<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
THE HILLHAVEN CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RICHARD P. ADCOCK
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(206) 572-4901
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
____________________________________________________________________
4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
* Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________
3) Filing Party:
_______________________________________________________
4) Date Filed:
_______________________________________________________
<PAGE> 2
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(206) 572-4901
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, SEPTEMBER 27, 1994
To Our Stockholders:
The Annual Meeting of Stockholders of The Hillhaven Corporation will be held on
Tuesday, September 27, 1994 at 10:00 a.m., Pacific Daylight Savings Time, at the
corporate headquarters of The Hillhaven Corporation, 1148 Broadway Plaza, First
Floor, Tacoma, Washington 98402, for the following purposes:
1. To elect two directors for terms of three years each;
2. To ratify the selection of KPMG Peat Marwick as the independent auditor
for the fiscal year ending May 31, 1995; and
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on August 8, 1994 will be
entitled to vote at the meeting and any adjournment thereof.
PLEASE PROMPTLY VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. This will ensure that your shares are voted in
accordance with your wishes. You are cordially invited to attend the meeting,
and you may vote in person even though you have returned your proxy card. Please
bring the accompanying Admission Ticket with you if you plan to attend the
meeting.
RICHARD P. ADCOCK
Secretary
Tacoma, Washington
August 24, 1994
<PAGE> 3
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 27, 1994
GENERAL INFORMATION
August 24, 1994
Your proxy is solicited by the Board of Directors of The Hillhaven Corporation
("Hillhaven" or the "Company") for use at the Annual Meeting of Stockholders to
be held on Tuesday, September 27, 1994, at 10:00 a.m., Pacific Daylight Savings
Time, and any adjournment thereof, for the purposes set forth in the foregoing
Notice of Annual Meeting of Stockholders. This Proxy Statement and the
accompanying proxy are being mailed on or about August 24, 1994.
If the proxy is properly executed and returned, the shares it represents will be
voted at the meeting in accordance with the instructions noted thereon. If no
direction is indicated, the proxy will be voted in accordance with the Board of
Directors' recommendations as set forth herein. Any stockholder executing a
proxy has the power to revoke it at any time before it is voted. Any proxy may
be revoked at any time prior to its exercise by filing with the Secretary of the
Company a written notice of revocation, by delivering a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
The Board of Directors knows of no unspecified matters to be voted upon at the
Annual Meeting.
Only stockholders of record at the close of business on August 8, 1994 are
entitled to receive notice of and to vote at the Annual Meeting. On August 8,
1994, Hillhaven had outstanding 27,174,778 shares of Common Stock, each of which
is entitled to one vote. All share amounts stated in this Proxy Statement have
been adjusted to reflect the Company's one-for-five reverse stock split which
was effective November 1, 1993. The presence, in person or by proxy, of the
holders of a majority of the Common Stock is necessary to constitute a quorum at
the Annual Meeting. Abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum. "Broker non-votes"
are shares held by brokers or nominees which are present in person or
represented by proxy, but which are not voted on a particular matter because the
broker or nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. The effect of broker non-votes on a
particular matter depends on whether the matter is one as to which the broker or
nominee has discretionary authority under the applicable rule of the New York
Stock Exchange. Abstentions will not be counted as votes cast on any matter.
The cost of solicitation of proxies by the Board of Directors will be borne by
the Company. The Company has engaged Kissel-Blake, Inc. ("Kissel-Blake") to
assist in the solicitation of proxies for the meeting. The Company will pay
Kissel-Blake $8,000 in fees for its services, and will reimburse it for its
reasonable out-of-pocket expenses. In addition to solicitation by mail and by
Kissel-Blake, proxies may be solicited by directors, executive officers and
employees of the Company personally or by telephone or telegram. Forms of proxy
material also may be distributed through brokers, custodians and other like
parties to the beneficial owners of the Company's Common Stock, and the Company
may reimburse such parties for their reasonable out-of-pocket and clerical
expenses.
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1. ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES
Set forth below are the names, ages, titles and present and certain past
positions of the directors of Hillhaven.
<TABLE>
<S> <C>
Bruce L. Busby Mr. Busby has been a director and the Chief
Director, Chairman and Chief Executive Executive Officer of the Company since April
Officer, Chairman of Executive Committee 1991 and Chairman of the Company since
Age: 50 September 1993. Before joining the Company, Mr.
Busby served National Medical Enterprises, Inc.
("NME") as Chief Executive Officer and
President of the Venture Development Group from
April 1988 to March 1991, Chairman and Chief
Executive Officer of the Long Term Care Group
from August 1986 to March 1988 and President of
the Retail Services Group from June 1986 to
November 1987.
- - ---------------------------------------------------------------------------------------------
Christopher J. Marker Mr. Marker has been a director and the
Director and President President of the Company since December 1989.
Member of Executive Committee He served as President of the Company's
Age: 51 predecessor, an NME subsidiary, from April 1988
to January 1990. Prior to that, Mr. Marker was
Executive Vice President of Westin Hotels and
Resorts from January 1984 to March 1988.
- - ---------------------------------------------------------------------------------------------
Maris Andersons Mr. Andersons has been a director of Hillhaven
Director since September 1993. Mr. Andersons joined NME
Member of Compensation Committee in 1976, as Senior Vice President, from Bank of
Age: 56 America, where he was a Vice President. Mr.
Andersons was elected Treasurer of NME in 1981
and Executive Vice President of NME in 1992.
- - ---------------------------------------------------------------------------------------------
Walter F. Beran Mr. Beran has been a director of the Company
Director since December 1989. Mr. Beran serves as
Chairman of Audit Committee and Chairman of the Pacific Alliance Group, a
Member of Executive Committee merger and acquisition services firm.
Age: 68 Previously, Mr. Beran served as Vice Chairman
and Western Regional Managing Partner of the
accounting firm of Ernst & Whinney (now Ernst &
Young) from 1971 until his retirement in
September 1986. Mr. Beran also serves as a
director of the Federal Home Loan Bank of San
Francisco, Arco Chemical Company, Pacific
Scientific Company and Fleetwood Enterprises,
Inc.
- - ---------------------------------------------------------------------------------------------
</TABLE>
2
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<TABLE>
<S> <C>
Peter de Wetter Mr. de Wetter has been a director of the
Director Company since December 1989. Mr. de Wetter
Chairman of Compensation Committee and served as Executive Vice President of NME from
Member of Executive Committee October 1979 until his retirement in May 1989.
Age: 74 Mr. de Wetter also serves as a director of NME.
- - ---------------------------------------------------------------------------------------------
Dinah Nemeroff Ms. Nemeroff has been a director of the Company
Director since April 1991. Ms. Nemeroff has served
Member of Audit Committee Citicorp/Citibank as Corporate Director of
Age: 48 Customer Satisfaction and Quality since January
1988, Director of Sales Effectiveness & Service
Quality from January 1980 to January 1988 and
Director of Customer Service-Vice President
from January 1978 to January 1980.
- - ---------------------------------------------------------------------------------------------
Jack O. Vance Mr. Vance has been a director of the Company
Director since December 1989. Mr. Vance was employed by
Member of Compensation Committee McKinsey & Company, Inc., a management
Age: 69 consulting firm, as a director from 1960 until
his retirement in 1990. Upon his retirement
from McKinsey & Company, Inc., Mr. Vance formed
Management Research, Inc. where he serves as
Managing Director. He also serves as a director
of ESCORP, F.C.G. Enterprises, Inc.,
International Recitifier Corp., International
Technology Corporation, The Olson Company,
Nichols Institute and University Restaurant
Group.
- - ---------------------------------------------------------------------------------------------
</TABLE>
NOMINEES AND VOTING
Following the election of directors, there will be seven directors of Hillhaven
who are divided into three classes and serve for three-year overlapping terms.
At this meeting, two Class 2 directors are to be elected to serve until the 1997
Annual Meeting of Stockholders. The terms of the Class 3 and Class 1 directors
expire in 1995 and 1996, respectively. Directors are to be elected by a
plurality of the votes cast. There is no cumulative voting.
There are only two nominees for director rather than three because Leonard
Cohen, a current Class 2 director, has decided not to stand for reelection. The
Board has not recommended a replacement, but has passed a resolution reducing
the size of the Board to seven directors following the completion of the 1994
Annual Meeting of Stockholders. Therefore, proxies cannot be voted for a greater
number of persons than the number of nominees named.
The individuals nominated by the Board of Directors to serve as Class 2
directors with terms of office that expire at the 1997 Annual Meeting of
Stockholders are Peter de Wetter and Maris Andersons. The Board of Directors
recommends the election of each of them as directors for three-year terms.
The shares represented by proxies solicited by the Board will be voted, unless
otherwise directed, for these persons. The Board believes each of its nominees
will be able and willing to serve if
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<PAGE> 6
elected. If any named nominee becomes unavailable, the Board's proxies will be
voted for the remaining nominees and for such other person or persons as the
Board of Directors may recommend.
STOCKHOLDER APPROVAL
Election of the nominees by the stockholders requires the affirmative vote of a
plurality of the votes cast by holders of shares entitled to vote in the
election at the Annual Meeting, provided a quorum is present. Unless marked to
the contrary, proxies will be voted "FOR" the election of these nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITS
NOMINEES FOR DIRECTORS.
- - --------------------------------------------------------------------------------
STOCK OWNERSHIP
Table I presents the Common Stock ownership of all directors (including
nominees), the Chief Executive Officer and the four next most highly compensated
executive officers, and all executive officers and directors as a group as of
August 8, 1994. Except as otherwise indicated, each individual named has sole
investment and voting power with respect to the securities beneficially owned.
- - --------------------------------------------------------------------------------
TABLE I
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF COMMON
BENEFICIALLY OWNED STOCK OWNED
----------------------- -------------------
<S> <C> <C>
Bruce L. Busby(1)....................... 510,734 1.87%
Christopher J. Marker(2)................ 342,231 1.25%
Maris Andersons(5)...................... 8,700 *
Walter F. Beran(3)...................... 14,740 *
Peter de Wetter(3)...................... 13,080 *
Dinah Nemeroff(4)....................... 4,200 *
Jack O. Vance(3)........................ 10,000 *
Jeffrey M. McKain(6).................... 106,270 *
Robert F. Pacquer(7).................... 145,588 *
Edward L. Hiller(8)..................... 53,496 *
Executive officers and directors as a
group (14 persons)(9)................. 1,359,755 4.90%
</TABLE>
- - ---------------
* Less than 1%
(1) Includes options to purchase an aggregate of 16,326 shares of Common Stock
granted pursuant to the 1990 Stock Incentive Plan and options to purchase an
aggregate of 152,764 shares of Common Stock granted pursuant to the
Performance Investment Plan.
(2) Includes options to purchase an aggregate of 13,397 shares of Common Stock
granted pursuant to the 1990 Stock Incentive Plan and options to purchase an
aggregate of 120,938 shares of Common Stock granted pursuant to the
Performance Investment Plan.
(3) Includes options to purchase 8,000 shares of Common Stock granted pursuant
to the 1990 Directors Stock Option Plan.
(4) Includes options to purchase 4,000 shares of Common Stock granted pursuant
to the 1990 Directors Stock Option Plan.
(5) Includes 1,200 shares owned by spouse.
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(6) Includes options to purchase an aggregate of 13,714 shares of Common Stock
granted pursuant to the 1990 Stock Incentive Plan and options to purchase an
aggregate of 44,556 shares of Common Stock granted pursuant to the
Performance Investment Plan.
(7) Includes options to purchase an aggregate of 5,004 shares of Common Stock
granted pursuant to the 1990 Stock Incentive Plan and options to purchase an
aggregate of 50,921 shares of Common Stock granted pursuant to the
Performance Investment Plan.
(8) Includes options to purchase an aggregate of 8,880 shares of Common Stock
granted pursuant to the 1990 Stock Incentive Plan and options to purchase an
aggregate of 38,191 shares of Common Stock granted pursuant to the
Performance Investment Plan. Excludes 20 shares held in spouse's Individual
Retirement Account and 820 shares held in own Individual Retirement Account.
(9) Includes (a) options to purchase the aggregate amount of 68,858 shares of
Common Stock granted to certain executive officers pursuant to the 1990
Stock Incentive Plan, (b) options to purchase an aggregate of 483,751 shares
of Common Stock granted pursuant to the Performance Investment Plan, and (c)
options to purchase 28,000 shares of Common Stock granted pursuant to the
1990 Directors' Stock Option Plan.
- - --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Company's By-laws provide for not less than three nor more than 21 directors
and organize the Board of Directors into three annual classes, divided as nearly
equal in number as possible, with each class serving for three years. The number
of directors is fixed from time to time exclusively by the Board, and such
number is currently fixed at eight. The Board of Directors has adopted a
resolution to fix the number of directors at seven following the completion of
the 1994 Annual Meeting of Stockholders. Messrs. de Wetter, Andersons and Cohen
are in Class 2 with terms expiring in 1994. Mr. Leonard Cohen has decided not to
stand for reelection. Messrs. Marker and Beran are in Class 3 with terms
expiring in 1995. Ms. Nemeroff and Messrs. Vance and Busby are in Class 1 with
terms expiring in 1996. The Board of Directors acted seven times during the
fiscal year ended May 31, 1994.
Hillhaven has an Audit Committee whose members during fiscal year 1994 were Ms.
Nemeroff and Messrs. Beran and Cohen. The Audit Committee selects, engages and
fixes the compensation of the Company's independent auditor, reviews the plan
and results of the audit engagement and the adequacy of Hillhaven's internal
accounting controls, considers the range of audit and non-audit fees and the
independence of the accountants and reviews other related matters. The Audit
Committee met three times during fiscal year 1994.
Hillhaven has a Compensation Committee whose members during fiscal year 1994
were Messrs. de Wetter, Vance and Andersons. The Compensation Committee
establishes the general compensation policy for the Company and has
responsibility for all forms of compensation paid to officers and senior
employees in excess of a specified amount. This committee also has all the
powers of administration under the Company's employee benefit plans. The
Compensation Committee met five times in fiscal year 1994.
Hillhaven does not have a nominating committee. The Board of Directors selects
nominees for the Board.
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<PAGE> 8
REMUNERATION OF DIRECTORS
Directors who are not employees of the Company were paid at a rate of $24,000 a
year for serving on the Board of Directors as well as an attendance fee of $600
for attending each Board meeting. In addition, directors receive $700 for
attending each meeting of any committee on which they serve. Non-employee
directors serving on the Executive Committee also receive a monthly fee of $500.
Each non-employee Committee Chairman receives a fee of $2,000 per year for each
committee for which he or she serves as Chairman. Directors also are reimbursed
for travel expenses and other out-of-pocket costs incurred in attending
meetings. Directors who are officers or employees of the Company do not receive
any fees for Board or Board Committee service.
DIRECTORS' STOCK OPTION PLAN
Directors who are not officers or employees of Hillhaven participate in the
Directors' Stock Option Plan (the "Directors Plan"). Such directors are not
eligible to participate in the 1990 Stock Incentive Plan. Under the Directors
Plan, all members of the Board who are not officers or employees of the Company
are granted an option to acquire 2,000 shares of Common Stock of the Company on
the last Thursday of March of each year if serving as a director on that date.
The number of shares of Hillhaven Common Stock that may be issued under the
Directors Plan is 1% of the number of shares then outstanding. Options may be
granted under the Directors Plan through December 31, 2005, unless the plan is
terminated prior to such date.
The options granted under the Directors Plan are non-qualified options. The
basic term of an option expires not later than 15 years from the date of grant,
and options are fully exercisable one year after the date of grant. The option
price is the fair market value of a share of Hillhaven Common Stock on the date
of the grant. The option price may be paid: (i) in cash; (ii) at the discretion
of the Compensation Committee, by (a) exchanging Common Stock owned by the
optionee or (b) executing a promissory note bearing interest at a rate
determined by the Compensation Committee (currently 7.25%) and secured by shares
of Hillhaven Common Stock; or (iii) by a combination of the above.
Generally, if an optionee ceases to be an outside director of the Company due to
any reason other than death, disability or retirement, the option will expire
three months after the date service as a director ceases. If the optionee ceases
to be a director due to retirement, the option will expire three years after the
date service as a director ceases. If the optionee dies or becomes permanently
disabled while serving as an outside director of the Company, the option will
expire three years after the date of such death or disability.
In the event of any change in the capitalization of the Company, such as a stock
dividend or stock split, the Compensation Committee may make an appropriate
adjustment to the outstanding awards and the number of shares reserved for
issuance under the Directors Plan.
The Company believes that the Directors Plan promotes the interest of the
Company and its stockholders by strengthening the Company's ability to attract,
motivate and retain outside directors with training, experience and ability and
by encouraging the highest level of director performance by providing such
persons with a proprietary interest in the Company.
During the year ended May 31, 1994, Ms. Nemeroff and Messrs. Beran, de Wetter,
Andersons and Vance were each granted options under the Directors Plan for 2,000
shares of the Company's Common Stock. The Fair Market Value of a share of
Hillhaven Common Stock on the date of the grant was $19.5625.
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"Fair Market Value" means the average of the high and the low trading prices of
a share of Common Stock on the New York Stock Exchange on the date as of which
Fair Market Value is to be determined, or if no such sales were made on such
date, the closing price of such shares on the New York Stock Exchange on the
next preceding date on which there were such sales.
DIRECTORS RETIREMENT PLAN
The Directors Retirement Plan (the "Retirement Plan") provides the members of
the Board of Directors who are not employees of the Company with supplemental
deferred benefits in the form of retirement payments for ten years following the
later of each such member's termination of service or reaching the age of 65.
At retirement, the annual benefit paid to each participant will equal the lesser
of (i) 50% of his or her Final Annual Board Retainer (as defined in the
Retirement Plan) or (ii) $12,000, increased by a compounded rate of 6% per year
from 1994 to the year of the participant's termination of service, subject in
both cases to a vesting factor. The retirement benefits will be paid in equal
monthly installments. In the event of the death of a participant, before or
after retirement, the benefits earned as of the date of death will be paid to
the surviving spouse or the participant's children under the age of 21 for the
remainder of the ten-year term.
In the event of a change of control of the Company (as defined in the Retirement
Plan), participants will be deemed fully vested in the Retirement Plan without
regard to actual years of service and will be entitled to full retirement
benefits without reduction on or after age 65.
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REMUNERATION OF EXECUTIVE OFFICERS
Table II shows the remuneration paid or accrued by the Company to the Company's
Chief Executive Officer and to the four other most highly paid executive
officers of the Company for the three fiscal years ended May 31, 1994.
- - --------------------------------------------------------------------------------
TABLE II
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------- -----------------------------------------------------
AWARDS PAYOUTS
----------------------- -----------
OTHER SECURITIES LONG TERM
ANNUAL RESTRICTED UNDERLYING INCENTIVE
COMPEN- STOCK OPTIONS/ PLAN ALL OTHER
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#) ($)(4) ($)(2)(5)
------------------ ---- -------- -------- ------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce L. Busby............ 1994 $417,308 $266,914 -- 0 6,444 0 $ 45,818
Chief Executive Officer 1993 385,000 288,750 -- 0 9,882 $ 210,765 40,787
1992 385,000 288,750 -- 0 617,421(6) 187,263 --
Christopher J. Marker..... 1994 $358,077 $210,000 -- 0 5,230 0 $ 48,859
President 1993 350,000 251,560 -- 0 8,167 $ 162,750 45,412
1992 350,000 262,500 -- 0 490,117(6) 139,500 --
Jeffrey M. McKain......... 1994 $218,077 $118,350 -- 0 2,816 0 $ 23,286
Executive Vice 1993 210,000 137,025 -- 0 1,824 $ 67,871 17,231
President 1992 181,865 73,501 -- $393,750 184,589(6) 42,357 --
Robert F. Pacquer......... 1994 $184,038 $ 80,000 -- 0 1,954 0 $ 18,107
Senior Vice President and 1993 180,000 89,775 -- 0 3,050 $ 57,375 17,378
Chief Financial Officer 1992 179,039 94,500 -- 0 203,685(6) 54,169 --
Edward L. Hiller.......... 1994 $167,035 $ 65,072 38,324 0 0 0 $ 11,988
Chief Executive Officer of 1993 161,562 38,080 46,689 0 2,358 0 12,242
Medisave Pharmacies, 1992 151,634 62,145 -- 0 165,494(6) 0 --
Inc.(7)
</TABLE>
- - ---------------
(1) Includes amounts paid pursuant to the Company's Annual Incentive Plan (the
"AIP"). Under the AIP, annual cash incentive awards are made to selected key
employees in positions which significantly impact the Company's operations.
Individual awards are based on salary, corporate and operating unit
financial performance goals and other key operating factors determined by
the Compensation Committee.
(2) Pursuant to regulations issued by the SEC, amounts of "Other Annual
Compensation" and "All Other Compensation" are not included for the fiscal
year ended May 31, 1992. Mr. Hiller's "Other Annual Compensation" includes
early withdrawal of his Deferred Compensation in 1993 as well as life and
health insurance premiums for 1993 and 1994.
(3) Restricted Shares are granted without charge to the recipient and are
subject to forfeiture if continued employment for specified periods or other
conditions as the Compensation Committee may establish are not met.
Dividends, if any, are paid currently. Restrictions as to one-fifth of the
Restricted Shares lapse yearly on each anniversary date of the award, except
with respect to 20,000 Restricted Shares held by Mr. McKain (part of a grant
of 30,000 Restricted Shares made in March 1992) for which the restrictions
as to one-third of these shares lapse yearly on each anniversary date of the
award. The number and value of the aggregate restricted stock holdings of
the named executives at the end of the 1994 fiscal year (based on the Fair
Market Value of the Company's Common Stock on the last day of fiscal 1994)
are as follows: Mr. Busby, 60,661, $1,160,141.62; Mr. Marker, 18,510,
$354,003.75; Mr. McKain, 16,000, $306,000; Mr. Pacquer, 19,632, $375,462;
Mr. Hiller, none.
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(4) The Company has a Long Term Incentive Plan for key management employees
which provides for cash awards that are to be paid only if Hillhaven
achieves predetermined performance objectives over the length of a
performance cycle, which must be a period of two or more fiscal years.
Target awards are established for each participant, which will be the amount
ultimately paid if goals are met or exceeded.
Cash payments under the Long Term Incentive Plan were discontinued after
the three-year period ending May 31, 1993 and were replaced with Options
and Performance Shares under the Company's 1990 Stock Incentive Plan.
Consequently, the last performance award cycle scheduled under the Long
Term Incentive Plan encompassed the three-year period ending May 31, 1993.
A portion of Mr. Busby's Long Term Incentive Plan awards ($54,359 for the
period ended May 31, 1993 and $103,044 for the period ended May 31, 1992)
was paid by his previous employer with respect to service before Mr. Busby
became a director and executive officer of Hillhaven.
(5) Hillhaven maintains a non-qualified Deferred Compensation Master Plan (the
"DCMP") and a non-qualified Senior Management Deferred Compensation Plan
(the "SMDC Plan") for executive officers and certain key management
employees, which each permit deferral of up to the maximum amount
permissible under applicable law of base salary or salary plus bonus until
retirement, death or disability. The Company will make a matching
contribution to a participant's account of up to 4% of a participant's total
compensation. Vesting in the matching contributions occurs on a graduated
basis, with full vesting after seven years of service or upon the
participant attaining the age of 60. Amounts disclosed reflect Company
matching contributions and interest credited to deferred compensation plan
accounts.
(6) These amounts represent options to acquire convertible debentures (the "PIP
Debentures") under the Company's Performance Investment Plan (the "PIP
Plan"). Unlike traditional stock options, these options were acquired by the
named individuals with their personal funds and represent those individuals'
personal investment decisions. The option price paid by a participating key
employee will be refunded without premium if an outstanding option remains
unexercised on May 29, 1999.
The options are evidenced by investment agreements which contain provisions
governing the rights of participants to purchase the PIP Debentures, that
are convertible in two steps into shares of the Company's Common Stock.
Such investment agreements provide that the PIP Debentures may not be
purchased prior to December 10, 1993, unless vesting is accelerated.
Beginning on that date, the right of the holder to purchase the PIP
Debentures vests at the rate of 25% per year so that the PIP Debentures are
purchasable in full on December 10, 1996. Upon the occurrence of certain
events which may constitute a change in control of the Company, the right
of a holder to purchase the PIP Debentures will become fully vested. The
effective conversion price of the PIP Debentures issued under the PIP Plan
is $16.5375 (representing a 35% premium over the then prevailing market
price of Common Stock), subject to adjustment.
(7) Effective July 19, 1994, Mr. Hiller resigned as Chief Executive Officer and
Director of Medisave and was appointed Vice President/Acquisitions of
Medisave.
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EMPLOYMENT AGREEMENTS
Mr. Cohen is employed by the Company under an employment contract which will
expire on January 31, 1995. His annual base salary for the fiscal year ended May
31, 1994 was $120,000. His employment contract provides that upon termination,
payment of the base salary will continue for the unexpired term of the contract,
but in no event for less than two years; incentive compensation will be paid for
two years at the rate paid for the most recent fiscal year; and all stock
options, restricted shares, incentive and similar awards will immediately vest
in the event the contract is terminated (i) by the Company without cause or (ii)
by the employee for "Good Reason." "Good Reason" is defined as a "change in
control of the Company" followed by any of the following events (i) any
limitation of duties or powers of the employee under the contract, (ii) any
removal of the employee from his present office or directorship, (iii) any
reduction in salary or benefits of the employee, or (iv) any failure of the
Company to substantially comply with the contract. A "change in control of the
Company" is deemed to have occurred if (i) any person (as defined in Section
13(d) or 14(d)(2) of the Securities Exchange Act of 1934), other than NME,
becomes the beneficial owner of 30% or more of the combined voting power of the
Company's then outstanding securities or (ii) during any two consecutive years
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason other than death or disability to
constitute at least a majority of the Board of Directors. As a key employee of
the Company, Mr. Cohen also participates in Hillhaven's Long Term Incentive
Plan, Annual Incentive Plan and the 1990 Stock Incentive Plan. As of May 31,
1994, Mr. Cohen resigned as Vice Chairman of the Company and accepted the
position of consultant to the Company. Mr. Cohen has decided not to stand for
reelection as a director when his term expires at the 1994 Annual Meeting of
Stockholders. Mr. Cohen will continue to receive his salary under his amended
employment agreement through January 31, 1995 and will receive the final vesting
of 48,000 shares of restricted stock on February 5, 1995 pursuant to the terms
of his Incentive Stock Award dated as of February 5, 1990. Until September 15,
1993, Mr. Richard Eamer was employed by the Company under a similar agreement
which provided for an annual base salary for the fiscal year ended May 31, 1994
of $150,000. Mr. Eamer resigned from his position as Chairman of the Board of
the Company effective September 15, 1993. In consideration of his resignation,
Mr. Eamer received from the Company the immediate vesting of his remaining
120,000 shares of restricted stock and $206,250. Mr. Marker has a contract with
the Company and NME which requires Hillhaven to pay Mr. Marker a severance
benefit (the payment of which is guaranteed by NME) of one year's base salary
should he be terminated from the position of President.
SEVERANCE AGREEMENTS
Effective May 24, 1994, the Company entered into agreements with each of the
named executive officers, providing for the payment of severance compensation
upon termination of employment consisting of a lump-sum payment of two years'
base salary in the event of a change in control as defined in the agreement. The
agreement with Mr. Marker provides that he will receive payment of a severance
benefit of no more than two years' base salary from the operation of such
agreement in combination with his other agreement with the Company and NME.
10
<PAGE> 13
Table III provides details regarding stock options granted to the five named
executive officers during the last fiscal year.
- - --------------------------------------------------------------------------------
TABLE III
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
% OF TOTAL GRANT DATE
NUMBER OF OPTIONS/SARS VALUE
SECURITIES GRANTED TO ----------
UNDERLYING EMPLOYEES EXERCISE GRANT DATE
OPTIONS/SARS IN FISCAL PRICE PER EXPIRATION PRESENT
NAME GRANTED(1) YEAR(2) SHARE($) DATE VALUE($)(3)
---- ------------ ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Bruce L. Busby.......... 6,444 9.76% $16.55 7/26/03 $76,150
Christopher J. Marker... 5,230 7.92 16.55 7/26/03 61,800
Jeffrey M. McKain....... 2,816 4.27 16.55 7/26/03 33,280
Robert F. Pacquer....... 1,954 2.96 16.55 7/26/03 23,090
Edward L. Hiller........ 0 -- -- -- --
</TABLE>
- - ---------------
(1) Options were granted on July 27, 1993 at a purchase price per share of 100%
of the fair market value of the Company's Common Stock on that date. The
options vest 100% on the first anniversary of the grant date. All grants
have a ten-year term.
(2) Based on total grants during the fiscal year of 16,444 shares.
(3) The dollar amounts under this column represent the result of calculations
using the Black-Scholes based option valuation model. The valuation assumes
an expected volatility of .5374, a 0% dividend yield, a 10-year exercise
term, a risk-free rate of 6.1% reflecting the yield on a zero coupon U.S.
Treasury security for the term of the option, and a grant price and exercise
price of $16.55. No adjustments have been made for nontransferability or
risk of forfeiture. The actual value of the options, if any, will depend on
the extent to which the market value of the Common Stock exceeds the price
of the option on the date of exercise.
11
<PAGE> 14
Table IV shows stock option exercises by each of the five named executive
officers during the last fiscal year, including the aggregate value of gains on
the date of exercise. In addition, this table includes the number of shares
covered by exercisable and unexercisable stock options as of May 31, 1994. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
fiscal year-end price of Common Stock.
- - --------------------------------------------------------------------------------
TABLE IV
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
SHARES OPTIONS MONEY OPTIONS AT
ACQUIRED AT MAY 31, 1994 MAY 31, 1994($)(3)
ON VALUE ------------------ -------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#)(1) ($) UNEXERCISABLE(2) UNEXERCISABLE
---- --------- -------- ------------------ -------------------
<S> <C> <C> <C> <C>
Bruce L. Busby............... -- -- 162,646/471,102 $470,133/$1,218,896
Christopher J. Marker........ -- -- 129,105/374,410 374,792/ 968,721
Jeffrey M. McKain............ -- -- 55,454/142,850 257,276/ 369,589
Robert F. Pacquer............ -- -- 53,971/154,718 154,862/ 400,308
Edward L. Hiller............. -- -- 47,071/127,303 208,804/ 329,397
</TABLE>
- - ---------------
(1) None of the named executive officers exercised stock options during the last
fiscal year.
(2) These amounts include unexercisable investment options purchased under the
PIP Plan which are more fully described under Table II above.
(3) Based on Fair Market Value of $19.125 on the last trading day of fiscal
1994.
- - --------------------------------------------------------------------------------
12
<PAGE> 15
Table V describes declaration of eligibility to receive performance shares under
the Company's 1990 Stock Incentive Plan to the five named executive officers
during the last fiscal year. These shares are distinct from the stock options
set forth in Table III above.
- - --------------------------------------------------------------------------------
TABLE V
LONG TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-
PERFORMANCE OR BASED PLANS(2)
NUMBER OF SHARES, OTHER PERIOD --------------------------
UNITS OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) OR PAYOUT (#) (#) (#)
---- ----------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Bruce L. Busby............. 6,444 3 years ending 0 6,444 9,666
5/31/96
Christopher J. Marker...... 5,230 3 years ending 0 5,230 7,845
5/31/96
Jeffrey M. McKain.......... 2,816 3 years ending 0 2,816 4,224
5/31/96
Robert F. Pacquer.......... 1,954 3 years ending 0 1,954 2,931
5/31/96
Edward L. Hiller........... 0 -- -- -- --
</TABLE>
- - ---------------
(1) Awards of Performance Shares are provided under the 1990 Stock Incentive
Plan. For the three-year period ending May 31, 1996, each participant's
target award of Performance Shares was determined by first deriving an
amount equal to a percentage determined by the Compensation Committee of the
sum of his or her base salary plus any AIP award earned in the year prior to
commencement of the performance period. This amount was then divided by a
number approved by the Compensation Committee which approximated the fair
market value of the Company's Common Stock over a specified period to
determine the number of Performance Shares for each participant. The
financial target is the sum of all-business pretax income for annual target
awards under the Company's AIP for each of the three years of the
performance period.
(2) Subject to the Compensation Committee's sole discretion to award all or any
portion of the Performance Shares, participants may receive shares of Common
Stock in amounts ranging from zero to 150% of the number of Performance
Shares set forth under the heading "Number of Shares, Units or Other Rights"
above, based upon actual performance in relation to financial performance
targets. The Threshold column represents a zero payout in the event
financial performance is equal to or less than the financial target. Target
amounts assume 100% of the number of Performance Shares is actually awarded
and Maximum amounts assume 150% of the number of Performance Shares is
actually awarded. To be eligible for the awards in the Target and the
Maximum columns, financial performance must exceed financial targets.
- - --------------------------------------------------------------------------------
NOTE: Amounts payable at the close of the three-year performance cycle are
determined with respect to the composite of the pretax income from ongoing
operations and from properties held for sale for the three annual periods
of the cycle, subject to the final approval of the Compensation Committee.
13
<PAGE> 16
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Supplemental Executive Retirement Plan (the "SERP") provides executive
officers and certain other management employees with supplemental deferred
benefits in the form of retirement payments for life.
At retirement, the monthly benefit paid to participants will be a product of
four factors: (i) the participant's highest average monthly earnings for any
consecutive 60-month period during the ten years preceding retirement; (ii) the
number of years of service to the Company to a maximum of 20 years (participants
will receive a percentage credit for years of service prior to enrollment in the
plan which increases gradually from 25% during the first year to 100% after five
years from the date of enrollment); (iii) a vesting factor; and (iv) a
percentage factor not to exceed 2.7% reduced to reflect the projected benefit
from other Company retirement plans available to a participant and from Social
Security. The monthly benefit is adjusted in the event of early retirement or
termination of employment with the Company. The first day on which unreduced
retirement benefits are available is age 62. In the event of the death of a
participant, before or after retirement, one-half of the benefit earned as of
the date of death will be paid to the surviving spouse for life or to the
participant's children until the age of 21.
With respect to certain participants, the Company has purchased life insurance
policies to provide for certain obligations under the SERP relating to such
individuals.
In the event of a change of control of the Company (as defined under the SERP),
participants will be deemed fully vested in the SERP without regard to actual
years of service and will be entitled to full retirement benefits without
reduction on or after age 60.
Table VI presents the estimated maximum annual retirement benefits payable on a
straight-life annuity basis to participating executives under the Company's SERP
in the earnings and years of service classifications indicated.
- - --------------------------------------------------------------------------------
TABLE VI
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR
YEARS OF SERVICE INDICATED
AVERAGE -----------------------------------------------------------
ANNUAL EARNINGS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- - --------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000.... $ 50,625 $ 67,500 $ 67,500 $ 67,500 $ 67,500
150,000.... 60,750 81,000 81,000 81,000 81,000
175,000.... 70,875 94,500 94,500 94,500 94,500
200,000.... 81,000 108,000 108,000 108,000 108,000
225,000.... 91,125 121,500 121,500 121,500 121,500
250,000.... 101,250 135,000 135,000 135,000 135,000
300,000.... 121,500 162,000 162,000 162,000 162,000
350,000.... 141,750 189,000 189,000 189,000 189,000
400,000.... 162,000 216,000 216,000 216,000 216,000
450,000.... 182,250 243,000 243,000 243,000 243,000
500,000.... 202,500 270,000 270,000 270,000 270,000
</TABLE>
"Earnings" as defined by the SERP is the participant's base salary excluding
bonuses and other cash and non-cash compensation. Earnings, for purposes of the
plan, are limited to increase at a rate not to exceed 8% per annum measured from
the participant's earnings at his or her plan entry
14
<PAGE> 17
date. As of May 31, 1993, the earnings covered by the plan for Mr. Busby and Mr.
McKain differed by more than 10% from the salaries set forth in the Summary
Compensation Table. In November 1993, the Compensation Committee determined to
rectify this inequity by amending the definition of Projected Earnings under the
SERP as to Messrs. Busby and McKain to mean actual earnings of such officers on
the effective date of their promotions plus an assumed increase of 8% per annum.
As of May 31, 1994, the estimated credited years of service for the individuals
named in the Summary Compensation Table were as follows: Mr. Busby, 24.93 years;
Mr. Marker, 6.17 years; Mr. McKain, 14.59 years; Mr. Pacquer, 7.67 years and Mr.
Hiller, 22.26 years.
- - --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
GENERAL
Hillhaven was formed in January 1990 through the spin-off by NME of
substantially all of NME's domestic long term care operations in a dividend
distribution to shareholders (the "Spin-off"). Since the Spin-off, it has been
management's intention to improve its balance sheet (in particular, its
debt-to-equity ratio) and to gradually decrease the extent of the relationship
between Hillhaven and NME. To this end, prior to September 1993, the Company had
purchased all but 23 of the 115 nursing centers originally leased from NME, had
restructured its leases relating to the NME-owned nursing centers to eliminate
contingent rent provisions and to fix the purchase option prices, had repaid
$96.8 million of the $145.9 million principal amount of notes issued by
Hillhaven to NME at the time of the Spin-off, had issued $35 million of Series C
Preferred Stock to NME and used the proceeds to repay higher cost debt and had
reduced the amount of obligations guaranteed by NME, for which the Company pays
a guarantee fee, to $699.0 million at May 31, 1993.
On September 2, 1993, Hillhaven substantially completed a recapitalization plan
(the "Recapitalization") which improved its balance sheet, extended maturities
of outstanding indebtedness, increased operating flexibility through the
acquisition of previously leased facilities, fixed the interest rate on a
portion of its previously floating rate indebtedness and also reduced the extent
of the relationship between the Company and NME.
Through the Recapitalization, the Company's relationship with NME was modified
by (i) the purchase of the remaining 23 nursing centers leased from NME for
$111.8 million, (ii) the repayment of all existing debt to NME in the aggregate
principal amount of $147.2 million, (iii) the release of NME guarantees on
approximately $400 million of debt, (iv) the limitation of the annual guarantee
fee payable to NME to 2% of the remaining amount guaranteed and (v) the
amendment of existing agreements to eliminate obligations of NME to provide
additional financing to the Company. The Recapitalization was financed through
(i) the issuance to NME of $120 million of payable-in-kind Series D Preferred
Stock, (ii) the incurrence of a $175 million five-year term loan under a secured
credit facility with a syndicate of banks (the "Bank Term Loan"), (iii) the
issuance of $175 million of 10 1/8% Senior Subordinated Notes due 2001 (the
"Offering"), (iv) the borrowing of $30 million under an accounts
receivable-backed credit facility (the "Accounts Receivable Financing") and (v)
the use of approximately $39 million of cash (the sale of the Series D Preferred
Stock, the Bank Term Loan, the Offering, the Accounts Receivable Financing and
the use of available cash are hereinafter collectively referred to as the
"Financing").
15
<PAGE> 18
The Recapitalization included a $100 million letter of credit facility to be
used to provide credit enhancement for and replace NME guarantees on the
Company's industrial revenue bonds, and an $85 million revolving bank line of
credit. In February 1994, the letter of credit facility was reduced to $90
million. The availability of the revolving line of credit allows the Company to
maintain lower cash balances and may facilitate repayments of higher-rate debt
or provide cash for investment or other corporate purposes.
Following the Recapitalization, NME has continued to be a substantial
shareholder of the Company, but is no longer a lessor to or a creditor of the
Company. NME has continued to be a guarantor of certain leases and a
significantly reduced portion of the Company's debt. In the short term, the
removal of NME as a guarantor of certain of the Company's indebtedness has
caused the Company to incur debt at higher interest rates than may have been
available previously. However, this cost has been balanced by the reduction of
guarantee fees paid to NME and the replacement of $120 million of indebtedness
with the Series D Preferred Stock. In addition, the Company has benefited by
capping at 2% NME's guarantee fee, which otherwise would have escalated to 3%.
New funds are anticipated to be obtained at rates which the Company believes
will be lower than the rates which it would have otherwise obtained on financing
provided by NME.
CHANGES IN RELATIONSHIP WITH NATIONAL MEDICAL ENTERPRISES, INC.
The following is a summary of certain financial arrangements between Hillhaven
and NME. The terms of the various agreements and transactions between Hillhaven
and NME that were entered into at the time of the Spin-off were set by NME, as
the sole shareholder of Hillhaven. Since the Spin-off, the terms of transactions
between Hillhaven and NME have been reviewed and approved by the directors of
Hillhaven who are not directors or officers of NME, and management believes that
such transactions were on terms at least as favorable as could have been
obtained from unaffiliated third parties. The Board of Directors of Hillhaven
intends to continue this practice in the future, and Hillhaven believes that
this procedure will resolve on an arms-length basis any conflicts of interest
that might arise.
Debt and Related Agreements. At the time of the Spin-off, Hillhaven issued
unsecured notes to NME in the aggregate amount of $145.9 million. At May 31,
1993, the outstanding principal balance due to NME thereunder was $49.1 million.
The entire outstanding principal balance of this debt was repaid with the
proceeds of the Financing.
Hillhaven borrowed an aggregate amount of $98.1 million from NME in connection
with Hillhaven's acquisition of facilities previously leased from NME. The debt
was repaid in full with the proceeds of the Financing.
At the time of the Spin-off, NME provided Hillhaven with a $50.0 million
revolving credit facility for certain specified uses. In addition, following the
Spin-off, NME provided Hillhaven with an additional $18.0 million revolving
credit facility. Both facilities were terminated as part of the
Recapitalization.
Hillhaven participated in two mortgage financing arrangements which were
guaranteed by NME. The original mortgage financing had a balance of
approximately $13.4 million at May 31, 1993, and was secured by mortgages on
specific Hillhaven properties. On May 30, 1991, Hillhaven entered into a second
mortgage financing arrangement which provided term loan financing of up to
$200.0 million for the purchase of nursing centers and the replacement of
outstanding debt. A portion of the second mortgage financing arrangement was
used to repay a portion of the original mortgage financing. At May 31, 1993,
$191.5 million was outstanding under the second mortgage financing. Amounts
outstanding under these mortgage financing arrangements were repaid with the
proceeds
16
<PAGE> 19
of the Financing, and these facilities were terminated upon the consummation of
the Recapitalization.
In May 1992, in connection with its Performance Investment Plan, Hillhaven sold
convertible debentures to one of its wholly-owned subsidiaries, which subsidiary
financed the purchase through bank borrowings in the amount of $61.8 million,
guaranteed by NME. These bank borrowings were repaid with proceeds from the
Financing.
Hillhaven participates in the Accounts Receivable Financing, which was a $30.0
million asset-backed commercial paper facility whereby eligible Medicaid
receivables of selected nursing homes are sold to a wholly-owned subsidiary
formed specifically to maintain this commercial paper liquidity facility. In
April 1994, Hillhaven increased this facility to $40.0 million, eliminated the
commercial paper aspect of the facility, replaced the prior lenders with Bank of
America National Trust and Savings Association and Seattle-First National Bank
and terminated NME's shortfall guarantee of Hillhaven's obligations under this
program.
Hillhaven pays a fee to NME in consideration for NME's guarantee of certain
Hillhaven debt, leases and other obligations, which guaranteed obligations
totaled approximately $699.0 million at May 31, 1993 and $279.0 million at May
31, 1994. This fee was $6.7 million and $9.6 million for fiscal 1994 and fiscal
1993, respectively. Prior to the Recapitalization, the maximum annual fee for
such guarantee could rise to 3% of the amount guaranteed. Pursuant to the
Recapitalization, Hillhaven reduced the guaranteed obligations by approximately
$400 million and limited the annual fee payable in connection with the
maintenance of the remaining guarantees to 2% of the amount guaranteed.
Lease Obligations. At the time of the Spin-off, the Company leased 115 nursing
centers from NME which were retained by NME in the Spin-off. During the three
years ended May 31, 1993, Hillhaven purchased 92 of the leased nursing centers
for an aggregate purchase price of $346.9 million. As part of the
Recapitalization, NME sold the remaining 23 Leased Facilities to Hillhaven for
an aggregate purchase price of $111.8 million, which represented a $23.6 million
discount from the aggregate purchase option price specified in the purchase
option agreements. Hillhaven's interest expense in respect of the NME-leased
nursing centers for the fiscal years 1994 and 1993 amounted to $3.4 million and
$19.9 million, respectively.
Hillhaven is leasing certain nursing centers from Health Care Property Partners,
a joint venture in which NME has a minority interest. Lease payments to this
joint venture amounted to $9.9 million in fiscal year 1994.
Equity Ownership. As part of the Spin-off, NME retained 2,878,147 shares of
Hillhaven Common Stock, which as of May 31, 1993 represented 13.7% of the
outstanding Common Stock. At the time of the Spin-off, Hillhaven issued to NME
warrants to purchase six million shares of the Company's Common Stock at an
exercise price of $10.55 per share (the "Warrants"). In connection with the
Recapitalization, Hillhaven issued to NME $120 million of cumulative, non-voting
payable-in-kind Series D Preferred Stock. On February 28, 1994, NME tendered
shares of the Series D Preferred Stock in the amount of $63.3 million in order
to exercise the Warrants. At May 31, 1994, NME owned 32.67% of the Company's
outstanding Common Stock.
NME is entitled to receive cumulative quarterly dividends on the Series D
Preferred Stock at an annual rate of 6 1/2% of the liquidation value. As of May
31, 1994, the liquidation value was $60.5 million. The dividends are payable in
additional shares of Series D Preferred Stock, compounded annually, until
September 1998, when the dividends will be paid in cash. The Company may, at its
17
<PAGE> 20
option, redeem the Series D Preferred Stock at any time, in whole or in part, at
a cash price of $1,000 per share plus accrued dividends, subject to restrictions
included in certain loan agreements.
In November 1991, NME purchased 35,000 shares of Hillhaven's 8 1/4% cumulative
nonvoting Series C Preferred Stock (the "Series C Preferred Stock") for $35.0
million in cash. NME receives cumulative cash dividends on such Series C
Preferred Stock, payable quarterly, at an annual rate of 8 1/4% of the
liquidation value. The Series C Preferred Stock is redeemable at the option of
the Company at any time, in whole or in part, at a price of $1,000 per share
plus accrued dividends.
Other Agreements. Through May 31, 1994, substantially all of the professional
and general liability risks of Hillhaven were insured by an insurance company
which is wholly-owned by NME. Hillhaven incurred $7.6 million in premiums for
the fiscal year ended May 31, 1994. In addition, Hillhaven paid to NME
approximately $1.1 million for other insurance costs in fiscal 1994. Hillhaven
terminated this relationship for matters arising after May 31, 1994.
Hillhaven provides management, consulting and advisory services in connection
with the operation of seven nursing centers owned or leased by NME or its
subsidiaries or by partnerships in which an NME subsidiary has an equity
interest. In return for such services, Hillhaven receives a management fee
consisting of a base fee, which is a percentage of the nursing centers' net
operating revenues, and an incentive fee, which is a percentage of the nursing
centers' net income, and is reimbursed for certain costs and expenses. Hillhaven
earned a total of $2.5 million for such services during fiscal 1994.
Common Directors. Three of Hillhaven's eight directors have also served as
directors or officers of NME. Mr. Leonard Cohen, former Vice Chairman of the
Hillhaven Board and member of the Audit Committee, whose term expires at the
1994 Annual Meeting of Stockholders and who has decided not to stand for
reelection, formerly served as a director of NME. Mr. Cohen currently serves as
a consultant to NME. Mr. Peter de Wetter, a director of Hillhaven, Chairman of
the Compensation Committee and member of the Executive Committee, also serves as
a director of NME, and Mr. Maris Andersons, a director of Hillhaven and member
of the Compensation Committee, also serves as Executive Vice President of NME.
OTHER TRANSACTIONS
Effective May 24, 1994, the Company entered into agreements with each of its
executive officers and each of its vice presidents, providing for the payment of
severance compensation upon termination of employment consisting of a lump-sum
payment equal to one to two years' base salary in the event of a change in
control as defined in the agreement.
18
<PAGE> 21
Table VII reflects the largest aggregate amount of indebtedness outstanding at
any one time (exceeding $60,000 per individual) to the Company of each executive
officer and director during fiscal 1994.
- - --------------------------------------------------------------------------------
TABLE VII
<TABLE>
<CAPTION>
LARGEST AGGREGATE
AMOUNT OF
INDEBTEDNESS
CAPACITY IN OUTSTANDING AMOUNT OUTSTANDING
NAME WHICH SERVED DURING FISCAL 1994 ON AUGUST 8, 1994
---- ------------ ------------------ ------------------
<S> <C> <C> <C>
Christopher J. Marker President $310,123.00 0
Richard P. Adcock Senior Vice President, $100,215.00 0
General Counsel and
Secretary
</TABLE>
These amounts consist of principal and accrued interest on promissory notes
which bear interest at an annual rate equal to Bank of America's prime rate
(currently 7 1/4%) and are payable on or before April 15 of the next calendar
year. The notes are secured by pledges of the borrower's Common Stock in the
Company. These loans were made to cover withholding taxes on income realized in
connection with Restricted Shares granted to such borrowers.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. The same
persons are also required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended May 31, 1994, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION FOR FISCAL YEAR 1994
1. EXECUTIVE COMPENSATION PHILOSOPHY AND COMPENSATION COMMITTEE DUTIES
The Compensation Committee is responsible for ensuring that the Company
establishes and implements compensation and benefit programs which drive
continual improvement in key Company performance measures (quality of care,
total revenues, occupancy, census mix, operating margins and productivity, net
income and earnings per share) in order to create total shareholder value.
Hillhaven's executive compensation programs are designed to attract, motivate
and retain the high calibre executives that are required to successfully
implement the Company's short-and long-term business strategies and drive
long-term growth in shareholder value. The Committee reviews the Company's
business and financial performance targets, established through the Company's
annual
19
<PAGE> 22
planning process, to ensure that they represent a reasonable challenge for that
fiscal year and are an appropriate basis for performance-based compensation as
described below.
Effective January 1, 1994, compensation payments in excess of $1 million to the
Chief Executive Officer or the other four most highly compensated officers are
subject to a limitation on deductibility for the Company under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). Certain
performance-based compensation is not subject to the limitation on
deductibility. Compensation to the Chief Executive Officer or any other
executive officer which is subject to the limitation has never exceeded $1
million and the Compensation Committee does not expect compensation subject to
the limitation in 1994 to any such officers to be in excess of $1 million. If
compensation subject to the limitation were, however, to exceed $1 million, the
Company could not deduct the amount in excess of $1 million. In such event, the
Compensation Committee intends to consider the advisability of amending the
Company's plans in the future.
Each member of the Compensation Committee is an outside Director with
significant professional experience in linking business performance and
executive compensation. No member of the Compensation Committee is a former or
current officer of the Company or any of its subsidiaries.
2. SPECIFIC COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
The Company's executive officer compensation program is based upon a "total
compensation" approach and requires that a significant and appropriate amount of
compensation be "at risk", and dependent on the Company achieving aggressive
financial and operating performance targets. Incentives are not paid unless
Company and individual results significantly exceed these performance targets,
result in the satisfactory delivery of quality services and are achieved in
compliance with Company ethics policies.
The Company's executive compensation program consists of three primary
components: (1) base salaries, (2) an annual incentive plan with cash awards and
(3) long-term, stock-based awards. In determining increases to base salaries and
maximum cash and stock awards, the Compensation Committee establishes
compensation levels designed to be competitive with compensation paid to
officers in comparable positions with competitor companies in health care and
other similar businesses. Whether maximum salary increases and incentive award
amounts are ultimately paid is contingent upon the achievement of established
Company performance targets discussed below and, in part, upon individual
performance.
Base salaries are determined from salary ranges established to position maximums
at the 75th percentile of comparable industry salaries. Companies that are
regularly reviewed to determine "comparable industry salaries" include various
long term, subacute and acute, for profit, health care organizations that are
regional or national competitors of Hillhaven. Some of these companies are
included in the S&P Health Care Composite Index. Salary increases are based upon
various Company performance measures, including total revenues, "all-business
pretax income" and earnings per share, and upon individual performance. These
performance measures were exceeded in fiscal 1994.
Cash incentives are utilized to clearly focus executives on significant
year-to-year improvement in Company performance and earnings per share. Awards
may range from 0% to 75% of an executive's base salary. The performance targets
are established through the Company's annual business and financial planning
process, and are based on substantial improvements beyond budget in
"all-business pretax income", which drive improvements in earnings per share. In
20
<PAGE> 23
addition, incentives can be, and will be, eliminated if certain service quality
or ethical standards are not met. These performance targets were exceeded in
fiscal 1994.
Longer-term improvements in business performance and shareholder value are
driven through stock-based incentive plans. The Committee believes that equity
incentives align the economic interests of executives with the interests of all
shareholders, which further drives shareholder value. Long-term incentives are
provided through grants of stock options, "Restricted Shares" and "Performance
Shares", and are awarded for significant growth in shareholder value.
Stock options are awarded at fair market value on the date of grant and must be
held for at least one year before they can be exercised.
"Restricted Shares" are subject to forfeiture if employment does not continue
for a specified period (three to five years). In addition, for some individuals,
restricted shares are subject to forfeiture if performance targets are not met.
The Compensation Committee believes that these awards drive significant
improvement in business performance and shareholder value and also are important
in the retention of the key senior executives required to lead continued
improvement in Company performance.
"Performance Shares" represent the eligibility to receive shares of Common Stock
in the future if Company performance exceeds a specified financial target for
the succeeding three-year period. The first three-year cycle for potential
performance share awards will end May 31, 1995.
The Compensation Committee determines potential equity awards for each eligible
executive officer, and the actual award will only be paid if the financial
target has been met or exceeded. In determining the size of these awards, the
Committee reviews the Company's performance for the respective fiscal year
(focusing on all-business pretax income and earnings per share), the
contribution of each of the Company's executive officers and the amount of
equity then held by each executive officer. The financial targets are monitored
and adjusted throughout the period to ensure that there has been an appropriate
improvement in earnings per share to justify any award. With respect to the
stock option awards, these targets were exceeded in fiscal 1994.
In addition to the incentive plans noted above, in May 1992, the Company, with
the approval of its shareholders and the Board of Directors, implemented the
Company's Performance Investment Plan. While the primary purpose of this plan
was to raise capital at favorable rates, a significant component of the plan
involved investment by officers of personal funds to acquire options to purchase
the Company's convertible debentures, which are convertible into the Company's
Common Stock. The exercise price of these options was set at 135% of the stock
price at the time the options were purchased. While this plan is administered by
a separate committee of outside directors, the Compensation Committee believes
that it should be noted in this report, since it also serves to closely align
executives with the interests of all shareholders. Officers will only realize
gains under the plan if the price of the Company's Common Stock appreciates,
which will benefit all shareholders.
3. COMPANY PERFORMANCE
In evaluating the Company's performance for fiscal year 1994, for the purpose of
making executive officer compensation decisions, the Compensation Committee has
reviewed a number of aspects of the Company's performance. The Compensation
Committee has particularly noted the Company's success in completing its
restructuring. Hillhaven was spun off from its former parent company with
substantial indebtedness and contractual limits on its ability to generate
profit in an historically low
21
<PAGE> 24
profit margin business. Since then, significant strides have been made to create
a smaller, more competitive and profitable enterprise focused on improved core
business performance, higher revenue subacute health services, rehabilitative
care and pharmacy services.
The Company has successfully divested of its underperforming nursing centers
which it targeted for disposition in November 1991, and has substantially
reduced its debt and overhead to become a more competitive organization.
Overhead costs, as a percentage of revenues, decreased from 4.7% in fiscal year
1993 to 4.0% in fiscal year 1994. In addition, the Company has been able to
improve its operating margins in its traditional long term care business by
increasing total occupancy and the amount of revenues from higher revenue
business such as subacute care and rehabilitative services.
Occupancy continued to be strong, with an average rate for nursing center beds
of 93.4% for the fiscal year. For the fiscal year, pretax income from operations
grew to $81.2 million, which included a $21.9 million credit for the
reinstatement of unused restructuring reserves, for a 143% increase from the
$33.4 million in the prior year (a 78% increase without considering the
restructure reserve). Net income significantly increased from $39.1 million in
fiscal year 1993 to $57.4 million in fiscal year 1994. Earnings per share grew
from $1.59 (primary) in fiscal year 1993 to $2.02 (primary) and $1.71 (fully
diluted) in fiscal year 1994. (Note: There was no comparable fully diluted
earnings per share number for fiscal year 1993.)
Total net operating revenues for fiscal year 1994 increased 6.3% as pharmacy
revenues declined 1.7%, retirement housing revenues grew 24.2%, and specialty
service programs (physical, occupational and speech rehabilitation therapies and
subacute care) grew 36.7% to $306.5 million. The Company's revenues from quality
mix improved from 45.2% of revenues in fiscal year 1993 to 49.8% in fiscal year
1994.
Significant gains have been achieved again in fiscal year 1994 in service
quality and the effective management of the Company's workforce. Worker's
compensation costs were reduced approximately 10%, and the loss time incident
rate declined 10%, from the previous fiscal year.
Since its inception as a public company in January 1990 through May 31, 1994,
the Company has outperformed the S&P 500 Index and the S&P Health Care Composite
Index as illustrated in the Comparison of Cumulative Total Returns. The
Committee views the Comparison of Cumulative Total Returns as a longer-term view
of the Company's progress in becoming a competitive investment, and it will not
necessarily directly relate to year-to-year compensation decisions.
4. CEO COMPENSATION
For fiscal year 1994, Mr. Busby was paid a base salary of $417,308. Mr. Busby's
base salary is in the median range of base salaries of CEO's of companies of
similar size in health care and other similar businesses.
In determining the amount of Mr. Busby's annual incentive plan award of $266,914
and in determining the number of Stock Options and Performance Shares to be
granted to Mr. Busby, the Compensation Committee considered the significant
improvement in financial and operating performance which the Company has
experienced in fiscal year 1994, as well as the significant growth in earnings
per share under Mr. Busby's leadership, as previously noted in Section 3 of this
Report. During fiscal year 1994, the Company has met or exceeded challenging
business performance targets for earnings per share, new business development,
cash flow, restructuring and building a more competitive organization through
overhead reduction. These achievements represent signifi-
22
<PAGE> 25
cant improvement from fiscal year 1993. Additionally, the Company has continued
to make substantial improvements in the quality of services provided and in the
effective management of its workforce.
As noted above in Section 3, in fiscal year 1994, the Company's net income,
share price and earnings per share have continued strong growth from fiscal year
1993. The Compensation Committee believes that Mr. Busby's leadership is key to
these continued improvements and that he has earned his compensation in leading
the Company to such performance in fiscal year 1994.
The Compensation Committee has determined that executive compensation will
continue to track Company performance. If Company performance and earnings per
share do not continue to improve, total compensation for Mr. Busby and other
executives will be adjusted accordingly.
This Compensation Committee Report shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 (the "Securities Act") or under the
Securities Exchange Act of 1934 (the "Exchange Act"), except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE
Peter de Wetter, Chairman
Maris Andersons
Jack O. Vance
23
<PAGE> 26
COMPARISON OF CUMULATIVE TOTAL RETURNS
THE HILLHAVEN CORPORATION, S & P 500 INDEX AND S & P HEALTH CARE COMPOSITE
The following performance graph compares the total returns (assuming
reinvestment of dividends) of The Hillhaven Corporation Common Stock, the S & P
500 Index and the S & P Health Care Composite. The graph assumes $100 invested
on February 2, 1990 for Hillhaven (the first day of regular way trading of the
Company's Common Stock on the American Stock Exchange) and on February 1, 1990
for the S & P 500 Index and the S & P Health Care Composite and shows the
cumulative total return as of each May 31 thereafter.
<TABLE>
<CAPTION>
S & P Health
Measurement Period Hillhaven Care
(Fiscal Year Covered) Corp. S & P 500 Composite
- - --------------------- --------- --------- ------------
<S> <C> <C> <C>
Feb 1990 $100.00 $100.00 $100.00
May 1990 $ 78.57 $111.26 $115.05
May 1991 $150.00 $124.38 $155.15
May 1992 $135.71 $136.64 $168.56
May 1993 $182.11 $152.50 $146.33
May 1994 $218.57 $158.37 $144.89
</TABLE>
The above graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
24
<PAGE> 27
SHARES OWNED BY CERTAIN STOCKHOLDERS
Table VIII reflects the persons known by the Company to beneficially own more
than 5% of its outstanding Common Stock as of August 8, 1994.
- - --------------------------------------------------------------------------------
TABLE VIII
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF AMOUNT OF SHARES PERCENT
CLASS BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
-------- ------------------- --------------------- ---------
<S> <C> <C> <C>
Common Stock.... National Medical Enterprises, Inc. 8,878,147(2) 32.67%
2700 Colorado Avenue
Santa Monica, California 90404
Common Stock.... Wellington Management Company 2,638,302(3) 9.57%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- - ---------------
(1) Based on information furnished to the Company by representatives of such
beneficial owners.
(2) Excludes 35,000 shares of Series C Preferred Stock and 61,467 shares of
Series D Preferred Stock held by NME which have no voting rights.
(3) Includes 392,084 shares which may be acquired upon conversion of convertible
debentures. All of these shares are owned by various investment advisory
clients of Wellington Management Company or its wholly-owned subsidiary,
Wellington Trust Company, N.A.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
On the recommendation of the Audit Committee, the Board of Directors has
selected KPMG Peat Marwick to serve as independent auditor for the fiscal year
ending May 31, 1995. KPMG Peat Marwick is familiar with the operations of the
Company and has been the Company's auditor since January 1990.
KPMG Peat Marwick expects its representatives to attend the Annual Meeting of
Stockholders, to make a statement if they so desire and to respond to questions
where appropriate. Unless marked to the contrary, proxies will be voted "FOR"
the ratification of the selection of KPMG Peat Marwick as the Company's auditor.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK AS THE COMPANY'S AUDITOR.
25
<PAGE> 28
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Any proposals by stockholders intended to be presented at the next annual
meeting must be received by the Company for inclusion in its proxy statement and
form of proxy relating to that meeting by April 26, 1995.
By Order of the Board of Directors.
Richard P. Adcock
Secretary
Tacoma, Washington
August 24, 1994
26
<PAGE> 29
THE HILLHAVEN CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints BRUCE L. BUSBY, CHRISTOPHER J. MARKER and
RICHARD P. ADCOCK, or any one of them, each with full power of substitution, as
the lawful proxies of the undersigned and hereby authorizes such persons to
represent and to vote as designated below all shares of common stock of The
Hillhaven Corporation which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held Tuesday,
September 27, 1994 at 10:00 a.m., Pacific Daylight Savings Time, at 1148
Broadway Plaza, First Floor, Tacoma, Washington, and at any adjournments thereof
on the items set forth below and on such other business as may properly come
before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY AUTHORIZED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" IN
ITEM 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR ALL NOMINEES" IN
ITEM 1 AND "FOR" IN ITEM 2.
Item 1. Election of two Class 2 Directors. The Nominees are Peter de Wetter and
Maris Andersons.
/ / FOR ALL NOMINEES / / WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
(INSTRUCTION: To withhold authority to vote for a nominee, write that nominee's
name in the space provided below)
- - --------------------------------------------------------------------------------
Item 2. Proposal to ratify KPMG Peat Marwick as independent auditor for the
fiscal year ending May 31, 1995:
/ / FOR / / AGAINST / / ABSTAIN
(To be signed on the reverse side)
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement.
Dated: , 1994.
--------------------------
Signature of Stockholder
--------------------------
Signature of Stockholder
(if held jointly)
Please mark, date and sign
as your name appears to
the left and return in the
enclosed envelope. If
acting as an executor,
administrator, trustee,
guardian, etc., you should
so indicate when signing.
If a corporation, please
sign the full corporate
name, by duly authorized
officer. If shares are
held by two or more
persons, any one may sign.
IMPORTANT -- PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE REPLY ENVELOPE
PROVIDED. IF YOU RECEIVED MORE THAN ONE PROXY CARD, PLEASE SIGN AND PROMPTLY
RETURN ALL CARDS RECEIVED.
<PAGE> 30
THE HILLHAVEN CORPORATION
1994 ANNUAL MEETING OF STOCKHOLDERS
Tuesday, September 27, 1994
10:00 a.m.
The Hillhaven Corporation
1148 Broadway Plaza, First Floor
Tacoma, Washington
<TABLE>
<S> <C>
THIS CARD IS
ADMISSION TICKET REQUIRED FOR
NON-TRANSFERABLE ADMISSION TO
THE MEETING
</TABLE>
<PAGE> 31
The shares represented by this proxy will be Please mark
voted as directed by the stockholder. If no / X / your votes
direction is given when the duly authorized proxy this way
is returned, such shares will be voted "FOR ALL
NOMINEES" in Item 1 and "FOR" in Item 2.
________________ _________________
OLD COMMON NEW COMMON
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" IN
ITEM 2.
<TABLE>
<S> <C> <C> <C> <C>
Item 1 - ELECTION OF TWO CLASS 2 DIRECTORS: WITHHOLD I PLAN TO ATTEND MEETING / /
Nominees: Peter de Wetter FOR AUTHORITY
Maris Andersons ALL TO VOTE FOR
WITHHOLD FOR: (Write that nominee's name in the NOMINEES ALL NOMINEES COMMENTS/ADDRESS CHANGE
space provided below) / / / / Please mark this box if you
_______________________________________________ have written comments/address
change on the reverse side. / /
Item 2 - PROPOSAL TO RATIFY KPMG FOR AGAINST ABSTAIN
PEAT MARWICK AS INDEPENDENT / / / / / / The undersigned acknowledges
AUDITOR FOR THE FISCAL YEAR receipt of the Notice of Annual
ENDING MAY 31, 1995. Meeting and Proxy Statement.
Dated: ___________________, 1994
________________________________
Signature of Stockholder
________________________________
Signature of Stockholder
(if held jointly)
PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON
This proxy should be dated and
signed by the stockholder or her
attorney authorized in writing
or in any other matter permitted
by law. If shares are held by
two or more persons, anyone may
sign. If signing as executor,
administrator, trustee or
guardian or as a corporate
officer, please give full title.
If a corporation, please sign in
full corporate name by the
president or other authorized
officer. If a partnership,
please sign in partnership name
by an authorized person.
</TABLE>
FOLD AND DETACH PROXY CARD HERE
RETURN PROXY CARD IN ENCLOSED ENVELOPE AFTER
COMPLETING, SIGNING AND DATING
ADMISSION TICKET
THE HILLHAVEN CORPORATION
1994 ANNUAL MEETING OF STOCKHOLDERS
Tuesday, September 27, 1994
10:00 a.m.
The Hillhaven Corporation
1148 Broadway Plaza, First Floor
Tacoma, Washington
Non-Transferable This Card Is
Required For
Admission To
The Meeting
<PAGE> 32
[HILLHAVEN LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE HILLHAVEN CORPORATION
The undersigned hereby appoints BRUCE L. BUSBY, CHRISTOPHER J. MARKER AND
RICHARD P. ADCOCK, or any one of them, each with full power of substitution, as
the lawful proxies of the undersigned and hereby authorizes such persons to
represent and to vote as designated on the reverse side hereof all shares of
common stock of The Hillhaven Corporation which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders to
be held Tuesday, September 27, 1994 at 10:00 a.m., Pacific Daylight Savings
Time, at 1148 Broadway Plaza, First Floor, Tacoma, Washington, and at any
adjournments thereof on the items set forth on the reverse hereof and on such
other business as may properly come before the meeting. THE SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS GIVEN WHEN THE DULY AUTHORIZED PROXY IS RETURNED, SUCH SHARES WILL
BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" IN ITEM 2.
IMPORTANT -- PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
IF YOU RECEIVED MORE THAN ONE PROXY CARD,
PLEASE SIGN AND RETURN ALL CARDS RECEIVED.
COMMENTS / ADDRESS CHANGE:
Please mark comments / address
box on reverse side.
FOLD AND DETACH HERE
