we exercise our right to purchase. Upon any such purchase by
us, the trustee shall distribute the purchase price to the original purported
transferee. The 90-day period begins on the date on which we receive written
notice of the prohibited transfer or other event resulting in the exchange of
stock for Excess Shares.
Our articles of incorporation authorizes our Board of Directors to
permit a transfer which would otherwise be prohibited if the our Board is
satisfied that such transfer will not jeopardize our status as a real estate
investment trust. Our articles of incorporation also provides that the
provisions relating to Excess Shares of the Ownership Limit shall not apply to
shares of capital stock acquired pursuant to an all cash tender offer for all
outstanding shares of capital stock in conformity with applicable laws where not
less than two-thirds of the outstanding shares of capital stock (not including
securities held by the tender offeror and/or its affiliates and associates) are
tendered and accepted pursuant to such tender offer and where the tender offeror
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commits in such tender offer, if the offer is accepted by the holders of
two-thirds of the outstanding stock, promptly after the tender offeror's
purchase of the tendered stock to give any non-tendering stockholders a
reasonable opportunity to "put" their shares of stock to the tender offeror at a
price not less than that paid pursuant to the tender offer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Maryland General Corporate Law (the "MGCL") permits a Maryland
corporation to include in its articles of incorporation a provision limiting the
liability of its directors and officers to the corporation and its stockholders
from money damages, excluding liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) active and
deliberate dishonesty established by a final judgment as being material to the
cause of action. Our articles of incorporation contains such a provision, which
eliminates such liability to the maximum extent permitted by the MGCL.
Our articles of incorporation obligates us, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, at our request, serves
or has served another entity and who is made a party to the proceeding by reason
of his service in that capacity. The MGCL also permits us to indemnify and
advance expenses to any person who served our predecessor in any of the
capacities described above and to any employee or agent of us or our
predecessor.
The MGCL requires a corporation (unless its articles of incorporation
provides otherwise, which our articles of incorporation does not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines. settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise tot he proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires us, as a condition to
advancing expenses, to obtain (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification as authorized by the bylaws and (b) a written
undertaking by or in his behalf to repay the amount paid or reimbursed by us if
it shall ultimately be determined that the standard of conduct was not met. We
will indemnify all of our officers and directors to the fullest extent permitted
under Maryland law.
BUSINESS COMBINATIONS
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance of equity securities)
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<PAGE> 22
between a Maryland corporation and any person who beneficially owns 10% or more
of the voting power of our outstanding voting stock (an "Interested
Stockholder") must be: (a) recommended by our board of directors; and (b)
approved by the affirmative vote of at least (i) 80% of our outstanding shares
entitled to vote and (ii) two-thirds of our outstanding shares entitled to vote
that is not held by the Interested Stockholder with whom the business
combination is to be effected, unless, among other things, our stockholders
receive a minimum price (as defined in the statute) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for his shares. In addition, an Interested Stockholder or
any affiliate thereof may not engage in a "Business Combination" with us for a
period of five years following the date he becomes an Interested Stockholder.
These provisions of MGCL do not apply, however, to Business Combinations that
are approved or exempted by our board of directors prior to a person's becoming
an Interested Stockholder. We may expressly elect not to be governed by these
provisions, in whole or in part, by so providing in our articles of
incorporation or by adopting a articles of incorporation amendment.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" may not be voted except to the extent
approved by a vote of two-thirds of the votes entitled to be cast by
stockholders excluding shares owned by the acquirer, officers and directors who
are our employees. "Control shares" are shares that, if aggregated with all
other shares previously acquired that the person is entitled to vote, would
entitle the acquirer to vote (i) 20% or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of the
outstanding shares. Control shares do not include shares the acquiring person is
entitled to vote because stockholder approval has previously been obtained. A
"control share acquisition" means the acquisition of control shares, subject to
certain exceptions.
A person who has made or proposes to make a control share acquisition
and who has obtained a definitive financing agreement with a responsible
financial institution providing for any amount of financing not to be provided
by the acquiring person may compel our board of directors to call a special
meeting of stockholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, we may present
the question at any stockholders' meeting.
Subject to certain conditions and limitations, we may redeem any or all
of the control shares, except those for which voting rights have previously been
approved, for fair value determined, without regard to voting rights, as of the
date of the last control shares acquisition or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders' meeting and the
acquirer is entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share in the control shares acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenter's
rights do not apply in the context of control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or to the
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<PAGE> 23
acquisitions approved or excepted by our articles of incorporation or Bylaws
prior to a control share acquisition.
The limitation on ownership of stock set forth in our articles of
incorporation, as well as Maryland business combination and control share
acquisition statutes could have the effect of discouraging offers to acquire us
and of increasing the difficulty of consummating any such offer.
TRANSFER AGENT AND REGISTRAR
SunTrust Bank in Atlanta is the transfer agent and registrar for our
common stock.
NHR/OP, L.P. PARTNERSHIP AGREEMENT
The following summary of NHR/OP, L.P.'s Partnership Agreement (the
"Partnership Agreement") describes the material provisions of such agreement.
This summary is qualified in its entirety by reference to the Partnership
Agreement, which is filed as an exhibit to the Registration Statement of which
this prospectus is a part.
MANAGEMENT
NHR/OP, L.P. was organized as a Delaware limited partnership in
November, 1997. We are the sole general partner of, and hold approximately 89%
of the economic interests in, NHR/OP, L.P.. We hold a one percent general
partner interest in NHR/OP, L.P. and the balance is held as a limited partner
interest. We conduct substantially all of our business through NHR/OP, L.P. and
its subsidiaries. National Health Corporation and AdamsMark L.P. are currently
the only other limited partners of NHR/OP, L.P.
Pursuant to the Partnership Agreement, we, as the sole general partner
of NHR/OP, L.P., generally have full, exclusive and complete responsibility and
discretion in the management, operation and control of NHR/OP, L.P., including
the ability to cause NHR/OP, L.P. to enter into certain major transactions,
including acquisitions, developments and dispositions of properties and
refinancings of existing indebtedness. No limited partner may take part in the
control or management of the business of NHR/OP, L.P. by virtue of being a
holder of limited partnership units.
The Partnership Agreement provides that all of our business activities,
including all activities pertaining to the acquisition and operation of
properties, must be conducted through NHR/OP, L.P., and that NHR/OP, L.P. must
be operated in a manner that will enable us to satisfy the requirements for
being classified as a real estate investment trust.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Partnership Agreement provides that the limited partners may not
remove us as general partner of NHR/OP, L.P.. Generally, we may not transfer any
of our interests as general or limited partner in NHR/OP, L.P. except in
connection with a merger or sale of all or substantially all of its assets
pursuant to a transaction for which we have obtained the requisite approval of
the limited partners in accordance with the terms of the Partnership Agreement.
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<PAGE> 24
AMENDMENTS OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by us or by
limited partners owning at least 25% of the limited partnership units.
Generally, the Partnership Agreement may be amended with our approval,
as general partner, and limited partners (including us) holding a majority of
the limited partnership units Certain amendments that would, among other things,
convert a limited partner's interest into a general partner's interest, modify
the limited liability of a limited partner, alter the interest of a partner in
profits or losses or the right to receive any distributions, or alter or modify
the redemption right of the limited partners described in the Partnership
Agreement generally must be approved by us and each limited partner that would
be adversely affected by such amendment. Notwithstanding the foregoing, we, as
general partner, will have the power, without the consent of the limited
partners, to amend the Partnership Agreement as may be required to (1) add to
our obligations as general partner or surrender any right or power granted to us
as general partner; (2) reflect the admission, substitution, termination or
withdrawal of partners in accordance with the terms of the Partnership
Agreement; (3) set forth and reflect the designations, rights, powers, duties
and preferences of any additional partnership interests issued in accordance
with the terms of the Partnership Agreement; (4) reflect a change that does not
adversely affect the limited partners in any material respect, or cure any
ambiguity, correct or supplement any provision of the Partnership Agreement not
inconsistent with law or with other provisions of the Partnership Agreement, or
make other changes concerning matters arising under the Partnership Agreement
that are not otherwise inconsistent with the Partnership Agreement or law; or
(5) satisfy any requirements of federal or state law. Certain provisions of the
Partnership Agreement, including certain provisions affecting the rights and
duties of us as general partner (e.g., restrictions on our power to conduct
businesses other than owning limited partnership units and managing NHR/OP,
L.P., and restrictions relating to certain extraordinary transactions involving
us or NHR/OP, L.P.) may not be amended without the approval of a majority of the
limited partnership units not held by us.
TRANSFER OF LIMITED PARTNERSHIP UNITS; SUBSTITUTE LIMITED PARTNERS
The Partnership Agreement provides that limited partners generally may
transfer their limited partnership units without the consent of any other
person, but may substitute a transferee as a limited partner only with our prior
written consent as the sole general partner of NHR/OP, L.P.. In addition,
limited partners may not transfer limited partnership units in violation of
certain regulatory and other restrictions set forth in the Partnership
Agreement.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
We are authorized, without the consent of the limited partners, to
cause NHR/OP, L.P. to issue additional limited partnership units to us, to the
limited partners or to other persons for such consideration and on such terms
and conditions as we deem appropriate. If additional limited partnership units
are issued to us, then we must (i) issue additional shares of common stock or
(ii) issue additional OP Units to all partners in proportion to their respective
interests in NHR/OP, L.P.. In addition, we may cause NHR/OP, L.P. to issue to us
additional partnership interests in different series or classes, which may be
senior to the OP Units, in conjunction with an offering of our securities having
substantially similar rights. Consideration for additional
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<PAGE> 25
partnership interests may be cash or other property or assets. No limited
partner has preemptive, preferential or similar rights with respect to
additional capital contributions to NHR/OP, L.P. or the issuance or sale of any
partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Partnership Agreement provides that we generally may not engage in
any merger, consolidation or other combination with or into another person or
sale of all or substantially all of its assets, or any reclassification, or any
recapitalization or change of outstanding shares of common stock (a "Termination
Transaction"), unless the holders of OP Units will receive, or have the
opportunity to receive, the same consideration per OP Unit as holders of common
stock receive per share of common stock in the transaction; we may not engage in
such transaction unless limited partners holding at least a majority of the OP
Units held by limited partners (including OP Units held by us as a limited
partner) vote to approve the Termination Transaction.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that we, as general
partner of NHR/OP, L.P., will incur no liability to NHR/OP, L.P. or any limited
partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission unless we acted in bad faith and the act or
omission was material to the matters giving rise to the loss or liability. In
addition, we are not responsible for any misconduct or negligence on the part of
its agents, provided we appointed such agents in good faith. We may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action it takes or omits to
take in reliance upon the opinion of such persons, as to matters that we
reasonably believes to be within their professional or expert competence, shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The Partnership Agreement also provides for indemnification of us, the
limited partners, the directors and officers of NHR/OP, L.P. and us, and such
other persons as we may from time to time designate against any and all losses,
claims, damages, liabilities, expenses, judgments, fines, settlements and other
amounts actually incurred by such person in connection with any and all claims,
demands, actions, suits or proceedings relating to us or NHR/OP, L.P. unless it
is established that: (1) the act or omission of the indemnified person was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty; (2) the
indemnified person actually received an improper personal benefit in money,
property or services; or (3) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful.
TAX MATTERS
We will be the tax matters partner of NHR/OP, L.P. and, as such, will
have the authority to make tax elections under the Code on behalf of NHR/OP,
L.P.
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TERM
NHR/OP, L.P. will continue in full force and effect until December
31, 2057, or until sooner dissolved pursuant to the terms of the Partnership
Agreement.
REDEMPTION OF LIMITED PARTNERSHIP UNITS
The description of the redemption rights of a holder of limited
partnership units in NHR/OP, L.P. provided below does not purport to be complete
and is subject to and qualified in its entirety by reference to the Partnership
Agreement, which is filed as an exhibit to the Registration Statement of which
this prospectus is a part.
At December 31, 1997, in order to protect our real estate investment
trust status, National Health Corporation, AdamsMark L.P. and NHC, Inc. received
limited partnership units of NHR/OP, L.P. rather than shares of our common
stock. The limited partnership agreement of NHR/OP, L.P. allows its unitholders
to require NHR/OP, L.P. to redeem such units for cash at any time after December
31, 1998 (or after December 31 of the calendar year following the calendar year
in which such unit was issued) at a price per unit equal to the average of the
daily market price of our stock for the ten consecutive trading days immediately
prior to the date of such redemption request. A limited partner may exercise the
redemption right from time to time with respect to part or all of such limited
partner's units, subject to a 1,000 unit minimum limit. A limited partner is not
entitled to exercise the redemption right if (but only as long as) we would be
prohibited from delivering shares of our stock as payment of the redemption
price as described below, because of the restrictions in our articles of
incorporation or because of restrictions in any applicable federal or state
securities laws.
If a Limited Partner has delivered a notice of redemption, we may, in
our sole and absolute discretion (subject to the limitations on ownership and
transfer of our stock set forth in our articles of incorporation), elect to
assume directly and satisfy a redemption right by paying to the redeeming
partner either cash or shares of our common stock, provided that payment of the
redemption amount in the form of shares of our stock must be shares of stock
registered for resale under Section 12 of the Exchange Act and listed for
trading on the exchange or national market on which our stock is publicly
traded. Unless we, in our sole and absolute discretion, exercise our right to
assume directly and satisfy the redemption right, we will not have any
obligation to the redeeming partner or to NHR/OP, L.P. with respect to the
redeeming partner's exercise of the redemption right.
If we exercise our right to satisfy the redemption right in the manner
described above and fully perform our obligations, NHR/OP, L.P. shall have no
right or obligation to pay any amount to the redeeming partner with respect to
such redeeming partner's exercise of the redemption right, and each of us, the
redeeming partner, and NHR/OP, L.P. shall, for federal income tax purposes,
treat the transaction between us and the redeeming partner as a sale of the
redeeming partner's units to us. We do not have any right to require any limited
partner to exercise their redemption right.
If we determine to pay the redeeming partner the redemption amount in
the form of shares or our stock, the total number of shares of our stock to be
paid to the redeeming partner in
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exchange for his units shall initially be one share of our common stock for each
unit of NHR/OP, L.P. redeemed, subject to adjustment as provided in the
partnership agreement. If this amount is not a whole number of shares of our
stock, the redeeming partner shall be paid (i) that number of shares which
equals the nearest whole number less than such amount plus (ii) an amount of
cash which we determine, in our reasonable discretion, to represent the fair
value of the remaining fractional share which would otherwise be payable to the
redeeming partner.
SELLING HOLDERS
As of June 30, 1999, the only Limited Partners are National Health
Corporation and AdamMark L.P. As of June 30, 1999, National Health Corporation
owned 644,000 NHR/OP, L.P. units and AdamsMark L.P. owned 571,754 NHR/OP, L.P.
units. The NHR/OP, L.P. units may be requested to be redeemed by the Limited
Partners at any time. Assuming the issuance of our common stock upon the
redemption of the limited partnership units on a one-for-one basis, the maximum
number of shares of common stock that may be sold by the Limited Partners is
1,215,754 shares. In addition to the NHR/OP, L.P. units, National Health
Corporation also owned 594,924 shares of our common stock as of June 30, 1999.
The following table shows the Selling Holders in addition to the Limited
Partners:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OWNED
---------------------------- ----------------
<S> <C>
The SARA Group 18,236
The Adams Group 39,591
Panther Creek Inv. 5,963
E. Rutherford Inv. 5,269
Daniel Family Partnership 2,358
S. C. Garrison 2,080
D. Doran Johnson Association 2,497
James O. Keathley 2,220
Shannon Association 8,875
Julia W. Powell 970
Charlotte A. Swafford 1,942
J. K. Twilla 1,942
Riverview Association 2,497
</TABLE>
Since the Selling Holders may sell all, some or none of their shares,
no estimate can be made of the aggregate number of shares that are to be offered
by the Selling Holders hereby or that will be owned by each Selling Holder upon
completion of the offering to which this prospectus relates.
Pursuant to the Limited Partnership Agreement of NHR/OP, L.P., the
Limited Partners may transfer the limited partnership units under certain
circumstances. Such transferees of the limited partnership units may also be
Selling Holders under this prospectus. For example, National Health Corporation
has pledged its limited partnership units to NationsBank, N.A. in connection
with a loan transaction and in the event of a default under the loan,
NationsBank, N.A. may become a Selling Holder. One or more supplemental
prospectuses will be filed pursuant to Rule 424 under the Securities Act to set
forth the required information regarding any additional Selling Holders.
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PLAN OF DISTRIBUTION
This prospectus relates to (i) the possible issuance by our Company of
the shares or our common stock if, and to the extent that, holders of limited
partnership units of NHR/OP, L.P. request the redemption of such units and (ii)
the offer and sale from time to time of any shares that may be issued to upon
the redemption of such units and (iii) the offer and sale from time to time of
the 94,440 shares of our common stock currently held by the Selling Holders. In
the event of such a request for redemption, we, at our sole election may pay the
redemption price in cash or in shares of our common stock. We have registered
the shares for sale to provide the holders thereof with freely tradable
securities, but registration of such shares does not necessarily mean that any
of such shares will be offered or sold by the holders thereof.
We will not receive any proceeds from the offering by the Selling
Holders or from the issuance of shares of our common stock to holders of limited
partnership units upon receiving a notice of redemption (but we may acquire from
such holders the limited partnership units redeemed). Shares of our common stock
may be sold from time to time to purchasers directly by any of the Selling
Holders. Alternatively, the Selling Holders may from time to time offer the
shares through dealers or agents, who may receive compensation in the form of
commissions from the Selling Holders and/or the purchasers of shares for whom
they may act as agent. The sale of the shares by Selling Holders may be effected
from time to time in one or more negotiated transactions at negotiated prices or
in transactions on any exchange or automated quotation system on which the
securities may be listed or quoted. The Selling Holders and any dealers or
agents that participate in the distribution of shares of our common stock may be
deemed to be underwriters within the meaning of the Securities Act and any
profit on the sale of shares of our common stock by them and any commissions
received by any such dealers or agents might be deemed to be underwriting
commissions under the Securities Act.
In order to comply with certain states securities laws, if applicable,
the shares of our common stock will not be sold in a particular state unless the
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
One or more supplemental prospectuses will be filed pursuant to Rule
424 under the Securities Act to describe any material arrangements for the
distribution of the shares when such arrangements are entered into by the
Selling Holders and any broker-dealers that participate in the distribution of
shares of our common stock.
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LEGAL MATTERS
Certain legal matters in connection with the common stock being offered
by this prospectus will be passed upon for us by Harwell Howard Hyne Gabbert &
Manner, P.C., Nashville, Tennessee.
EXPERTS
The audited consolidated financial statements and schedules of National
Health Realty, Inc. incorporated by reference in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses (all of
which will be paid by National Health Realty) in connection with the offering
described in the registration statement.
<TABLE>
<S> <C>
SEC Registration Fee $ 3,915
American Stock Exchange Listing Fee 17,500
Printing and Engraving Expense 1,000
Legal Fees and Expenses 10,000
Auditors' Fees and Expenses 2,500
Transfer Agent and Registrar Fees and Expenses 2,500
Miscellaneous 2,585
---------
Total $ 40,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation provide that we will indemnify our directors
and officers to the fullest extent allowed under Maryland law.
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.
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(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.
(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.
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(d) REQUIRED INDEMNIFICATION AGAINST EXPENSES INCURRED IN SUCCESSFUL
DEFENSE. --Unless limited by the articles of incorporation:
(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
(iii) By the stockholders.
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(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 articles of incorporation, 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 articles
of incorporation, consistent with the articles of incorporation.
(h) REIMBURSEMENT OF DIRECTOR'S EXPENSES INCURRED WHILE APPEARING
AS A 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
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<PAGE> 34
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 articles of
incorporation:
(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 articles of
incorporation, 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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<PAGE> 35
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
No.
<S> <C>
2.1 Plan of Restructure (incorporated by reference to Exhibit 2.1 to
the Registrant's registration statement No. 333-37173 on Form S-4).
2.2 Agreement of Merger (incorporated by reference to Exhibit 2.2 to
the Registrant's registration statement No. 333-37173 on Form S-4).
3.1 Articles of Incorporation of National Health Realty, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant's
registration statement No. 333-37173 on Form S-4).
3.2 Bylaws of National Health Realty, Inc. (incorporated by reference
to Exhibit 3.2 to the Registrant's registration statement No.
333-37173 on Form S-4).
3.3 Limited Partnership Agreement of NHR/OP, L.P.(incorporated by
reference to Exhibit 3.3 to the Registrant's registration statement
No. 333-37173 on Form S-4).
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 (incorporated by reference to Exhibit 4 to
the Registrant's registration statement No. 333-37173 on Form S-4).
* 5 Opinion of Harwell Howard Hyne Gabbert & Manner, P.C.
23.1 Consent of Independent Public Accountants
23.2 Consent of Harwell Howard Hyne Gabbert & Manner, P.C. (Included in
Exhibit 5)
*to be filed by amendment
</TABLE>
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<PAGE> 36
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act"), unless the foregoing information
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 (the "Exchange Act") that are
incorporated by reference in this Registration Statement; and
(b) 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, unless the foregoing information is
contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in this Registration
Statement; and
(c) 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 the Registration
Statement.
2. That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
4. That for purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in 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.
5. 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
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<PAGE> 37
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.
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<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Murfreesboro, State of
Tennessee on the 8th day of July, 1999.
NATIONAL HEALTH REALTY, INC.
By: /s/ W. Andrew Adams
-------------------------------------
W. Andrew Adams
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints W. Andrew Adams and Richard F. LaRoche, Jr., and each of them,
as his attorneys-in-fact to execute in the name and on behalf of any such
person, individually and in the capacity stated below, and to file all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions in this Registration
Statement as such attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on the dates indicated by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
---------
<S> <C> <C>
/s/ W. Andrew Adams Chairman, President, Chief July 8 1999
- - ---------------------------- Executive Officer and Director
W. Andrew Adams (Chief Executive Officer)
/s/ Richard F. LaRoche, Jr. Secretary and Director, July 8, 1999
- - ---------------------------- (Chief Financial Officer)
Richard F. LaRoche, Jr.
Director July __, 1999
- - ----------------------------
J. K. Twilla
/s/ Robert G. Adams Director July 8, 1999
- - ----------------------------
Robert G. Adams
/s/ Olin O. Williams Director July 8, 1999
- - ----------------------------
Olin O. Williams
/s/ Ernest G. Burgess, III Director July 8, 1999
- - ----------------------------
Ernest G. Burgess, III
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 of our reports dated
January 13, 1999 included in National Health Realty, Inc.'s form 10-K for the
year ended December 31, 1998 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
July 8, 1999
