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This Prospectus (Registration No. 33-58641) is
submitted pursuant to Rule 424(b)(3)
of the Securities Act of 1933.
THE HILLHAVEN CORPORATION NATIONWIDE CARE, INC.
1148 Broadway Plaza 9200 Keystone Crossing, Suite 800
Tacoma, Washington 98402 Indianapolis, Indiana 46240
(206) 572-4901 (317) 848-5063
PHILLIPPE ENTERPRISES, INC.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240
(317) 848-5063
MEADOWVALE SKILLED CARE CENTER, INC.
1529 West Lancaster Street
Bluffton, Indiana 46714
(317) 848-5063
PROSPECTUS/INFORMATION STATEMENT
This Prospectus/Information Statement is being furnished to the shareholders
of Nationwide Care, Inc., an Indiana corporation ("NCI"), Phillippe Enterprises,
Inc., an Indiana corporation ("PEI") and Meadowvale Skilled Care Center, Inc.,
an Indiana corporation ("Meadowvale"), in connection with the proposed issuance
by The Hillhaven Corporation ("Hillhaven" or the "Company") of its common stock,
par value $0.75 per share (the "Hillhaven Common Shares") in exchange for the
outstanding common stock of NCI, PEI and Meadowvale, respectively (the "Share
Exchange"), pursuant to the terms and subject to the conditions of the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests executed on April 14, 1995, but dated as of February 27,
1995 (the "Share Exchange Agreement") by and among Hillhaven, NCI, PEI,
Meadowvale and certain NCI-affiliated partnerships. NCI, PEI and Meadowvale are
sometimes collectively referred to herein as the "Corporate Targets." Each of
the partners of the NCI-affiliated partnerships has executed the Share Exchange
Agreement, although none of them will receive any consideration in exchange for
their respective partnership interests. See "TERMS AND CONDITIONS OF THE SHARE
EXCHANGE AGREEMENT -- Share Exchange Consideration and Mechanics." Upon
consummation of the Share Exchange, the Corporate Targets will become
wholly-owned subsidiaries of Hillhaven. The Share Exchange Agreement amended and
restated the Agreement and Plan of Merger and Agreements to Assign Partnership
Interests filed with the Company's Form 8-K on March 6, 1995, and the Share
Exchange Agreement is filed as an exhibit to the Registration Statement of which
this Prospectus/Information Statement is a part.
The number of Hillhaven Common Shares to be received by the shareholders of
the Corporate Targets in connection with the consummation of the Share Exchange
ranges from 5,000,000 to 5,500,000, depending upon the average closing price of
the Hillhaven Common Shares as reported on the New York Stock Exchange ("NYSE")
for the ten trading days immediately preceding the Closing Date (as defined in
the Share Exchange Agreement). See "SUMMARY -- The Share Exchange" and "TERMS
AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Share Exchange Consideration
and Mechanics." Upon consummation of the Share Exchange, all outstanding shares
of common stock of the Corporate Targets (the "Target Common Shares"), except
for shares for which statutory dissenters' rights are exercised, will be
exchanged for Hillhaven Common Shares. See "CORPORATE TARGETS SPECIAL
MEETINGS -- Dissenters' Rights." All such Hillhaven Common Shares may be sold by
the former shareholders of the Corporate Targets from time to time subject to
various restrictions as described herein. See "RESALES OF HILLHAVEN COMMON
SHARES."
The Share Exchange will constitute a "reorganization" for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, as a general rule, no gain or loss should be recognized by
shareholders of the Corporate Targets to the extent such shareholders exchange
their securities solely for Hillhaven Common Shares in the Share Exchange. See
"SUMMARY -- Certain Federal Income Tax Consequences" and "TERMS AND CONDITIONS
OF THE SHARE EXCHANGE -- Certain Federal Income Tax Consequences."
Hillhaven Common Shares are listed on the NYSE under the symbol HIL. On May
17, 1995, the last sale price for Hillhaven Common Shares as reported on the
NYSE composite tape was $27.50 per share.
On April 24, 1995, Hillhaven and Vencor, Inc., a Delaware corporation
("Vencor"), announced that they had entered into an Agreement and Plan of Merger
dated as of April 23, 1995 (the "Vencor Merger Agreement") among Hillhaven,
Vencor and Veritas Holdings Corp., a Delaware corporation and wholly owned
subsidiary of Vencor ("Merger Subsidiary"). Under the terms and subject to the
conditions of the Vencor Merger Agreement, Hillhaven would merge with and into
Merger Subsidiary (the "Vencor Merger"), with Merger Subsidiary being the
surviving corporation. The Vencor Merger Agreement is included as an exhibit to
Hillhaven's Form 8-K filed May 1, 1995. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
At the effective time of the Vencor Merger, each Hillhaven Common Share
outstanding immediately prior to such effective time will, subject to certain
exceptions, be converted into the right to receive that number of shares of
Vencor common stock determined by dividing $32.25 by the average closing price
on the NYSE of Vencor common stock for the ten consecutive trading days ending
with the second trading day immediately preceding the effective time of the
Vencor Merger (the "Conversion Number"); provided, that the Conversion Number
shall not be less than 0.768 nor more than 0.977. If the product of the
Conversion Number times such average closing price of Vencor common stock is
less than $31.00 per share, Hillhaven may terminate the Vencor Merger Agreement
unless Vencor advises Hillhaven that the Conversion Number shall be determined
by dividing $31.00 by such average closing price, without regard to any maximum
imposed on the Conversion Number.
The Vencor Merger, which has been approved by the Board of Directors of both
Hillhaven and Vencor, is intended to be accounted for as a pooling of interests
and be a tax-free reorganization. The Vencor Merger contemplates the completion
of the Share Exchange described in this Prospectus/Information Statement. The
Vencor Merger is subject to certain regulatory approvals as well as approval by
the shareholders of both Hillhaven and Vencor. Closing of the Vencor Merger is
expected during the third calendar quarter of 1995. However, there can be no
assurance that the Vencor Merger will occur or as to the timing thereof or, if
such merger does not occur, that the sale of Hillhaven to another third party
will occur. See "RISK FACTORS -- Recent Developments."
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE SHARE
EXCHANGE, SEE "RISK FACTORS." NO PROXIES OF THE CORPORATE TARGET SHAREHOLDERS
ARE BEING SOLICITED HEREBY AND SUCH SHAREHOLDERS ARE REQUESTED NOT TO DELIVER
PROXIES. SEE "SUMMARY -- APPROVAL OF CORPORATE TARGET SHAREHOLDERS REQUIRED."
THE SECURITIES TO BE ISSUED IN THE SHARE EXCHANGE HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OF THIS PROSPECTUS/ INFORMATION
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE DELIVERY OF THIS PROSPECTUS/INFORMATION STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES MADE HEREUNDER SHALL IMPLY OR CREATE THE
IMPRESSION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
SINCE THE DATE HEREOF OR IN THE AFFAIRS OF THE COMPANY, NCI, PEI, MEADOWVALE AND
CERTAIN NCI-AFFILIATED PARTNERSHIPS SINCE THE DATE HEREOF OR THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE.
THIS PROSPECTUS/INFORMATION STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM RICHARD P. ADCOCK, SENIOR VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL, THE HILLHAVEN CORPORATION, 1148 BROADWAY PLAZA, TACOMA,
WASHINGTON 98402, TELEPHONE NUMBER (206) 572-4901. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY A DATE FIVE BUSINESS
DAYS PRIOR TO THE DATE ON WHICH A FINAL INVESTMENT DECISION MUST BE MADE.
------------------------
The date of this Prospectus/Information Statement is May 19, 1995.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 4
The Companies....................................................................... 4
Parties to the Share Exchange Agreement............................................. 5
The Share Exchange.................................................................. 5
Approval of Corporate Target Shareholders Required.................................. 5
Regulatory Approvals Required....................................................... 6
Dissenters' Rights.................................................................. 6
Certain Differences in Shareholders' Rights......................................... 6
Certain Federal Income Tax Consequences............................................. 6
Advice Regarding Accounting Treatment Required...................................... 7
Closing and Effective Time.......................................................... 7
MARKET PRICE AND DIVIDEND DATA........................................................ 8
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA (UNAUDITED).................... 10
SELECTED FINANCIAL DATA............................................................... 11
Hillhaven Selected Financial Data................................................... 11
NCI Selected Financial Data......................................................... 12
Summary Unaudited Pro Forma Condensed Combined Financial Information................ 13
RISK FACTORS.......................................................................... 15
Recent Developments................................................................. 15
Volatility of Share Price........................................................... 16
Certain Litigation.................................................................. 16
Substantial Leverage................................................................ 16
Reimbursement by Third Party Payors................................................. 17
Governmental Regulation............................................................. 17
Limited Availability of Labor....................................................... 17
CORPORATE TARGETS' SPECIAL MEETINGS................................................... 18
The NCI Special Meeting............................................................. 18
Recommendation of the NCI Board of Directors........................................ 19
The Meadowvale Special Meeting...................................................... 19
Recommendation of the Meadowvale Board of Directors................................. 19
Consent of PEI Shareholders......................................................... 19
Expenses of Special Meetings........................................................ 19
Dissenters' Rights.................................................................. 19
BACKGROUND OF AND REASONS FOR THE SHARE EXCHANGE...................................... 22
Background of the Share Exchange.................................................... 22
Hillhaven's Reasons for the Share Exchange.......................................... 23
The Nationwide Entities' Reasons for the Share Exchange and Recommendations of
the Boards of Directors.......................................................... 25
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TERMS AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT.................................. 25
Effective Time of the Share Exchange................................................ 25
Share Exchange Consideration and Mechanics.......................................... 26
Redemption of NCI Subordinated Notes and NCI Preferred Stock........................ 27
Escrow Agreement and Supplemental Escrow Agreement.................................. 27
Representations and Warranties...................................................... 28
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Certain Covenants................................................................... 28
Conditions to the Share Exchange.................................................... 29
Indemnification and Supplemental Indemnification.................................... 30
Noncompetition Agreements........................................................... 31
Agreement Among Corporate Target Shareholders....................................... 31
Additional Agreements............................................................... 32
Termination......................................................................... 33
Supplement, Modification or Amendment of the Share Exchange Agreement............... 33
Share Exchange Expenses............................................................. 33
Certain Relationships and Related Party Transactions................................ 34
Certain Federal Income Tax Consequences............................................. 34
Accounting Treatment................................................................ 35
OTHER MATTERS TO BE VOTED UPON BY NCI VOTING COMMON SHAREHOLDERS...................... 36
Approval of Employment Agreement Payments........................................... 36
Approval of Accelerated Vestings.................................................... 37
THE NATIONWIDE ENTITIES............................................................... 37
Description of NCI Business......................................................... 37
Centers............................................................................. 38
Revenue Sources..................................................................... 39
Government Regulation............................................................... 40
Personnel........................................................................... 41
Affiliated Entities................................................................. 41
Legal Proceedings................................................................... 41
CORPORATE TARGETS' PRINCIPAL SHAREHOLDERS............................................. 42
NATIONWIDE CARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................... 44
Overview............................................................................ 44
Results of Operations............................................................... 44
Liquidity and Capital Resources..................................................... 47
Seasonality......................................................................... 48
New Accounting Standards............................................................ 48
Impact of Inflation................................................................. 48
Meadowvale and PEI Businesses....................................................... 48
DESCRIPTION OF CAPITAL STOCK.......................................................... 49
Description of Hillhaven Capital Stock.............................................. 49
Description of NCI Capital Stock.................................................... 50
Description of Meadowvale Capital Stock............................................. 51
Description of PEI Capital Stock.................................................... 52
PRINCIPAL DIFFERENCES BETWEEN HILLHAVEN AND CORPORATE TARGETS' CAPITAL STOCK.......... 53
General............................................................................. 53
Board of Directors.................................................................. 53
Removal of Directors; Filling Vacancies on the Board of Directors................... 54
Limitation on Directors' Liability.................................................. 54
Indemnification..................................................................... 54
Restrictions on Business Combinations............................................... 55
Restrictions on Voting Rights....................................................... 55
Shareholder Action by Written Consent; Special Meetings............................. 56
Amendment or Repeal of the Articles of Incorporation and By-Laws.................... 56
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Cumulative Voting................................................................... 57
Shareholder Vote for Mergers or Share Exchanges..................................... 57
Appraisal Rights in Mergers or Share Exchanges...................................... 57
Dividends........................................................................... 57
Hillhaven Rights Plan............................................................... 57
RESALES OF HILLHAVEN COMMON SHARES.................................................... 59
LEGAL MATTERS......................................................................... 60
EXPERTS............................................................................... 60
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........................... 62
Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28, 1995........ 63
Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months
Ended February 28, 1995.......................................................... 64
Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months
Ended February 28, 1994.......................................................... 65
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended May 31, 1994............................................................... 66
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended May 31, 1993............................................................... 67
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended May 31, 1992............................................................... 68
Notes to Unaudited Pro Forma Condensed Combined Financial Statements................ 69
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX A -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED.............. A-1
ANNEX B -- CHAPTER 44 OF THE INDIANA BUSINESS CORPORATION LAW......................... B-1
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission" or "SEC") in Washington, D.C., a Registration Statement on Form S-4
(together with all amendments and exhibits and schedules thereto, hereinafter
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Hillhaven Common Shares
offered by this Prospectus/Information Statement. This Prospectus/Information
Statement, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Hillhaven Common Shares, reference is made to the Registration Statement.
Statements contained in this Prospectus/Information Statement as to the contents
of any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission, reference is made to such contract, agreement or other document for
a complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information and the
Registration Statement and exhibits and schedules thereto filed by the Company
with the Commission can be inspected and copied at the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies may also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information filed on or before
November 1, 1993 can also be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006. Such reports, proxy
statements and other information filed on or after November 2, 1993 can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated in this Prospectus/Information Statement by
reference and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1994;
2. Quarterly Report on Form 10-Q for the quarter ended August 31, 1994;
3. Quarterly Report on Form 10-Q for the quarter ended November 30, 1994;
4. Quarterly Report on Form 10-Q for the quarter ended February 28, 1995;
5. Current Report on Form 8-K dated as of October 12, 1994;
6. Current Report on Form 8-K dated as of January 27, 1995;
7. Current Report on Form 8-K dated as of March 6, 1995;
8. Current Report on Form 8-K dated as of May 1, 1995;
9. The descriptions of the Hillhaven Common Shares and of the purposes and
certain anti-takeover effects of certain provisions of the Company's Amended and
Restated Articles of Incorporation and By-Laws and of the Rights Plan, which are
contained in the Company's Registration Statement on Form 10 filed with the
Commission on January 8, 1990, pursuant to Section 12 of the Exchange Act,
including any amendments or reports filed for the purpose of updating such
descriptions; and
10. Registration Statement on Form 8-A dated October 8, 1993 and any
amendment or report filed for the purpose of updating the description of the
Company's securities contained in such registration statement.
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In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus/Information Statement and prior to the termination of this offering,
or the reoffering of securities acquired pursuant to the Registration Statement
of which this Prospectus/Information Statement is a part, shall be deemed to be
incorporated by reference in this Prospectus/Information Statement and to be a
part hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus/Information Statement to the extent that a statement contained herein
or in any other subsequently filed document that also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any such
statements so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus/Information Statement.
Hillhaven hereby undertakes to provide without charge to each person to
whom this Prospectus/Information Statement has been delivered, on the written or
oral request of such person, or any beneficial owner, a copy of any or all of
the documents referred to above which have been or may be incorporated into this
Prospectus/Information Statement and deemed to be part hereof, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus/Information Statement or incorporated by reference herein.
THE COMPANIES
Hillhaven
Hillhaven operates nursing centers, pharmacies and retirement housing
communities. Based upon the number of beds in service and net operating
revenues, the Company is the second largest long term care provider in the
United States and believes that it is one of the leading providers of
Alzheimer's care. Pharmacy operations are conducted through the Company's
wholly-owned subsidiary, Medisave Pharmacies, Inc.
The Company provides a wide range of diversified health care services,
including long term care and subacute medical and rehabilitation services, such
as wound care, oncology treatment, brain injury care, stroke therapy and
orthopedic therapy. Subacute medical and rehabilitation services are offered at
all of the Company's nursing centers and are the fastest growing component of
the Company's nursing center operations. Hillhaven believes that it is also one
of the largest providers of physical, occupational and speech therapies in the
United States. In addition, the Company currently provides long term care to
residents of the Company's nursing centers with Alzheimer's disease through 68
Alzheimer's care units.
Unless the context otherwise requires, the terms "Hillhaven" and the
"Company" refer to The Hillhaven Corporation and its consolidated subsidiaries.
The Company was incorporated under the laws of the state of Nevada in May 1989.
Its principal offices are located at 1148 Broadway Plaza, Tacoma, Washington
98402, and its telephone number is (206) 572-4901.
NCI
NCI operates long term health care centers located in Indiana, Ohio and
Florida. NCI's operations include 23 nursing centers with a total of 3,257
licensed beds, two retirement centers with a total of 240 units, two assisted
living centers totaling 162 units and 40 additional assisted living units
located in one of the retirement centers. Of NCI's 27 centers, 14 are owned, 11
are leased and two are managed for other parties. Twenty-one of NCI's centers
are located in Indiana, three are located in Ohio and three are located in
Florida.
NCI was incorporated on September 30, 1992 for the purpose of consummating
a reorganization that took place on July 27, 1993 (the "Reorganization"). Under
the Reorganization, several partnerships and corporations (the "Nationwide
Businesses") owned or controlled by Dr. Thomas E. Phillippe, Sr. and his family
(the "Phillippes") as well as certain entities which the Phillippes did not
control (the "Non-Controlled Entities") were acquired and combined into NCI.
Specifically, pursuant to the Reorganization: (i) each of the Nationwide
Businesses that was a corporation was merged with and into NCI; (ii) each
partner of a Nationwide Business that was a partnership contributed his or her
partnership interest to NCI (except that less than one percent of the
partnership interests in Camelot Care Centers, an Indiana general partnership,
and Evergreen Woods, Ltd., a Florida limited partnership, remained outstanding
and not owned by NCI); and (iii) each of the Non-Controlled Entities was merged
with and into NCI. Each partner and shareholder of the Nationwide Businesses and
the Non-Controlled Entities received common shares of NCI, plus cash in lieu of
fractional shares, in exchange for their interests in the Nationwide Businesses
and the Non-Controlled Entities. The purposes of the Reorganization were to
reduce borrowing costs, increase access to capital markets, achieve economies of
scale and reduce the administrative burdens associated with operating multiple
separated entities.
NCI provides a broad range of services through its nursing centers. All of
NCI's nursing centers provide skilled nursing care and rehabilitation and
ancillary services, such as physical, occupational, speech and respiratory
therapies. In addition, ten of NCI's nursing centers have specialty care
Alzheimer's units, and eight have subacute care units with an aggregate total of
173 dedicated beds. In addition to its nursing center
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services, NCI provides more limited care services through its home health care
agencies, assisted living centers and retirement centers.
NCI was incorporated under the laws of the state of Indiana in September
1992. Its principal offices are located at 9200 Keystone Crossing, Suite 800,
Indianapolis, Indiana, 46240, and its telephone number is (317) 848-5063.
Meadowvale and PEI
Meadowvale owns Meadowvale Care Center, which is currently leased to NCI.
As a result, the financial results of Meadowvale are included in the financial
results of NCI. Meadowvale was incorporated under the laws of the state of
Indiana in July 1969. Meadowvale's principal offices are located at 1529 West
Lancaster Street, Bluffton, Indiana 46714, and its telephone number is (317)
848-5063. PEI owns the Heritage at Hernando Assisted Living Center, which is
currently managed by NCI. PEI was incorporated under the laws of the state of
Indiana in November 1992. PEI's principal offices are located at 9200 Keystone
Crossing, Suite 800, Indianapolis, Indiana 46240, and its telephone number is
(317) 848-5063. Separate financial statements for Meadowvale and PEI are
included with this Prospectus/Information Statement. See "INDEX TO FINANCIAL
STATEMENTS."
PARTIES TO THE SHARE EXCHANGE AGREEMENT
The parties to the Share Exchange Agreement are Hillhaven, NCI, PEI,
Meadowvale, the partners of Camelot Care Centers, an Indiana general partnership
("Camelot") and the limited partners of Evergreen Woods, Ltd., a Florida limited
partnership ("Evergreen"). Because the health care facility owned by Shangri-La
Partnership, an Indiana general partnership ("Shangri-La") has been purchased by
a third party, the partners of Shangri-La are not to be considered parties to
the original merger agreement or the Share Exchange Agreement, and such partners
have been released and discharged from any obligations under such agreements.
Camelot and Evergreen are sometimes collectively referred to herein as the
"Partnership Targets." The partners of Camelot and the limited partners of
Evergreen are sometimes collectively referred to herein as the "Partners." The
interests in the Partnerships held by the Partners are sometimes collectively
referred to herein as the "Partnership Interests." The Corporate Targets and the
Partnership Targets are collectively referred to herein as the "Nationwide
Entities." The shareholders of the Corporate Targets and the partners and
limited partners of the Partnership Targets are collectively referred to herein
as the "Nationwide Shareholders."
THE SHARE EXCHANGE
Upon consummation of the Share Exchange, all outstanding Target Common
Shares, except for shares for which statutory dissenters' rights are exercised,
will be automatically converted into the right to receive a number of Hillhaven
Common Shares as follows: (a) 0.564 multiplied by the number of shares of NCI
common stock ("NCI Voting Common Shares") held; (b) 0.564 multiplied by the
number of shares of nonvoting NCI common stock ("NCI Nonvoting Common Shares")
held (the NCI Voting Common Shares and the NCI Nonvoting Common Shares are
sometimes collectively referred to herein as the "NCI Common Shares"); (c) 41.67
multiplied by the number of shares of PEI common stock ("PEI Common Shares")
held; and (d) 41.67 multiplied by the number of shares of Meadowvale common
stock ("Meadowvale Common Shares") held, in each case rounded to the nearest
whole share. The total number of Hillhaven Common Shares to be issued in
connection with the Share Exchange may range from 5,000,000 to 5,500,000 shares,
depending upon the average closing price of Hillhaven Common Shares as reported
on the NYSE for the ten trading days immediately preceding the Closing Date, and
are subject to certain escrow arrangements described herein. See "TERMS AND
CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Share Exchange Consideration and
Mechanics" and "-- Escrow Agreement and Supplemental Escrow Agreement."
APPROVAL OF CORPORATE TARGET SHAREHOLDERS REQUIRED
The Share Exchange must be approved and the Share Exchange Agreement must
be approved and adopted by a majority of the respective shareholders of each of
the Corporate Targets at duly convened special
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meetings of shareholders held for that purpose or by unanimous written consent.
Under the Indiana Business Corporation Law ("IBCL"), holders of the NCI Voting
Common Shares and NCI Nonvoting Common Shares are entitled to vote as separate
groups with respect to such approval and adoption. Proxies will not be solicited
by any of the Corporate Targets in connection with their respective special
meetings of shareholders.
As of April 1, 1995, there were 7,431,460 NCI Voting Common Shares and
76,592 NCI Nonvoting Common Shares outstanding, of which approximately 6,384,633
shares (85.9%) and no shares, respectively, were beneficially owned by NCI's
directors, executive officers and their affiliates. As of April 1, 1995, there
were 3,000 Meadowvale Common Shares outstanding, of which approximately 2,404
shares (80.1%) were beneficially owned by Meadowvale's directors, executive
officers and their affiliates. As of April 1, 1995, there were 2,000 PEI Common
Shares outstanding, all of which were beneficially owned by PEI's directors,
executive officers and their affiliates.
Dr. Thomas E. Phillippe, Sr. and his son, Thomas E. Phillippe, Jr., who
together own 80.9%, 0% and 100% of the outstanding NCI Voting Common Shares,
Meadowvale Common Shares and PEI Common Shares, respectively, have contractually
agreed to vote all such securities for approval of the Share Exchange and
adoption of the Share Exchange Agreement. The other directors and executive
officers of each of the Corporate Targets have also indicated that they intend
to vote securities of the Corporate Targets over which they have voting power
for such approval and adoption. See "CORPORATE TARGETS' SPECIAL MEETINGS."
The Share Exchange and the Share Exchange Agreement do not require the
approval of or adoption by the shareholders of Hillhaven. As of April 1, 1995,
there were 32,848,863 Hillhaven Common Shares outstanding, of which
approximately 2,933,344 (8.93%) (including shares which may be acquired upon
exercise of employee stock options) were beneficially owned by Hillhaven's
directors, executive officers and their affiliates. See "TERMS AND CONDITIONS OF
THE SHARE EXCHANGE AGREEMENT -- Certain Relationships and Related Party
Transactions."
REGULATORY APPROVALS REQUIRED
The consummation of the Share Exchange is subject to obtaining or receiving
all applicable material permits, authorizations, approvals and consents of, and
filing all applicable notices with, all appropriate governmental entities,
including, without limitation, the filing of all notifications required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or earlier termination of all applicable waiting
periods with respect thereto.
DISSENTERS' RIGHTS
Shareholders of the Corporate Targets who do not vote to approve the Share
Exchange and adopt the Share Exchange Agreement may elect to receive payment for
the value of their shares in cash in accordance with Chapter 44 of the IBCL.
Strict compliance with Chapter 44 of the IBCL is required in order to perfect
such rights. See "CORPORATE TARGETS' SPECIAL MEETINGS -- Dissenters' Rights" and
"ANNEX B -- CHAPTER 44 OF THE INDIANA BUSINESS CORPORATION LAW."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
Nevada is the jurisdiction of incorporation of Hillhaven. Indiana is the
jurisdiction of incorporation of each of the Corporate Targets. Upon
consummation of the Share Exchange, the shareholders of the Corporate Targets
will become shareholders of Hillhaven and their rights will be governed by the
Nevada General Corporation Law ("NGCL"), and the Amended and Restated Articles
of Incorporation and By-Laws of Hillhaven, which differ in certain material
respects from the IBCL, and the Articles of Incorporation and By-Laws of each of
the Corporate Targets. See "PRINCIPAL DIFFERENCES BETWEEN HILLHAVEN AND
CORPORATE TARGETS' CAPITAL STOCK."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Hillhaven has received an opinion from its independent accountants and NCI
has received an opinion from its counsel that the Share Exchange will, under
current law, constitute a tax-free reorganization under
6
<PAGE> 10
the Code and that Hillhaven and the Corporate Targets will be parties to the
reorganization. These opinions do not address the impact, if any, of the Vencor
Merger on the Share Exchange as a tax-free reorganization. As a tax-free
reorganization, except for those shareholders receiving cash as a result of the
exercise of dissenters' rights, none of the Corporate Targets, the shareholders
of the Corporate Targets or Hillhaven will recognize gain or loss to the extent
Hillhaven Common Shares are issued in exchange for Target Common Shares. See
"TERMS AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Certain Federal Income
Tax Consequences."
ADVICE REGARDING ACCOUNTING TREATMENT REQUIRED
Hillhaven's obligation to consummate the transactions contemplated by the
Share Exchange Agreement is subject to receiving advice in writing from
Hillhaven's independent accountants that the Share Exchange may be accounted for
as a pooling of interests under generally accepted accounting principles
("GAAP"). See "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Accounting Treatment."
CLOSING AND EFFECTIVE TIME
Assuming all of the conditions precedent to the Share Exchange are
satisfied or waived prior thereto, it is anticipated that the Closing of the
transactions contemplated by the Share Exchange Agreement will occur on or about
June 30, 1995 and that the Effective Time of the Share Exchange will occur on or
about 12:01 a.m., Eastern Standard Time, July 1, 1995. See "TERMS AND CONDITIONS
OF THE SHARE EXCHANGE AGREEMENT -- Effective Time of the Share Exchange."
7
<PAGE> 11
MARKET PRICE AND DIVIDEND DATA
Hillhaven Common Shares have been listed and traded on the NYSE since
November 2, 1993 and were previously listed and traded on the American Stock
Exchange under the symbol "HIL." The stock prices below are the high and low
sales prices as reported on the composite tape as adjusted to reflect a
one-for-five reverse stock split effective November 1, 1993.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1992
First quarter...................................................... $16.875 $10.00
Second quarter..................................................... 15.00 8.75
Third quarter...................................................... 16.875 11.25
Fourth quarter..................................................... 14.375 10.625
FISCAL 1993
First quarter...................................................... $13.75 $10.625
Second quarter..................................................... 16.875 10.00
Third quarter...................................................... 21.875 12.8125
Fourth quarter..................................................... 17.50 13.125
FISCAL 1994
First quarter...................................................... $18.75 $14.375
Second quarter..................................................... 20.3125 14.6875
Third quarter...................................................... 21.375 17.875
Fourth quarter..................................................... 22.875 18.50
FISCAL 1995
First quarter...................................................... $21.125 $17.375
Second quarter..................................................... 24.00 20.375
Third quarter...................................................... 27.00 18.625
Fourth quarter (through May 17, 1995).............................. 29.25 23.25
</TABLE>
The Company has not paid a common dividend and does not anticipate
declaring a common dividend in the near future.
The reported closing sale price of Hillhaven Common Shares on the NYSE
composite tape on February 27, 1995, the last full day of trading for Hillhaven
Common Shares prior to the announcement by Hillhaven of its agreement to acquire
NCI, was $24.875 per share. As of April 1, 1995, there were approximately 9,500
holders of record of Hillhaven Common Shares. Approximately 33,300 additional
shareholders held shares under beneficial ownership in nominee name or within
clearing house positions of brokerage firms and banks.
NCI Voting Common Shares and NCI Nonvoting Common Shares are held by 24 and
seven shareholders, respectively, as of the date of this Prospectus/Information
Statement. No established public trading market exists for NCI Common Shares. In
connection with the Reorganization, the NCI Voting Common Shares were valued at
$6.67 per share. NCI has not paid dividends on the NCI Common Shares. During
fiscal 1992, 1993 and 1994, the Nationwide Entities paid distributions to their
partners and shareholders of approximately $2,483,000, $4,395,000 and $-0-,
respectively. For further information regarding the NCI Common Shares, see
"DESCRIPTION OF CAPITAL STOCK -- Description of NCI Capital Stock."
Meadowvale Common Shares are held by eight shareholders as of the date of
this Prospectus/Information Statement. No established public trading market
exists for Meadowvale Common Shares. Meadowvale Common Shares have not been
issued or transferred for consideration within the past five years. During
fiscal 1992, 1993 and 1994, Meadowvale paid dividends to its shareholders of
approximately $189,244,
8
<PAGE> 12
$195,600, and $185,800, respectively. For further information regarding
Meadowvale Common Shares, see "DESCRIPTION OF CAPITAL STOCK -- Description of
Meadowvale Capital Stock."
PEI Common Shares are held by two shareholders as of the date of this
Prospectus/Information Statement. No established public trading market exists
for PEI Common Shares. PEI Common Shares have not been transferred since the
corporation's incorporation. PEI has not paid dividends to its shareholders
since its formation. For further information regarding PEI Common Shares, see
"DESCRIPTION OF CAPITAL STOCK -- Description of PEI Capital Stock."
9
<PAGE> 13
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA (UNAUDITED)
The following table summarizes certain unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and is
derived from, and should be read in conjunction with, the Unaudited Pro Forma
Condensed Combined Financial Statements included elsewhere in this
Prospectus/Information Statement and the historical financial statements of
Hillhaven and NCI which are included elsewhere in this Prospectus/Information
Statement or incorporated herein by reference. Financial data related to PEI and
Meadowvale are included only in the pro forma and equivalent pro forma amounts.
The information presented in this table does not purport to present the
financial position or results of operations of the Company had the Share
Exchange taken place on the dates specified, nor is such information necessarily
indicative of the results of operations that may be achieved in the future.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
MAY 31, FEBRUARY 28,
----------------------------- ----------------
1992 1993 1994 1994 1995
------ ------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
HILLHAVEN (1)(2) (1)(2) (1) (1)
Historical net income (loss) before extraordinary items per common
share, fully diluted(3)........................................... $(3.63) $ 1.58 $ 1.71 $1.34 $ 1.07
Pro forma combined income (loss) before extraordinary items per
common share, fully diluted(3)(4)................................. (2.79) 1.49 1.62 1.26 1.01
Historical book value per common share(3)........................... 12.79 14.13
Pro forma combined book value per common share(5)................... 11.29 12.19
Historical cash dividends per common share(6)....................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, FEBRUARY 28,
----------------------------- ----------------
1992 1993 1994 1994 1995
------ ------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
NCI
Historical net income before extraordinary items per common share,
fully diluted(7).................................................. -- -- $ .58 -- $ .32
Equivalent pro forma income before extraordinary items per common
share, fully diluted(7)(8)........................................ .95 .59
Historical book value per common share(9)........................... 1.48 1.69
Equivalent pro forma book value per common share(8)................. 6.64 7.17
</TABLE>
---------------
(1) Prior year and interim period information has been restated to reflect the
October 1994 acquisitions of CPS Pharmaceutical Services, Inc. ("CPS") and
Advanced Infusion Services, Inc., ("AIS") which were each accounted for as a
pooling of interests.
(2) Hillhaven reported only primary income (loss) per share in 1992 and 1993.
(3) Reflects the one-for-five reverse stock split effective November 1, 1993.
(4) This calculation is based on the weighted average number of Hillhaven Common
Shares outstanding for each period, excluding 4,179,520 Common Shares held
in trust at February 28, 1995, plus 5,000,000 Hillhaven Common Shares which
may be issued pursuant to the Share Exchange Agreement.
(5) This calculation is based on the number of outstanding Hillhaven Common
Shares at the end of each period, excluding 4,179,520 Common Shares held in
trust at February 28, 1995, plus 5,000,000 Hillhaven Common Shares which may
be issued pursuant to the Share Exchange Agreement.
(6) Hillhaven has not paid a common dividend and does not anticipate paying a
common dividend in the near future.
(7) NCI was incorporated in September 1992 and commenced operations in July 1993
following the Reorganization.
(8) Equivalent pro forma data were calculated by multiplying the pro forma
combined per share data of Hillhaven by the weighted average conversion
ratio of .5882 for the Nationwide Entities. This conversion ratio assumes
that 5,000,000 Hillhaven Common Shares will be issued in connection with the
Share Exchange of the Nationwide Entities' securities. See "TERMS AND
CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Share Exchange Consideration
and Mechanics."
(9) NCI's historical book value is comprised of the NCI Warrants (as defined
herein) and Other Shareholders' Equity. This calculation is based on the
number of outstanding NCI Common Shares at the end of each period plus
shares to be issued upon exercise of the NCI Warrants.
10
<PAGE> 14
SELECTED FINANCIAL DATA
HILLHAVEN SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
Consolidated and Combined Financial Statements of Hillhaven and its predecessor.
The data set forth below should be read in conjunction with the Consolidated and
Combined Financial Statements and related notes thereto and Hillhaven's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in certain documents incorporated by reference herein.
<TABLE>
<CAPTION>
EIGHT FOUR NINE MONTHS
MONTHS MONTHS ENDED
ENDED ENDED YEARS ENDED MAY 31, FEBRUARY 28,
JAN. 31, MAY 31, ------------------------------------------------- -----------------------
1990(1) 1990(1) 1991(1) 1992(1) 1993(1) 1994(1) 1994(1) 1995
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2)
Net revenues.................. $750,390 $392,636 $1,271,266 $1,330,007 $1,394,472 $1,484,825 $1,107,155 $1,177,640
Expenses:
Operating and
administrative............ 646,300 335,102 1,094,456 1,144,390 1,180,974 1,255,332 938,732 999,460
Interest.................... 43,170 13,707 43,800 56,863 63,600 56,178 41,677 36,664
Depreciation and
amortization.............. 28,448 10,087 33,650 46,698 53,651 54,395 40,738 42,646
Rent........................ 39,570 35,648 101,604 71,665 56,687 56,280 41,829 40,648
Restructuring............... -- -- -- 92,529 5,769 (20,225) (20,225) --
Adjustment to carrying value
of properties previously
reported as discontinued
operations................ -- -- -- 20,736 -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Net expenses.................. 757,488 394,544 1,273,510 1,432,881 1,360,681 1,401,960 1,042,751 1,119,418
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.................. (7,098) (1,908) (2,244) (102,874) 33,791 82,865 64,404 58,222
Income tax (expense) benefit
on income (loss) from
operations.................. 3,049 (266) (136) (543) 7,116 (23,385) (18,165) (19,248)
Reinstatement of discontinued
operations.................. 5,785 2,647 4,379 24,743 -- -- -- --
Extraordinary charge -- early
extinguishment of debt, net
of income taxes............. -- -- -- -- (565) (1,062) (1,013) (222)
Cumulative effect of change in
accounting for income
taxes....................... -- -- -- -- (1,103) -- -- --
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............. $ 1,736 $ 473 $ 1,999 $ (78,674) $ 39,239 $ 58,418 $ 45,226 $ 38,752
======== ======== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share
-- primary.................. -- $ .02 $ .09 $ (3.63) $ 1.51 $ 1.96 $ 1.57 $ 1.17
-- fully diluted............ -- -- -- -- -- $ 1.68 $ 1.31 $ 1.06
BALANCE SHEET DATA (at end of
period)
Working capital............... $ 45,058 $ 90,577 $ 78,771 $ 59,619 $ 78,886 $ 37,673 $ 34,490 $ 61,926
Total assets.................. 561,294 683,707 817,823 1,178,909 1,224,012 1,192,493 1,181,251 1,233,582
Long-term debt................ 250,824 337,476 443,095 834,452 819,202 579,035 599,902 589,619
Shareholders' equity.......... 446,921 172,209 182,204 141,274 181,602 363,747 350,292 404,688
Book value per common
share(3).................... -- 7.89 8.26 6.38 8.17 12.79 12.33 14.13
OTHER INFORMATION (unaudited)
NURSING CENTERS (at end of
period)
Number of nursing centers..... 343 343 342 334 284 272 272 271
Number of licensed beds....... 42,367 42,409 42,239 41,089 35,139 34,162 34,143 34,074
Average occupancy rate for the
year........................ 90.8% 90.4% 90.6% 91.6% 93.4% 93.4% 93.5% 93.0%
Nursing centers managed for
others...................... 18 19 19 17 17 16 16 15
PHARMACY OUTLETS.............. 127 121 118 131 88 77 85 58
RETIREMENT HOUSING
COMMUNITIES................. 24 24 27 27 21 19 20 19
</TABLE>
---------------
(1) On October 31, 1994, Hillhaven acquired closely-held CPS and AIS in a
business combination accounted for as a pooling of interests. Accordingly,
prior year information has been restated to reflect these acquisitions.
(2) Income statement data for Hillhaven are not necessarily comparable to those
of its predecessor for periods prior to January 31, 1990 due to the spin-off
from Tenet Healthcare Corporation (formerly National Medical Enterprises,
Inc.).
(3) Computed based on the actual number of Hillhaven Common Shares outstanding
at the balance sheet date, excluding 4,179,520 Common Shares held in trust
at February 28, 1995, and including 1,262,062 Hillhaven Common Shares issued
in connection with the acquisitions of CPS and AIS.
11
<PAGE> 15
NCI SELECTED FINANCIAL DATA
The following selected financial data have been derived from the Nationwide
Care, Inc. financial statements. The information set forth below should be read
in conjunction with the discussion contained in "NATIONWIDE CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" as well as the Nationwide Care, Inc. financial statements and notes
thereto contained elsewhere in this Prospectus/Information Statement.
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
SEPTEMBER 30, FEBRUARY 28,
---------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT STATISTICAL DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Revenue, net.................................... $30,718 $36,075 $43,348 $66,161 $120,724 $48,929 $53,196
Expenses:
Health care services.......................... 20,122 24,124 28,417 45,907 90,384 36,700 40,341
Selling, general and administrative........... 2,292 2,645 2,775 4,307 5,971 2,128 2,887
Leases and rental............................. 1,309 1,419 1,353 2,671 7,085 2,955 3,017
Depreciation and amortization................. 2,086 2,281 2,308 2,738 2,947 1,071 1,179
------- ------- ------- ------- -------- ------- -------
Income from operations.......................... 4,909 5,606 8,495 10,538 14,337 6,075 5,772
Interest expense, net........................... 4,080 3,839 3,540 3,669 4,778 1,853 2,083
Other income.................................... 22 -- -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Income before income taxes and extraordinary
items......................................... 851 1,767 4,955 6,869 9,559 4,222 3,689
Income taxes(3)................................. -- -- 380 1,744 4,600 2,015 1,750
------- ------- ------- ------- -------- ------- -------
Income before extraordinary items............... 851 1,767 4,575 5,125 4,959 2,207 1,939
Extraordinary items............................. -- -- 380 (1,652) -- -- --
------- ------- ------- ------- -------- ------- -------
Net income...................................... $ 851 $ 1,767 $ 4,955 $ 3,473 $ 4,959 $ 2,207 $ 1,939
======= ======= ======= ======= ======== ======= =======
BALANCE SHEET DATA (period ended):
Working capital (deficit)....................... $(1,315) $(1,205) $ 530 $ 2,281 $ 2,830 $ 5,008 $ 7,255
Total assets.................................... 38,501 38,036 41,287 69,132 75,939 71,464 83,359
Long-term debt.................................. 39,192 37,119 37,716 42,404 43,045 43,598 48,163
Stock warrants and redeemable preferred stock... -- -- -- 7,254 7,169 7,371 7,261
Other shareholders' and partners' equity
(deficit)(4).................................. (6,104) (6,224) (3,717) 1,667 6,621 3,997 8,468
STATISTICAL DATA (UNAUDITED):
Total nursing center beds....................... 2,127 2,127 2,067 3,357 3,257 3,357 3,257
Total assisted living/retirement center units... 277 277 277 370 370 370 442
Percentage of nursing center revenue, period
ended
Private pay................................... 41.0% 41.1% 38.6% 32.5% 29.2% 29.7% 29.3%
Medicare...................................... 6.1% 4.9% 7.3% 13.9% 22.7% 19.6% 27.5%
Indiana skilled Medicaid...................... 11.7% 13.0% 19.3% 21.1% 14.7% 17.5% 9.8%
Intermediate Medicaid......................... 41.2% 41.0% 34.8% 32.5% 33.4% 33.2% 33.4%
Overall nursing center occupancy rate, period
ended......................................... 88.5% 91.1% 93.6% 92.6% 90.4% 90.4% 91.0%
</TABLE>
---------------
(1) As a result of the Royal Oaks Acquisition, the Regency Center leases and the
Reorganization, the statement of operations data prior to the dates of the
aforementioned transactions are not comparable to statement of operations
data subsequent to the aforementioned transactions.
(2) The selected financial data set forth above includes only NCI. Two other
entities contemplated in the business combination, Meadowvale and PEI, are
not included in the above data because (1) Meadowvale's operations are
already included in NCI's financial statements (only the real estate is
being acquired in connection with the Share Exchange); and (2) PEI is
immaterial (less than 1% of NCI's total revenues).
(3) Prior to the Reorganization, certain of the businesses now comprising
Nationwide Care, Inc. were taxed as S Corporations and certain of the
businesses were partnerships; therefore, income was not subject to federal
or state income taxes.
(4) Prior to the Reorganization, shareholders' and partners' equity (deficit)
consists of the combined capital structure of separate corporations and
partnerships. As of the date of the Reorganization, the retained earnings
(deficit) of the S Corporations and partnerships was transferred to Common
Stock of NCI.
12
<PAGE> 16
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following table sets forth certain summary pro forma financial
information after giving effect to the Share Exchange as if it had been
consummated, with respect to the statements of operations, at the beginning of
the periods presented, or, with respect to the balance sheet, as of February 28,
1995. The following table presents such information as if the Share Exchange had
been accounted for as a pooling of interests. The summary pro forma information
is derived from, and should be read in conjunction with, the Unaudited Pro Forma
Condensed Combined Financial Statements contained elsewhere in this
Prospectus/Information Statement. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "SELECTED FINANCIAL DATA," "BACKGROUND OF AND REASONS FOR THE SHARE
EXCHANGE," "TERMS AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Accounting
Treatment," and "NATIONWIDE CARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the financial position or results of operations of the
Company had the Share Exchange taken place on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. The information presented does not include certain cost savings that
management believes may be realized following the Share Exchange, currently
estimated to be approximately $4 million annually beginning in fiscal 1996
(before any severance or other costs of implementing efficiencies). There can be
no assurance as to the amount of cost savings, if any, that may be realized as a
result of the transactions contemplated by the Share Exchange Agreement.
13
<PAGE> 17
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
------------------------------------ -----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues......................... $1,373,355 $1,461,257 $1,606,568 $1,187,212 $1,272,634
Expenses:
Operating and administrative....... 1,175,586 1,231,810 1,352,624 1,001,143 1,077,339
Interest........................... 60,270 67,184 60,890 44,959 40,394
Depreciation and amortization...... 49,006 56,421 57,384 42,746 44,994
Rent............................... 73,044 59,393 63,411 46,597 46,094
Restructuring...................... 92,529 5,769 (20,225) (20,225) --
Adjustment to carrying value of
properties previously reported
as discontinued operations...... 20,736 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net expenses......................... 1,471,171 1,420,577 1,514,084 1,115,220 1,208,821
---------- ---------- ---------- ---------- ----------
Income (loss) from operations........ (97,816) 40,680 92,484 71,992 63,813
Income tax (expense) benefit......... (923) 5,372 (27,985) (21,924) (21,946)
Reinstatement of discontinued
operations......................... 24,743 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items and cumulative effect of
accounting change.................. $ (73,996) $ 46,052 $ 64,499 $ 50,068 $ 41,867
========== ========== ========== ========== ==========
Income (loss) before extraordinary
items and cumulative effect of
accounting change per share(1)..... $ (2.79) $ 1.49 $ 1.62 $ 1.26 $ 1.01
Weighted average Common Shares and
equivalents outstanding(1)......... 27,073 29,394 39,326 38,831 41,800
</TABLE>
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1995
------------
<S> <C>
Balance sheet data:
Working capital...................... $ 66,049
Total assets......................... 1,314,382
Long-term debt....................... 645,360
Shareholders' equity................. 410,100
Book value per common share.......... 12.19
</TABLE>
---------------
(1) Calculated on a primary basis in 1992 and 1993 and on a fully diluted basis
in subsequent periods.
14
<PAGE> 18
RISK FACTORS
The following risk factors and the information provided elsewhere in this
Prospectus/Information Statement should be considered carefully in connection
with evaluating the Share Exchange.
RECENT DEVELOPMENTS
On January 25, 1995, Horizon Healthcare Corporation ("Horizon") made a
proposal to acquire Hillhaven in a stock merger valued by Horizon at $28.00 per
share. On February 5, 1995, a Special Committee of Hillhaven's Board of
Directors (the "Special Committee") considered the proposal with its advisors
and concluded that the proposal was inadequate. On March 7, 1995, Horizon made
another offer to acquire Hillhaven in a stock merger valued by Horizon at $31.00
per share. This offer, which was contingent on Hillhaven consummating its
acquisition of NCI, expired on March 21, 1995. On March 31, 1995, Horizon
announced a major acquisition of a third party.
In light of the March 7, 1995, Horizon proposal and expressions of interest
received by Hillhaven from other parties desiring to explore an acquisition
transaction, on March 20, 1995, the Special Committee instructed Merrill Lynch,
Pierce, Fenner & Smith, Inc. ("Merrill Lynch") to explore strategic
alternatives, including the possible sale of Hillhaven to a third party.
Tenet Healthcare Corporation (formerly National Medical Enterprises, Inc.)
("Tenet"), which owns approximately 27% of Hillhaven's outstanding stock,
announced at the time of the January 25 Horizon proposal that it wants Hillhaven
to maximize the value of all shareholders' investments in Hillhaven through the
immediate sale or merger of Hillhaven and announced on April 3, 1995, that it
had filed definitive proxy materials for Hillhaven's 1995 annual meeting of
shareholders soliciting support for a nonbinding resolution urging the Board of
Directors of Hillhaven to take such action.
On April 24, 1995, Hillhaven and Vencor announced that they had entered
into the Vencor Merger Agreement. Under the terms and subject to the conditions
of the Vencor Merger Agreement, Hillhaven would merge with and into Merger
Subsidiary, with Merger Subsidiary being the surviving corporation.
At the effective time of the Vencor Merger, each Hillhaven Common Share
outstanding immediately prior to such effective time, including Hillhaven Common
Shares received by the shareholders of the Corporate Targets in connection with
the Share Exchange, will, subject to certain exceptions, be converted into the
right to receive that number of shares of Vencor common stock determined by
dividing $32.25 by the average closing price on the NYSE of Vencor common stock
for the ten consecutive trading days ending with the second trading day
immediately preceding the effective time of the Vencor Merger (the Conversion
Number); provided, that the Conversion Number shall not be less than 0.768 nor
more than 0.977. If the product of the Conversion Number times such average
closing price of Vencor common stock is less than $31.00 per share, Hillhaven
may terminate the Vencor Merger Agreement unless Vencor advises Hillhaven that
the Conversion Number shall be determined by dividing $31.00 by such average
closing price, without regard to any maximum imposed on the Conversion Number.
Consequently, if the Vencor Merger is consummated, shareholders of the Corporate
Targets ultimately would become shareholders of Vencor.
Holders of Hillhaven Common Shares, including shareholders of the Corporate
Targets who receive Hillhaven Common Shares in connection with the Share
Exchange, will not be entitled to any dissenters' rights as a result of the
Vencor Merger. The sale, exchange, pledge or other disposition of shares of
Vencor common stock received by the shareholders of the Corporate Targets
pursuant to the Vencor Merger will be restricted for a period of two years
following the effective time of the Vencor Merger. See "RESALES OF HILLHAVEN
COMMON SHARES."
The Vencor Merger, which has been approved by the Board of Directors of
both Hillhaven and Vencor, is intended to be accounted for as a pooling of
interests and be a tax-free reorganization. The Vencor Merger is subject to
certain regulatory approvals as well as approval by the shareholders of both
Hillhaven and Vencor. Closing of the Vencor Merger is expected during the third
calendar quarter of 1995. However, there can be no assurance that the Vencor
Merger will occur or as to the timing thereof or, if such merger does not occur,
that the sale of Hillhaven to another third party will occur.
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The Vencor Merger contemplates the completion of the Share Exchange
described in this Prospectus/Information Statement. For the year ended December
31, 1994, Vencor reported net revenues of approximately $400 million and net
income of approximately $31.4 million, or approximately $1.13 per share fully
diluted.
VOLATILITY OF SHARE PRICE
The market price of Hillhaven Common Shares has increased significantly
during the past several months due in part to the offer made by Horizon to
acquire Hillhaven, Hillhaven's announced intention to explore strategic
alternatives and the proposed Vencor Merger. The Company expects that these and
related factors, including the market's assessment of the likelihood that the
Vencor Merger will be consummated, will continue to have an impact on the market
price of the Hillhaven Common Shares during the foreseeable future, and such
impact could be materially adverse.
CERTAIN LITIGATION
On February 6, 1995, the Company filed a complaint against Horizon in the
United States District Court for the District of Nevada seeking injunctive and
declaratory relief that a business combination between Horizon and the Company
is prohibited by the Nevada statute regarding business combinations with
interested shareholders (NRS Sections 78.411 through 78.444) by reason of
Horizon's arrangements with Tenet. On February 27, 1995, Horizon filed an answer
and a counterclaim alleging that, among other things, the Company and all of its
directors (other than Messrs. Peter de Wetter and Maris Andersons) have breached
their fiduciary duties to the Company's shareholders in connection with their
consideration of Horizon's acquisition proposal and certain actions recently
taken by the Company, including the formation of a grantor trust, the amendment
of the Company's rights plan and the filing of a shelf registration statement
with the SEC. The counterclaim seeks injunctive and declaratory relief and
compensatory and punitive damages in unspecified amounts. The Company has
answered the counterclaim and believes Horizon's claims are without merit.
The Company and its directors are named as defendants in a number of
putative class action complaints filed on behalf of the Company's shareholders
in Nevada state court and California state court. These complaints raise
virtually identical allegations that the Company and its directors have breached
their fiduciary duties to the Company's shareholders in connection with the
consideration of Horizon's acquisition proposal and certain recent corporate
actions also cited in Horizon's counterclaim. These actions seek declaratory and
injunctive relief and money damages in unspecified amounts. The Company is
seeking to remove to the California federal courts the actions filed in the
California state courts. The Service Employees International Union (AFL-CIO) and
Joann Sforza, a Company employee and union member, are seeking to intervene as
party plaintiffs in one of the putative class actions brought on behalf of the
Company's shareholders, alleging that their interests as shareholders and
employees of the Company are not adequately represented. The Company has opposed
this intervention. In addition, Tenet filed a complaint against the Company and
two of its directors, Bruce Busby and Christopher Marker, in state court in
California seeking declaratory and injunctive relief and alleging, among other
things, that the directors have breached their fiduciary duties to Tenet and the
Company's other shareholders in connection with their consideration of Horizon's
acquisition proposal and certain of the other corporate actions cited in the
Horizon and putative class action complaints. The Company believes these actions
are without merit.
By stipulation of the parties, all proceedings in these actions have been
stayed until various future dates.
SUBSTANTIAL LEVERAGE
The Company and its subsidiaries are highly leveraged. The degree to which
the Company is leveraged could materially adversely affect the Company's ability
to obtain additional financing for working capital, expansion into new or
existing markets or other purposes and could make the Company more vulnerable to
changes in the health care marketplace, economic downturns and competitive
pressures. The Company's high degree of leverage could also materially adversely
affect its ability to refinance existing indebtedness.
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REIMBURSEMENT BY THIRD PARTY PAYORS
For the nine months ended February 28, 1995, the Company derived 47.0% of
its net patient revenues from Medicaid, 26.6% from private and other sources and
26.4% from Medicare. Both governmental and private third party payors have
employed cost containment measures designed to limit payments made to health
care providers such as the Company. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to the
Company for its services. There can be no assurance that payments under
governmental and private third party payor programs will be sufficient to cover
the costs allocable to patients eligible for reimbursement. Hillhaven believes
that at present the payments under many Medicaid programs are not sufficient on
an overall basis to cover the costs of serving residents participating in these
programs. In addition, there can be no assurance that the Company's facilities,
or the provision of services and supplies by the Company, will initially meet or
continue to meet the requirements for participation in such programs. There have
been, and the Company expects that there will continue to be, a number of
proposals to further limit Medicare and Medicaid reimbursement for health care
services. The Company cannot at this time predict whether any of these proposals
will be adopted or, if adopted and implemented, what effect, if any, such
proposals might have on the Company's operations.
GOVERNMENTAL REGULATION
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. In particular, the
development and operation of long term care facilities and retirement
communities and the provision of health care services are subject to federal,
state and local statutes and administrative oversight relating to the adequacy
of medical care, distribution of pharmaceuticals, equipment, personnel,
operating policies, rate-setting and other matters. The failure to obtain or
renew certain required regulatory approvals or licenses, the delicensing of
certain facilities owned, leased or operated by the Company or the
disqualification of the Company from participation in certain federal and state
reimbursement programs could have a material adverse effect upon the Company's
operations.
A number of legislative proposals have been introduced in Congress and
state legislatures in recent years that would effect major reforms of the health
care system. The Company believes that reform legislation will continue to be
proposed at both federal and state levels. No assurance can be given as to what
elements will be included in any such new proposals. The Company cannot predict
whether any of the proposed or other legislation will be adopted or the form of
any legislation that may be adopted, and no assurance can be given that any such
legislation, if adopted, will not have a material adverse effect on the
Company's operations.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve expansion of the
Company's long term care facility operations, through facility acquisitions or
expansion, provision of new services or other changes. The Company is also
subject to federal and state laws which govern financial and other arrangements
between health care providers. In addition, some states restrict certain
business relationships between physicians and pharmacies, and many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. These laws vary from state to state and have seldom
been interpreted by the courts or regulatory agencies.
LIMITED AVAILABILITY OF LABOR
In the past, the long term care industry has periodically experienced
shortages of nurses. Although the Company currently does not have a staffing
shortage, a shortage of nurses in geographic areas in which the Company operates
could adversely affect the ability of the Company to attract and retain
qualified nursing personnel and could increase its operating costs. The Company
competes with other health care providers for the services of nurses and other
professional and non-professional employees. The Company expects that its labor
costs will increase in the future, and there can be no assurance that such cost
increases will be matched by timely corresponding reimbursement rate increases.
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CORPORATE TARGETS' SPECIAL MEETINGS
THE NCI SPECIAL MEETING
A special meeting of the shareholders of NCI (the "NCI Special Meeting") is
scheduled to be held on June 23, 1995, at 10:00 a.m. (local time) at the offices
of NCI or such other location as is specified in the official notice of the NCI
Special Meeting delivered with this Prospectus/Information Statement. The
purpose of the NCI Special Meeting is to consider and vote upon the approval of
the Share Exchange and the approval and adoption of the Share Exchange
Agreement, and the transactions contemplated thereby, and also to approve
certain payments pursuant to employment agreements between NCI and certain
members of NCI management and certain option vesting schedules. See "OTHER
MATTERS TO BE VOTED UPON BY NCI VOTING COMMON SHAREHOLDERS." Only shareholders
of record as of May 19, 1995 (the "Record Date") will be entitled to vote at the
NCI Special Meeting. In accordance with the IBCL, holders of the NCI Voting
Common Shares and NCI Nonvoting Common Shares will vote on the approval of the
Share Exchange and the approval and adoption of the Share Exchange Agreement as
separate voting groups. On the Record Date there were 7,431,460 NCI Voting
Common Shares outstanding and 76,592 NCI Nonvoting Common Shares outstanding.
Each NCI Voting Common Share and NCI Nonvoting Common Share is entitled to one
vote on the approval of the Share Exchange and approval and adoption of the
Share Exchange Agreement. The Share Exchange must be approved and the Share
Exchange Agreement must be approved and adopted by the holders of a majority of
the outstanding NCI Voting Common Shares, or 3,715,731 shares, and by the
holders of a majority of the outstanding NCI Nonvoting Common Shares, or 38,297
shares. Of the NCI Voting Common Shares entitled to vote on such approval and
adoption, 6,384,633 shares representing approximately 85.9% of the outstanding
NCI Voting Common Shares entitled to vote at the NCI Special Meeting are held by
directors and executive officers of NCI and their affiliates. The directors and
executive officers of NCI intend to vote such shares FOR approval of the Share
Exchange and approval and adoption of the Share Exchange Agreement. In addition,
Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe, Jr., who together hold
approximately 80.9% of the outstanding NCI Voting Common Shares, have
contractually agreed to vote all such NCI Voting Common Shares FOR such approval
and adoption.
NCI has entered into employment agreements (the "Employment Agreements")
with each of the following members of its management: Phillip W.
Caldwell -- Vice President of Operations; J. Mark Mutz -- Vice President and
General Counsel; Charles Cooper -- Vice President of Marketing; James
Burkhart -- Chief Financial Officer; and John Lines -- Controller. The
Employment Agreements generally provide for NCI to pay to the applicable
employees a base salary and an incentive bonus if a "Change in Control
Transaction," as defined in the Employment Agreements, occurs during the term of
such agreements (the "Incentive Bonuses"). Also, under the Employment
Agreements, if the applicable employee terminates his employment with NCI for
"good reason," as defined in the Employment Agreements, or if NCI terminates the
employee without cause, and following a Change in Control Transaction, the
employee is entitled to a payment (the "Severance Payments") (the Incentive
Bonuses and Severance Payments are collectively referred to herein as the
"Employment Agreement Payments") calculated as the greater of the employee's
base salary for the remainder of the term (the "Remainder Amount") or a
specified multiple of the employee's base salary (the "Severance Multiple"). In
addition, pursuant to the terms of two restricted stock grant agreements, 3,000
NCI Voting Common Shares previously granted to both Philip W. Caldwell and
Charles Cooper will vest and become unrestricted at the Effective Time (the
"Accelerated Vestings"). In order to avoid treatment of the Employment Agreement
Payments and the Accelerated Vestings as "excess parachute payments" under the
Code, and thereby precluding a deduction for compensation expense by NCI and
subjecting each employee to a 20% excise tax, NCI is submitting the payment of
the Employment Agreement Payments and the Accelerated Vestings to the holders of
NCI Voting Common Shares for approval.
The presence at the NCI Special Meeting, in person or by proxy, of the
holders of a majority of all the issued and outstanding NCI Voting Common Shares
will constitute a quorum for purposes of voting upon the Employment Agreement
Payments and Accelerated Vestings. Each NCI Voting Common Share is entitled to
one vote with respect to the approval and adoption of the Employment Agreement
Payments and Accelerated
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Vestings. The vote in favor of the Employment Agreement Payments and Accelerated
Vestings of 75% of the outstanding NCI Voting Common Shares, or 5,573,595
shares, is required for the approval of the Employment Agreement Payments and
Accelerated Vestings on behalf of the shareholders of NCI.
RECOMMENDATION OF THE NCI BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF NCI HAS APPROVED THE SHARE EXCHANGE AGREEMENT AND
RECOMMENDS THAT THE NCI SHAREHOLDERS VOTE FOR APPROVAL OF THE SHARE EXCHANGE AND
APPROVAL AND ADOPTION OF THE SHARE EXCHANGE AGREEMENT.
THE MEADOWVALE SPECIAL MEETING
A special meeting of the shareholders of Meadowvale (the "Meadowvale
Special Meeting") is scheduled to be held on June 23, 1995, at 10:00 a.m. (local
time) at the offices of NCI or such other location as is specified in the
official notice of the Meadowvale Special Meeting delivered with this
Prospectus/Information Statement. The purpose of the Meadowvale Special Meeting
is to consider and vote upon the approval of the Share Exchange and the approval
and adoption of the Share Exchange Agreement and the transactions contemplated
thereby. Only shareholders of record as of the Record Date will be entitled to
vote at the Meadowvale Special Meeting. On the Record Date there were 3,000
Meadowvale Common Shares outstanding. Each Meadowvale Share is entitled to one
vote on such adoption and approval. The Share Exchange must be approved and the
Share Exchange Agreement must be approved and adopted by the holders of a
majority of the outstanding Meadowvale Common Shares, or 1,501 shares. Of the
Meadowvale Common Shares entitled to vote on such approval and adoption, 2,404
shares representing approximately 80.1% of the outstanding Meadowvale Common
Shares entitled to vote at the Meadowvale Special Meeting are held by directors
and officers of Meadowvale and their affiliates. The officers and directors of
Meadowvale intend to vote such shares FOR approval of the Share Exchange and
approval and adoption of the Share Exchange Agreement.
RECOMMENDATION OF MEADOWVALE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF MEADOWVALE HAS APPROVED THE SHARE EXCHANGE
AGREEMENT AND RECOMMENDS THAT THE MEADOWVALE SHAREHOLDERS VOTE FOR APPROVAL OF
THE SHARE EXCHANGE AND APPROVAL AND ADOPTION OF THE SHARE EXCHANGE AGREEMENT.
CONSENT OF PEI SHAREHOLDERS
Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe, Jr. own all of the
outstanding PEI Common Shares and are the only members of the Board of Directors
of PEI. They have each contractually agreed to vote all such PEI Common Shares
FOR approval of the Share Exchange and approval and adoption of the Share
Exchange Agreement, and each will execute a written consent, in lieu of a
special meeting, to that effect.
EXPENSES OF SPECIAL MEETINGS
All expenses incurred in connection with the NCI Special Meeting will be
borne by NCI. All expenses incurred in connection with the Meadowvale Special
Meeting will be borne by Meadowvale.
DISSENTERS' RIGHTS
Any Corporate Target shareholder who does not vote in favor of the approval
of the Share Exchange and the approval and adoption of the Share Exchange
Agreement may elect to receive payment of the value of his or her Target Common
Shares in cash in accordance with the procedures set forth in Chapter 44 of the
IBCL ("Chapter 44") as described below. Holders of Hillhaven Common Shares are
not entitled to dissenters' rights in connection with the Share Exchange.
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Any holder of Target Common Shares contemplating the exercise of his or her
right to dissent is urged to review carefully the provisions of Chapter 44
attached as Annex B to this Prospectus/Information Statement. Set forth below,
to be read in conjunction with the full text of Chapter 44, is a summary of the
principal steps to be taken if the right to dissent is to be exercised. EACH
STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF
CHAPTER 44 IN ORDER FOR HOLDERS OF TARGET COMMON SHARES TO PERFECT DISSENTERS'
RIGHTS.
Written Notice to Corporation
Written notice of a shareholder's intent to demand payment for his or her
Target Common Shares pursuant to Chapter 44 in the event the shareholders of NCI
and Meadowvale approve the Share Exchange must be received by NCI or Meadowvale,
as the case may be, before the shareholders vote on approval and adoption of the
Share Exchange Agreement at their respective Special Meetings. Such written
notice should state the number of Target Common Shares as to which dissenters'
rights are being asserted (the "Dissenting Shares") and, if for NCI, should be
sent to the attention of J. Mark Mutz, Suite 800, 9200 Keystone Crossing,
Indianapolis, Indiana, 46240; and, if for Meadowvale, to the attention of Donald
Cheesman, 1529 West Lancaster Street, Bluffton, Indiana, 46714. DISSENTERS'
RIGHTS ARE NOT AVAILABLE UNLESS THIS NOTICE REQUIREMENT IS FULFILLED. Meadowvale
shareholders electing to exercise dissenters' rights are also requested to send
a courtesy copy to J. Mark Mutz, Suite 800, 9200 Keystone Crossing,
Indianapolis, Indiana, 46240.
Voting
Holders of NCI Common Shares or Meadowvale Common Shares who deliver notice
of their intent to dissent from the proposed transactions ("Dissenting
Shareholders") must not vote in favor of the approval of the Share Exchange or
the approval and adoption of the Share Exchange Agreement, but such shareholders
need not vote against such approval and adoption. BECAUSE A PROXY WHICH DOES NOT
CONTAIN VOTING INSTRUCTIONS WILL, UNLESS REVOKED, BE VOTED FOR ADOPTION OF THE
SHARE EXCHANGE AGREEMENT, A HOLDER OF SHARES WHO VOTES BY PROXY AND WHO WISHES
TO EXERCISE HIS OR HER DISSENTERS' RIGHTS MUST (i) VOTE AGAINST OR (ii) ABSTAIN
FROM VOTING ON SUCH APPROVAL AND ADOPTION.
A shareholder who fails to deliver the notice or who votes in favor of the
approval of the Share Exchange and the approval and adoption of the Share
Exchange Agreement is not entitled to demand payment for his or her Target
Common Shares under Chapter 44.
Differing Record and Beneficial Owners
A record shareholder may assert dissenters' rights as to fewer than all NCI
Common Shares or Meadowvale Common Shares registered in that shareholder's name
only if the shareholder dissents (in accordance with the provisions of Chapter
44) with respect to all the NCI Common Shares or Meadowvale Common Shares
beneficially owned by any one person and notifies NCI or Meadowvale in writing
of the name and address of each person on whose behalf the record shareholder is
asserting dissenters' rights.
A person owning a beneficial interest in NCI Common Shares or Meadowvale
Common Shares (a "Beneficial Owner") may assert dissenters' rights as to the NCI
Common Shares or Meadowvale Common Shares held on such Beneficial Owner's behalf
only if (i) the Beneficial Owner submits to NCI or Meadowvale the record
shareholder's written consent to such dissent no later than the time the
Beneficial Owner asserts dissenters' rights, and (ii) the Beneficial Owner
asserts rights (in accordance with the provisions of Chapter 44) with respect to
all the Beneficial Owner's NCI Common Shares or Meadowvale Common Shares or all
those NCI Common Shares or Meadowvale Common Shares over which the Beneficial
Owner has power to direct the vote.
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Notice to Dissenters
If the Share Exchange is approved and the Share Exchange Agreement is
approved and adopted, NCI or Meadowvale, as the case may be, will send a written
notice (the "Dissenters' Notice") to each Dissenting Shareholder within ten days
of such approval. The Dissenters' Notice must (i) supply a form for demanding
payment which includes the date of the first announcement to news media or to
shareholders of the terms of the Share Exchange or the Share Exchange Agreement
and that requires the Dissenting Shareholder to certify whether or not
beneficial ownership of his or her NCI Common Shares or Meadowvale Common Shares
was acquired before such date; (ii) state where the payment demand and
certificates for the shares must be sent and where and when the certificates for
the Dissenting Shares must be deposited; (iii) set a date by which NCI or
Meadowvale, as the case may be, must receive the payment demand and certificates
representing the Dissenting Shareholder's shares; and (iv) be accompanied by a
copy of Chapter 44.
Payment Demand
The Dissenting Shareholder must demand payment by completing the form for
demanding payment and by depositing the certificates formerly representing his
or her NCI Common Shares or Meadowvale Common Shares in accordance with the
terms of the Dissenters' Notice, in order to preserve his or her statutory
dissenters' rights. A Dissenting Shareholder who demands payment and deposits
stock certificates in accordance with the terms of the Dissenters' Notice
retains all other rights as a shareholder until the rights are canceled or
modified by the effectuation of the Share Exchange. A Dissenting Shareholder who
fails to demand payment or deposit stock certificates as required by the
Dissenters' Notice by the respective dates set forth therein is not entitled to
payment for his or her shares under Chapter 44 and is considered to have voted
in favor of the Share Exchange.
Payment of NCI or Meadowvale
Upon the consummation of the Share Exchange, NCI or Meadowvale, as the case
may be, will pay Dissenting Shareholders who have met all statutory conditions
their respective estimates of the fair value of the Dissenting Shares as
determined by NCI or Meadowvale and will provide additional information
specified in Chapter 44. However, NCI or Meadowvale may elect to withhold such
payment from Dissenting Shareholders who acquired beneficial ownership of NCI
Common Shares or Meadowvale Common Shares after the date set forth in the
Dissenters' Notice as the date of the first announcement to news media or
shareholders of the terms of the Share Exchange or the Share Exchange Agreement
("Post Announcement Shareholders"). If NCI or Meadowvale elects to withhold
payment from such shareholders, it will send each Post Announcement Shareholder
an offer accompanied by certain information specified in Chapter 44 to pay NCI's
or Meadowvale's estimate of the fair value of the Dissenting Shares; provided
such holders agree to accept the payment offered in full satisfaction of their
dissenters' demands.
Optional Secondary Payment Demand
Within 30 days after (i) NCI or Meadowvale, as the case may be, pays the
Dissenting Shareholders its estimate of the fair value of their Dissenting
Shares or (ii) NCI or Meadowvale offers to pay the Post Announcement
Shareholders its estimate of the fair value of their Dissenting Shares, each
such shareholder may notify NCI or Meadowvale, as the case may be, of the
shareholder's own estimate of the value of his or her Dissenting Shares (if it
differs from NCI's or Meadowvale's estimate) and demand payment of the
shareholder's estimate of the fair value of the shares less any payment received
from NCI or Meadowvale or reject the offer and demand payment of the Dissenting
Shareholder's estimate of the fair value of the shares, as the case may be.
Petition for Determination of Value
If a demand for payment (whether an original demand or a secondary demand)
by a Dissenting Shareholder remains unsettled 60 days after the receipt by NCI
or Meadowvale of such demand, NCI or Meadowvale, as the case may be, will
commence a proceeding in the Circuit Court of Marion County, Indiana
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(if the proceeding involves an NCI Dissenting Shareholder) or Wells County,
Indiana (if the proceeding involves a Meadowvale Dissenting Shareholder), to
petition the court to determine the fair value of the Dissenting Shares. All
Dissenting Shareholders whose claims remain unsettled at such time will be made
parties to those proceedings. A Dissenting Shareholder will be entitled to
judgment for an amount, if any, by which the court finds the fair value of his
or her shares, plus interest, exceeds any amount paid by NCI or Meadowvale. A
Post Announcement Shareholder will be entitled to judgment for the fair value,
plus accrued interest, of such holder's shares.
The court, in an appraisal proceeding, will determine and assess costs
against all parties in such amounts as the court finds equitable. The court may
assess fees and expenses of counsel and experts against either NCI or Meadowvale
or a Dissenting Shareholder if the court finds that the party against whom the
fees and expenses are assessed did not comply with the requirements of Chapter
44 or acted arbitrarily, vexatiously or not in good faith. In addition, if the
court finds that the services of counsel for any dissenter were of substantial
benefit to other Dissenting Shareholders similarly situated and that the fees
for those services should not be assessed against NCI or Meadowvale, the court
may award to such counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
Effect on Dividends and Voting Rights
A Dissenting Shareholder will retain his or her rights, if any, to vote and
receive dividends until the Share Exchange is consummated. Upon the consummation
of the Share Exchange, a Dissenting Shareholder who has given proper notice and
made a valid demand will cease to be a shareholder and will have no rights with
respect to his or her NCI Common Shares or Meadowvale Common Shares except as
provided in Chapter 44.
BACKGROUND OF AND REASONS FOR THE SHARE EXCHANGE
BACKGROUND OF THE SHARE EXCHANGE
Since its incorporation, NCI has considered various strategies for
stimulating the growth and improving the profitability of its business. In early
October of 1994, these considerations led the Board of Directors of NCI to
explore the possibility of causing NCI to enter into a business combination with
another company. It was believed that such a combination could be in the best
interests of NCI and NCI's shareholders because it could (i) make additional
capital available to fund growth; (ii) provide access to greater expertise in
the areas in which NCI wanted to expand; (iii) maximize shareholder value
generally; and (iv) create a market for NCI shares. In pursuit of this
possibility, NCI's senior management interviewed several investment banking
firms. These firms confirmed NCI's belief that a business combination could be
very beneficial to NCI and its shareholders.
On October 25, 1994, NCI retained Smith Barney, Inc. ("Smith Barney"), an
international investment banking firm, to assist NCI in exploring the
possibility of a business combination. With Smith Barney's assistance, NCI
initiated a process to determine the extent to which other companies would be
interested in a business combination with NCI. To facilitate this process, a
confidential memorandum regarding NCI was prepared and distributed to a number
of companies, including Hillhaven. Such companies were required to enter into
confidentiality agreements with NCI. Hillhaven and NCI executed a
confidentiality agreement on November 7, 1994. Those companies that were
interested in a possible transaction were requested to indicate their interest
in writing by November 21, 1994. Seven companies responded to this request,
including Hillhaven. None of these companies indicated an interest in a
transaction that was acceptable to NCI. Nonetheless, the Board of Directors
decided to continue the process of exploring a transaction that was acceptable
to NCI by providing additional information to the interested companies.
In December of 1994, NCI conducted due diligence presentations for six of
these companies, including Hillhaven. In addition, each of these six companies
received a first draft of a proposed merger agreement. These companies were
asked to comment on the proposed merger agreement and provide a second
indication of their interest in a possible transaction by December 21, 1994.
Hillhaven responded to this request on December 20, 1994. After reviewing the
responses to this request, NCI limited its further discussions to two
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parties, including Hillhaven. NCI invited these parties to perform additional
due diligence and provide additional information regarding a possible
transaction. In January and February 1995, management of Hillhaven performed
additional due diligence, including an on-site inspection of substantially all
of NCI's facilities. In early February, NCI began exclusive negotiations with
Hillhaven. At a special meeting held on February 27, 1995, the Board of
Directors of Hillhaven authorized Hillhaven management to enter into a merger
agreement with NCI and affiliated entities. The Board of Directors of NCI, PEI
and Meadowvale had previously approved the merger agreement on February 27,
1995. Later in the day on February 27, 1995, a merger agreement (the "Merger
Agreement") was executed by the parties. In late March and early April of 1995,
Hillhaven and NCI discussed restructuring the transaction as a statutory share
exchange. The Boards of Directors of NCI, Meadowvale and PEI each approved the
Share Exchange Agreement on April 12, 1995. At a special meeting held on April
12, 1995, the Board of Directors of Hillhaven authorized Hillhaven management to
enter into the Share Exchange Agreement. The Share Exchange Agreement was
executed by the parties on April 14, 1995.
HILLHAVEN'S REASONS FOR THE SHARE EXCHANGE
Following its recapitalization in September 1993, Hillhaven announced that
it would aggressively pursue strategic acquisitions in target markets that add
both short- and long-term value to the Company and its shareholders. Hillhaven
believes that the acquisition of NCI is in furtherance of this strategy.
As a result of the Share Exchange, Hillhaven management believes that the
Company can leverage its higher margin subacute care services by extending them
across a larger group of nursing centers; that the addition of NCI's 23 nursing
centers will complement Hillhaven's 286 nursing centers, which include nine
centers in Indiana, 11 in Ohio and 14 in Florida; that the increased presence in
these markets will allow Hillhaven to provide a broad array of low-cost,
high-quality skilled nursing and subacute care services to enhance its
competitive position in the rapidly evolving health care industry; and that
operating synergies and cost savings anticipated from the elimination of
overlapping operating costs, decreased workers compensation charges and
utilization of Hillhaven's lower borrowing and purchasing costs can be achieved.
The Board of Directors of Hillhaven believes that the Share Exchange and
the terms of the Share Exchange Agreement are in the best interests of its
shareholders. In evaluating the transaction, the Board considered, among other
things, the financial performance, condition, business operations and prospects
of the Nationwide Entities (as defined herein); information with respect to the
prospects of Hillhaven and the Nationwide Entities as combined entities; the
proposed structure of the transaction, including its being accounted for as a
"pooling of interests"; and the opinion of Merrill Lynch. The Board did not
quantify or otherwise attempt to assign relative weights to the specific factors
considered.
On February 27, 1995, Merrill Lynch delivered its opinion (the "Merrill
Lynch Opinion") to the Board of Directors of the Company to the effect that, as
of February 27, 1995, and based on the assumptions made, matters considered and
limits of the review, as set forth in such opinion, the proposed consideration
to be paid by the Company pursuant to the Merger Agreement is fair to the
Company from a financial point of view. After the transaction was restructured,
at the Company's request, Merrill Lynch reviewed a draft of the Share Exchange
Agreement dated April 7, 1995, and delivered a letter to the Board of Directors
of the Company dated April 12, 1995, confirming that nothing contained in the
draft Share Exchange Agreement would have altered the conclusions set forth in
the Merrill Lynch Opinion.
A COPY OF THE MERRILL LYNCH OPINION IS ATTACHED TO THIS
PROSPECTUS/INFORMATION STATEMENT AS ANNEX A. THE SUMMARY OF THE MERRILL LYNCH
OPINION SET FORTH IN THIS PROSPECTUS/INFORMATION STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, reviewed the Nationwide Entities' financial information for the three
fiscal years ended September 30, 1994 and for the quarterly period ending
December 31, 1994; reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended May 31, 1994, the
Company's Forms 10-Q and the related unaudited financial information for the
quarterly periods ended August 31, 1994 and November 30, 1994 and certain other
filings with the SEC made by the Company, including proxy statements and
registration
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statements during the last three years; reviewed certain information relating to
the business, including financial forecasts, earnings, cash flow, assets and
prospects of the Nationwide Entities and the Company, furnished to Merrill Lynch
by the Nationwide Entities and the Company; conducted discussions with members
of senior management of the Nationwide Entities and the Company concerning their
respective businesses and prospects and potential synergies which might be
realized following the transaction; compared the results of the operations of
the Nationwide Entities with those of certain companies which Merrill Lynch
deemed to be reasonably similar to the Nationwide Entities; compared the
proposed financial terms of the transaction with the financial terms of certain
other acquisitions which Merrill Lynch deemed to be relevant; considered the pro
forma effect of the acquisition on the combined company's capitalization ratios
and earnings per share; reviewed a draft of the acquisition agreement dated
February 25, 1995; and reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Merrill Lynch deemed necessary, including an assessment of general economic,
market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by the Nationwide Entities and the Company, and did not
independently verify such information or undertake an independent appraisal of
the assets or liabilities of the Nationwide Entities or the Company or conduct a
physical inspection of the Nationwide Entities' or the Company's properties or
facilities. With respect to the financial forecasts and estimates of potential
synergies furnished by the Nationwide Entities and the Company, Merrill Lynch
assumed that they were reasonably prepared and reflected the best available
estimates and judgment of the Nationwide Entities' or the Company's management
as to the expected future financial performance of the Nationwide Entities or
the Company, as the case may be.
In arriving at the Merrill Lynch Opinion, Merrill Lynch performed a variety
of financial analyses, including discounted cash flow analysis, comparable
public company analysis, comparable acquisition transaction analysis and
contribution analysis. Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the process underlying its analyses set forth in the
Merrill Lynch Opinion. The matters considered by Merrill Lynch in arriving at
the Merrill Lynch Opinion are based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the Company's or
the Nationwide Entities' control. Any estimates incorporated in the analyses
performed by Merrill Lynch are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable than
such estimates. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future, and such estimates are inherently subject to uncertainty. Arriving
at a fairness opinion is a complex process not necessarily susceptible to
partial or summary description. No public company utilized as a comparison is
identical to the Company, the Nationwide Entities' or the business segment for
which a comparison is being made, and none of the comparable acquisitions
utilized as a comparison is identical to the proposed Share Exchange.
Accordingly, an analysis of publicly traded comparable companies and comparable
business combinations resulting from the transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable business
combinations and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared.
The Board of Directors of the Company selected Merrill Lynch to render a
fairness opinion because Merrill Lynch is an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Share Exchange and because it is familiar with the Company and its business.
Merrill Lynch has from time to time rendered, and is currently rendering, other
investment banking, financial advisory and other services to the Company for
which it has received or will receive customary compensation.
The Company has agreed to pay Merrill Lynch a fee of $850,000, of which
$100,000 was payable upon Merrill Lynch's engagement by the Company, $325,000
was payable upon the delivery of the Merrill Lynch Opinion and the remainder
will be payable upon consummation of the Share Exchange. The Company has
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<PAGE> 28
also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including fees and expenses of its legal counsel, and to indemnify
Merrill Lynch and certain related persons against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
THE NATIONWIDE ENTITIES' REASONS FOR THE SHARE EXCHANGE AND RECOMMENDATIONS OF
THE BOARDS OF DIRECTORS
The Boards of Directors of NCI, PEI and Meadowvale, with the assistance of
outside financial and legal advisors, have evaluated the strategic financial,
legal and market considerations bearing on the Share Exchange which they deemed
relevant, including an assessment of potential combinations of the Nationwide
Entities with other parties. Based on this evaluation, the Boards of Directors
of NCI, PEI and Meadowvale believe that the terms of the Share Exchange
Agreement are in the best interests of their respective shareholders and
recommend that shareholders of NCI, PEI and Meadowvale each vote FOR approval of
the Share Exchange and approval and adoption of the Share Exchange Agreement and
the transactions contemplated thereby.
In their respective evaluations of the Share Exchange and the terms of the
Share Exchange Agreement, the Boards of Directors of NCI, PEI and Meadowvale
each considered, among other things, the following: (i) the consideration
offered by Hillhaven in connection with the Share Exchange; (ii) information
concerning the financial condition, results of operations and prospects of the
Nationwide Entities and Hillhaven; (iii) the competitive position of the
Nationwide Entities and Hillhaven in the long term health care industry; (iv)
the possible effects of the Share Exchange on the businesses of the Nationwide
Entities and the shareholders, partners, employees and patients of the
Nationwide Entities; (v) alternatives to the Share Exchange identified by the
respective Boards; (vi) the needs of the respective Corporate Targets for
additional capital to implement their respective business plans; (vii) the fact
that the terms of the Share Exchange and the Share Exchange Consideration (as
defined herein) were the result of a competitive bidding process; (viii) the
expertise in specialty care areas which would become available upon consummation
of the Share Exchange; and (ix) other factors considered relevant by the Boards.
Each of the foregoing factors was considered by the Boards of NCI, PEI and
Meadowvale during the course of their respective deliberations prior to entering
into the Share Exchange Agreement, in light of their respective knowledge of the
Nationwide Entities, their respective businesses and each director's business
judgment. In their deliberations, the Boards did not quantify or otherwise
attempt to assign relative weights to the specific factors considered in
determining to approve and adopt (and recommend that their respective
shareholders approve and adopt) the Share Exchange and the Share Exchange
Agreement. The Boards of Directors of NCI, PEI and Meadowvale, upon review of
the time and expense involved and the circumstances surrounding the Share
Exchange, determined that obtaining a fairness opinion with respect to the Share
Exchange and the terms of the Share Exchange Agreement would not be
cost-beneficial to their respective shareholders.
TERMS AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT
The following is a brief summary of the Share Exchange Agreement. This
summary is qualified in its entirety by reference to the Share Exchange
Agreement.
EFFECTIVE TIME OF THE SHARE EXCHANGE
If all of the conditions precedent to the Share Exchange are satisfied or
waived and the Share Exchange Agreement is not terminated prior to closing, the
Share Exchange will become effective (the "Effective Time") as of 12:01 a.m.,
Eastern Standard Time, on the date following the date that Hillhaven and the
Corporate Targets file the Articles of Share Exchange with the Secretary of
State of the State of Indiana and the Secretary of State of the State of Nevada
pursuant to the provisions of and with the effect provided in the IBCL and the
NGCL. Assuming all of the conditions precedent to the Share Exchange are
satisfied or waived prior thereto, it is anticipated that the closing of the
transactions contemplated by the Share Exchange Agreement will occur on or about
June 30, 1995 (the "Closing") and that the Effective Time of the Share Exchange
will occur on or about 12:01 a.m., July 1, 1995.
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<PAGE> 29
SHARE EXCHANGE CONSIDERATION AND MECHANICS
The shares of each of the Corporate Targets issued and outstanding
immediately prior to the Effective Time (the "Target Common Shares") will, as of
the Effective Time, be automatically exchanged for Hillhaven Common Shares as
follows:
NCI Shareholders
Each holder of NCI Voting Common Shares shall receive a number of Hillhaven
Common Shares equal to the product of (i) 0.564 multiplied by (ii) the
number of NCI Voting Common Shares held in such shareholder's name, rounded
to the nearest whole share.
Each holder of NCI Nonvoting Common Shares shall receive a number of
Hillhaven Common Shares equal to the product of (i) 0.564 multiplied by
(ii) the number of shares of NCI Nonvoting Common Shares held in such
shareholder's name, rounded to nearest whole share.
PEI Shareholders
Each shareholder of PEI shall receive a number of Hillhaven Common Shares
equal to the product of (i) 41.67 multiplied by (ii) the number of shares
of PEI held in such shareholder's name, rounded to the nearest whole share.
Meadowvale Shareholders
Each shareholder of Meadowvale shall receive a number of Hillhaven Common
Shares equal to the product of (i) 41.67 multiplied by (ii) the number of
shares of Meadowvale held in such shareholder's name, rounded to the
nearest whole share.
The total consideration to be received by the holders of the Target Common
Shares in connection with the Share Exchange is referred to herein as the "Share
Exchange Consideration." The aggregate Share Exchange Consideration will consist
of 5,000,000 Hillhaven Common Shares, provided the average closing price of one
Hillhaven Common Share as reported on the NYSE for the ten trading days
immediately preceding the Closing Date (the "Trading Price") is greater than or
equal to $24.00. If the Trading Price is less than $24.00, the Share Exchange
Consideration shall consist of the number (the "Consideration Number") of
Hillhaven Common Shares equal to the quotient of $120,000,000, divided by the
Trading Price; provided, however, that the Consideration Number shall not be
greater than 5,500,000 Hillhaven Common Shares. In the event of such an
adjustment in the Share Exchange Consideration, the number of Hillhaven Common
Shares to be received in exchange for each Target Common Share shall be
multiplied by a fraction, the numerator of which is the number of Hillhaven
Common Shares which comprise the Share Exchange Consideration as adjusted
pursuant to the formula described above, and the denominator of which is
5,000,000.
The Boards of Directors of each of the Corporate Targets and the Partners
determined the allocation of the Share Exchange Consideration among themselves
and executed an Allocation Agreement whereby they agreed to such allocation. In
allocating the Share Exchange Consideration among the Corporate Targets, the
Board of Directors of each of the Corporate Targets and the Partners considered
the following: (i) the aggregate amount of Hillhaven Common Shares to be issued
in connection with the Share Exchange; (ii) the market value of the Hillhaven
Common Shares; (iii) the separate negotiations between Dr. Phillippe, Chairman
of the Board of NCI, and Donald Cheesman, President of Meadowvale, as to the
allocation of the Share Exchange Consideration to Meadowvale; (iv) the fact that
NCI already owned 99% or more of the partnership interests of Camelot and
Evergreen; (v) the recent financial results and prospects for each of the
Targets; (vi) projected income statements for each of the Targets; (vii) an
appraisal of "The Heritage at Hernando," the assisted living facility owned by
PEI; (viii) the number of beds/units involved in the Share Exchange; and (ix)
other information involved in the Share Exchange, as the respective Boards of
Directors and Partners deemed appropriate.
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<PAGE> 30
Based upon the capitalization of Hillhaven as of April 1, 1995, and
assuming no adjustment of the Share Exchange Consideration as described above,
the owners of NCI Common Shares will own Hillhaven Common Shares representing
approximately 13.2% of the Hillhaven Common Shares outstanding immediately after
the consummation of the Share Exchange.
At the Closing, the Partners will assign to NCI, free and clear of all
liens, security interests and encumbrances, their Partnership Interests. The
Partners will not receive any Share Exchange Consideration therefor.
At the Closing, each holder of Target Common Shares shall deliver to
Hillhaven each certificate (a "Certificate") for such shares held of record by
such holder. Promptly following the Effective Time, Hillhaven will deliver (i)
to each holder so delivering his, her or its Certificate(s) representing the
number of Hillhaven Common Shares such holder is entitled to receive, less the
number of Hillhaven Common Shares to be delivered to the escrow agent, and (ii)
to the escrow agent, certificates of Hillhaven Common Shares representing the
balance of the shares otherwise deliverable to such holders. See "Escrow
Agreement and Supplemental Escrow Agreement."
No certificates or scrip representing fractional Hillhaven Common Shares
shall be issued as consideration for the Share Exchange, and holders of any such
fractional share interests shall not be entitled to any voting, dividend,
distribution or other rights as a Hillhaven shareholder with respect to such
fractional share interest. Following the Effective Time, all certificates
formerly representing an equity interest in the Corporate Targets' Common Shares
shall be deemed canceled and of no further effect. If, after the Effective Time,
Certificates previously representing Target Common Shares are not delivered to
Hillhaven or the payment of the Share Exchange Consideration therefor is not
claimed prior to the date on which such payments would otherwise escheat or
become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by abandoned property and any other applicable
law, become the property of Hillhaven, free and clear of all claims or interest
of any person previously entitled to such claims.
CERTIFICATES AND INSTRUMENTS REPRESENTING EQUITY INTERESTS IN THE NATIONWIDE
ENTITIES SHOULD NOT BE SURRENDERED TO HILLHAVEN UNTIL THE EFFECTIVE TIME OF THE
SHARE EXCHANGE.
REDEMPTION OF NCI SUBORDINATED NOTES AND NCI PREFERRED STOCK
At the Closing, the Senior Subordinated Notes of NCI (the "NCI Subordinated
Notes") shall be prepaid by Hillhaven (without payment of any "Additional
Premium" as that term is defined in that certain Subordinated Note Purchase
Agreement dated as of July 27, 1993 between NCI and Continental Bank, N.A.) and
the NCI preferred stock (the "NCI Preferred Stock") shall be redeemed by NCI,
each in accordance with the respective terms thereof.
ESCROW AGREEMENT AND SUPPLEMENTAL ESCROW AGREEMENT
As security for, and as the sole source for satisfaction of, certain
indemnification obligations provided for under the Share Exchange Agreement, 10%
of the number of Hillhaven Common Shares that comprise the Share Exchange
Consideration (the "Escrow Shares") will be placed in escrow by the Target
shareholders with Bank One, Indianapolis, N.A. (the "Escrow Agent"), to remain
in escrow until Hillhaven's independent accountants have completed the first
audit following the Effective Time of Hillhaven's and the Nationwide Entities'
combined operations, but not later than one year after the Closing Date.
In addition, as security for the indemnification obligations with respect
to certain litigation, 5% of the number of Hillhaven Common Shares that comprise
the Share Exchange Consideration shall be transferred by the shareholders of NCI
(the "Supplemental Escrow Shares") to be placed in escrow by the Target
shareholders with Bank One, Indianapolis, N.A. (the "Supplemental Escrow
Agent"), to remain in escrow until the earlier of the date certain litigation
has been finally settled or otherwise finally resolved or the date that an
unappealable summary judgment to the effect that punitive damages will not be
allowed in such litigation has been granted.
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<PAGE> 31
Pursuant to each of the escrow agreements described above, Thomas E.
Phillippe, Jr. is appointed as attorney-in-fact (the "Shareholder Agent") to act
as the agent of the shareholders in the performance of all of their obligations
and exercise all of their rights under such agreements. All voting and dividend
rights with respect to the Escrow Shares and Supplemental Escrow Shares remain
with such shareholders. The Shareholder Agent may also direct the Escrow Agent
and Supplemental Escrow Agent to sell one or more of the Escrow Shares or
Supplemental Escrow Shares on the NYSE and deposit the proceeds into the
appropriate escrow account, which proceeds shall be distributed, designated,
withheld and otherwise subject to the terms of such agreements.
REPRESENTATIONS AND WARRANTIES
Each of the Corporate Targets, Partners and Hillhaven made various
representations and warranties in the Share Exchange Agreement relating to,
among other things, (a) organization, power and similar corporate or partnership
matters; (b) capital structure and partnership interests; (c) authorization,
execution, delivery, no violation and enforceability of the Share Exchange
Agreement and related matters; (d) consents and approvals; (e) compliance with
laws and no defaults; (f) tax representations; (g) brokers' or finder's fees;
and (h) accuracy of information supplied in connection with this
Prospectus/Information Statement.
In addition, the Corporate Targets and Partners jointly and severally made
various additional customary representations and warranties relating to, among
other things, (a) transactions with certain persons; (b) books and records; (c)
financial statements; (d) absence of undisclosed liabilities; (e) actions
pending; (f) outstanding debt and related matters; (g) tax matters; (h) absence
of changes or events; (i) property; (j) material contracts; (k) licenses and
permits; (l) proprietary information; (m) title to assets and related matters;
(n) environmental matters; (o) labor relations and employees; (p) employee
benefit plans; (q) insurance; (r) life care contracts; (s) survey reports; (t)
payment programs; and (u) gratuitous payments.
Hillhaven also made various customary representations and warranties
relating to, among other things, filing of SEC reports and due authorization and
qualification for trading of Hillhaven Common Shares to be issued as Share
Exchange Consideration.
All of the representations and warranties made by the Corporate Targets,
Partners and Hillhaven in the Share Exchange Agreement shall survive until the
date Hillhaven's independent accountants have completed the first audit
following the Effective Time of Hillhaven's and the Nationwide Entities'
combined operations, but not later than one year after the Closing Date, except
for certain indemnification obligations which shall survive until the release of
the Escrow Shares and Supplemental Escrow Shares.
CERTAIN COVENANTS
Under the Share Exchange Agreement, until Closing the Corporate Targets and
the Partners have made certain customary covenants relating to, among other
things, (a) the conduct of their operations in the ordinary course of business;
(b) the maintenance of their corporate status; (c) no change in the number of
issued and outstanding Target Common Shares, other than as a result of the
exercise of outstanding warrants or options; (d) cooperation with Hillhaven and
its agents in the preparation of this Prospectus/Information Statement and the
consummation of the transactions contemplated by the Share Exchange Agreement;
(e) the recommendation to each of their shareholders by each of their Boards of
Directors to approve and adopt the Share Exchange Agreement and the Share
Exchange at shareholders' meetings called for such purpose, which meetings shall
be held as soon as practicable (but not earlier than 20 business days) following
effectiveness of the Registration Statement of which this Prospectus/Information
Statement is a part; (f) the timely filing and/or payment of all required tax
reports, returns or assessments; (g) reasonable access by Hillhaven and its
agents to their respective books and records; (h) the maintenance of the types
and levels of insurance currently in effect; (i) the provision of monthly
unaudited financial statements; (j) notice of any material adverse change in the
assets or financial condition, results of operations, business or properties of
the Nationwide Entities taken as a whole; (k) the filing of all forms,
applications and reports, including all filings required by the HSR Act, and the
taking of such other action which is required to be taken or filed in
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<PAGE> 32
connection the transactions contemplated by the Share Exchange Agreement; and
(1) taking no actions that would prevent the Share Exchange from qualifying for
pooling of interests accounting treatment.
The Corporate Targets and Partners have also agreed that, unless and until
the Share Exchange Agreement is terminated pursuant to its terms, the Corporate
Targets and Partners shall not, and shall cause its officers, directors,
partners, employees and other agents not to, directly or indirectly, take any
action to solicit, initiate or encourage the making of any offer or proposal
for, or any indication of interest in, a merger or other business combination
involving any of the Nationwide Entities or the acquisition of a majority of the
equity interest in, or a majority of the assets of, any of the Nationwide
Entities, other than the transactions contemplated by the Share Exchange
Agreement (an "Acquisition Proposal"). Further, the Corporate Targets and
Partners have agreed to promptly notify Hillhaven after receipt of any
Acquisition Proposal or any request for nonpublic information relating to any
Acquisition Proposal.
The Corporate Targets have agreed to use their best efforts to obtain the
necessary shareholder approvals of the Share Exchange Agreement and the Share
Exchange. The Corporate Targets and the Partners have also agreed to use their
best efforts to cause their "affiliates" (as defined in Rule 145 under the
Securities Act) to (a) deliver written agreements not to offer to sell, sell or
otherwise dispose of the Hillhaven Common Shares received as the Share Exchange
Consideration except pursuant to an effective registration statement or in
compliance with Rule 145 under the Securities Act or in a transaction that, in
the opinion of legal counsel satisfactory to Hillhaven, is exempt from the
registration requirements of the Securities Act, and (b) not take any action
that would impair Hillhaven's ability to account for the Share Exchange as a
pooling of interests. Additionally, NCI has agreed to use its reasonable best
efforts to terminate that certain option of a third party to purchase the
Marietta nursing facility; provided that the terms of such termination will be
reasonably acceptable to Hillhaven and Hillhaven shall assist NCI as considered
necessary in negotiating such termination. Finally, to the extent that it is
within their control, the Corporate Targets and Partners have agreed to use
their best efforts to cause the conditions precedent to the performance of their
obligations under the Share Exchange Agreement to be satisfied.
Hillhaven has made certain customary covenants relating to, among other
things, (a) the filing of all forms and other documents necessary to be filed
pursuant to the HSR Act as promptly as practicable and to cooperate with the
Nationwide Entities to allow early termination of the waiting period provided by
the HSR Act; (b) to promptly prepare and file with the SEC a Registration
Statement of which this Prospectus/ Information Statement is part and use its
reasonable efforts to cause such Registration Statement to be declared effective
as promptly as practicable; (c) to qualify the Hillhaven Common Shares to be
issued as the Share Exchange Consideration for trading on the NYSE effective
upon notice of issuance; (d) to approve the Share Exchange Agreement and the
Share Exchange; (e) notice of any material adverse change in the assets or
financial condition, results of operations, business or properties of Hillhaven
and its subsidiaries taken as a whole; (f) taking no actions that would prevent
the Share Exchange from qualifying for pooling of interests accounting
treatment; (g) to cause its independent accountants to deliver to Hillhaven a
letter with respect to whether the Share Exchange will qualify for pooling of
interests treatment; and (h) to make certain tax representations and warranties.
In addition, Hillhaven has agreed to use its best efforts to obtain all
necessary consents from its principal lenders by April 28, 1995, and to use its
reasonable efforts to (i) obtain all other consents and approvals necessary to
enable it to consummate the transactions contemplated by the Share Exchange
Agreement and (ii) cause to have performed by April 28, 1995, at Hillhaven's
expense, Phase I environmental surveys of all long term health care facilities
currently operated by but not owned by the Nationwide Entities and to be
operated by the Nationwide Entities following Closing.
CONDITIONS TO THE SHARE EXCHANGE
The obligations of the Corporate Targets and Partners to consummate the
Share Exchange are subject to the satisfaction, at the Closing, of a number of
conditions, including, but not limited to, the following: (a) the truth and
correctness in all material respects at the Closing of the representations and
warranties made by Hillhaven in the Share Exchange Agreement; (b) the due
authorization and approval, and the performance, compliance and fulfillment by
Hillhaven of all covenants, agreements, obligations and conditions required by
the Share Exchange Agreement to be performed, complied with or fulfilled by it
at or prior to the Closing;
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(c) all material permits, authorizations, approvals and consents of and notices
to any governmental entity or third party necessary for the consummation of the
transactions by the Share Exchange Agreement shall have been obtained or made;
(d) the Registration Statement of which this Prospectus/Information Statement is
a part shall have become effective under the Securities Act and the Hillhaven
Common Shares to be issued as the Share Exchange Consideration shall have become
qualified or registered (or shall be exempt from such qualification or
registration) under comparable state securities laws, and at or prior to the
Effective Time, no stop order suspending such effectiveness, qualification or
registration shall have been issued and no proceeding seeking such a stop order
shall have been initiated, threatened or contemplated, and such Hillhaven Common
Shares shall be eligible for trading on the NYSE upon notice of issuance; (e) no
order, decree, writ or ruling of any governmental authority or court shall have
been entered that restrains, enjoins or otherwise prohibits the consummation of
the transactions contemplated by the Share Exchange Agreement; (f) in the
reasonable judgment of the Nationwide Entities, there has been no material
adverse change and no event likely to result in any material adverse change in
the assets, business, financial condition or results of operations of Hillhaven
and its subsidiaries, taken as a whole; (g) all notifications required by the
HSR Act shall have been filed by the Nationwide Entities, and the applicable
waiting periods with respect thereto shall have expired or been terminated; (h)
each of the Nationwide Entities shall have received from Hillhaven all of the
instruments, documents and considerations required to be delivered pursuant to
the Share Exchange Agreement; (i) NCI shall have received an opinion from its
counsel regarding certain tax matters; and (j) certain personal guarantees by
shareholders of the Corporate Targets and/or Partners of the Partnership Targets
shall have been released or NCI shall have agreed to indemnify such shareholders
and/or Partners for any losses resulting from such guarantees.
The obligation of Hillhaven to consummate the Share Exchange is subject to
the satisfaction, at the Closing, of a number of conditions, including, but not
limited to, the following: (a) the truth and correctness in all material
respects at the Closing of the representations and warranties made by the
Corporate Targets and Partners in the Share Exchange Agreement; (b) the
performance, compliance and fulfillment by the Corporate Targets and Partners of
all covenants, agreements, obligations and conditions required by the Share
Exchange Agreement to be performed, complied with or fulfilled by them at or
prior to the Closing; (c) the applicable waiting period under the HSR Act
relating to the Share Exchanges shall have expired or been terminated; (d) all
material permits, authorizations, approvals and consents of and notices to any
governmental entity or third party necessary for the consummation of the
transactions by the Share Exchange Agreement shall have been obtained or made;
(e) no order, decree, writ or ruling of any governmental authority or court
shall have been entered that restrains, enjoins or otherwise prohibits the
consummation of the transactions contemplated by the Share Exchange Agreement;
(f) in the reasonable judgment of Hillhaven, there has been no material adverse
change and no event likely to result in any material adverse change in the
assets, business, financial condition or results of operations of the Nationwide
Entities and their subsidiaries, taken as a whole; (g) Hillhaven shall have
received from the Nationwide Entities all of the instruments, documents and
considerations required to be delivered pursuant to the Share Exchange
Agreement; (h) holders in excess of 5% of the Target Common Shares shall not
have exercised dissenters' rights under applicable law; (i) Hillhaven shall have
received a letter and an opinion from its independent accountants regarding
certain tax matters; (j) all warrants issued by NCI shall have been exercised
prior to the Closing; and (k) the lease of one of the Nationwide Entities'
facilities shall have been renewed for an additional five year term, and the
Nationwide Entities shall have used their reasonable efforts to modify the lease
for a different facility to provide for a five-year extension; and (1) the
option of certain third parties to purchase the Cambridge and Parkwood
facilities shall have been terminated in return for certain consideration.
INDEMNIFICATION AND SUPPLEMENTAL INDEMNIFICATION
Pursuant to the Share Exchange Agreement, Hillhaven shall be indemnified
and held harmless from and against any damages, loss, cost, liability or expense
("Losses") that may be incurred by or suffered by or asserted against Hillhaven
or any of its subsidiaries (collectively, the "Indemnified Party"), but without
duplication, arising out of or related to, directly or indirectly, the
incorrectness of any of the representations or warranties made by the Corporate
Targets and Partners, or the breach prior to the Effective Time of any of the
covenants or agreements of any of the Corporate Targets or Partners contained in
the Share Exchange
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Agreement or in any other instrument executed and delivered by the Corporate
Targets or Partners. Notwithstanding the foregoing, the Indemnified Party shall
generally be entitled to indemnification only when the aggregate Losses exceed
$250,000. Except in certain specified cases, all Losses shall be paid or
satisfied only by distribution to Hillhaven of the Escrow Shares and cash, if
any, held by the Escrow Agent. Except with respect to Supplemental Losses
(defined below), such payment and satisfaction shall be the exclusive remedy for
any breach of a representation or warranty by or a covenant of any Corporate
Target or Partner. See "Escrow Agreement and Supplemental Escrow Agreement."
In addition to the indemnification described above, pursuant to the Share
Exchange Agreement, any Indemnified Party shall be indemnified and held harmless
from and against any Losses that may be incurred by or suffered by or asserted
against any such Indemnified Party, but without duplication, arising out of or
related to, directly or indirectly, certain pending litigation (such Losses,
"Supplemental Losses"). All Supplemental Losses shall be paid or satisfied only
by distribution to Hillhaven of the Supplemental Escrow Shares and cash, if any,
held by the Escrow Agent. Such payment and satisfaction shall be the exclusive
remedy of Hillhaven for the occurrence of Supplemental Losses. See "Escrow
Agreement and Supplement Escrow Agreement."
NONCOMPETITION AGREEMENTS
Pursuant to the Share Exchange Agreement, the Nationwide Entities shall
deliver or cause to be delivered to Hillhaven at the Closing, two noncompetition
agreements, one by and between Hillhaven and Dr. Thomas E. Phillippe, Sr.,
Chairman of the Board of NCI, and the other by and between Hillhaven and Thomas
E. Phillippe, Jr., President and Chief Executive Officer of NCI (together, the
"Noncompetition Agreements"). The Noncompetition Agreements describe the
business activities (the "Business Activities") currently conducted by the
Corporate Targets and the Partnership Targets. Pursuant to the Noncompetition
Agreements, Dr. Phillippe and Mr. Phillippe will each individually agree that,
for a period of five years from the Effective Time, neither will, directly or
indirectly: (a) have an interest in, own, manage, operate, control, be connected
with as a shareholder (other than as a shareholder of less than 5% of the issued
and outstanding stock of a publicly held corporation), joint venturer, partner,
limited liability company member or manager, or consultant, or otherwise engage
or invest or participate in, or enjoy a financially beneficial relationship
with, any business which conducts any of the Business Activities within a five
mile radius of any facility or location at or from which Hillhaven or any of its
affiliates conducts any of the Business Activities; (b) solicit, recruit or hire
any employee of Hillhaven, or any of its affiliates or any person who has worked
for such entities within the six months preceding such solicitation, recruitment
or hire; or (c) solicit or encourage any employee of Hillhaven, or any of its
affiliates to leave such employment. The Noncompetition Agreements provide for
binding arbitration to resolve any claim or controversy relating to the breach,
interpretation or enforcement of such Agreements, and are enforceable by
specific performance. No consideration will be paid or allocated to Dr.
Phillippe or Mr. Phillippe in connection with the Noncompetition Agreements.
AGREEMENT AMONG CORPORATE TARGET SHAREHOLDERS
Pursuant to the Share Exchange Agreement, the Nationwide Entities shall
deliver or cause to be delivered to Hillhaven, at the Closing, certain
Agreements Among Shareholders (the "Shareholders' Agreements") by and among all
of the shareholders of each of the Corporate Targets (each a "Shareholder" and
collectively the "Shareholders"). In order to facilitate the delivery of certain
legal opinions to be delivered at Closing concerning the tax treatment of the
Share Exchange, under the Shareholders' Agreements each Shareholder shall
represent, warrant and covenant that such Shareholder will not dissent in or to
the transactions contemplated in connection with the Vencor Merger. Each
Shareholder shall also severally represent, warrant and covenant to the other
Shareholders that he, she or it has no plan, intention or arrangement to sell,
exchange, pledge, or otherwise dispose of a number of the Hillhaven Common
Shares received as Share Exchange Consideration (or shares of Vencor common
stock received in the Vencor Merger) that would reduce such person's ownership
of such Hillhaven Common Shares (or shares of Vencor common stock) to a number
having a value, determined at the Effective Time, of less than 50% of the value
of Corporate Target stock held by such person immediately before the Share
Exchange. Further, pursuant to the
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<PAGE> 35
Shareholders' Agreements, a Shareholder may sell, exchange, pledge, or otherwise
dispose of any of the Hillhaven Common Shares received as Share Exchange
Consideration (or shares of Vencor common stock received in the Vencor Merger)
provided such disposition would not reduce the fair market value of the
Hillhaven Common Shares (or shares of Vencor common stock), determined as of the
Effective Time, by such Shareholder to an amount less than 50% of the fair
market value of the Corporate Target stock held by such Shareholder immediately
before the Share Exchange. A Shareholder may not sell, exchange, pledge, or
dispose of more than 50% of such Shareholder's Hillhaven Common Shares (or
shares of Vencor common stock received in the Vencor Merger) within the two-year
period immediately following the Effective Time, or within two years of the
effective time of the Vencor Merger, whichever is later, unless: (a) such
Shareholder obtains and delivers to Thomas E. Phillippe, Jr., acting as a
representative of all the Shareholders (the "Representative"), an unqualified
opinion of counsel (from counsel reasonably acceptable to the Representative,
and in a form acceptable to the Representative) to the effect that such sale,
exchange, pledge, or disposition would not adversely affect the tax-free status
of the Share Exchange; and (b) the Representative and Dr. Thomas E. Phillippe,
Sr. (the "Phillippes") jointly consent in writing to such sale, exchange,
pledge, or disposition. The Phillippes shall use reasonable efforts to reply to
a request for a disposition of shares pursuant to clause (b) above within 30
days of receipt of a written notice of a Shareholder's request to sell shares
pursuant to such clause.
ADDITIONAL AGREEMENTS
Pursuant to the Share Exchange Agreement, Hillhaven has agreed to continue
in full force and effect the employee benefit plans of the Nationwide Entities
existing at the Effective Time until those employees of the Nationwide Entities
who continue as employees of the Nationwide Entities or Hillhaven in the Share
Exchange become eligible to participate in the employee benefit plans of
Hillhaven. In addition, Hillhaven has agreed to recognize such transferred
employees' service with any of the Nationwide Entities for purposes of
eligibility and vesting under such Hillhaven plans. Hillhaven has also agreed
that prior to any termination of certain named employees, Hillhaven will give
such employees thirty days notice and will pay such terminated employees one
week's salary for each year such employee has been employed by NCI or its
affiliates, less applicable withholdings. Hillhaven has specifically agreed it
will cause NCI to honor and perform after the Effective Time the obligations of
NCI pursuant to the Employment Agreements. See "CORPORATE TARGETS' SPECIAL
MEETINGS -- The NCI Special Meeting" and "OTHER MATTERS TO BE VOTED UPON BY NCI
VOTING COMMON SHAREHOLDERS."
Prior to the Effective Time, Meadowvale will transfer to Donald Cheesman
("Cheesman") certain real property including land and a home built thereon which
is owned by Meadowvale. Meadowvale will also pay to Cheesman all amounts owing
by Meadowvale to Cheesman pursuant to that certain Promissory Note dated
February 1, 1986 executed by Meadowvale in favor of Cheesman. The parties to the
Share Exchange Agreement have agreed that none of the transactions described in
this paragraph will affect the amount of Share Exchange Consideration to be paid
pursuant to the Share Exchange Agreement.
Hillhaven has also agreed that it will not take or cause to be taken any
action, and will not permit its affiliates to take or cause to be taken any
action within Hillhaven's control, whether before or after the Effective Time,
which would disqualify any of the transactions contemplated by the Share
Exchange Agreement as a "reorganization" for tax purposes. In connection
therewith, Hillhaven has agreed not to participate in any tax-free
reorganization or share exchange without first obtaining an unqualified opinion
of its independent accountants, such opinion to be acceptable to the
Representative, that such transaction will not disqualify the Share Exchange as
a tax-free reorganization and providing such opinion to the Representative. In
addition, to permit the sale of Hillhaven Common Shares received as Share
Exchange Consideration and to preserve certain accounting treatment of the
transactions contemplated by the Share Exchange Agreement, Hillhaven has agreed
to publish the financial results of the combined operations of Hillhaven and the
Nationwide Entities, covering at least 30 days of such combined operations, no
later than the last to occur of (a) 60 days following the end of the month in
which the Closing occurs or (b) 10 days following delivery of such financial
information with respect to the operations previously owned by the Nationwide
Entities as Hillhaven considers reasonably necessary to prepare such combined
financial results.
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<PAGE> 36
Because the facility owned by Shangri-La has been purchased by a third
party, (a) the partners of Shangri-La are not considered parties to the original
merger agreement or the Share Exchange Agreement and such partners have been
released and forever discharged from all obligations thereunder, including
without limitation, any obligation to assign their partnership interests to NCI
and any representation or warranty in the Share Exchange Agreement, and (b)
Hillhaven and NCI have been released and forever discharged from all obligations
to the partners of Shangri-La pursuant to the original merger agreement and the
Share Exchange Agreement, and the obligation of Hillhaven to cause NCI to pay
$313,408 to Thomas E. Phillippe, Sr. has been released.
At the Closing, the officers and directors of each of the Corporate Targets
shall deliver their resignations, and Hillhaven shall receive evidence of
redemption of the NCI Preferred Stock.
Hillhaven has agreed to indemnify the Nationwide Shareholders for any
losses that may be incurred arising out of the incorrectness of any
representations or warranties of Hillhaven in the Share Exchange Agreement or
for any breach of any covenants of Hillhaven contained in the Share Exchange
Agreement. Except in the case of fraud, this indemnification obligation survives
until Hillhaven's independent accountants have completed the first audit
following the Effective Time of Hillhaven's and the Nationwide Entities'
combined operations, but not later than one year following the Closing Date.
Hillhaven and the Nationwide Entities entered into a Confidentiality
Agreement dated November 7, 1994, which will remain in full force and effect at
all times prior to the Effective Time and after termination, if any, of the
Share Exchange Agreement.
TERMINATION
The Share Exchange Agreement provides that it may be terminated by mutual
agreement of the parties at any time prior to the Closing. Hillhaven, on the one
hand, and the Corporate Targets and Partners, on the other hand, may terminate
the Share Exchange Agreement and any of their respective obligations thereunder
(other than those respecting confidentiality) at any time prior to the Closing
by written notice if, in any of their respective judgments, (a) there has been a
breach or failure to perform in any material respect any of the other parties'
covenants or obligations under the Share Exchange Agreement; (b) any
representation or warranty made by the other party in the Share Exchange
Agreement is false or misleading in any material respect and cannot be cured
prior to July 31, 1995; or (c) any other material condition precedent to the
performance of their respective obligations under the Share Exchange Agreement
is not capable of being met. In addition, the Corporate Targets and Partners may
terminate the Share Exchange Agreement by written notice if the average closing
price of one Hillhaven Common share as reported on the NYSE for the 10 trading
days immediately preceding the Closing Date is less than $21.82 or the Share
Exchange is not consummated by July 31, 1995.
SUPPLEMENT, MODIFICATION OR AMENDMENT OF THE SHARE EXCHANGE AGREEMENT
No supplement, modification or amendment of the Share Exchange Agreement
shall be binding unless executed in writing by the parties to the Share Exchange
Agreement. The party for whose benefit a warranty, representation, covenant or
condition is intended may, in writing, waive any inaccuracies in the warranties
and representations contained in the Share Exchange Agreement or waive
compliance with any of the covenants or conditions contained therein and so
waive performance of any of the obligations of the other party thereto, and any
defaults thereunder. Any such waiver shall not, however, affect or impair the
waiving party's rights with respect to any other warranty, representation or
covenant or any default under the Share Exchange Agreement, nor shall any waiver
constitute a continuing waiver.
SHARE EXCHANGE EXPENSES
Except as otherwise expressly provided for in the Share Exchange Agreement,
each of the parties to the Share Exchange Agreement has agreed to pay all costs
and expenses incurred or to be incurred by such parties in negotiating and
preparing the Share Exchange Agreement and in closing and carrying out the
transactions contemplated by the Share Exchange Agreement.
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<PAGE> 37
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Various interrelationships exist among the Corporate Targets with respect
to their respective owners, Board members and officers. Dr. Thomas E. Phillippe,
Sr. serves as: (1) Chairman of the Board of Directors of NCI; (2) a member of
the Board of Directors of Meadowvale; and (3) President and one of the two Board
members of PEI. Thomas E. Phillippe, Jr., Dr. Phillippe's son, serves as: (1) a
member of the Board of Directors of NCI and NCI's President and Chief Executive
Officer; and (2) the other member of the Board of Directors of PEI and PEI's
Secretary. Dr. Phillippe and Thomas E. Phillippe, Jr. own or control 61% and 20%
of the issued and outstanding NCI Common Shares, respectively, and they each own
50% of the issued and outstanding PEI Common Shares. Joan Phillippe, Dr.
Phillippe's wife, and certain members of her family own all of the Meadowvale
Common Shares. Donald Cheesman, Joan Phillippe's father, owns Meadowvale Common
Shares and serves as the President and a member of the Board of Directors of
Meadowvale.
NCI leases the Meadowvale nursing center from Meadowvale, which is owned by
Joan Phillippe and members of her family. The lease term will continue until
March 2001, unless either the lessor or lessee elects to terminate the lease
prior to the beginning of the final five year term, which begins in 1996. Rental
expense is approximately $241,000 ($2,008 per bed) per year. See "THE NATIONWIDE
ENTITIES -- Description of NCI Business."
The terms of the Share Exchange Agreement provide that Hillhaven will cause
NCI to honor and perform after the Effective Time the obligations of NCI
pursuant to the Employment Agreements with the following officers of NCI: Philip
W. Caldwell -- Vice President of Operations; J. Mark Mutz -- Vice President and
General Counsel; Charles Cooper -- Vice President of Marketing; and James
Burkhart -- Chief Financial Officer. For description of the Employment
Agreements, see "OTHER MATTERS TO BE VOTED UPON BY NCI VOTING COMMON
SHAREHOLDERS."
The terms of the Share Exchange also provide that prior to the Effective
Time, Meadowvale will transfer to Donald Cheesman real property including land
and a home built thereon located at 1529 Lancaster Street, Bluffton, Indiana and
owned by Meadowvale. In addition, Meadowvale will repay to Cheesman all amounts
owing by Meadowvale to Cheesman pursuant to that certain promissory note dated
February 1, 1986 executed by Meadowvale in favor of Cheesman.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. Federal income tax
consequences of the Share Exchange of Hillhaven Common Shares for the
outstanding common stock of NCI, PEI and Meadowvale. This summary is based upon
the Code, Treasury Regulations, judicial authority and administrative rulings
and pronouncements of the Internal Revenue Service ("IRS") now in effect, all of
which are subject to change at any time, possibly on a retroactive basis. This
discussion does not address all aspects of Federal income taxation that may be
relevant to particular shareholders and other parties to the transactions and
may not be applicable to shareholders who are not citizens or residents of the
United States, or who will acquire their Hillhaven Common Shares pursuant to the
exercise or termination of employee stock options or otherwise as compensation,
nor does the discussion address the effect of any applicable foreign, state,
local or other tax laws. Additionally, this discussion does not address the
taxability of any party resulting from the assignment by the minority partners
of their partnership interests in certain Partnership Targets (as defined
herein) pursuant to the terms of the Share Exchange Agreement. This discussion
also does not address the taxability of the redemption of the NCI Preferred
Stock (as defined herein) to the preferred shareholders prior to the Share
Exchange, or any other distributions by the Corporate Targets prior to the Share
Exchange. This discussion assumes that shareholders of the Corporate Targets
hold their Target Common Shares (as defined herein) as capital assets within the
meaning of Section 1221 of the Code. See "SUMMARY -- Parties to the Share
Exchange Agreement," and "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Redemption of NCI Subordinated Notes and NCI Preferred Stock" and
"-- Share Exchange Consideration and Mechanics." EACH SHAREHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER
OF THE SHARE
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<PAGE> 38
EXCHANGE, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL
AND OTHER TAX LAWS.
Hillhaven has received the opinion of KPMG Peat Marwick LLP ("KPMG"), tax
advisor to Hillhaven, that the exchange of common stock of each of the Corporate
Targets for Hillhaven Common Shares, will, under current law, constitute a
tax-free reorganization under Code Section 368(a)(1)(B), and that Hillhaven and
each of the Corporate Targets will be a party to the reorganization within the
meaning of Code Section 368(b). NCI, PEI and Meadowvale have received the
opinion of Ice Miller Donadio & Ryan ("Ice Miller"), counsel to NCI, that the
exchange of common stock of each of the Corporate Targets for Hillhaven Common
Shares will, under current law, constitute a tax-free reorganization under Code
Section 368(a)(1)(B), and that Hillhaven and each of the Corporate Targets will
be a party to the reorganization within the meaning of Code Section 368(b). In
rendering such opinions, KPMG and Ice Miller have relied upon written
representations and covenants of Hillhaven, the Corporate Targets and the
controlling shareholders of the Corporate Targets. No ruling will be requested
from the IRS as to the Federal income tax consequences of the Share Exchange,
and the opinions of KPMG and Ice Miller are not binding on the IRS or any court.
The opinions of KPMG and Ice Miller do not address the impact, if any, of the
Vencor Merger on the Share Exchange as a tax-free reorganization. Hillhaven has
agreed that it will not take or cause to be taken any action, and will not
permit its affiliates to take or cause to be taken any action within Hillhaven's
control, whether before or after the Effective Time, which would disqualify the
Share Exchange as a reorganization under the Code. Also, Hillhaven has agreed
not to participate in any tax-free reorganization or share exchange without
first obtaining an unqualified opinion of its independent accountants, such
opinion to be acceptable to the Representative, that such transaction will not
disqualify the Share Exchange as a tax-free reorganization and providing such
opinion to the Representative. See "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Additional Agreements."
As a tax-free reorganization, each Share Exchange will have the following
Federal income tax consequences for the shareholders of the Corporate Targets,
the Corporate Targets and Hillhaven:
1. No gain or loss will be recognized by shareholders of the Target
Common Shares as a result of the exchange of such shares for Hillhaven
Common Shares pursuant to the Share Exchange Agreement to the extent of
Hillhaven Common Shares received.
2. The tax basis of the shares of Hillhaven Common Shares received by
each shareholder of each Corporate Target for Target Common Shares will
equal the tax basis of such shareholder's Target Common Shares exchanged
for such Hillhaven Common Shares in the Share Exchange.
3. The holding period of the shares of Hillhaven Common Shares
received by each shareholder of the Corporate Targets for Target Common
Shares will include the holding period of such Shareholders' Target Common
Shares exchanged for such Hillhaven Common Shares in the Share Exchange.
4. Neither Hillhaven nor the Corporate Targets will recognize gain or
loss as a result of the Share Exchange.
The tax opinions of KPMG and Ice Miller referred to above have been filed
as exhibits to the Registration Statement of which this Prospectus/Information
Statement is a part.
ACCOUNTING TREATMENT
Hillhaven intends to treat the Share Exchange as a pooling of interests for
accounting purposes. Consequently, in accordance with GAAP, Hillhaven will
restate its consolidated financial statements to include the assets,
liabilities, shareholders' equity and results of operations of the Nationwide
Entities, subject to appropriate adjustments to conform the accounting
principles of the Nationwide Entities, if necessary. A condition precedent to
Hillhaven's obligation to consummate the Share Exchange Agreement is that KPMG,
independent auditors for Hillhaven, shall have advised Hillhaven in writing that
the Share Exchange may be accounted for as a pooling of interests under GAAP.
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<PAGE> 39
OTHER MATTERS TO BE VOTED UPON BY NCI VOTING COMMON SHAREHOLDERS
APPROVAL OF EMPLOYMENT AGREEMENT PAYMENTS
The Share Exchange will constitute a "Change of Control Transaction," as
defined under the Employment Agreements, entitling the applicable employee to an
Incentive Bonus and making the employee eligible for the Severance Payment. The
Employment Agreement Payments under each of the Employment Agreements due or
which may become due as a result of a Change of Control Transaction would
potentially constitute "excess parachute payments" as defined in Code Section
280G(b)(1). If the Employment Agreement Payments are classified as "excess
parachute payments," no deduction will be allowed to NCI for such payments, and
each such employee would be subject to a 20% excise tax upon receipt of such
payments under Code Section 4999(a). The Employment Agreement Payments will not
be "excess parachute payments" if they are approved by a separate vote of the
persons who own, immediately before the Change of Control Transaction, more than
75% of the voting power of all outstanding NCI Voting Common Shares. The vote
must determine the right of the employee to receive the payment. The vote of the
holders of the NCI Voting Common Shares is therefore necessary so that the
Employment Agreement Payments qualify for an exemption under Code Section 280G.
See "CORPORATE TARGETS' SPECIAL MEETINGS -- The NCI Special Meeting."
The Employment Agreements define a Change of Control Transaction as
follows: (1) the sale or other transfer, directly or indirectly, of
substantially all of the assets of NCI to another person or entity, except a
person or entity that is controlled by the Family (as defined below), (2) any
sale or exchange of stock or other transaction by which a corporation, person,
other entity or group (other than the group consisting of Dr. Thomas E.
Phillippe, Sr. and the members of his immediate family (collectively, the
"Family") becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act) of more than 50% of the then outstanding voting stock of NCI; or
(3) any merger of NCI with or into another corporation in a transaction in which
NCI is not the surviving corporation, other than a merger which will result in
the Family holding at least fifty percent (50%) of the combined voting power of
the voting securities of the corporation surviving the merger. The Incentive
Bonuses to be paid in the event of a Change of Control Transaction are in each
case the greater of a base amount (the "Base Amount") or a percentage of the
"Equity Value," defined as the total proceeds and other consideration paid or
received by or to be paid or received in connection with a Change of Control
Transaction (which consideration shall be deemed to include amounts in escrow),
including without limitation: (i) cash; (ii) notes, securities and other
property; (iii) payments made in installments; (iv) amounts payable under
consulting agreements, agreements not to compete, incentive or similar
arrangements (including such payments to management, but excluding any amounts
payable pursuant to subsection 4(b) of the Employment Agreements or the same
subsection of any other similar employment agreement between NCI and any
executive who is not a member of the Family); (v) contingent payments (whether
or not related to future earnings or operations); and (vi) if the Change of
Control Transaction involves the disposition of assets, the net value of current
assets not sold. The Base Amount for each employee under the Employment
Agreements is as follows: Philip W. Caldwell -- $175,000; J. Mark
Mutz -- $225,000; Charles Cooper -- $100,000; James Burkhart -- $150,000; and
John Lines -- $100,000. The Equity Value percentage for each employee under the
Employment Agreements is as follows: Philip W. Caldwell -- .001373; J. Mark
Mutz; -- .001765; Charles Cooper -- .000784; James Burkhart -- .001176; and John
Lines -- .000784. Based upon the price for Hillhaven Common Shares as of May 17,
1995, or $27.50 per share, the Incentive Bonus to be paid to each of the
employees under the Employee Agreements upon closing of the Share Exchange would
be as follows: Phillip W. Caldwell -- $188,788; J. Mark Mutz -- $242,688;
Charles Cooper -- $107,800; James Burkhart -- $161,700; and John
Lines -- $107,800.
Also under the Employment Agreements, if the employee terminates his
employment with NCI for "good reason," as defined in the Employment Agreements,
or if NCI terminates the employee without cause, and following a Change of
Control Transaction, the employee is entitled to a Severance Payment calculated
as the greater of the employee's base salary for the remainder of the term (the
"Remainder Amount") or the applicable Severance Multiple multiplied by the
employee's base salary. The base annual salaries for these employees as set
forth in the Employment Agreements are as follows: Philip W.
Caldwell -- $123,000;
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<PAGE> 40
J. Mark Mutz -- $120,000; Charles Cooper -- $105,000; James
Burkhart -- $100,000; and John Lines -- $65,000. The Severance Multiple for each
of these employees is as follows: Philip W. Caldwell -- 1.5; J. Mark
Mutz -- 1.5; Charles Cooper -- 1.5; James Burkhart -- 1.5; and John
Lines -- 2.0.
In addition to the provisions dealing with the Incentive Bonuses and
Severance Payments, the Employment Agreements include terms describing the
following: (1) the position and duties of the employee; (2) base salary; (3)
reimbursement of business expenses incurred on behalf of NCI; and (4)
participation by the employee in the benefit plans of NCI. The terms of the
Employment Agreements expire on May 7, 1996, although NCI may terminate the
employee for "good cause," as defined in the Employment Agreements, prior to
expiration.
APPROVAL OF ACCELERATED VESTINGS
Upon the Effective Date of the Share Exchange, 3,000 restricted NCI Voting
Common Shares each owned by Philip W. Caldwell and Charles Cooper will vest
pursuant to the terms of their respective grant agreements. Similar to the
Incentive Bonuses, these Accelerated Vestings would potentially constitute
"excess parachute payments" as defined in Code Section 280G(b)(1). As indicated
above, if the Accelerated Vestings are classified as "excess parachute
payments," no deduction will be allowed to NCI for such payment, and such
employee would be subject to a 20% excise tax upon receipt of such payment under
Code Section 4999(a). The Accelerated Vestings will not be "excess parachute
payments" if they are approved by a separate vote of the persons who own,
immediately before the Change of Control Transaction, more than 75% of the
voting power of all outstanding stock of NCI. The vote must determine the right
of the employee to receive the "payment" in the form of the Accelerated
Vestings. The vote of the holders of the NCI Voting Common Shares is therefore
necessary so that Accelerated Vestings will qualify for an exemption under Code
Section 280G. See "CORPORATE TARGETS SPECIAL MEETINGS -- The NCI Special
Meeting."
THE NATIONWIDE ENTITIES
DESCRIPTION OF NCI BUSINESS
NCI operates long term health care centers located in Indiana, Ohio and
Florida. NCI's operations include 23 nursing centers with a total of 3,257
licensed beds, two retirement centers with a total of 240 units, two assisted
living centers totaling 162 units and 40 additional assisted living units
located in one of the retirement centers. Of NCI's 27 centers, 14 are owned, 11
are leased and two are managed for other parties. Twenty-one of NCI's centers
are located in Indiana, three are located in Ohio and three located in Florida.
NCI was incorporated on September 30, 1992 for the purpose of the
Reorganization that took place on July 27, 1993. Under the Reorganization, the
Nationwide Businesses owned by the Phillippes as well as certain Non-Controlled
Entities were acquired and combined into NCI. Specifically, pursuant to the
Reorganization: (i) each of the Nationwide Businesses that was a corporation was
merged with and into NCI; (ii) each partner of a Nationwide Business that was a
partnership contributed his or her partnership interest to NCI (except that less
than one percent of the partnership interests in Camelot and Evergreen remained
outstanding and not owned by NCI) and (iii) each of the Non-Controlled Entities
was merged with and into NCI. Each partner and shareholder of the Nationwide
Businesses and the Non-Controlled Entities received common shares of NCI, plus
cash in lieu of fractional shares, in exchange for their interests in the
Nationwide Businesses and the Non-Controlled Entities. The purposes of the
Reorganization were to reduce borrowing costs, increase access to capital
markets, achieve economies of scale and reduce the administrative burdens
associated with operating multiple separate entities.
NCI provides a broad range of services through its nursing centers. All of
NCI's nursing centers provide skilled nursing care and rehabilitation and
ancillary services, such as physical, occupational, speech and respiratory
therapies. In addition, ten of NCI's nursing centers have specialty care
Alzheimer's units, and eight have subacute care units with an aggregate total of
173 dedicated beds. In addition to its nursing center services, NCI provides
more limited care services through its home health care agencies, assisted
living centers and retirement centers.
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CENTERS
The following table summarizes certain information with respect to each of
NCI's long term health care centers.
<TABLE>
<CAPTION>
TOTAL BEDS/ OWNED/LEASED/
NAME LOCATION OWNED MANAGED
---- -------- ----------- -------------
<S> <C> <C> <C>
INDIANA
Camelot Care Center..................................... Logansport 75 Owned
The Heritage at Wildwood Assisted Living Center......... Indianapolis 72 Owned
Muncie Health Care and Rehabilitation Center............ Muncie 160 Owned
Parkwood Health Care Center............................. Lebanon 133 Owned
Rolling Hills Health Care Center........................ New Albany 115 Owned
Royal Oaks Health Care and Rehabilitation Center........ Terre Haute 200 Owned
Southwood Health Care Center............................ Terre Haute 119 Owned
Valley View Health Care Center.......................... Elkhart 140 Owned
Wildwood Health Care Center............................. Indianapolis 155 Owned
Colonial Oaks Health Care Center(1)..................... Marion 120 Leased
Markle Health Care...................................... Markle 66 Leased
Meadowvale Care Center.................................. Bluffton 120 Leased
Ossian Health Care...................................... Ossian 100 Leased
Regency Place-Castleton................................. Indianapolis 160 Leased
Regency Place-Dyer...................................... Dyer 150 Leased
Regency Place-Fort Wayne................................ Fort Wayne 160 Leased
Regency Place-Greenfield................................ Greenfield 230 Leased
Regency Place-Greenwood................................. Greenwood 231 Leased
Regency Place-Lafayette................................. Lafayette 160 Leased
Regency Place-South Bend................................ South Bend 150 Leased
Colonial Oaks Retirement Apartments..................... Marion 63 Managed
-----
INDIANA TOTAL 2,879
-----
OHIO
Cambridge Health Care Center............................ Cambridge 159 Owned
Coshocton Health Care Center............................ Coshocton 110 Owned
Marietta Convalescent Center(2)......................... Marietta 120 Owned
-----
OHIO TOTAL 389
-----
FLORIDA
Evergreen Woods Health Care Center...................... Spring Hill 120 Owned
Evergreen Woods Retirement Center....................... Spring Hill 217 Owned
The Heritage at Hernando Assisted Living Center......... Brooksville 90 Managed
-----
FLORIDA TOTAL 427
-----
TOTAL 3,695
=====
</TABLE>
---------------
(1) The Colonial Oaks Health Care Center is licensed for 124 beds, but the
facility will accommodate only 120 beds.
(2) NCI leases the Marietta Convalescent Center. The lease expires September 30,
1998, at which time the lessee has the option to purchase the facility.
38
<PAGE> 42
NCI leases 11 nursing centers according to terms described below. NCI also
leases approximately 24,000 square feet of executive office space in
Indianapolis, Indiana. This lease, which expires in March 2000, required rental
payments of approximately $398,000 in fiscal 1994.
The Colonial Oaks nursing center is leased for approximately $486,000
($4,046 per bed) per year from an independent non-profit corporation. The
current lease term expires in September 2001.
NCI leases the Markle nursing center from an independent third party. The
lease expires in 1997, but may be renewed by NCI until July 2002. Rental expense
for Markle is approximately $305,000 ($4,616 per bed) per year, and upon renewal
this amount will be adjusted for inflation.
NCI leases the Meadowvale nursing center from Meadowvale, which is owned by
Joan Phillippe, who is Dr. Phillippe's wife, and members of her family. The
lease term will continue until March 2001, unless either the lessor or lessee
elects to terminate the lease prior to the beginning of the final five-year
term, which begins in 1996. Rental expense is approximately $241,000 ($2,008 per
bed) per year.
NCI leases the Ossian nursing center from an independent third party
pursuant to a ten-year lease ending in July 1997. NCI has an option to purchase
this nursing center at the end of the lease term for an appraised value of not
less than $4.0 million. Rental expense is approximately $476,000 ($4,755 per
bed) per year. See "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Certain Relationships and Related Party Transactions."
The seven Regency Centers are leased for approximately $6,036,000 ($4,864
per bed) per year, with future adjustments to be made based upon changes in the
consumer price index. The current lease term will expire in June 2003. Pursuant
to the terms of the lease for each Regency Center, the lessor has granted NCI
the right of first refusal to purchase the nursing center, or to lease the
nursing center for a period subsequent to the lease term, on the same terms and
conditions as are offered by any other bona fide offeror during the term of the
lease and which the lessor proposes to accept. The right of first refusal
expires six months prior to the end of the scheduled lease term as well as upon
certain events of default, even if such defaults do not result in a termination
of the lease.
REVENUE SOURCES
NCI's revenues vary among centers based on various factors, including the
mix of beds licensed as skilled and/or intermediate care, total capacity,
occupancy rates, reimbursement methodologies and rates among the payor
categories, the relative proportion of revenues represented by payor categories
and the scope and utilization of NCI's rehabilitation and ancillary services.
Although the cost reimbursement level for Medicare patients generates the
highest revenue per patient day, profitability is not always increased due to
the additional costs associated with the higher level of care required for such
patients. In general, private pay sources are more profitable to NCI than
governmental reimbursement sources for comparable services. Likewise, NCI
derives a higher profit margin from its rehabilitation and ancillary services
than it does from its basic nursing services.
Quality Payor Mix. NCI derives revenues from nursing centers, assisted
living and retirement centers, management services and other sources; however,
the revenues from its nursing centers far exceed the total revenues from the
other sources. NCI derives nursing center revenues from private pay sources,
Medicare and Medicaid. NCI receives higher revenues from private pay patients
and is reimbursed at higher rates for services to Medicare and Indiana skilled
Medicaid patients relative to the reimbursement rates available for intermediate
care Medicaid patients. Revenues from NCI's assisted living centers and
retirement centers are derived almost exclusively from private payment sources,
as are its daytime child care revenues.
Private Pay. NCI classifies payments from individuals who pay for services
without governmental assistance as private pay revenues. This classification
also includes revenues received from commercial insurers, workers' compensation,
health maintenance organizations and other charge-based payment sources.
Medicare. Medicare is a federally funded and administered health insurance
program primarily designed for individuals who are age 65 or over and are
entitled to receive Social Security benefits. The
39
<PAGE> 43
Medicare program consists of two parts. The first part (Part A) covers
in-patient hospital services and services furnished by other institutional
health care providers, such as long term care facilities. The second part (Part
B) covers the services of doctors, suppliers of medical items and services and
various types of outpatient services. Part B services include physical,
occupational and speech therapy, pharmaceuticals and medical supplies, certain
intensive rehabilitation and psychiatric services and ancillary diagnostic and
other services of the type provided by long term care or acute care facilities.
Part A coverage is limited to a specified term (generally 100 days in a long
term care facility) and requires beneficiaries to share some of the cost of
covered services through the payment of a deductible and a co-insurance payment.
There are no limits on the duration of coverage for Part B services, but there
is a co-insurance requirement for most services covered by Part B.
Except for one rural Indiana nursing center, all of NCI's nursing centers
are certified to participate in the Medicare program. Generally, NCI's Medicare
participating nursing centers receive monthly reimbursement payments during the
year at interim rates based on historical costs. These rates are later adjusted
to reflect actual allowable direct and indirect costs of services based on the
submission of a cost report at the end of the year. Actual costs incurred and
reported by each facility are subject to retrospective audits which can result
in upward or downward adjustment of payments received.
Medicaid. Medicaid refers to the various state-administered reimbursement
programs that are eligible for matching federal funds. Each of NCI's nursing
centers participates in the Medicaid program of the state in which it is
located. Under the federal Medicaid statute and regulations, state Medicaid
programs must provide reimbursement rates that are reasonable and adequate to
cover the costs that would be incurred by efficiently and economically operated
facilities in providing services in conformity with state and federal laws,
regulations and quality and safety standards. Furthermore, payments must be
sufficient to enlist enough providers so that services under the state's
Medicaid plan are available to recipients at least to the extent that those
services are available to the general population.
Substantially all of NCI's nursing center beds are certified for Medicaid
services. The Medicaid programs in which NCI nursing centers participate pay a
per diem rate based on the centers' reasonable allowable costs incurred in
providing services, subject to cost ceilings applicable to both operating and
fixed costs, plus a return on equity. Reimbursement rates are typically
determined by the state, on a prospective or retrospective basis, from "cost
reports" filed by each center. Under a prospective system, per diem rates are
established (generally on an annual basis) based on certain historical costs of
providing services during the prior year, adjusted to reflect factors such as
inflation and any additional services required to be performed; no subsequent
adjustment is made to reflect variations in actual costs from the rates
established. Under a retrospective system, reimbursement rates are based on
allowable costs for that year; an interim rate is calculated from previously
filed cost reports which is then adjusted (generally on an annual basis) upward
or downward to reflect actual allowable costs. Such adjustments may result in an
additional payment to the facility by, or repayment by the facility to, the
state Medicaid program. Except for NCI's nursing centers in Ohio, which are
reimbursed under a case mix prospective pricing system, all of NCI's nursing
centers are reimbursed on a prospective rate system. Providers must accept
reimbursement from Medicaid as payment in full for the services rendered, since
the provider may not bill the patient for more than the amount of the Medicaid
payment for services covered by the Medicaid program. The Indiana and Ohio
Medicaid programs currently include incentive allowances for providers whose
costs are less than certain ceilings and who meet other requirements.
GOVERNMENT REGULATION
NCI's long term health care centers are subject to compliance with various
federal, state and local statutes and regulations. In particular, the
development and operation of long term health care centers and the provision of
long term health care services are subject to federal, state and local licensure
and certification laws which regulate, among other things, the number of beds,
services provided, distribution of pharmaceuticals, equipment and staffing
requirements, condition and use of medical equipment, operating policies,
relationships with other long term health care providers, fire prevention and
compliance with building codes and environmental laws. Compliance with state
licensing requirements imposed upon all long term health care
40
<PAGE> 44
centers is a prerequisite for the operation of, and for participation in,
government-sponsored health care assistance programs, such as Medicare and
Medicaid.
PERSONNEL
At December 31, 1994, NCI employed approximately 4,500 people, of which
approximately 4,000 were full-time and 500 were part-time employees.
Each nursing center employs a licensed administrator and a director of
nursing who supervises a staff of registered nurses, licensed practical nurses
and nurses' aides. NCI engages third party contractors to provide most of its
rehabilitation services. Each nursing center also has a medical director who is
an independent contractor. Although NCI historically has been able to employ
sufficient personnel to staff its centers adequately, a shortage of nurses in
key geographic areas could affect the ability of NCI to attract and retain
qualified health care personnel. NCI competes with other health care providers
for both professional and non-professional employees and with non-health care
providers for non-professional employees. Other personnel include the admissions
or marketing director, dietary staff, housekeeping, laundry and maintenance
staff, social activities staff and business office staff.
AFFILIATED ENTITIES
In connection with the Share Exchange, the outstanding Meadowvale Common
Shares and PEI Common Shares will be exchanged for Hillhaven Common Shares.
Meadowvale owns the Meadowvale Care Center, which is currently leased to NCI. As
a result, the financial results of Meadowvale are included in the results for
NCI. PEI owns the Heritage at Hernando Assisted Living Center, which is
currently managed by NCI. PEI's gross revenues represent less than 1% of the
gross revenues of NCI. Separate financial statements for Meadowvale and PEI are
included with this Prospectus/Information Statement. See "INDEX TO FINANCIAL
STATEMENTS."
NCI currently owns 99.8% and 99% of the partnership interests of Camelot
and Evergreen, respectively. In connection with the Share Exchange, each of the
partners of Camelot and Evergreen (except NCI) will assign to NCI the remaining
partnership interests of these partnerships, so that, upon the consummation of
the Share Exchange and these assignments, NCI will own all of the partnership
interests of Camelot and Evergreen. Since NCI currently owns 99.8% and 99% of
the partnership interests of Camelot and Evergreen, the financial results for
NCI already include all but an insignificant portion of the results of the
facilities owned by these partnerships.
LEGAL PROCEEDINGS
NCI is a party to litigation arising in the ordinary course of business.
NCI does not believe the results of any pending litigation, even if the outcome
were unfavorable to NCI, would have a material adverse effect on its financial
condition.
41
<PAGE> 45
CORPORATE TARGETS' PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of NCI Common Shares, by (i) each person who is the
beneficial owner of more than five percent of outstanding NCI Voting Common
Shares, (ii) each director and executive officer of NCI and (iii) all directors
and officers of NCI as a group. The table does not give effect to any conversion
of NCI Nonvoting Common Shares for NCI Voting Common Shares (and footnotes to
the table are set forth on the following page).
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ ------------
<S> <C> <C>
Dr. Thomas E. Phillippe, Sr.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240................................. 4,532,967 61.0%
Thomas E. Phillippe, Jr.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240................................. 1,475,812 19.8%
Gregory O. Mervine(2)
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240................................. 368,354 4.9%
Stacy Mervine(2)
9668 Farragut Circle
Indianapolis, Indiana 46256................................. 368,354 4.9%
Philip W. Caldwell.......................................... 3,750 0.1%
Charles Cooper.............................................. 3,750 0.1%
J. Mark Mutz................................................ -- --
James Burkhart.............................................. -- --
All directors and officers as a group
(seven persons)........................................... 6,384,633 85.9%
</TABLE>
The following table sets forth the names of those individuals who
beneficially own greater than five percent of the outstanding NCI Nonvoting
Common Shares. This table assumes no exercise of the outstanding NCI Warrants
(as defined herein) (and footnotes to the table are set forth on the following
page). As of April 1, 1995, the Company has 76,592 NCI Nonvoting Common Shares
issued and outstanding. The outstanding NCI Warrants are beneficially owned by
Continental Illinois Commercial Corporation and Pacific Mutual Life Insurance
Company, which have the right under the NCI Warrants to acquire 561,676 and
425,512 NCI Nonvoting Common Shares, respectively.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ ------------
<S> <C> <C>
Christopher J. Perry.......................................... 32,710 42.7%
231 South LaSalle Street
Chicago, Illinois 60697
Robert F. Perille............................................. 18,350 24.0%
231 South LaSalle Street
Chicago, Illinois 60697
M. Ann O'Brien................................................ 16,754 21.9%
231 South LaSalle Street
Chicago, Illinois 60697
All directors and officers as a group
(seven persons)............................................. -- --
</TABLE>
42
<PAGE> 46
The following table sets forth certain information with respect to the
beneficial ownership of Meadowvale Common Shares by: (i) each person who is the
beneficial owner of more than five percent of the Meadowvale Common Shares, (ii)
each director and executive officer and (iii) all directors or officers of
Meadowvale as a group. See "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Certain Relationships and Related Party Transactions" for a
description of certain relationships among Meadowvale shareholders.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
-------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Joan Phillippe................................................ 778 25.9%
11721 San Star Drive
Indianapolis, Indiana 46256
Joyce Greeno.................................................. 778 25.9%
1624 Sheldon Drive
Clearwater, Florida 33546
Donald Cheesman............................................... 666 22.2%
22399 Pasture Lane
Brooksville, Florida 34601
David Cheesman................................................ 182 6.1%
1030 Oakdale Street
Corona, California 91720
Darla Mitchener............................................... 182 6.1%
2822 North Fourth Street
Terra Haute, Indiana
Debbie Showalter.............................................. 182 6.1%
1800 Thornwood Court
Troy, Ohio 45373
Dawn Robertson................................................ 182 6.1%
Meadowvale Skilled Care Center
1529 West Lancaster Street
Bluffton, Indiana 46714
All directors and officers as a group......................... 2,404 80.1%
</TABLE>
---------------
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the rules and
regulations of the SEC and, accordingly, may include securities owned by or
for, among others, the spouse, children or certain other relatives of such
person living in the same household as well as other securities as to which
the person possesses exclusive voting or investment power, or shares such
power, or which the person has the right to acquire within 60 days. The same
shares may be beneficially owned by more than one person. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Gregory O. Mervine and Stacy Mervine are husband and wife. Mr. Mervine holds
3,750 shares directly and they hold 364,604 shares jointly.
43
<PAGE> 47
NATIONWIDE CARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NCI generates revenues primarily from the following sources: nursing
centers, assisted living and retirement centers, home health care services and
management fees. Approximately 93.9% of NCI's revenues for fiscal 1994 were
generated from the operation of nursing centers. Nursing center revenues include
all room and board charges (including such charges related to Alzheimer's and
subacute care patients) and rehabilitation and ancillary services charges at
NCI's owned and leased centers. Revenues and profitability of nursing centers
are affected in large part by statutes and regulations under Medicare and
Medicaid as well as the reimbursement policies of insurance companies and other
private payors. Of NCI's nursing center revenues for fiscal 1994, approximately
51.9% were generated by private pay and Medicare patients. The balance was
Medicaid revenues. Approximately 14.7% of nursing center revenues for fiscal
1994 were generated by Indiana skilled care Medicaid patients (for whom NCI
receives higher revenue per patient day than for Indiana intermediate care
Medicaid patients).
NCI's revenues vary among centers based on various factors, including the
mix of beds licensed as skilled and/or intermediate care Medicaid, total
capacity, occupancy rates, reimbursement methodologies and rates among the payor
categories, the relative proportion of revenues represented by payor categories
and the scope and utilization of NCI's rehabilitation and ancillary services.
Although Medicare patients generate the highest revenue per patient day,
profitability is not always increased due to the additional costs associated
with providing the higher level of care required by such patients. In general,
private pay sources are more profitable to NCI than governmental reimbursement
sources. NCI generally derives a higher profit margin from rehabilitation and
ancillary services than from basic nursing services.
The long term care industry is undergoing significant changes as providers
respond to cost containment, regulatory and other pressures. In recent years
there have been, and NCI expects that there will continue to be, a number of
federal and state proposals to limit Medicare and Medicaid reimbursement for
long term health care services. In 1994, the state of Indiana promulgated a
regulatory change that, effective August 1, 1994, reduced reimbursement rates
for certain services provided to Medicaid patients.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items in NCI's statements of operations. The
percentages for fiscal 1993 include the results of (i) the Nationwide Entities
for the full year; (ii) Royal Oaks Health Care and Rehabilitation Center from
January 1, 1993 to September 30, 1993, (iii) the leasing of the Regency Centers
from July 1, 1993 to September 30, 1993 and (iv) the nursing center operations
of the Non-Controlled Entities from July 27, 1993 to September 30, 1993.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-----------------------------------------------
FIVE MONTHS
YEARS ENDED
ENDED SEPTEMBER 30, FEBRUARY 28,
------------------------- -----------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue, net............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Health care services................... 65.6 69.4 74.9 75.0 75.8
Selling, general and administrative.... 6.4 6.5 4.9 4.4 5.4
Leases and rental...................... 3.1 4.0 5.9 6.0 5.7
Depreciation and amortization.......... 5.3 4.2 2.4 2.2 2.2
----- ----- ----- ----- -----
Income from operations................... 19.6 15.9 11.9 12.4 10.9
Interest expense, net.................... 8.2 5.5 4.0 3.8 4.0
----- ----- ----- ----- -----
Income before income taxes and
extraordinary items.................... 11.4% 10.4% 7.9% 8.6% 6.9%
===== ===== ===== ===== =====
</TABLE>
44
<PAGE> 48
Five Months Ended February 28, 1994 Compared to Five Months Ended February 28,
1995
Revenues increased 8.7%, or $4.3 million, from $48.9 million in 1994 to
$53.2 million in 1995. This increase was primarily attributable to an increase
in nursing center revenues, which increased $3.4 million. The increase in
nursing center revenues was attributable to an increase in total census days,
certain patient rate increases (including the effect of an increasing proportion
of patients requiring skilled care) and an increase in rehabilitation and
ancillary services provided. Revenue also increased due to additional home
health care services. These increases were partially offset by a decline in
revenue due to lower Indiana Medicaid rates. The total of private pay, Medicare
and Indiana skilled care Medicaid patient revenues as a percent of total nursing
center revenues decreased from 66.8% in 1994 to 66.6% in 1995.
Health care services expenses increased by 9.9%, or $3.6 million, from
$36.7 million in 1994 to $40.3 million in 1995, due primarily to NCI's
increasing proportion of higher acuity patients and the increased level of
rehabilitation and ancillary services provided. Health care services expenses as
a percent of revenues increased from 75.0% in 1994 to 75.8% in 1995.
Selling, general and administrative expenses increased by 35.7% or $0.8
million, from $2.1 million in 1994 to $2.9 million in 1995, due primarily to
staffing increases in connection with the addition of subacute care services.
Selling, general and administrative expenses as a percent of revenues increased
from 4.4% in 1994 to 5.4% in 1995.
Leases and rental expenses increased by 2.1%, or $62,000, from $3.0 million
in 1994 to $3.0 million in 1995, due primarily to ordinary lease rate increases.
Leases and rental expenses as a percent of revenues decreased from 6.0% in 1994
to 5.7% in 1995.
Depreciation and amortization expenses increased by 10.1%, or $0.1 million,
from $1.1 million in 1994 to $1.2 million in 1995, due primarily to normal
capital expenditures. Depreciation and amortization expenses as a percent of
revenues remained constant at 2.2% from 1994 to 1995.
Income from operations decreased 5.0%, or $0.3 million, from $6.1 million
in 1994 to $5.8 million in 1995, as a result of the net negative impact of the
factors noted above.
Net interest expense increased 12.4%, or $0.2 million, from $1.9 million in
1994 to $2.1 million in 1995, due to an increase in outstanding indebtedness
during 1995, principally with respect to a new term loan and because of rising
interest rates based upon a commercial bank's Prime Rate. Net interest expense
as a percent of revenues increased from 3.8% in 1994 to 4.0% in 1995.
Income before income taxes and extraordinary items decreased 12.6%, or $0.5
million, from $4.2 million in 1994 to $3.7 million in 1995. Income before income
taxes and extraordinary items as a percent of revenues decreased from 8.6% in
1994 to 6.9% in 1995, due primarily to the lower Indiana Medicaid rates.
Year Ended September 30, 1993 Compared to Year Ended September 30, 1994
Revenues increased 82.5%, or $54.5 million, from $66.2 million in 1993 to
$120.7 million in 1994. This increase was primarily attributable to an increase
in nursing center revenues, which increased $55.2 million due to the inclusion
in the 1994 amounts of the results of operations of 11 additional nursing
centers (the "Additional Nursing Centers") as a result of (i) the acquisition of
the Non-Controlled Entities in connection with the Reorganization, (ii) the
Royal Oaks Acquisition, (iii) the leasing of the Regency Centers, (iv) patient
rate increases (including the effect of the increasing proportion of patients
requiring skilled care) and (v) an increase in rehabilitation and ancillary
services provided. These increases were partially offset by a decrease in
management fees and lease revenues due to the acquisition of the Non-Controlled
Entities. The total of private pay, Medicare and Indiana skilled Medicaid
patient revenues as a percent of total nursing center revenues decreased from
67.5% in 1993 to 66.6% in 1994.
Health care services expenses increased by 96.9%, or $44.5 million, from
$45.9 million in 1993 to $90.4 million in 1994. The increase in health care
services expenses was primarily attributable to the Additional Nursing Centers
and as a result of NCI's increasing proportion of higher acuity patients and the
increased level of rehabilitation and ancillary services provided. Health care
services expenses as a percent of revenues
45
<PAGE> 49
increased from 69.4% in 1993 to 74.9% in 1994 due primarily to wage increases
and the higher level of rehabilitation and ancillary services provided.
Selling, general and administrative expenses increased by 38.6% or $1.7
million, from $4.3 million in 1993 to $6.0 million in 1994, due primarily to
staffing increases in connection with the Additional Nursing Centers, modest
wage increases and costs associated with a failed initial public offering.
Selling, general and administrative expenses as a percent of revenues decreased
from 6.5% in 1993 to 4.9% in 1994.
Leases and rental expenses increased by 165.3%, or $4.4 million, from $2.7
million in 1993 to $7.1 million in 1994, due primarily to the Additional Nursing
Centers. Leases and rental expenses as a percent of revenues increased from 4.0%
in 1993 to 5.9% in 1994, primarily as a result of the leases of the Regency
Centers.
Depreciation and amortization expenses increased by 7.6%, or $0.2 million,
from $2.7 million in 1993 to $2.9 million in 1994, due primarily to the
Additional Nursing Centers. Depreciation and amortization expenses as a percent
of revenues decreased from 4.2% in 1993 to 2.4% in 1994.
Income from operations increased 36.1%, or $3.8 million, from $10.5 million
in 1993 to $14.3 million in 1994, due primarily to the Additional Nursing
Centers and the increase in census days and rehabilitation and ancillary
services provided at NCI's other centers.
Net interest expense increased 30.2%, or $1.1 million, from $3.7 million in
1993 to $4.8 million in 1994, due primarily to an increase in outstanding
indebtedness, principally with respect to a line of credit and the Senior
Subordinated Notes. Net interest expense as a percent of revenues decreased from
5.5% in 1993 to 4.0% in 1994.
Income before income taxes and extraordinary items increased 39.2%, or $2.7
million, from $6.9 million in 1993 to $9.6 million in 1994. Income before income
taxes and extraordinary items as a percent of revenues decreased from 10.4% in
1993 to 7.9% in 1994, due primarily to the elimination of management fees and
lease revenues due to the acquisition of the Non-Controlled Entities.
Year Ended September 30, 1992 Compared to Year Ended September 30, 1993
Revenues increased 52.6%, or $22.8 million, from $43.3 million in 1992 to
$66.1 million in 1993. This increase was primarily attributable to the
Additional Nursing Centers, which accounted for $14.7 million of the increase.
The remaining increase was attributable to an increase in total census days,
patient rate increases (including the effect of an increasing proportion of
patients requiring skilled care) and an increase in rehabilitation and ancillary
services provided. These increases were partially offset by a decrease in
management fees and lease revenues due to the acquisition of the Non-Controlled
Entities. The total of private pay, Medicare and Indiana skilled care Medicaid
patient revenues as a percent of total nursing center revenues increased from
65.2% in 1992 to 67.5% in 1993.
Health care services expenses increased by 61.5%, or $17.5 million, from
$28.4 million in 1992 to $45.9 million in 1993. The increase in health care
services expenses was primarily attributable to the Additional Nursing Centers,
which accounted for $11.3 million of the increase. Health care services expenses
related to the operations of NCI's other centers increased, due primarily to
NCI's increasing proportion of higher acuity patients and the increased level of
rehabilitation and ancillary services provided. Health care services expenses as
a percent of revenues increased from 65.6% in 1992 to 69.4% in 1993 due
primarily to wage increases and the higher level of rehabilitation and ancillary
services provided.
Selling, general and administrative expenses increased by 55.2% or $1.5
million, from $2.8 million in 1992 to $4.3 million in 1993. This increase was
due primarily to staffing increases in connection with the Additional Nursing
Centers and modest wage increases. Selling, general and administrative expenses
as a percent of revenues increased from 6.4% in 1992 to 6.5% in 1993.
Leases and rental expenses increased by 97.4%, or $1.3 million, from $1.4
million in 1992 to $2.7 million in 1993, due primarily to the leases of the
Regency Centers. Leases and rental expenses as a percent of revenues increased
from 3.1% in 1992 to 4.0% in 1993.
46
<PAGE> 50
Depreciation and amortization expenses increased by 18.6%, or $0.4 million,
from $2.3 million in 1992 to $2.7 million in 1993, due primarily to the
Additional Nursing Centers. Depreciation and amortization expenses as a percent
of revenues decreased from 5.3% in 1992 to 4.2% in 1993.
Income from operations increased 24.0%, or $2.0 million, from $8.5 million
in 1992 to $10.5 million in 1993, due primarily to the Additional Nursing
Centers and the increase in total census days and rehabilitation and ancillary
services provided at NCI's other centers.
Net interest expense increased 3.6%, or $0.2 million, from $3.5 million in
1992 to $3.7 million in 1993, due primarily to an increase in outstanding
indebtedness related to the operations of the Additional Nursing Centers. Net
interest expense as a percent of revenues decreased from 8.2% in 1992 to 5.5% in
1993.
Income before income taxes and extraordinary items increased 38.6%, or $1.9
million, from $5.0 million in 1992 to $6.9 million in 1993. Income before income
taxes and extraordinary items as a percent of revenues decreased from 11.4% in
1992 to 10.4% in 1993, due primarily to the elimination of management fees and
lease revenues due to the acquisition of the Non-Controlled Entities.
LIQUIDITY AND CAPITAL RESOURCES
NCI has historically financed its operations and growth, including
acquisitions, with cash flow from operations, issuance of the Senior
Subordinated Notes and Redeemable Preferred Stock and borrowings under various
credit facilities. Prior to the closing of the Share Exchange, NCI plans to
finance its operations by continuing to utilize its cash flow from operations
and borrowings under its current credit agreements. Capital expenditures in
fiscal year 1992 and 1993 consisted primarily of computer system additions and
upgrades, the remodeling of existing facilities and a 15-bed addition. Capital
expenditures were $2.0 million in fiscal year 1992, $2.4 million in fiscal year
1993 and $8.3 million in fiscal year 1994. Capital expenditures in 1994 have
been for the construction of a 200-bed nursing center on a site adjacent to its
Royal Oaks Health Care and Rehabilitation Center ($3.5 million), additional
subacute care units having a total of approximately 135 dedicated beds ($0.8
million), a 72-unit assisted living center to be named The Heritage at Wildwood
and located adjacent to NCI's Wildwood Health Care Center ($1.9 million), a
15-bed addition to the Wildwood Health Care Center ($0.7 million) and normal
capital expenditures in existing long-term health care centers ($1.4 million).
Net cash provided by operations was $7.3 million, $5.9 million and $9.1
million in fiscal years 1992, 1993 and 1994, respectively. For the five months
ended February 28, 1995, net cash provided by operations was $4.1 million.
Accounts receivable (net of allowances) were $1.9 million, $9.1 million, $9.4
million and $10.5 million at September 30, 1992, 1993 and 1994 and February 28,
1995, respectively, and estimated settlements due from third party payors
aggregated $0, $1.4 million, $2.3 million and $1.3 million at September 30,
1992, 1993 and 1994 and February 28, 1995, respectively. The number of days in
accounts receivable and estimated settlements due from third party payors was
approximately 22 days at September 30, 1992, 35 days at September 30, 1993
(based upon pro forma revenues of $110.9 million), 36 days at September 30, 1994
and 34 days at February 28, 1995.
NCI has outstanding $25.7 million of Notes, which are collateralized by an
irrevocable direct pay letter of credit issued by a commercial bank (the "Letter
of Credit"). The Notes amortize over a 15-year period, with a final maturity in
August 2008 and the interest rate resets every seven days. The effective
interest rate on the Notes at February 28, 1995 was approximately 8.0%. NCI has
negotiated a cap on its effective interest rate on the Notes at 9.0% through
November 1996. NCI is required to deposit $950,000 on a semi-annual basis in a
sinking fund to provide for periodic repayment of the Notes. The sinking fund
payments commenced in February 1994.
NCI also has outstanding two term loans in the amount of $9.4 million and
$4.3 million, respectively. Both term loans bear interest at prime plus 0.75%,
with the $9.5 million loan being amortized over 15 years and the $4.3 million
loan being amortized over 10 years. Both loans mature in January 2000. Principal
and interest payments began January 1995.
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NCI also has outstanding $12 million of its Senior Subordinated Notes and
$3 million of Redeemable Preferred Stock. The Senior Subordinated Notes are
payable in quarterly principal installments of $1.5 million beginning November
1998 with the final installment due in August 2000. The Senior Subordinated
Notes bear interest at an annual rate of 12.5%. The Redeemable Preferred Stock
has no coupon rate and is redeemable in eight equal quarterly installments of
$375,000 commencing November 1998 and is mandatorily redeemable in certain
circumstances. The Senior Subordinated Notes will be prepaid and the Redeemable
Preferred Stock will be redeemed in connection with the Share Exchange.
Credit agreements for NCI's outstanding loans contain certain covenants
which, without the prior consent of the lenders, limit certain activities of NCI
and its subsidiaries. Such covenants contain limitations relating to the merger
or consolidation of NCI and its subsidiaries and NCI's and its subsidiaries'
ability to secure indebtedness, make guarantees, grant security interests and
declare dividends. In addition, NCI and certain subsidiaries must maintain
certain minimum levels of tangible net worth, interest coverage and debt service
coverage and must maintain certain liabilities to net worth and working capital
ratios.
Legislative and regulatory action has resulted in continuing change in the
Medicare and Medicaid reimbursement programs which could have an adverse impact
on NCI. The changes have limited, and are expected to continue to limit, payment
increases under these programs. Also, the timing of payments made under the
Medicare and Medicaid programs are subject to regulatory action and governmental
budgetary constraints; in recent years, the time period between submission of
claims and payment has increased. Additionally, implementation of NCI's strategy
to expand specialty medical services to independent providers should reduce the
impact of changes in the Medicare and Medicaid reimbursement programs on NCI as
a whole. Within the statutory framework of the Medicare and Medicaid programs,
there are substantial areas subject to administrative rulings and
interpretations which may further affect payments made under those programs.
Further, the federal and state governments may reduce the funds available under
those programs in the future or require more stringent utilization and quality
reviews of health care facilities.
SEASONALITY
NCI's earnings generally fluctuate from quarter to quarter. This
seasonality is related to a combination of factors which include the timing of
Medicaid rate increases, seasonal census cycles and the number of calendar days
in a given quarter.
NEW ACCOUNTING STANDARDS
NCI does not offer any post-employment benefits or post-retirement benefits
other than pensions. Accordingly, Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Post-Employment Benefits," and Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," are not applicable to NCI.
IMPACT OF INFLATION
The long term health care industry is labor intensive. Wages and other
expenses increase more rapidly during periods of inflation and when shortages in
the labor market occur. In addition, suppliers pass along rising costs in the
form of higher prices. Increases in reimbursement rates under Medicare and
Medicaid generally lag behind actual cost increases.
MEADOWVALE AND PEI BUSINESSES
In connection with the Share Exchange, the outstanding Meadowvale Common
Shares and PEI Common Shares will be exchanged for Hillhaven Common Shares.
Meadowvale owns the Meadowvale Care Center, which is currently leased to NCI. As
a result, the financial results of the Meadowvale are included in the results
for NCI. PEI owns the Heritage at Hernando Assisted Living Center, which is
currently managed by NCI. PEI's gross revenues represent less than 1% of the
gross revenues of NCI. Separate financial statements for Meadowvale and PEI are
included with this Prospectus/Information Statement. See "INDEX TO FINANCIAL
STATEMENTS."
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DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF HILLHAVEN CAPITAL STOCK
The summary of the attributes of the Company's capital stock set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Amended and Restated Articles of Incorporation of
Hillhaven (the "Hillhaven Articles") and the By-Laws of Hillhaven (the
"Hillhaven By-Laws"), copies of which are exhibits to documents incorporated by
reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Authorized Capital Stock
Under the Hillhaven Articles, the total number of shares of all classes of
stock that the Company has authority to issue is 85 million shares, of which 25
million are preferred stock, par value $0.15 per share (the "Hillhaven Preferred
Stock"), and 60 million are shares of Common Stock.
Common Stock
Subject to the limitations provided pursuant to Sections 78.378 through
78.3793 (the "Control Shares Acquisition Statute") of the Private Corporation
Law of the State of Nevada, the holders of Hillhaven Common Stock will be
entitled to one vote for each share on all matters voted on by shareholders,
including elections of directors, and, except as otherwise required by law or
provided in any resolution adopted by the Board with respect to any series or
class of Preferred Stock, the holders of such shares will exclusively possess
all voting power. The Hillhaven Articles do not provide for cumulative voting
for the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock designated by the Board from time to time,
the holders of Common Stock will be entitled to such dividends as may be
declared from time to time by the Board, and upon liquidation will be entitled
to receive all assets of Hillhaven available for distribution to such holders.
Preferred Stock
The Board of Directors of the Company is authorized to issue Preferred
Stock, in one or more series or classes, and to fix for each such series or
class such voting powers, designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions as are stated in the resolution or resolutions adopted by the Board
providing for the issue of such series or class and as are permitted by Nevada
law. The Board could issue preferred stock having terms which could discourage a
takeover or other transaction that some, or a majority, of the shareholders
might believe to be in their best interests or in which shareholders might
receive a premium for their stock over the then market price of such stock.
The Board of Directors has authorized the issuance of Series A Preferred
Stock pursuant to a preferred stock purchase rights plan and Series B
Convertible Preferred Stock in connection with a Performance Investment Plan. As
of the date hereof, no shares of Series A or Series B Preferred Stock are
outstanding.
As of February 28, 1995, there were 35,000 shares of Series C Preferred
Stock outstanding, all of which are owned by Tenet. The Series C Preferred Stock
entitles the holder to receive a cash dividend of 8 1/4% per annum on the
liquidation value thereof ($1,000 per share), payable quarterly, which dividend
currently aggregates $2,887,500 per annum. 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. Certain of Hillhaven's credit
agreements and debt instruments, however, restrict the ability of the Company to
redeem the Series C Preferred Stock.
As of February 28, 1995, there were 63,402 shares of Series D Preferred
Stock outstanding, all of which are owned by Tenet. The Series D Preferred Stock
entitles the holder to receive cumulative quarterly dividends at the annual rate
of 6.5% on the liquidation value thereof ($1,000 per share), payable quarterly.
Such dividends are payable in additional shares of Series D Preferred Stock in
lieu of cash until the earlier to
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occur of (i) the sixth anniversary of the closing of the "Bank Financing" as
defined in the Series D Preferred Stock certificate of designation, or (ii)
three months after the stated maturity of the Bank Financing; thereafter, such
dividends will be payable in cash. The Series D 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. Certain of Hillhaven's credit agreements and
debt instruments restrict the ability of the Company to redeem the Series D
Preferred Stock.
Pre-Emptive Rights
No holder of any stock of any class has any pre-emptive or preferential
right to acquire or subscribe for any treasury or unissued shares of any class
of stock or any authorized securities convertible into or carrying any right,
option or warrant to subscribe for or acquire shares of any class of stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Chemical Trust
Company of California.
DESCRIPTION OF NCI CAPITAL STOCK
The summary of the attributes of capital stock described below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the applicable law and the respective corporations' articles of
incorporation and by-laws.
The authorized capital stock of NCI consists of 48,000,000 NCI Common
Voting Shares of which 7,431,458 are issued and outstanding; 2,000,000 shares of
Nonvoting Common Shares, without par value, of which 76,592 shares are issued
and outstanding; and 2,000,000 shares of Preferred Stock, without par value, of
which 300,000 shares of NCI Preferred Stock are issued and outstanding. NCI also
has outstanding warrants to purchase 987,188 shares of NCI Nonvoting Common
Stock (the "NCI Warrants"), which will be exercised prior to the closing of the
Share Exchange.
NCI Voting Common Shares
Each holder of NCI Voting Common Shares is entitled to one vote for each
share held on matters voted upon by Shareholders, subject to limitations
discussed below. Holders of NCI Voting Common Shares have no pre-emptive rights
to acquire additional NCI Voting Common Shares which may be subsequently issued.
Under Indiana law and pursuant to NCI's Amended and Restated Articles of
Incorporation (the "NCI Articles"), the holders of the NCI Voting Common Shares
possess exclusive voting power in NCI, and will continue to possess exclusive
voting power unless a new class of preferred stock is issued and voting rights
are granted to the holders thereof or unless the Articles are amended as
provided therein and pursuant to Indiana law.
Certain Business Combinations. The Articles require that certain business
combinations between NCI (or any majority-owned subsidiary thereof) and a 10% or
greater shareholder either (i) be approved by at least 80% of the total number
of outstanding voting shares of NCI or (ii) either be approved by a majority of
certain directors unaffiliated with such 10% or greater shareholder or involve
consideration per share generally equal to the higher of (A) the highest amount
paid by such 10% shareholder or its affiliates in acquiring any shares of the
Common Stock or (B) the "Fair Market Value" (generally, the highest closing sale
price of the Common Stock during the 30 days preceding the date of the
announcement of the proposed business combination or on the date the 10% or
greater shareholder became such, whichever is higher).
NCI Nonvoting Common Shares
Holders of the NCI Nonvoting Common Shares are entitled to the same rights
and privileges and subject to the same limitations and restrictions as the
holders of the NCI Voting Common Shares, except that the holders of NCI
Nonvoting Common Shares shall not be entitled to vote on any matter submitted to
a vote of Shareholders of NCI, except as otherwise provided under Indiana law.
Each NCI Nonvoting Common Share
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is convertible, at the option of the holder thereof subject to certain
limitations, into one of NCI Voting Common Share.
NCI Warrants
NCI Warrant holders receive NCI Nonvoting Common Shares upon the exercise
of their NCI Warrants, but are entitled to convert each NCI Nonvoting Common
Share into one NCI Voting Common Share, provided that applicable law does not
prohibit such holder's ownership of common stock. The NCI Warrants are
exercisable at any time prior to expiration, which occurs on the later of (i)
July 27, 2000, (ii) the day upon which the NCI Subordinated Notes are paid in
full, and (iii) the day upon which the NCI Preferred Stock is fully redeemed.
The currently outstanding NCI Warrants give the holders the right to receive up
to 987,188 NCI Nonvoting Common Shares, subject to certain antidilution
provisions. The NCI Warrants will be exercised prior to the closing of the Share
Exchange.
NCI Preferred Stock
The Board of Directors of Nationwide is authorized to issue additional
shares of preferred stock in series and to fix and state the voting powers,
designations, preferences and relative, participating, optional or other special
rights of the shares of each such series and the qualifications, limitations and
restrictions thereof. NCI preferred stock may rank prior to the NCI Voting
Common Shares and NCI Nonvoting Common Shares as to dividend rights, liquidation
preferences or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have. The NCI Preferred Stock has no coupon rate and is redeemable in eight
equal quarterly installments of $375,000 commencing November 1998 and is
mandatorily redeemable for $3.0 million in the event of an initial public
offering, a change in control or an optional redemption of certain indebtedness
of NCI. The NCI Preferred Stock will be redeemed, according to its terms, at the
closing.
Liquidation and Redemption
In the event of liquidation or dissolution of NCI, the holders of the NCI
Voting Common Shares and NCI Nonvoting Common Shares are entitled to receive
(after payment or provision for payment of all debts and liabilities of NCI) all
assets of NCI available for distribution, in cash or in kind. The NCI Preferred
Stock is entitled to a priority in the event of liquidation or dissolution at
the rate of $10.00 per share. If other classes of preferred stock are issued,
the holders thereof may have priority over the holders of NCI Voting Common
Shares and NCI Nonvoting Common Shares in the event of liquidation or
dissolution.
NCI Subordinated Notes
NCI has senior subordinated notes with outstanding principal in the amount
of $12,000,000 (the "NCI Subordinated Notes"). The NCI Subordinated Notes are
payable in quarterly principal installments of $1,500,000 beginning November
1998 with the final installment due in August 2000. The NCI Subordinated Notes
bear interest at an annual rate of 12.5%. Pursuant to the Share Exchange
Agreement, Hillhaven will repay the NCI Subordinated Notes at the closing of the
Share Exchange.
DESCRIPTION OF MEADOWVALE CAPITAL STOCK
The authorized capital stock of Meadowvale consists of 3,000 shares of
Meadowvale common stock, without par value (the "Meadowvale Common Shares") of
which 3,000 shares are issued and outstanding. Under Indiana law, each holder of
Meadowvale Common Shares is entitled to one vote for each share held on matters
voted upon by shareholders. Holders of Meadowvale Common Shares have no
pre-emptive rights to acquire additional shares of Meadowvale Common Shares
which may be subsequently issued. Under Indiana law and pursuant to Meadowvale's
Amended and Restated Articles of Incorporation (the "Meadowvale Articles"), the
holders of Meadowvale Common Shares possess exclusive voting power in
Meadowvale. Pursuant to Indiana law, in the event of liquidation or dissolution
of Meadowvale, the holders of Meadowvale
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Common Shares are entitled to receive (after payment or provision for payment of
all debts and liabilities of Meadowvale) all assets of Meadowvale available for
distribution, in cash or in kind.
DESCRIPTION OF PEI CAPITAL STOCK
The authorized capital stock of PEI consists of 10,000 shares of PEI common
stock, without par value (the "PEI Common Shares"), of which 2,000 shares are
issued and outstanding. Under Indiana law, each holder of PEI Common Shares is
entitled to one vote for each share held on matters voted upon by Shareholders.
Pursuant to the PEI Articles of Incorporation, holders of PEI Common Shares have
pre-emptive rights to acquire additional shares of PEI Common Shares which may
be subsequently issued. In the event of liquidation or dissolution of PEI, the
holders of PEI Common Shares are entitled to receive (after payment or provision
for payment of all debts and liabilities of PEI) all assets of PEI available for
distribution, in cash or in kind.
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PRINCIPAL DIFFERENCES BETWEEN HILLHAVEN
AND CORPORATE TARGETS' CAPITAL STOCK
GENERAL
Upon consummation of the Share Exchange, the shareholders of the Corporate
Targets will become shareholders of Hillhaven and their rights will be governed
by the NGCL, the Hillhaven Articles and the Hillhaven By-Laws, which differ in
certain material respects from the IBCL, the Amended and Restated Articles of
Incorporation of NCI (the "NCI Articles"), the Amended and Restated By-Laws of
NCI (the "NCI By-Laws") and the Articles of Incorporation and By-Laws of
Meadowvale and PEI, respectively. Nevada is the jurisdiction of incorporation of
Hillhaven and Indiana is the jurisdiction of incorporation of each Corporate
Target.
The following comparison of the IBCL and the Articles of Incorporation and
By-Laws of each respective Corporate Target, on the one hand, and the NGCL and
the Hillhaven Articles and the Hillhaven By-Laws, on the other, is not intended
to be complete and is qualified in its entirety by reference to the Articles of
Incorporation and By-Laws of each respective Corporate Target and the Hillhaven
Articles and By-Laws. Copies of the Hillhaven Articles and Hillhaven By-Laws are
available for inspection at the principal executive offices of Hillhaven, and
copies will be sent to the holders of the Target Common Shares upon request.
Copies of the Articles of Incorporation and By-Laws of each respective Corporate
Target are available for inspection at the principal executive offices of the
respective Corporate Target, and copies will be sent to holders of the Target
Common Shares upon request. Reference is also directed to the discussion below
respecting certain contractual arrangements affecting the sale, exchange or
other disposition of the Share Exchange Consideration under the heading "TERMS
AND CONDITIONS OF THE SHARE EXCHANGE AGREEMENT -- Agreement Among Corporate
Target Shareholders."
BOARD OF DIRECTORS
Both the IBCL and the NGCL provide that a corporation's board of directors
shall consist of at least one member and that the authorized number of directors
may be fixed in either the corporation's certificate of incorporation or
articles of incorporation, as the case may be, or in the by-laws. The NCI
Articles provide that the authorized number of directors constituting the NCI
Board shall not be less than three nor more than fifteen, as specified from time
to time by resolution adopted by a majority of the total number of directors.
The NCI Board has fixed the number of directors at three. The Meadowvale Board
adopted a by-law providing that the Meadowvale Board shall consist of four
members until changed by adoption of a by-law fixing a different number of
directors, but not less than three members. The By-Laws of PEI fix the number of
directors at two members which may be changed from time to time by a resolution
of the board of directors. The Hillhaven Articles provide that the authorized
number of directors constituting the Hillhaven Board shall be not less than
three nor more than twenty-one directors, as fixed from time to time exclusively
by the Hillhaven Board pursuant to a resolution adopted by a majority of the
total number of authorized directors. The Hillhaven Board has fixed the number
of directors at eight directors.
The NCI Articles provide that the NCI Board will be divided into three
classes, and each class will generally serve for a term of three years. Each
year the term of one class of directors expires, so it is only possible to elect
one class of the NCI Board of Directors (or approximately one-third) in any one
year. Neither Meadowvale nor PEI has a classified board of directors. The
Hillhaven Articles provide that the Hillhaven Board will be divided into three
classes, and each class will generally serve for a term of three years. Each
year the term of one class of directors expires, so it is only possible to elect
one class of the Hillhaven Board of Directors (or approximately one-third) in
any one year.
The classification provisions could have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Hillhaven, even though such an attempt might be
beneficial to Hillhaven and its shareholders. The classification of the Board of
Directors of Hillhaven could thus increase the likelihood that incumbent
directors will retain their positions. In addition, because the classification
provisions may discourage accumulations of large blocks of Hillhaven's stock by
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purchasers whose objective is to take control of Hillhaven and remove a majority
of the Board of Directors of Hillhaven, the classification of the Board of
Directors could tend to reduce the likelihood of fluctuations in the market
price of the Hillhaven Common Stock that might result from accumulations of
large blocks of stock. Accordingly, shareholders could be deprived of certain
opportunities to sell their shares of Hillhaven Common Stock at a higher market
price than otherwise might be the case.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the IBCL, any director or the entire board of directors generally may
be removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors. The NCI Articles provide that a
director or the entire Board of Directors may be removed only for cause and only
by the affirmative vote of at least 80% of the shares eligible to vote generally
in the election of directors and limits the causes for which a director may be
removed. The Articles of Incorporation and By-Laws of Meadowvale and PEI,
respectively, contain no special provisions regarding removal of directors.
Under the NGCL and the Hillhaven Articles, any director may be removed from
office upon the vote of shareholders representing not less than two-thirds of
the outstanding voting stock of the corporation.
The IBCL and NGCL generally provide that all vacancies on the board of
directors, including vacancies caused by an increase in the number of authorized
directors, may be filled by a majority of the remaining directors even if they
are less than a quorum. The NCI Articles provide that all vacancies shall be
filled only by the majority vote of those directors who were serving on
September 30, 1992, or who were recommended for appointment or election by a
majority of the directors on the board at the time of the director's appointment
or election. The By-Laws of Meadowvale and PEI, respectively, provide that
vacancies may be filled by a majority of the remaining directors, except that
the By-Laws of Meadowvale state that if the vacancy was caused by an increase in
the number of directorships, the shareholders alone may fill the vacancy. The
Hillhaven Articles provide that the Board of Directors shall fill all vacancies,
however created, and the Hillhaven By-Laws provide that the affirmative vote of
a majority of the remaining directors is required to fill such vacancies.
LIMITATION ON DIRECTORS' LIABILITY
Both the IBCL and the NGCL provide that the liability of directors and
officers may be limited by a provision in a corporation's articles. In
accordance with the IBCL, the NCI Articles provide that a director, officer and
certain other persons are not liable unless the person failed to act in good
faith, with ordinary care and in a manner which the person reasonably believed
in the corporation's best interest and such failure constituted willful
misconduct or recklessness. Although the Articles of Incorporation of Meadowvale
and PEI, respectively, do not contain any provision specifically limiting the
liability of their directors or officers, the IBCL itself limits the liability
of directors and officers in the same manner as set forth in the NCI Articles.
As permitted under the NGCL, the Hillhaven Articles provide that no director or
officer shall be personally liable to Hillhaven or its shareholders for damages
for breach of fiduciary duty as a director or officer, except for liability for
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of the law or for the unlawful payment of dividends.
INDEMNIFICATION
Under the IBCL, a corporation must indemnify its officers, directors,
employees or agents for expenses, judgments or settlements, actually and
reasonably incurred by them in connection with suits and other legal
proceedings, if an individual is wholly successful in the defense of any
proceeding to which he was a party because he was an officer or director of the
corporation unless limited by the corporation's articles of incorporation. In
addition, the IBCL permits, but does not require, indemnification against any
liability if the individual acted in good faith and reasonably believed (i) in
the case of conduct in his official capacity with the corporation, that his
conduct was in its best interest and (ii) in all other cases, that his conduct
was at least not opposed to its best interest. In the case of any criminal
proceeding, the individual must either have had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful. The IBCL also permits a corporation to expand upon the statutory
indemnification provisions
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through additional provisions in its articles of incorporation or bylaws, or
through resolutions adopted by its board of directors or shareholders. In
accordance with its authority, the NCI Articles provide for, among other things,
mandatory indemnification in situations where the standards for permissive
indemnification under the Indiana law are met. The Articles of Incorporation and
By-Laws of Meadowvale do not contain special provisions as to indemnification
rights of directors and officers and such indemnification will therefore be
governed by the IBCL. The Articles of Incorporation of PEI mandate
indemnification only if the director or officer is successful on the merits, and
require the advancement of expenses. The PEI Articles of Incorporation contain
no other special provisions dealing with indemnification, and therefore the
provisions of the IBCL will otherwise govern.
Under the NGCL, a corporation may, and in certain circumstances must,
indemnify its officers, directors, employees or agents for expenses, judgments,
or settlements, actually and reasonably incurred by them in connection with
suits and other legal proceedings, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to criminal proceedings, had no reasonable cause
to believe their conduct was unlawful. A corporation may adopt procedures for
advancing expenses to directors and officers prior to final adjudication, as
long as they undertake to repay the amounts advanced if it is ultimately
determined that they were not entitled to be indemnified. While the Hillhaven
Articles are silent as to indemnification, the Hillhaven By-Laws mandate
indemnification and, pursuant to certain procedures, mandate advancement of
expenses to the fullest extent permitted by the NGCL, unless the person seeking
indemnification initiated the proceeding without approval of the Hillhaven
Board.
RESTRICTIONS ON BUSINESS COMBINATIONS
The IBCL contains provisions restricting the ability of a corporation to
engage in business combinations with an interested shareholder for a five-year
period following the date such shareholder became an interested shareholder,
unless the combination complies with certain fair price provisions or unless the
board of directors of the corporation approved of the interested shareholder's
acquisition of shares. The IBCL defines an interested shareholder generally as a
person who owns 10% or more of the outstanding shares of such corporation's
voting stock. The NGCL contains substantially similar provisions except that a
corporation is not permitted to engage in a business combination with any
interested shareholder for a more limited three-year period following the date
such shareholder became an interested shareholder.
The NCI Articles contain provisions which further restrict business
combinations with an interested shareholder, or unless certain continuing
directors of NCI approve of the business combination, or with certain business
combinations, unless the combination complies with certain fair price
provisions. An interested shareholder is defined generally to include a person
who owns 10% or more of the outstanding shares of NCI's voting stock. The
Articles of Incorporation of Meadowvale and PEI do not contain any similar
provision. The Hillhaven Articles contain provisions which prevent a related
person from effecting or approving certain transactions unless certain
continuing directors of Hillhaven approve of the transaction or the transaction
is approved by two-thirds of the shareholders. A related person is defined
generally to include a person who owns 5% or more of the outstanding shares of
Hillhaven's voting stock.
RESTRICTIONS ON VOTING RIGHTS
Both the IBCL and the NGCL contain control share acquisition provisions
which provide that, except in certain limited exceptions such as mergers, any
person or group of persons that acquires more than one-fifth of certain
corporation's shares shall not have the right to vote those shares until voting
rights have been conferred on the shares as provided in the respective statute.
Under the IBCL, voting rights may be conferred by a resolution adopted by each
voting group entitled to vote separately on the proposal and by a majority of
the votes entitled to be cast, excluding "interested shares." Under the NGCL,
voting rights may be conferred by a resolution adopted by a majority of votes
entitled to be cast, excluding the shares held by an "interested shareholder,"
but the corporation's articles may require a different requirement. Under both
the IBCL and the NGCL, the provisions of the control share acquisition statute
do not apply if the issuing corporation's articles of incorporation or bylaws
(under the NGCL in effect on the tenth day following acquisition of a
controlling
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interest by an acquiring person, and under the IBCL in effect prior to such
acquisition) state that such provisions do not apply to the acquisition. Under
the IBCL, if the control share acquisition statute does apply, and either the
acquiring person fails to follow required procedures or the shareholders do not
confer the right to vote, the issuing corporation may redeem the shares at the
fair value of the shares as determined by the corporation. The shares may be
redeemed at any time ending 60 days after the last acquisition of the shares.
Under the NGCL in the same circumstances, the issuing corporation must redeem
the shares at the average price paid for the shares and must call for redemption
within thirty days of the event and redeem the shares within sixty days after
the call for redemption. The Hillhaven Articles specifically make the control
share acquisition statute applicable to any acquisition of such shares and
increases the required shareholder vote from a majority vote of the shareholders
to a two-thirds vote of the shareholders, excluding the shares held by any
interested shareholder.
Unless otherwise provided in the issuing corporation's articles of
incorporation or bylaws (under the NGCL in effect on the tenth day following
acquisition of a controlling interest by an acquiring person, and under the IBCL
in effect prior to such acquisition), if the shares are accorded full voting
rights and the acquiring person has acquired control shares with a majority or
more of all voting power, any shareholder of the corporation who has not voted
in favor of authorizing voting rights for the control shares is entitled to
demand the corporation to purchase such shareholder's shares at fair value.
Neither the Articles of Incorporation or By-Laws of any Corporate Target nor the
Articles of Incorporation or By-Laws of Hillhaven presently contain any
provision that would alter these statutory rights.
SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Under the IBCL, shareholders may take action without a meeting, without
prior notice and without a vote if all of the shareholders entitled to vote on
the action execute a written consent which is thereafter delivered to the
corporation. Under the NGCL, unless otherwise provided in the articles of
incorporation or the by-laws, shareholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize the proposed action at a meeting at which all shares
entitled to vote were present and voted. The Hillhaven Articles provide that all
action required or permitted to be taken by the shareholders must be taken at an
annual or special meeting of the shareholders except actions taken by unanimous
written consent.
The NCI Articles provide that special meetings of the shareholders may be
called only by the Chairman of the Board or by the Board pursuant to a
resolution adopted by a majority of the total number of directors. The By-Laws
of Meadowvale provide that special meetings of the shareholders may be called by
the President or any Vice President, by the Board or by shareholders holding not
less than one-fourth of the outstanding voting shares. The By-Laws of PEI
provide that special meetings of the shareholders may be called by the
President, by the Board or by shareholders holding not less than one-fourth of
the outstanding voting shares. The Hillhaven By-Laws provide that special
meetings of shareholders may be called only by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of directors.
AMENDMENT OR REPEAL OF THE ARTICLES OF INCORPORATION AND BY-LAWS
Under the IBCL and the NGCL, unless the articles of incorporation or
by-laws otherwise provide, amendments to the articles of incorporation generally
require the approval of the board or directors and approval of the holders of a
majority of the outstanding stock entitled to vote thereon, and if such
amendments would adversely affect the shares of such class or series, a majority
of the outstanding stock of such class or series would have to approve the
amendment. The NCI Articles further require the vote of a least 80% of the
outstanding shares to amend certain provisions of the NCI Articles (i.e.,
provisions relating to number, classification and removal of directors;
amendment of the NCI By-Laws; call of special shareholder meeting; criteria for
evaluating certain offers; certain business combinations; and amendments to
provisions relating to the foregoing). There are no similar provisions in the
Articles of Incorporation of Meadowvale or PEI. The Hillhaven Articles provide
that a vote of two-thirds of all of the outstanding shares voting together as a
single class, regardless of limitations on voting power or whether such shares
have voting power, are required to amend or repeal certain provisions of the
Articles of Incorporation or the By-Laws (i.e., provisions relating to
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<PAGE> 60
number, classification and removal of directors; amendment of certain provisions
of the By-Laws; call of special shareholder meeting; criteria for evaluating
certain offers; certain business combinations; certain control share
acquisitions and amendments to provisions relating to the foregoing).
The Boards of Directors of NCI, Meadowvale and PEI have the exclusive power
to adopt, amend or repeal by-laws by the affirmative vote of a majority of the
directors, except that the shareholders of PEI may also adopt by-laws. Subject
to the provisions of the Hillhaven Articles and subject to by-laws adopted by
the shareholders, the Hillhaven Board has the power to adopt, amend or repeal
by-laws.
CUMULATIVE VOTING
Under the IBCL cumulative voting of stock applies only when so provided in
the articles of incorporation or by-laws of a corporation. The Articles of
Incorporation and By-Laws of NCI and PEI, respectively, do not provide for
cumulative voting of stock. The Meadowvale By-Laws require the cumulative voting
of stock. Under the NGCL, cumulative voting of stock applies only when so
provided in the articles of incorporation of a corporation. The Hillhaven
Articles specifically prohibit cumulative voting.
SHAREHOLDER VOTE FOR MERGERS OR SHARE EXCHANGES
Except with respect to certain mergers between parent and subsidiary
corporations, both the IBCL and the NGCL generally require the affirmative vote
of a majority of the outstanding shares of the target and surviving corporations
in a merger and of outstanding shares of the corporation whose shares are being
acquired in a share exchange. Neither the IBCL nor the NGCL requires a
shareholder vote of the corporation acquiring the shares in a share exchange.
APPRAISAL RIGHTS IN MERGERS OR SHARE EXCHANGES
Both the IBCL and the NGCL provide that shareholders have the right, in
some circumstances, to dissent from certain corporate reorganizations and to
instead demand payment of the fair cash value of their shares. Unless a
corporation's articles of incorporation provide otherwise, the NGCL does not
provide for such rights of appraisal with respect to a merger or share exchange
of a corporation, the shares of which are either listed on a national securities
exchange or traded on NASDAQ or widely held (by more than 2,000 shareholders),
if shareholders receive cash or shares of the surviving corporation or of such a
listed, NASDAQ-traded or widely-held corporation. Like the IBCL, the NGCL does
not provide appraisal rights to shareholders of the corporation acquiring the
shares in a share exchange.
DIVIDENDS
Under the IBCL and the NGCL, corporations may pay dividends or make other
distributions with respect to its stock unless, after giving effect to the
dividend or other distribution, either the corporation would not be able to pay
its debts as they become due in the usual course of business or (except as
otherwise specifically allowed by its articles of incorporation under the NGCL)
the corporation's total assets would be less than the sum of its total
liabilities plus (unless the articles of incorporation permit otherwise under
the IBCL) the amount that would be needed, if the corporation were to be
dissolved at the time of the dividend or other distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those of the holders of shares receiving the dividend or other
distribution.
HILLHAVEN RIGHTS PLAN
Hillhaven made a dividend distribution of one right (the "Rights") for each
share of Hillhaven Common Stock outstanding on January 31, 1990 and authorized
the issuance of additional Rights for Hillhaven Common Stock issued after that
date. Hillhaven may redeem the Rights at $.01 per Right at any time until they
become exercisable. With certain exceptions, the Rights become exercisable ten
business days, which may be extended under certain conditions to twenty business
days by the Hillhaven Board, after an investor (an "Acquiring Person") has (i)
commenced a tender or exchange offer for 30% or more of the general voting power
of Hillhaven stock or (ii) made or is the subject of a public announcement that
the investor has
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<PAGE> 61
acquired 20% or more of the general voting power of Hillhaven stock. Upon the
occurrence of such events, the Rights may be exchanged for one one-hundredth of
a share of Hillhaven's Series A Preferred Stock at an exercise price of $10.00
per share, subject to certain adjustments. The Right holder as such will have no
rights as a shareholder of Hillhaven, including no right to vote or to receive
dividends or distributions.
The Series A Preferred Stock is non-redeemable and ranks junior in
preference as to dividends and distributions of assets to all other classes or
series of Preferred Stock, unless the terms thereof provided otherwise. Each
share of Series A Preferred Stock will have a minimum preferential quarterly
dividend rate of $5.00 per share but will be entitled to an aggregate of 100
times the cash and non-cash (payable in kind) dividends and distributions (other
than dividends and distributions payable in Hillhaven Common Stock) declared on
Hillhaven Common Stock. Each share of Series A Preferred Stock has a liquidation
preference equal to the greater of $1,000 per share or 100 times the payment
made per share on the Hillhaven Common Stock, plus the amount of accrued and
unpaid dividends and distributions. Each share of Series A Preferred Stock will
have 100 votes.
In the event that, on or after the date the Rights become exercisable,
Hillhaven is acquired or merged, or more than 50% of the assets or earning power
of Hillhaven and its subsidiaries, taken as a whole, are sold, each Right
holder, excluding those Rights owned by an Acquiring Person, will be entitled to
purchase, for the then-current exercise price of each Right, common stock of the
surviving company having a market value equal to two times the exercise price of
each Right. In the event that, on or after the date the Rights become
exercisable, Hillhaven is the survivor of a merger or other business
combination, an Acquiring Person engages in certain self-dealing transactions, a
person becomes the beneficial owner of 30% or more of the general voting power
of Hillhaven stock or certain events occur which cause an Acquiring Person's
ownership interest to increase by more than 1%, then each Right holder,
excluding Rights beneficially held by an Acquiring Person, will be entitled to
purchase, for the then-current exercise price of each Right, that number of
shares of Series A Preferred Stock having a market value equal to two times the
exercise price of each Right.
The Rights could have the effect of discouraging a third party from making
a tender offer or otherwise attempting to obtain control of Hillhaven, even
though such an attempt might be beneficial to Hillhaven and its shareholders. In
addition, because the Rights may discourage accumulations of large blocks of
Hillhaven Common Stock by purchasers whose objective is to take control of
Hillhaven, the Rights could tend to reduce the likelihood of fluctuations in the
market price of the Hillhaven Common Stock that might result from accumulations
of large blocks of stock. Accordingly, shareholders could be deprived of certain
opportunities to sell their shares of Hillhaven Common Stock at a higher market
price than otherwise might be the case. No Corporate Target has a shareholder
rights plan.
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<PAGE> 62
RESALES OF HILLHAVEN COMMON SHARES
The Hillhaven Common Shares to be issued as the Share Exchange
Consideration pursuant to the Share Exchange Agreement to the Shareholders have
been registered under the Securities Act pursuant to the Registration Statement.
As a result, unless the Shareholder is considered an "affiliate" of one of the
Corporate Targets within the meaning of Rule 144 under the Securities Act
promulgated by the SEC (an "Affiliate"), such Hillhaven Common Shares are freely
tradable.
Hillhaven Common Shares acquired by Affiliates may be resold by those
Affiliates pursuant to the provisions of Rule 145(d) under the Securities Act
promulgated by the SEC, pursuant to this Prospectus/Information Statement or
pursuant to an exemption from registration under the Securities Act. Shares sold
pursuant to this Prospectus/Information Statement may be sold in transactions
involving a broker which is a member of the NYSE. Sales through such brokers may
be made by any method of trading authorized by the NYSE or any other stock
exchange on which such stock may be listed, including block trading in
negotiated transactions. Without limiting the foregoing, such brokers may act as
dealers by purchasing any or all of the shares covered by this
Prospectus/Information Statement, either as agents for others or as principals
for their own accounts and reselling such shares pursuant to this
Prospectus/Information Statement. In reoffering or reselling the Hillhaven
Common Shares covered by this Prospectus/Information Statement, any Affiliate
and any brokers/dealers who execute sales for an Affiliate may be considered to
be statutory "underwriters" with the meaning of the Securities Act. The
engagement of a broker for the reoffering or resale of any of the Hillhaven
Common Shares covered by this Prospectus/Information Statement may be terminated
at any time by either the Shareholder or the broker. Each of the NCI
Shareholders has represented to the Company that they will be acting
independently in making decisions with respect to the timing, manner and size of
reoffering or resale.
To ensure compliance with the Securities Act, pursuant to the terms of an
"Affiliate Letter" each Affiliate will agree to make any sales or distributions
of Hillhaven Common Shares only (i) in conformity with the provisions of Rule
145(d) of the Securities Act, (ii) pursuant to an effective registration
statement under the Securities Act or (iii) pursuant to an exemption from
registration under the Securities Act. In general, Rule 145(d) restricts sales
of Hillhaven Common Shares during the two-year period after the Effective Time
of the Share Exchange, and permits sales, while Hillhaven is subject to the
requirements to file, and is filing, periodic reports under Section 13 or 15(d)
of the Exchange Act, only in brokers' transactions or transactions directly with
a market maker where the aggregate number of shares sold at any time together
with all sales of restricted Hillhaven securities sold from the account of the
Affiliate during the preceding three-month period does not exceed the greater of
(i) one percent of the outstanding Hillhaven Common Shares, or (ii) the average
weekly trading volume of Hillhaven Common Stock on all national securities
exchanges during any four-week period preceding any such sale. In addition,
Hillhaven has agreed pursuant to the "Affiliate Letter" to have legends placed
on the Hillhaven Common Shares issued as the Share Exchange Consideration to
that effect and to use its best efforts to file, in a timely manner, all reports
with the SEC necessary for the current public information requirement of Rule
144 under the Securities Act to be satisfied.
In addition, pursuant to the terms of a "Pooling Letter," each of the
Shareholders has agreed that in order for the Share Exchange to qualify for a
pooling-of-interests accounting treatment under GAAP, the Shareholders may sell
the Hillhaven Common Shares only in accordance with certain restrictions. These
restrictions on the sale of Hillhaven Common Shares prohibit any sales by
Shareholders that would cause the criteria for pooling-of-interests accounting
treatment to be violated and include a period, beginning on the Effective Time
of the Share Exchange and ending at such time as financial results covering at
least 30 days of post-Share Exchange combined operations have been published,
where no sales or other disposition of the Hillhaven Common Shares may be made.
Pursuant to the terms of the Share Exchange Agreement, Hillhaven has agreed to
publish the financial results of the combined operations of Hillhaven and the
Nationwide Entities, covering at least 30 days of such combined operations, no
later than the last to occur of (a) 60 days following the end of the month in
which the Closing occurs or (b) 10 days following delivery of such financial
information with respect to the operations previously owned by the Nationwide
Entities as Hillhaven considers reasonably necessary to prepare such combined
financial results. See "TERMS AND CONDITIONS OF THE SHARE EXCHANGE
AGREEMENT -- Certain Covenants."
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<PAGE> 63
Additionally, to preserve the proposed tax-free status of the Share
Exchange and in order to ensure that the continuity of shareholder interest
requirements related thereto, as set forth in Treasury Regulation sec.
1.368-1(b), will be satisfied with respect to the Share Exchange, each
Shareholder will enter into a Shareholders' Agreement pursuant to which each
Shareholder shall represent, warrant and covenant that such Shareholder will not
dissent in or to the transactions contemplated in connection with the Vencor
Merger. Each Shareholder shall also severally represent, warrant and covenant to
the other Shareholders that he, she or it has no present plan, intention or
arrangement to sell, exchange, pledge, or otherwise dispose of a number of the
Hillhaven Common Shares received as Share Exchange Consideration (or shares of
Vencor common stock received in the Vencor Merger) that would reduce such
person's ownership of such Hillhaven Common Shares (or shares of Vencor common
stock) to a number having a value, determined at the Effective Time, of less
than 50% of the value of Corporate Target stock held by such person immediately
before the Share Exchange. Further, pursuant to the Shareholders' Agreement, a
Shareholder may sell, exchange, pledge, or otherwise dispose of any of the
Hillhaven Common Shares received as Share Exchange Consideration (or shares of
Vencor common stock received in the Vencor Merger) provided such disposition
would not reduce the fair market value of the Hillhaven Common Shares (or shares
of Vencor common stock), determined as of the Effective Time, retained by such
Shareholder to an amount less than 50% of the fair market value of the Corporate
Target stock held by such Shareholder immediately before the Share Exchange. A
Shareholder may not sell, exchange, pledge, or dispose of more than 50% of such
Shareholder's Hillhaven Common Shares (or shares of Vencor common stock received
in the Vencor Merger) within the two-year period immediately following the
Effective Time, or within two years of the effective time of the Vencor Merger,
whichever is later, unless: (a) such Shareholder obtains and delivers to the
Representative, an unqualified opinion of counsel (from counsel reasonably
acceptable to the Representative, and in a form acceptable to the
Representative) to the effect that such sale, exchange, pledge, or disposition
would not adversely affect the tax-free status of the Share Exchange; and (b)
the Representative and the Phillippes jointly consent in writing to such sale,
exchange, pledge, or disposition. The Phillippes shall use reasonable efforts to
reply to a request for a disposition of shares pursuant to clause (b) above
within 30 days of receipt of a written notice of a Shareholder's request to sell
shares pursuant to such clause.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Richard P. Adcock, Senior Vice President, Secretary and General
Counsel of the Company. As to matters governed by the laws of the state of
Nevada, the Company's General Counsel will rely on Woodburn and Wedge, Reno,
Nevada.
As of February 28, 1995, Mr. Adcock owned 35,789 shares of the Company's
Common Stock. In addition, Mr. Adcock held options to purchase an additional
3,340 shares of the Company's Common Stock pursuant to the 1990 Stock Incentive
Plan and options to purchase an aggregate of 184,590 shares of the Company's
Common Stock pursuant to the Performance Investment Plan. Mr. Adcock also has an
interest in 92,576 Performance Shares (reflects 100% of the target award)
awarded under the 1990 Stock Incentive Plan, which he is eligible to receive as
follows: (a) with respect to the three-year period ending May 31, 1995, 2,576
shares, and (b) with respect to each of the five fiscal years ending May 31,
1996 to 2000, 18,000 shares per year.
EXPERTS
The consolidated financial statements and schedules of The Hillhaven
Corporation and its subsidiaries as of May 31, 1994 and 1993, and for each of
the three years in the period ended May 31, 1994, in the Company's annual report
on Form 10-K, have been incorporated by reference herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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<PAGE> 64
The report of KPMG Peat Marwick LLP covering the May 31, 1994 consolidated
financial statements refers to a change in the method of providing income taxes
by adopting Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
The discussions included under the heading "TERMS AND CONDITIONS OF THE
SHARE EXCHANGE AGREEMENT -- Certain Federal Income Tax Consequences" were
prepared for the Company by KPMG Peat Marwick LLP and have been included herein
upon the authority of said firm as experts in tax accounting.
The financial statements of Nationwide Care, Inc. as of September 30, 1993
and 1994, and for each of the three years in the period ended September 30,
1994, appearing in this Prospectus/Information Statement and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
give effect to the business combination as if the Share Exchange had been
consummated, with respect to the statements of operations, at the beginning of
each of the periods presented, or, with respect to the balance sheet, as of
February 28, 1995. The business combination will be accounted for as a pooling
of interests.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the financial position or results of operations of the
Company had the business combination taken place on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future. The information presented does not include certain cost savings that
management believes may be realized following the Share Exchange, currently
estimated to be approximately $4 million annually beginning in fiscal 1996
(before any severance or other costs of implementing efficiencies). These
savings are expected to be realized primarily through the elimination of
duplicative corporate overhead and reduced expense due to the incorporation of
the Nationwide Entities into the Company's group purchasing and workers
compensation programs. There can be no assurance as to the amount of cost
savings, if any, that may be realized as a result of the transactions
contemplated by the Share Exchange Agreement.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the separate historical financial statements and notes
thereto appearing elsewhere in this Prospectus/ Information Statement or
incorporated in this Prospectus/Information Statement by reference. See
"BACKGROUND OF AND REASONS FOR THE SHARE EXCHANGE," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "SELECTED FINANCIAL DATA" and "NATIONWIDE CARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The Company reports its financial information on the basis of a May 31
fiscal year. NCI and the other entities which comprise the Nationwide Entities
report their financial information on the basis of a September 30 year-end. The
Unaudited Pro Forma Condensed Combined Balance Sheet combines the Company's
balance sheet with the Nationwide Entities' balance sheets as of February 28,
1995. The Unaudited Pro Forma Condensed Combined Statements of Operations
combine the Company's Consolidated Statements of Operations for each of the
fiscal years ended May 31, 1994, 1993 and 1992 with the Nationwide Entities'
Consolidated Statements of Operations for each of the fiscal years ended
September 30, 1994, 1993 and 1992. The Unaudited Pro Forma Condensed Combined
Statements of Operations for the nine months ended February 28, 1995 and 1994
combine the Consolidated Statements of Operations of the Company and the
Nationwide Entities for these same nine-month periods.
On October 31, 1994, the Company acquired CPS Pharmaceutical Services, Inc.
(CPS) and Advanced Infusion Systems, Inc. (AIS) in a business combination
accounted for as a pooling of interests and, accordingly, the Company's results
of operations have been restated to include the operations of CPS and AIS for
all periods presented. CPS and AIS, which provide diversified pharmaceutical and
infusion services through locations in Northern California, became part of the
Company's Medisave Pharmacies subsidiary through the exchange of 1,262,062
shares of the Company's common stock valued at approximately $29 million.
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<PAGE> 66
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1995
-------------------------------------------------------------------------
PRO FORMA PRO FORMA
HILLHAVEN NCI PEI MEADOWVALE ADJUSTMENTS COMBINED
---------- ------- ---- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 48,965 $ 8,088 $ 43 $ -- $ (3,000)(b) $ 54,096
Accounts and notes receivable, net.......... 164,713 11,956 -- -- (151)(a) 176,518
Other current assets........................ 51,012 1,774 5 151 -- 52,942
---------- ------- ---- ------ -------- ----------
Total current assets.................. 264,690 21,818 48 151 (3,151) 283,556
Long-term notes receivable, net............... 85,365 -- -- -- -- 85,365
Property and equipment, net................... 811,559 51,184 752 -- -- 863,495
Intangible assets, net........................ 29,096 6,863 13 -- (449)(b) 35,523
Other noncurrent assets....................... 42,872 3,494 42 1,396 (1,361)(a) 46,443
---------- ------- ---- ------ -------- ----------
Total assets.......................... $1,233,582 $83,359 $855 $1,547 $ (4,961) $1,314,382
========== ======= ==== ====== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... $ 38,765 $ 3,755 $ 16 $ 457 $ (150)(a) $ 42,843
Accounts payable............................ 58,944 3,912 34 -- -- 62,890
Other current liabilities................... 105,055 6,896 97 -- (274)(a) 111,774
---------- ------- ---- ------ -------- ----------
Total current liabilities............. 202,764 14,563 147 457 (424) 217,507
Long-term debt................................ 589,619 48,163 487 -- (1,088)(a)
3,679 (b)
4,500 (c) 645,360
Other long-term liabilities................... 36,511 4,904 -- -- -- 41,415
Stock warrants................................ -- 5,918 -- -- (5,918)(b) --
Redeemable preferred stock.................... -- 1,343 -- -- (1,343)(b) --
Shareholders' equity:
Series C Preferred Stock.................... 5 -- -- -- -- 5
Series D Preferred Stock.................... 10 -- -- -- -- 10
Common Stock................................ 24,618 3,990 -- 200 13,298 (b)
(13,738)(c) 28,368
Additional paid-in capital.................. 421,772 -- 210 -- 13,738 (c) 435,720
Retained earnings (deficit)................. 49,718 4,478 11 890 (13,165)(b)
(4,500)(c) 37,432
Unearned compensation....................... (3,587) -- -- -- -- (3,587)
Shares held in trust........................ (87,848) -- -- -- -- (87,848)
---------- ------- ---- ------ -------- ----------
Net shareholders' equity.............. 404,688 8,468 221 1,090 (4,367) 410,100
---------- ------- ---- ------ -------- ----------
Total liabilities and shareholders'
equity.............................. $1,233,582 $83,359 $855 $1,547 $ (4,961) $1,314,382
========== ======= ==== ====== ======== ==========
Common shares outstanding, excluding 4,180
shares held in trust........................ 28,645 5,000 (c) 33,645
Book value per common share................... $ 14.13 $ 12.19
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 67
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HILLHAVEN NCI PEI MEADOWVALE ADJUSTMENTS COMBINED
---------- ------- ---- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................... $1,177,640 $94,179 $858 $108 $(151)(a) $1,272,634
Expenses:
Operating and administrative................. 999,460 77,236 685 1 (43)(a) 1,077,339
Interest..................................... 36,664 3,768 36 34 (108)(a) 40,394
Depreciation and amortization................ 42,646 2,325 23 -- -- 44,994
Rent......................................... 40,648 5,409 -- 37 -- 46,094
---------- ------- ---- ---- ----- ----------
Total expenses........................ 1,119,418 88,738 744 72 (151) 1,208,821
---------- ------- ---- ---- ----- ----------
Income before income taxes and extraordinary
charges...................................... 58,222 5,441 114 36 -- 63,813
Income tax expense............................. (19,248) (2,698) -- -- -- (21,946)
---------- ------- ---- ---- ----- ----------
Income before extraordinary charges............ $ 38,974(d) $ 2,743 $114 $ 36 $ -- $ 41,867
========== ======= ==== ==== ===== ==========
Income before extraordinary charges per
share........................................ $ 1.07 $ 1.01
Weighted average common shares and equivalents
outstanding:................................. 36,800 5,000(c) 41,800
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
64
<PAGE> 68
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HILLHAVEN NCI PEI MEADOWVALE ADJUSTMENTS COMBINED
---------- ------- ----- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................... $1,107,155 $79,415 $ 677 $119 $(154)(a) $1,187,212
Expenses:
Operating and administrative................. 938,732 61,694 751 1 (35)(a) 1,001,143
Interest..................................... 41,677 3,332 35 34 (119)(a) 44,959
Depreciation and amortization................ 40,738 1,982 26 -- -- 42,746
Rent......................................... 41,829 4,738 -- 30 -- 46,597
Restructuring................................ (20,225) -- -- -- -- (20,225)
---------- ------- ----- ---- ----- ----------
Net expenses................................... 1,042,751 71,746 812 65 (154) 1,115,220
---------- ------- ----- ---- ----- ----------
Income (loss) before income taxes and
extraordinary charges........................ 64,404 7,669 (135) 54 -- 71,992
Income tax expense............................. (18,165) (3,759) -- -- -- (21,924)
---------- ------- ----- ---- ----- ----------
Income (loss) before extraordinary charges..... $ 46,239(d) $ 3,910 $(135) $ 54 $ -- $ 50,068
========== ======= ===== ==== ===== ==========
Income before extraordinary charges per share,
fully-diluted................................ $ 1.34 $ 1.26
Weighted average common shares and equivalents
outstanding, fully-diluted................... 33,831 5,000(c) 38,831
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
65
<PAGE> 69
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HILLHAVEN NCI PEI MEADOWVALE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
MAY 31, 1994 SEPT. 30, 1994 SEPT. 30, 1994 SEPT. 30, 1994 ADJUSTMENTS COMBINED
------------ -------------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................... $1,484,825 $120,724 $1,073 $153 $(207)(a) $1,606,568
Expenses:
Operating and administrative... 1,255,332 96,355 989 2 (54)(a) 1,352,624
Interest....................... 56,178 4,778 41 46 (153)(a) 60,890
Depreciation and
amortization................. 54,395 2,947 42 -- -- 57,384
Rent........................... 56,280 7,085 -- 46 -- 63,411
Restructuring.................. (20,225) -- -- -- -- (20,225)
---------- -------- ------ ---- ----- ----------
Net expenses..................... 1,401,960 111,165 1,072 94 (207) 1,514,084
---------- -------- ------ ---- ----- ----------
Income before income taxes and
extraordinary charges.......... 82,865 9,559 1 59 -- 92,484
Income tax expense............... (23,385) (4,600) -- -- -- (27,985)
---------- -------- ------ ---- ----- ----------
Income before extraordinary
charges........................ $ 59,480(d) $ 4,959 $ 1 $ 59 $ -- $ 64,499
========== ======== ====== ==== ===== ==========
Income before extraordinary
charges per share,
fully-diluted.................. $ 1.71 $ 1.62
Weighted average common shares
and equivalents outstanding,
fully-diluted.................. 34,326 5,000(c) 39,326
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
66
<PAGE> 70
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PEI
NCI 11 MONTHS MEADOWVALE
HILLHAVEN YEAR ENDED ENDED YEAR ENDED
YEAR ENDED SEPT. 30, SEPT. 30, SEPT. 30, PRO FORMA PRO FORMA
MAY 31, 1993 1993 1993 1993 ADJUSTMENTS COMBINED
------------ ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................... $1,394,472 $66,161 $658 $166 $(200)(a) $1,461,257
Expenses:
Operating and administrative......... 1,180,974 50,214 654 2 (34)(a) 1,231,810
Interest............................. 63,600 3,669 35 46 (166)(a) 67,184
Depreciation and amortization........ 53,651 2,738 32 -- -- 56,421
Rent................................. 56,687 2,671 -- 35 -- 59,393
Restructuring........................ 5,769 -- -- -- -- 5,769
---------- ------- ---- ---- ----- ----------
Total expenses................. 1,360,681 59,292 721 83 (200) 1,420,577
---------- ------- ---- ---- ----- ----------
Income (loss) before income taxes and
extraordinary charges................ 33,791 6,869 (63) 83 -- 40,680
Income tax (expense) benefit........... 7,116 (1,744) -- -- -- 5,372
---------- ------- ---- ---- ----- ----------
Income (loss) before extraordinary
charges and cumulative effect of
accounting change.................... $ 40,907(d)(f) $ 5,125(e) $(63) $ 83 $ -- $ 46,052
========== ======= ==== ==== ===== ==========
Income before extraordinary charges and
cumulative effect of accounting
change per share, primary............ $ 1.58 $ 1.49
Weighted average common shares and
equivalents outstanding, primary..... 24,394 5,000(c) 29,394
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
67
<PAGE> 71
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1992
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HILLHAVEN NCI MEADOWVALE
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, SEPT. 30, SEPT. 30, PRO FORMA PRO FORMA
1992 1992 1992 ADJUSTMENTS COMBINED
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... $1,330,007 $43,348 $179 $ (179)(a) $1,373,355
Expenses:
Operating and administrative....................... 1,144,390 31,192 4 -- 1,175,586
Interest........................................... 56,863 3,540 46 (179)(a) 60,270
Depreciation and amortization...................... 46,698 2,308 -- -- 49,006
Rent............................................... 71,665 1,353 26 -- 73,044
Restructuring...................................... 92,529 -- -- -- 92,529
Adjustment to carrying value of properties
previously reported as discontinued operations... 20,736 -- -- -- 20,736
---------- ------- ---- ------ ----------
Total expenses.............................. 1,432,881 38,393 76 (179) 1,471,171
---------- ------- ---- ------ ----------
Income (loss) from operations........................ (102,874) 4,955 103 -- (97,816)
Income tax expense................................... (543) (380) -- -- (923)
---------- ------- ---- ------ ----------
Income (loss) before reinstatement of discontinued
operations and extraordinary items................. (103,417) 4,575 103 -- (98,739)
Reinstatement of discontinued operations............. 24,743 -- -- -- 24,743
---------- ------- ---- ------ ----------
Income (loss) before extraordinary items............. $ (78,674) $ 4,575(g) $103 $ -- $ (73,996)
========== ======= ==== ====== ==========
Loss before extraordinary items per share, primary... $ (3.63) $ (2.79)
Weighted average common shares and equivalents
outstanding, primary............................... 22,073 5,000(c) 27,073
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
68
<PAGE> 72
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The pro forma results do not purport to present the financial position or
results of operations of the Company had the business combination taken place on
the dates specified, nor are they necessarily indicative of the financial
position or the results of operations that may be achieved in the future. The
Unaudited Pro Forma Condensed Combined Financial Statements have been prepared
under the assumptions set forth in the following notes.
The October 1994 acquisition of CPS and AIS was recorded as a pooling of
interests and, accordingly, the Company's results of operations have been
restated to include the operations of CPS and AIS for all periods presented. The
weighted average number of shares outstanding has been restated for all periods
presented to include the 1,262,062 shares issued in connection with the business
combination.
The Unaudited Pro Forma Condensed Combined Statements of Operations do not
include nonrecurring merger expenses. It is anticipated that approximately $4.5
million will be expensed as incurred in connection with the Share Exchange.
The Unaudited Pro Forma Condensed Combined Statements of Operations do not
give effect to any cost savings which may be realized following the Share
Exchange, estimated by the Company's management to be approximately $4 million
annually beginning in fiscal 1996 (before any severance or other costs of
implementing such efficiencies). The anticipated savings are based on estimates
and assumptions made by the Company that are inherently uncertain, although
considered reasonable by the Company, and are subject to significant business,
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the control of management.
There can be no assurance that such savings, if any, will be achieved.
The following adjustments have been made to give pro forma effect to the
Share Exchange:
(a) To eliminate management fees and capital lease transactions
between the Nationwide Entities.
(b) To record (i) the redemption of redeemable preferred stock for
$3.0 million cash, (ii) the redemption of the NCI Subordinated Notes for
$12.0 million, including the write-off of $3.7 million of unamortized
discount, financed by borrowings, (iii) the write-off of related deferred
financing charges amounting to $449,000, (iv) the $7.4 million adjustment
to the fair market value of the stock warrants based on the Share Exchange,
and (v) the exercise of the stock warrants.
(c) To record the business combination under pooling of interests
accounting and reflect Hillhaven Common Shares to be issued in connection
with the Share Exchange.
(d) Does not reflect the extraordinary loss on early extinguishment of
Hillhaven debt.
(e) Does not reflect the extraordinary loss on early extinguishment of
Nationwide debt.
(f) Does not reflect the cumulative effect of Hillhaven's change in
the method of accounting for income taxes.
(g) Does not reflect NCI's extraordinary tax benefit from utilization
of net operating loss carryforwards.
69
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONWIDE CARE, INC. FINANCIAL STATEMENTS
Report of Independent Auditors........................................................ F-2
Balance Sheets as of September 30, 1993 and 1994 and February 28, 1995 (unaudited).... F-3
Statements of Income for the years ended September 30, 1992, 1993 and 1994 and the
five months ended February 28, 1994 and 1995 (unaudited)............................ F-4
Statements of Other Shareholders' and Partners' Equity (deficit) for the years ended
September 30, 1992, 1993 and 1994 and the five months ended February 28, 1995
(unaudited)......................................................................... F-5
Statements of Cash Flows for the years ended September 30, 1992, 1993 and 1994 and the
five months ended February 28, 1994 and 1995 (unaudited)............................ F-6
Notes to Financial Statements......................................................... F-7
PHILLIPPE ENTERPRISES, INC. (D/B/A HERITAGE AT HERNANDO) FINANCIAL STATEMENTS
(unaudited)
Balance Sheets as of September 30, 1993 and 1994 and February 28, 1995................ F-16
Statements of Operations and Retained Earnings (Deficit) for the eleven months ended
September 30, 1993, the year ended September 30, 1994 and the five months ended
February 28, 1994 and 1995.......................................................... F-17
Statements of Cash Flows for the eleven months ended September 30, 1993, the year
ended September 30, 1994 and the five months ended February 28, 1994 and 1995....... F-18
Notes to Financial Statements......................................................... F-19
MEADOWVALE SKILLED CARE CENTER, INC. FINANCIAL STATEMENTS (unaudited)
Balance Sheets as of September 30, 1993 and 1994 and February 28, 1995................ F-21
Statements of Income and Retained Earnings for the years ended September 30, 1992,
1993 and 1994 and the five months ended February 28, 1994 and 1995.................. F-22
Statements of Cash Flows for the years ended September 30, 1992, 1993 and 1994 and the
five months ended February 28, 1994 and 1995........................................ F-23
Notes to Financial Statements......................................................... F-24
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Nationwide Care, Inc.
We have audited the accompanying balance sheets of Nationwide Care, Inc. as
of September 30, 1993 and 1994 and the related statements of income, other
shareholders' equity, and cash flows for each of the three years in the period
ended September 30, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Care, Inc. at
September 30, 1993 and 1994 and the results of its operations and its cash flows
for each of the three years in the period ended September 30, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
November 10, 1994, except for Note 9
as to which the date is February 27, 1995
F-2
<PAGE> 75
NATIONWIDE CARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------- FEBRUARY 28
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,023,930 $ 2,596,829 $ 8,088,064
Accounts receivable (less allowances of $126,000,
$365,000 and $442,000)......................... 9,116,021 9,442,263 10,479,081
Third-party settlements........................... 1,360,000 2,322,000 1,278,000
Management fees receivable........................ 246,285 218,058 198,629
Deferred income taxes............................. 1,052,000 700,000 700,000
Prepaid expenses.................................. 1,587,828 1,537,631 790,933
Other current assets.............................. 307,654 361,826 283,215
----------- ----------- -----------
Total current assets...................... 15,693,718 17,178,607 21,817,922
Property and equipment, net......................... 43,352,052 49,023,211 51,184,123
Other assets:
Intangible assets, net............................ 6,561,733 6,153,774 6,863,316
Purchase option deposits.......................... 350,000 350,000 350,000
Lease security deposit............................ 2,482,000 2,482,000 2,482,000
Other............................................. 692,041 751,242 661,796
----------- ----------- -----------
Total other assets........................ 10,085,774 9,737,016 10,357,112
----------- ----------- -----------
Total assets.............................. $69,131,544 $75,938,834 $83,359,157
=========== =========== ===========
LIABILITIES AND OTHER SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 4,034,450 $ 4,264,670 $ 3,912,114
Accrued payroll and related taxes................. 3,505,580 4,205,826 3,946,175
Accrued other liabilities......................... 2,378,070 2,671,102 2,949,485
Current portion of long-term debt................. 3,494,374 3,207,507 3,754,769
----------- ----------- -----------
Total current liabilities................. 13,412,474 14,349,105 14,562,543
Long-term liabilities:
Long-term debt, less current portion
Banks and other................................ 40,097,941 40,982,686 47,075,476
Related parties................................ 2,305,560 2,062,019 1,087,538
Deferred income taxes............................. 4,295,000 4,655,000 4,805,000
Other............................................. 100,000 100,000 100,000
----------- ----------- -----------
46,798,501 47,799,705 53,068,014
Stock warrants...................................... 6,180,511 5,918,072 5,918,072
Redeemable preferred stock.......................... 1,072,995 1,250,986 1,342,689
Other shareholders' equity:
Common stock...................................... 3,634,886 3,989,886 3,989,886
Retained earnings (deficit)....................... (1,967,823) 2,631,080 4,477,953
----------- ----------- -----------
Total other shareholders' equity.......... 1,667,063 6,620,966 8,467,839
----------- ----------- -----------
Total liabilities and other shareholders'
equity.................................. $69,131,544 $75,938,834 $83,359,157
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
NATIONWIDE CARE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 FEBRUARY 28
----------------------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Health care services, net.... $39,587,525 $63,268,409 $119,782,550 $48,539,317 $52,887,380
Management fees from related
parties and other......... 2,420,359 1,725,265 635,652 261,842 180,636
Lease revenue................ 1,339,794 1,167,537 306,252 127,605 127,605
----------- ----------- ------------ ----------- -----------
43,347,678 66,161,211 120,724,454 48,928,764 53,195,621
Expenses:
Health care services......... 28,416,362 45,906,771 90,384,315 36,700,130 40,341,374
Selling, general and
administrative............ 2,775,318 4,307,384 5,133,621 2,127,119 2,886,824
Abandoned IPO costs.......... -- -- 837,000 -- --
Leases and rental............ 1,353,305 2,670,650 7,085,425 2,954,946 3,016,776
Depreciation and
amortization.............. 2,308,182 2,738,422 2,947,041 1,071,228 1,179,058
----------- ----------- ------------ ----------- -----------
34,853,167 55,623,227 106,387,402 42,853,423 47,424,032
----------- ----------- ------------ ----------- -----------
Income from operations......... 8,494,511 10,537,984 14,337,052 6,075,341 5,771,589
Interest expense, net.......... 3,539,945 3,668,621 4,777,597 1,852,855 2,083,013
----------- ----------- ------------ ----------- -----------
Income before income taxes and
extraordinary items.......... 4,954,556 6,869,363 9,559,455 4,222,486 3,688,576
Income taxes................... 380,000 1,744,000 4,600,000 2,015,000 1,750,000
----------- ----------- ------------ ----------- -----------
Income before extraordinary
item......................... 4,574,566 5,125,363 4,959,455 2,207,486 1,938,576
Extraordinary items:
Tax benefit from utilization
of net operating loss
carryforwards............. 380,000 -- -- -- --
Loss on early extinguishment
of debt (net of income tax
benefit of $1,101,000).... -- 1,652,420 -- -- --
----------- ----------- ------------ ----------- -----------
Net income..................... $ 4,954,566 $ 3,472,943 $ 4,959,455 $ 2,207,486 $ 1,938,576
=========== =========== ============ =========== ===========
Pro forma information reflecting income taxes as if all combined entities were C-Corporations
(unaudited):
Income before income taxes and
extraordinary items.......... $ 4,954,566 $ 6,869,363 $ 9,559,455 $ 4,222,486 $ 3,688,576
Income taxes................... 2,080,000 2,885,000 4,600,000 2,015,000 1,750,000
----------- ----------- ------------ ----------- -----------
Income before extraordinary
items........................ $ 2,874,566 $ 3,984,363 $ 4,959,455 $ 2,207,486 $ 1,938,576
=========== =========== ============ =========== ===========
Pro forma income before
extraordinary items per
share........................ $ 0.45 $ 0.59 $ 0.58 $ 0.26 $ 0.23
=========== =========== ============ =========== ===========
Pro forma weighted average
shares used in computing
income before extraordinary
items per share.............. 6,352,100 6,711,790 8,507,740 8,510,240 8,495,240
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
NATIONWIDE CARE, INC.
STATEMENTS OF OTHER SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS PARTNERS'
STOCK (DEFICIT) DEFICIT TOTAL
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1991............ $ -- $(4,867,005) $(1,357,312) $(6,224,317)
Net income........................... -- 4,376,992 577,574 4,954,566
Dividends and distribution........... -- (1,820,997) (322,995) (2,143,992)
Exchange of ownership interest for
debt.............................. -- (227,500) (75,833) (303,333)
---------- ----------- ----------- -----------
Balance, September 30, 1992............ -- (2,538,510) (1,178,566) (3,717,076)
Net income........................... -- 2,745,538 727,405 3,472,943
Dividends and distributions.......... -- (3,036,722) (512,587) (3,549,309)
Issuance and exchange of shares, net
of $2,535,732 issuance costs...... 3,634,886 908,871 963,748 5,507,505
Accretion of discount on redeemable
preferred stock................... -- (47,000) -- (47,000)
---------- ----------- ----------- -----------
Balance, September 30, 1993............ 3,634,886 (1,967,823) -- 1,667,063
Net income........................... -- 4,959,455 -- 4,959,455
Accretion of discount on redeemable
preferred stock................... -- (177,991) -- (177,991)
Issuance of 76,592 shares of
nonvoting common stock for
warrants exercised................ 445,000 -- -- 445,000
Increase in value of common stock
warrants outstanding.............. -- (182,561) -- (182,561)
Purchase of 15,000 shares of common
stock............................. (90,000) -- -- (90,000)
---------- ----------- ----------- -----------
Balance, September 30, 1994............ 3,989,886 2,631,080 -- 6,620,966
Net income (unaudited)................. -- 1,938,576 -- 1,938,576
Accretion of discount on redeemable
preferred stock (unaudited).......... -- (91,703) -- (91,703)
---------- ----------- ----------- -----------
Balance, February 28, 1995
(unaudited).......................... $3,989,886 $ 4,477,953 $ -- $ 8,467,839
========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
NATIONWIDE CARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 FEBRUARY 28
---------------------------------------- -------------------------
1992 1993 1994 1994 1995
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 4,954,566 $ 3,472,943 $ 4,959,455 $ 2,207,486 $ 1,938,576
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of
debt............................................. -- 2,753,420 -- -- --
Depreciation and amortization...................... 2,496,263 2,848,310 3,179,931 1,168,265 1,277,609
Deferred income taxes.............................. -- 66,842 712,000 782,000 150,000
Loss on disposal................................... -- 1,081 -- -- 82,471
Non-cash compensation expense from employee stock
transaction...................................... -- 122,009 -- -- --
Accretion of discount on subordinated debt......... -- 34,500 335,683 86,250 157,445
Changes in operating assets and liabilities:
Accounts receivable.............................. (418,128) (6,421,385) (326,242) (2,021,588) (1,036,818)
Third-party settlements.......................... -- (1,360,000) (962,000) (503,300) 1,044,000
Management fees receivable....................... 20,802 332,114 28,227 31,227 19,429
Prepaid expenses................................. (79,435) (1,166,029) 50,197 801,757 746,698
Other current assets............................. (211,462) 45,004 (54,172) (186,355) 78,611
Accounts payable................................. 458,296 2,800,065 230,220 (1,152,924) (352,556)
Payroll liabilities.............................. 85,850 1,255,285 700,246 404,831 (259,651)
Accrued other liabilities........................ (10,261) 1,141,410 293,032 (27,322) 278,383
----------- ------------ ----------- ----------- -----------
Net cash provided by operating activities............ 7,296,491 5,925,569 9,146,577 1,590,327 4,124,197
INVESTING ACTIVITIES
Purchase of common stock............................. -- -- (90,000) -- --
Purchase acquisition, net of cash required........... -- (3,793,058) -- -- (848,800)
Purchases of property and equipment.................. (1,981,240) (2,433,032) (8,331,318) (1,823,954) (4,276,355)
Proceeds from disposal of equipment.................. -- 10,900 -- -- --
Net change in other assets........................... (475,402) 49,267 (59,201) 92,090 89,446
Lease security deposits.............................. -- (2,482,000) -- -- --
----------- ------------ ----------- ----------- -----------
Net cash used in investing activities................ (2,456,642) (8,647,923) (8,480,519) (1,731,864) (5,035,709)
FINANCING ACTIVITIES
Proceeds from banks and other related parties
long-term debt and notes payable................... 5,656,030 40,580,762 4,738,670 2,225,843 7,907,121
Payments on long-term debt and notes payable:
Banks and other.................................... (6,007,761) (35,235,035) (4,499,686) (1,329,834) (1,330,973)
Prepayment penalties............................... -- (2,117,152) -- -- --
Related parties.................................... (392,070) (1,287,247) (220,330) (81,697) (82,600)
Purchase of interest rate cap........................ -- -- (111,813) (111,813) --
Proceeds from issuance of redeemable preferred stock
and stock warrants................................. -- 7,206,506 -- -- --
Costs related to redeemable preferred stock and
subordinated debt issuance......................... (197,125) (1,668,976) -- -- --
Issuance costs....................................... -- (2,535,732) -- -- (90,801)
Dividends and distributions.......................... (2,391,370) (3,418,140) -- -- --
Net changes in other long-term liabilities........... (11,950) (527,454) -- -- --
Net changes in advances from related parties......... 23,739 (268,362) -- -- --
----------- ------------ ----------- ----------- -----------
Net cash provided (used) by financing activities..... (3,320,507) 729,170 (93,159) 702,499 6,402,747
----------- ------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 1,519,342 (1,993,184) 572,899 560,962 5,491,235
Cash and cash equivalents at beginning of period..... 2,497,772 4,017,114 2,023,930 2,023,930 2,596,829
----------- ------------ ----------- ----------- -----------
Cash and cash equivalents at end of period........... $ 4,017,114 $ 2,023,930 $ 2,596,829 $ 2,584,892 $ 8,088,064
========== =========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. $ 3,431,459 $ 3,259,873 $ 4,169,993 $ 1,876,662 $ 2,093,451
========== =========== ========== ========== ==========
Cash paid for income taxes......................... $ -- $ 130,000 $ 3,925,000 $ 1,180,000 $ 1,500,000
========== =========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED WITH RESPECT TO INFORMATION AS OF AND FOR
THE FIVE MONTHS ENDED FEBRUARY 28, 1994 AND 1995)
1. BASIS OF PRESENTATION AND ACQUISITIONS
On July 27, 1993, Nationwide Care, Inc. (the Company) acquired the
ownership interests of a group of companies under common control (Nationwide
Businesses) and a group of non-controlled entities through an exchange of stock
for their ownership interests (the Reorganization). The Company was formed in
September 1992 to effect the Reorganization. The financial statements as of and
for the year ended September 30, 1992 reflect the combined financial position,
results of operations and cash flows of only the Nationwide Businesses. The
financial statements for the year ended September 30, 1993 reflect the combined
results of operations and cash flows of the Nationwide Businesses from October
1, 1992 through July 27, 1993 and the results of operations and cash flows of
the reorganized Company from July 28, 1993 through September 30, 1993.
The Company acquired the Nationwide Businesses and the non-controlled
entities through an exchange of 7,416,460 shares of the Company's common stock
and approximately $4 million in cash. For financial statement purposes, the
Reorganization was accounted for as a purchase acquisition. The majority owners'
interests in the net assets of Nationwide Businesses have been recorded by the
Company at the historical cost basis. The acquisition of the minority interests
in the Nationwide Businesses and the non-controlled entities has resulted in a
new basis of accounting reflecting estimated fair values of assets and
liabilities at July 27, 1993. The purchase price of the minority interests of
the historical assets and liabilities of the Nationwide Businesses and the
non-controlled entities of approximately $20 million was allocated to the net
assets acquired, including approximately $3.6 million to goodwill, based upon
the fair market value at the date of acquisition. The non-controlled entities
consisted of B&P Care Centers, Inc., Coshocton Health Care Center, Inc., Delta
Care Centers, Inc. and Vita, Incorporated.
Concurrent with the Reorganization, the Company refinanced approximately
$34.5 million of debt through the issuance of floating rate option notes,
subordinated debt, and preferred stock. This refinancing resulted in $2,117,152
of prepayment penalties and the write-off of $636,268 of unamortized issuance
costs. These items have been accounted for as an extraordinary loss of
$1,652,420 (net of income tax benefit of $1,101,000).
On December 28, 1992, one of the entities included in the Nationwide
Businesses purchased Royal Oaks Health Care and Rehabilitation Center for
$1,700,000. The acquisition was recorded using the purchase method of accounting
and the results of operations have been included in the combined financial
statements since the date of acquisition. The purchase price was allocated to
the net assets acquired, including $1,150,000 to goodwill, based on the fair
market value at the date of acquisition.
Effective July 1, 1993, the Company began operating seven long term care
centers (the Regency Centers) comprising 1,241 long-term care beds pursuant to a
long-term lease agreement. The equipment portion of the lease payments has been
capitalized as a capital lease obligation with the remaining portion of the
lease payments being accounted for as an operating lease.
The following unaudited pro forma information presents the results of
operations as though the acquisitions of the group of the non-controlled
entities and Royal Oaks Health Care and Rehabilitation Center and the leasing of
seven long term care centers pursuant to a long-term lease had occurred on
October 1, 1991. Pro forma information does not purport to be indicative of the
results that actually would have been achieved had the acquisition occurred at
the beginning of those periods.
F-7
<PAGE> 80
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. BASIS OF PRESENTATION AND ACQUISITIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------
1992 1993
------------ ------------
<S> <C> <C>
Operating revenues...................................... $101,221,000 $110,947,000
=========== ===========
Income before extraordinary items....................... $ 4,206,000 $ 7,025,000
=========== ===========
Net income.............................................. $ 2,934,000 $ 5,373,000
=========== ===========
</TABLE>
On January 1, 1995, the Company purchased Med One Home Health Care for
$850,000. The acquisition was recorded using the purchase method of accounting
and the results of operations have been included in the financial statements
since the date of the acquisition. The purchase price was allocated to the net
assets acquired, including $848,800 to goodwill, based on the fair market value
at the date of the acquisition.
The Company's current operations include 23 nursing centers with a total of
3,257 licensed beds, two retirement centers with a total of 240 units, two
assisted living centers totaling 162 units and 40 additional assisted living
units located in one of the retirement centers. Of the Company's 27 centers, 14
are owned, 11 are leased and two are managed for other parties.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the five months ended February 28, 1995 are not necessarily
indicative of the results that may expected for the year ending September 30,
1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Highly liquid investments with maturities of three months or less when
purchased are classified as cash equivalents.
Health Care Services Revenue and Third-Party Settlements
Health care services revenue is recognized when the related patient
services are provided at established rates. Contractual allowances and the
results of other arrangements for providing services at less than established
rates are reported as deductions to arrive at net revenues. Contractual
adjustments include differences between established billing rates and amounts
estimated by management as reimbursable under various cost reimbursement
formulas or contracts in effect.
The administrative procedures related to the Medicare cost reimbursement
programs in effect generally preclude final determination of amounts due the
Company until cost reports are audited or otherwise reviewed and settled upon
with the applicable administrative agencies. Provisions for estimated
third-party settlements are provided in the period the related services are
rendered. Differences between the amounts accrued and interim and final
settlements are recorded in operations in the year of settlement.
Medicare revenues represented 7%, 13%, 21%, 18% and 26% and Medicaid
revenues (Indiana, Ohio, and Florida) represented 54%, 49%, 45%, 47% and 40% of
total health care services revenue for 1992, 1993 and 1994 and the five months
ended February 28, 1994 and 1995, respectively.
F-8
<PAGE> 81
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The State of Indiana in August 1994, began implementing certain regulatory
changes in regulations that govern payments using the Medicaid prospective
method of reimbursement for Medicaid covered patients in Indiana. For the year
ended September 30, 1994 the Company received approximately 40% of its total
health care services revenue from the Indiana funded Medicaid program for
covered patients. The effect of these regulations are anticipated to reduce
payments under the Medicaid program.
Accounts Receivable
Accounts receivable are stated net of accrued contractual allowances on
patient service revenue not yet remitted by the patient or the third-party
intermediary, or both, and the allowance for doubtful accounts. The Company's
accounts receivable at September 30, 1994 consist of 24% Medicare, 51% Medicaid
(Indiana, Ohio and Florida) programs and 25% private pay and commercial
insurers.
Property and Equipment
Property and equipment are carried at cost and depreciation is computed by
the straight-line method using the estimated useful lives of the assets,
generally 5 to 10 years for equipment and furnishings and 15 to 40 years for
buildings and improvements. The cost of assets acquired using capital lease
arrangements is included in property and equipment, and the related amortization
is included in depreciation expense.
Intangible Assets
Intangible assets consist of costs incurred in obtaining long-term
financing ($1,871,589), lease acquisition costs ($266,737), and goodwill
($5,564,958) and are amortized using the straight-line method over periods of 5
to 25 years. Accumulated amortization on intangible assets was $90,138, $609,909
and $839,967 at September 30, 1993 and 1994, and February 28, 1995,
respectively.
Income Taxes
Prior to the Reorganization on July 27, 1993, the shareholders of certain
of the Nationwide Businesses had elected to use Subchapter S of the Internal
Revenue Code to include the income of certain of the Nationwide Businesses in
their own income for income tax purposes. Accordingly, certain corporations and
all partnerships comprising the Nationwide Businesses were not subject to
federal and state taxes. Effective October 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for the
expected future consequences of events that have been included in the financial
statements or tax returns. Using this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities. These deferred taxes are measured by
applying current tax laws. Through July 27, 1993 deferred taxes were provided by
certain Nationwide Businesses which were subject to federal and state taxes on
income for significant timing differences in the recognition of revenue and
expense for tax and financial statement purposes.
F-9
<PAGE> 82
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------- FEBRUARY 28
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Land and improvements....................... $ 2,706,785 $ 2,991,120 $ 3,064,167
Buildings and improvements.................. 33,339,853 34,614,138 37,693,728
Equipment and furnishings................... 7,251,057 9,233,664 8,765,722
Construction in progress.................... 504,158 5,285,874 5,622,230
------------ ------------ -----------
43,801,853 52,124,796 55,145,847
Less accumulated depreciation............... 449,801 3,101,585 3,961,724
------------ ------------ -----------
$ 43,352,052 $ 49,023,211 $51,184,123
========== ========== ==========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------- FEBRUARY 28
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Floating rate option notes.......................... $ 28,500,000 $ 26,600,000 $ 25,650,000
Bank line of credit................................. 3,274,240 6,247,809 --
Bank term loans with interest at 10%................ -- -- 13,705,023
Non-interest bearing county government note
payable........................................... 624,962 125,013 --
Installment notes with monthly interest and
principal payments maturing 1994 to 1998,
collateralized by equipment and furnishings....... 314,240 178,633 464,903
Capital lease obligations, imputed interest
from 8% to 11.5%.................................. 2,830,549 2,631,520 2,539,197
Capital lease obligations, related parties, imputed
interest from 10% to 11.2%........................ 2,525,890 2,305,560 1,237,538
Senior Subordinated Notes (less unamortized
discount)......................................... 7,827,994 8,163,677 8,321,122
------------ ------------ ------------
45,897,875 46,252,212 51,917,783
Less amounts due within one year.................... 3,494,374 3,207,507 3,754,769
------------ ------------ ------------
$ 42,403,501 $ 43,044,705 $ 48,163,014
========== ========== ==========
</TABLE>
The Company issued $28.5 million of floating rate option notes on July 27,
1993, which are collateralized by an irrevocable direct pay letter of credit
(Letter of Credit). The proceeds were used to retire various debt facilities.
The floating rate option notes amortize over a fifteen year period, with a final
maturity in August 2008 and the interest rate resets every seven days. The
effective interest rate on the floating rate option notes at September 30, 1994
was approximately 7%. The notes are payable in $950,000 semi-annual payments.
The Letter of Credit and a $9.5 million revolving line of credit (Line of
Credit) were issued pursuant to a credit agreement with a commercial bank. The
Line of Credit bears interest at prime plus .75% or the Company has the option
of selecting a one, two or three month LIBOR rate. The Line of Credit matured
during January 1995 and the outstanding balance was converted to a term loan,
payable in equal principal installments with a balloon payment at maturity in
January 2000 and bearing interest consistent with that of the Line of Credit. In
January 1995, the Company also entered into a $4,330,000 term loan, which bears
interest consistent with the $9.5 million term loan, payable in equal monthly
installments with a balloon
F-10
<PAGE> 83
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT -- (CONTINUED)
payment at maturity in January 2000. The Letter of Credit and the term loans are
collateralized by substantially all of the Company's assets.
Concurrent with the Reorganization in July 1993, the Company completed a
private placement of $12 million of its Senior Subordinated Notes. The Senior
Subordinated Notes are payable in quarterly principal installments of $1,500,000
beginning November 1998 with the final installment due in August 2000 and bear
interest at an annual rate of 12.5%.
Long-term debt maturities, excluding capital lease obligations, for the
five years subsequent to September 30, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30:
------------------------
<S> <C>
1995................................................................... $ 2,730,372
1996................................................................... 2,583,832
1997................................................................... 2,576,108
1998................................................................... 2,546,667
1999................................................................... 8,533,333
Thereafter............................................................. 22,344,820
</TABLE>
The Company has agreed to certain restrictions which, among other things,
require minimum levels of tangible net worth, total indebtedness to equity, and
other financial ratios. The debt agreements also place restrictions on issuing
new debt, mergers and acquisitions, sales of all or substantially all of the
Company's assets, purchases or retirements of the Company's capital stock,
payment of dividends and capital expenditures.
5. LEASES
Effective July 1, 1993, the Company began operating seven long term care
centers comprising 1,241 long term care beds pursuant to a 10 year lease
agreement. The Company paid $2,482,000 to the lessor as a refundable security
deposit, half of which is interest bearing. The monthly rent payments of
$503,000 are subject to annual increases based on changes in the Consumer Price
Index. The Company also has a right of first refusal, which expires six months
prior to the expiration of the lease term, to purchase the long-term care
centers or to renew the lease agreement at the expiration of the current
agreement. The equipment portion of the lease payments was capitalized as a $2.6
million capital lease obligation with the remaining portion of the lease
payments being accounted for as an operating lease.
The Company has entered into several leases, as lessee, for the property
and equipment of four additional long-term care centers. The Company has also
entered into various separate leases for equipment in connection with the
operation of certain owned and leased facilities. The leases are for terms
ranging from ten to fifteen years and, with one exception, have been classified
as operating leases. The equipment leases and one facility lease have been
classified as capital leases and are for terms of five to fifteen years. At the
inception of the facility leases, the Company made initial payments to the
lessors and assumed certain net liabilities aggregating $881,802 of which
$350,000 has been recorded as deposits for options to purchase facilities. The
balance was capitalized and amortized using the lives of the respective leases.
F-11
<PAGE> 84
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES -- (CONTINUED)
Capital lease assets included in property and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------- FEBRUARY 28
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Buildings...................................... $ 773,343 $ 773,343 $ 773,343
Equipment and furnishings...................... 4,084,293 4,084,293 3,014,293
----------- ----------- -----------
4,857,636 4,857,636 3,787,636
Less accumulated amortization.................. 113,219 663,784 683,186
----------- ----------- -----------
Net capital lease assets....................... $ 4,744,417 $ 4,193,852 $ 3,104,450
========= ========= =========
</TABLE>
Included in depreciation and amortization expense is $217,452, $416,005 and
$550,565 for 1992, 1993 and 1994, respectively, and $229,402 and $209,402 for
the five months ended February 28, 1994 and 1995, respectively, relating to
amortization of capital leases.
Future minimum annual lease payments for capital leases and noncancelable
operating leases (including related party leases), together with the present
value of the future minimum lease payments at September 30, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30: CAPITAL LEASES OPERATING LEASES
-------------------------------------------------------- -------------- ----------------
<S> <C> <C>
1995........................................... $ 911,392 $ 7,278,015
1996........................................... 938,035 7,452,822
1997........................................... 953,810 7,485,843
1998........................................... 935,801 7,104,445
1999........................................... 964,323 7,272,028
Thereafter..................................... 2,765,184 26,389,634
-------------- ----------------
Total future minimum lease payments..................... 7,468,545 $ 62,982,787
============
Less amount representing interest....................... 2,531,465
--------------
Present value of future minimum lease payments.......... $4,937,080
==========
</TABLE>
Rental expense for all operating leases was $1,353,305, $2,670,650 and
$7,085,425 for 1992, 1993 and 1994, respectively, and $2,954,946 and $3,016,776
for the five months ended February 28, 1994 and 1995, respectively.
The Company is a lessor of property and equipment related to one facility
using an operating lease expiring in 1998 and provides management services to
the lessee. The lease includes a purchase option in which the lessee may
purchase the property and equipment at the end of the lease term for either a
certain agreed upon minimum price or the fair value of the assets. The property
and equipment leased has a net book value of approximately $2.1 million at
September 30, 1994. Future minimum annual rentals to be received on the
non-cancelable lease is approximately $306,000 per year through 1998. As a part
of the Reorganization, the Company acquired the operations of certain entities
that had previously leased property and equipment from the Nationwide
Businesses.
6. RELATED PARTY TRANSACTIONS
The Company is affiliated with several entities as a result of common
ownership and transactions with the affiliated entities are made in the normal
course of business.
F-12
<PAGE> 85
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Company made payments to Opal Care Centers, Inc. (related to the
Company through common ownership) of $850,737, $769,117 and $4,828,314 in 1992,
1993 and 1994, respectively, and $895,649 and $3,885,943 for the five months
ended February 28, 1994 and 1995, respectively, related to construction projects
and has a net payable to Opal of $145,715 at September 30, 1994. The Company
also has contracts with Opal Care Centers, Inc. at September 30, 1994 for
construction projects which have approximately $3 million of aggregate costs to
complete.
The Company leases a facility from Meadowvale Skilled Care Center, Inc., of
which an immediate family member of a significant shareholder of the Company
owns 25.93%. Lease payments were $240,948 in 1992, 1993 and 1994 and $100,395
for the five months ended February 28, 1994 and 1995. The lease is classified as
a capital lease.
The Company had an operating lease of an airplane for a portion of 1992
with a partnership which is related to the Company through common ownership.
Lease payments were $36,270 in 1992. The Company leased an airplane from a
partnership that is related to the Company which was classified as a capital
lease and lease payments were $176,688 in both 1993 and 1994 and $73,612 and
$44,172 for the five months ended February 28, 1994 and 1995, respectively. The
Company canceled the lease effective December 31, 1994. At February 28, 1995 the
Company had an advance of $22,500 to the partnership.
The Company managed two related party long-term care centers, one of which
was sold on April 1, 1993 and the other transferred to another management
company on July 1, 1994. In addition, the Company manages an assisted living
center, which is owned by significant shareholders. Management fees earned from
these facilities were $383,329, $233,847 and $346,089 in 1992, 1993 and 1994,
respectively, and $119,080 and $24,052 for the five months ended February 28,
1994 and 1995, respectively.
7. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------
1993 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $4,295,000 $4,655,000
Deferred tax assets:
Net operating loss carryforwards.......................... 782,000 --
Other..................................................... 270,000 700,000
---------- ----------
Total deferred tax assets......................... 1,052,000 700,000
---------- ----------
Net deferred tax liabilities...................... $3,243,000 $3,955,000
========= =========
</TABLE>
F-13
<PAGE> 86
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------------
1992 1993 1994
--------------- ---------- ----------
DEFERRED METHOD LIABILITY METHOD
--------------- -----------------------
<S> <C> <C> <C>
Current:
Federal..................................... $380,000 $1,122,000 $2,221,000
State....................................... -- 555,000 1,667,000
-------- ---------- ----------
Total current....................... 380,000 1,677,000 3,888,000
Deferred:
Federal..................................... -- 53,000 570,000
State....................................... -- 14,000 142,000
-------- ---------- ----------
Total deferred...................... -- 67,000 712,000
-------- ---------- ----------
$380,000 $1,744,000 $4,600,000
======== ========== ==========
</TABLE>
The unaudited pro forma income tax provisions reflect income taxes as if
all combined Nationwide Businesses were C-Corporations using an estimated
effective income tax rate of 42%.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal statutory tax rate to income tax expense is:
<TABLE>
<CAPTION>
1992 1993 1994
--------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ---------- ------- ---------- -------
DEFERRED METHOD LIABILITY METHOD
--------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax.... $ 1,685,000 34% $2,336,000 34% $3,250,000 34%
Non-taxable income.............. (1,305,000) (26) (948,000) (14) -- --
State income taxes, net of
federal tax benefit........... -- -- 375,000 5 1,194,000 12
Net operating loss carryforward
utilized...................... -- -- (265,000) (4) -- --
Change from non-taxable to
taxable status................ -- -- 289,000 4 -- --
Other -- net.................... -- -- (43,000) -- 156,000 2
--
----------- --- ---------- --- ----------
$ 380,000 8% $1,744,000 25% $4,600,000 48%
=========== === ========== === ========== ===
</TABLE>
8. STOCK WARRANTS, REDEEMABLE PREFERRED STOCK AND OTHER SHAREHOLDERS' EQUITY
The Company has authorized 48,000,000 shares of common stock and 2,000,000
shares of nonvoting common stock, without par value. The nonvoting common stock
is convertible into common stock on a share-for-share basis. At September 30,
1994, there were 7,431,460 shares of common stock and 76,592 shares of nonvoting
common stock outstanding. Pursuant to a board of directors meeting on March 18,
1994 the Company declared a 2 for 1 split of its voting and nonvoting common
stock.
The Company also has authorized 2,000,000 shares of no par value preferred
stock of which 300,000 shares were designated as Redeemable Preferred Stock and
issued on July 27, 1993. The Redeemable Preferred Stock has no coupon rate and
is redeemable for $3,000,000 in eight equal quarterly installments of $375,000
commencing November 1998 and is mandatorily redeemable in the event of an
initial public
F-14
<PAGE> 87
NATIONWIDE CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK WARRANTS, REDEEMABLE PREFERRED STOCK AND OTHER SHAREHOLDERS'
EQUITY -- (CONTINUED)
offering, a change in control, an optional redemption of the Senior Subordinated
Notes, or a call of the warrants.
In conjunction with the Company's issuance of the Senior Subordinated Notes
and the Redeemable Preferred Stock, detachable stock warrants were issued. The
warrants are exercisable at any time prior to expiration, which occurs on the
later of (i) July 27, 2000, (ii) the day upon which the Senior Subordinated
Notes are paid in full and (iii) the day upon which the Redeemable Preferred
Stock is fully redeemed. Certain warrants were exercised in October 1993 in
exchange for 76,592 shares of nonvoting common stock. Warrants to receive
987,188 shares remain outstanding at September 30, 1994. The warrants include
put and call options allowing the holders the right to require the Company to
repurchase the warrants, and allowing the Company the right to repurchase the
warrants, respectively. The put and call exercise prices are based upon the
value of the warrants as determined by formulas defined in the agreement or an
independent appraisal, whichever is greater.
At the date of issuance, $4,206,506 and $1,974,005 of the proceeds from the
Senior Subordinated Notes and the Redeemable Preferred Stock, respectively, were
allocated to the value of the warrants which, in recognition of the put option,
were classified as temporary capital in the accompanying balance sheets. The
value of the warrants, as estimated using the put price formula, will be
increased or decreased each year, based on the estimated value of the warrants,
and the resulting charge will be recorded directly to retained earnings. The
resulting discounts on the Senior Subordinated Notes and the Redeemable
Preferred Stock are being amortized to interest and retained earnings,
respectively, using the effective interest method over the life of the Senior
Subordinated Notes and the Redeemable Preferred Stock.
9. SUBSEQUENT EVENT
As of February 27, 1995, the Company entered into an agreement with The
Hillhaven Corporation pursuant to which the shareholders of the Company will
exchange their shares for approximately 4.8 million common shares of The
Hillhaven Corporation. Immediately prior to this transaction, the outstanding
warrants of the Company will be exercised. This share exchange is expected to be
consummated in June 1995.
F-15
<PAGE> 88
PHILLIPPE ENTERPRISES, INC.
(D/B/A HERITAGE AT HERNANDO)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------- FEBRUARY 28
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 24,939 $ 25,516 $ 42,941
Prepaid expenses........................................ 3,222 21,455 5,057
-------- -------- -----------
Total current assets............................ 28,161 46,971 47,998
Property and equipment (Notes 2 and 3).................... 707,283 747,628 752,451
Other assets:
Deferred loan costs (less accumulated amortization of
$4,401, $9,201 and $11,201).......................... 19,602 14,802 12,802
Other (Note 4).......................................... 41,627 41,627 41,627
-------- -------- -----------
61,229 56,429 54,429
-------- -------- -----------
Total assets.................................... $796,673 $851,028 $ 854,878
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 31,227 $ 51,804 $ 34,185
Accrued liabilities..................................... 55,576 75,942 34,654
Security deposits....................................... 38,361 66,060 62,815
Current portion of long-term debt (Note 2).............. 15,600 15,600 15,600
-------- -------- -----------
Total current liabilities....................... 140,764 209,406 147,254
Long-term debt (Note 2)................................... 509,000 493,400 486,900
Shareholders' equity:
Common stock, no par value:
Authorized shares -- 10,000; issued and outstanding
shares -- 2,000...................................... -- -- --
Additional paid-in capital.............................. 210,000 210,000 210,000
Retained earnings (deficit)............................. (63,091) (61,778) 10,724
-------- -------- -----------
Total shareholders' equity...................... 146,909 148,222 220,724
-------- -------- -----------
Total liabilities and shareholders' equity...... $796,673 $851,028 $ 854,878
======== ======== =========
</TABLE>
See accompanying notes.
F-16
<PAGE> 89
PHILLIPPE ENTERPRISES, INC.
(D/B/A HERITAGE AT HERNANDO)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
ELEVEN MONTHS FIVE MONTHS ENDED
ENDED YEAR ENDED FEBRUARY 28
SEPTEMBER 30 SEPTEMBER 30 -----------------------
1993 1994 1994 1995
------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Health care services..................... $ 658,022 $1,073,198 $ 392,664 $ 471,554
Costs and expenses:
Health care services................... 620,638 934,390 441,738 343,949
Management services.................... 33,656 54,301 20,152 24,052
Depreciation and amortization.......... 31,831 41,826 17,701 12,990
Interest............................... 34,988 41,368 16,218 18,061
------------- ------------ --------- ---------
Total costs and expenses....... 721,113 1,071,885 495,809 399,052
Net income (loss)........................ (63,091) 1,313 (103,145) 72,502
Retained deficit at beginning of
period................................. -- (63,091) (63,091) (61,778)
------------- ------------ --------- ---------
Retained earnings (deficit) at end of
period................................. $ (63,091) $ (61,778) $(166,236) $ 10,724
========== ========== ========= =========
</TABLE>
See accompanying notes.
F-17
<PAGE> 90
PHILLIPPE ENTERPRISES, INC.
(D/B/A HERITAGE AT HERNANDO)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
ELEVEN MONTHS FIVE MONTHS ENDED
ENDED YEAR ENDED FEBRUARY 28
SEPTEMBER 30 SEPTEMBER 30 --------------------
1993 1994 1994 1995
------------- ------------ --------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ (63,091) $ 1,313 $(103,145) $ 72,502
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation and amortization................. 31,831 41,826 17,701 12,990
Changes in operating assets and liabilities:
Prepaid expenses........................... (3,222) (18,233) (2,606) 16,398
Accounts payable........................... 31,227 20,577 22,043 (17,619)
Accrued liabilities........................ 55,576 20,366 (10,614) (41,288)
Security deposits.......................... 38,361 27,699 11,505 (3,245)
------------- ------------ --------- --------
Net cash provided (used) by operating
activities.................................... 90,682 93,548 (65,116) 39,738
INVESTING ACTIVITIES
Purchase acquisition............................ (734,713) -- -- --
Purchase of property and equipment.............. -- (77,371) (67,701) (15,813)
FINANCING ACTIVITIES
Proceeds from long-term debt.................... 535,000 -- -- --
Payments on long-term debt...................... (10,400) (15,600) (6,500) (6,500)
Capital contribution............................ 210,000 -- -- --
Loan costs...................................... (24,003) -- -- --
Advance to related party........................ (41,627) -- -- --
------------- ------------ --------- --------
Net cash provided (used) by financing
activities.................................... 668,970 (15,600) (6,500) (6,500)
------------- ------------ --------- --------
Net increase (decrease) in cash................. 24,939 577 (139,317) 17,425
Cash at beginning of period..................... -- 24,939 24,939 25,516
------------- ------------ --------- --------
Cash at end of period........................... $ 24,939 $ 25,516 $(114,378) $ 42,941
========== ========== ========= ========
Supplemental cash flow information:
Cash paid for interest.......................... $ 34,988 $ 41,368 $ 16,218 $ 18,061
========== ========== ========= ========
</TABLE>
See accompanying notes.
F-18
<PAGE> 91
PHILLIPPE ENTERPRISES, INC.
(D/B/A HERITAGE AT HERNANDO)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Phillippe Enterprises, Inc. (the Company) is the owner and operator of a 90
unit assisted living center in Brooksville, Florida. The Company began
operations in November 1992.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed by
the straight-line method using the following expected useful lives of the
respective assets:
<TABLE>
<CAPTION>
RANGE
-----
<S> <C>
Buildings.................................................................... 10-25
Land improvements............................................................ 10-15
Furniture and fixtures....................................................... 5-10
</TABLE>
Deferred Loan Costs
Loan costs are deferred and amortized over the 5 year term of the loan.
2. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------- FEBRUARY 28
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
Mortgage note payable to a bank with monthly principal
installments of $1,300. Interest (9% at September
30, 1994) is payable monthly and is adjusted at 1%
over the banks rate. Collateralized by a mortgage on
the real estate and the personal guarantee of
shareholder. Final maturity in 1998................. $ 524,600 $ 509,000 $ 502,500
Less current portion.................................. 15,600 15,600 15,600
--------- --------- -----------
$ 509,000 $ 493,400 $ 486,900
======== ======== =========
</TABLE>
Maturities of long-term debt for years ending September 30:
<TABLE>
<S> <C>
1995...................................................................... $ 15,600
1996...................................................................... 15,600
1997...................................................................... 15,600
1998...................................................................... 462,200
</TABLE>
F-19
<PAGE> 92
PHILLIPPE ENTERPRISES, INC.
(D/B/A HERITAGE AT HERNANDO)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------- FEBRUARY 28
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Buildings......................................... $583,202 $624,268 $ 624,944
Equipment......................................... 100,000 136,305 151,442
Land and improvements............................. 51,511 51,511 51,511
-------- -------- -----------
734,713 812,084 827,897
Less accumulated depreciation..................... 27,430 64,456 75,446
-------- -------- -----------
$707,283 $747,628 $ 752,451
======== ======== =========
</TABLE>
4. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes," as of November 1, 1992.
Federal income tax expense for the years ended September 30, 1994 and 1993
differs from the amount computed by applying the "expected" U.S. corporate
income tax rate of 35% in 1994 and 34% in 1993 to net income (loss) primarily
due to benefits from net operating losses not being available.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30 are presented below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accrued expenses............................................... $ 21,766 $ 28,108
Net operating loss carryforwards............................... 2,781 2,608
-------- --------
Total gross deferred tax assets...................... 24,547 30,716
Less valuation allowance....................................... (20,335) (19,808)
-------- --------
4,212 10,908
-------- --------
Depreciation................................................... (4,037) (8,914)
Other.......................................................... (175) (1,994)
-------- --------
Total deferred tax liabilities....................... (4,212) (10,908)
-------- --------
Net deferred tax assets.............................. $ -- $ --
======== ========
</TABLE>
5. RELATED PARTIES
The Company contracts with Nationwide Care, Inc. for certain accounting,
reporting and management services. The Company's shareholders are significant
shareholders in Nationwide Care, Inc. The management fees incurred were $33,656
and $54,301 in 1993 and 1994, respectively, and $20,152 and $24,052 for the five
months ended February 28, 1994 and 1995, respectively.
The Company has advanced to an affiliated company $41,627. The advance is
non-interest bearing and is due upon demand. The shareholders of the Company are
also shareholders in the affiliated company.
6. PLANNED TRANSACTIONS
As of February 27, 1995, the Company entered into an agreement with The
Hillhaven Corporation pursuant to which the shareholders of the Company will
exchange their shares for 83,333 common shares of The Hillhaven Corporation. It
is anticipated that this share exchange will be consummated in June 1995.
F-20
<PAGE> 93
MEADOWVALE SKILLED CARE CENTER, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------- FEBRUARY 28
1993 1994 1995
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 4,720 $ 1,499 $ 303
Net Investment in sales-type lease -- current portion
(Note 3).......................................... 131,176 146,573 151,000
---------- ---------- ------------
Total current assets......................... 135,896 148,072 151,303
---------- ---------- ------------
Other assets:
Net Investment in sales-type lease, less current
portion (Note 3).................................. 1,296,640 1,150,067 1,086,538
Lease obligation receivable (Note 3)................. 279,692 277,086 274,248
Deposits............................................. 19,475 30,069 34,547
---------- ---------- ------------
1,595,807 1,457,222 1,395,333
---------- ---------- ------------
Total assets................................. $1,731,703 $1,605,294 $ 1,546,636
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable (Note 2)................................ $ 456,721 $ 456,721 $ 456,721
Shareholders' equity:
Common stock, no par value:
Authorized, issued and outstanding
shares -- 3,000................................. 200,000 200,000 200,000
Retained earnings.................................... 1,074,982 948,573 889,915
---------- ---------- ------------
Total shareholders' equity............................. 1,274,982 1,148,573 1,089,915
---------- ---------- ------------
Total liabilities and shareholders' equity............. $1,731,703 $1,605,294 $ 1,546,636
========= ========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE> 94
MEADOWVALE SKILLED CARE CENTER, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
SEPTEMBER 30 FEBRUARY 28
---------------------------------------- -----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Lease interest income(Note
3).......................... $ 178,741 $ 166,409 $ 152,629 $ 65,359 $ 59,150
Costs and expenses:
Interest.................... 45,672 45,672 45,672 19,030 19,030
Loss on lease............... 25,903 35,510 45,462 16,488 20,696
General and
administrative........... 1,958 1,965 2,018 796 838
---------- ---------- ---------- ---------- --------
Total costs and expenses...... 73,533 83,147 93,152 36,314 40,564
Other expense................. 2,004 57 86 52 44
---------- ---------- ---------- ---------- --------
Net income.................... 103,204 83,205 59,391 28,993 18,542
Dividends..................... (189,244) (195,600) (185,800) (82,000) (77,200)
Retained earnings at beginning
of period................... 1,273,417 1,187,377 1,074,982 1,074,982 948,573
---------- ---------- ---------- ---------- --------
Retained earnings at end of
period...................... $1,187,377 $1,074,982 $ 948,573 $1,021,975 $889,915
========= ========= ========= ========= ========
</TABLE>
See accompanying notes.
F-22
<PAGE> 95
MEADOWVALE SKILLED CARE CENTER, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
SEPTEMBER 30 FEBRUARY 28
------------------------------------- ---------------------
1992 1993 1994 1994 1995
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 103,204 $ 83,205 $ 59,391 $ 28,993 $ 18,542
Adjustments to reconcile net
income to net cash provided by
operating activities:
Changes in other assets........
Deposits.................... -- -- (10,594) -- (4,478)
--------- --------- --------- -------- --------
Net cash provided by operating
activities..................... 103,204.. 83,205 48,797 28,993 14,064
FINANCING ACTIVITIES
Payments received under
sales-type lease............... 88,110 110,048 133,782 51,524 61,940
Dividends........................ (189,244) (195,600) (185,800) (82,000) (77,200)
--------- --------- --------- -------- --------
Net cash used in financing
activities..................... (101,134) (85,552) (52,018) (30,476) (15,260)
--------- --------- --------- -------- --------
Net increase (decrease) in
cash........................... 2,070 (2,347) (3,221) (1,483) (1,196)
Cash at beginning of period...... 4,997 7,067 4,720 4,720 1,499
--------- --------- --------- -------- --------
Cash at end of period............ $ 7,067 $ 4,720 $ 1,499 $ 3,237 $ 303
========= ========= ========= ======== ========
Supplemental cash flow
information:
Cash paid for interest........... $45,672... $ 45,672 $ 45,672 $ 19,030 $ 19,030
========= ========= ========= ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 96
MEADOWVALE SKILLED CARE CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Meadowvale Skilled Care Center, Inc. (the Company) is the lessor of a
nursing home consisting of 120 intermediate care beds in Bluffton, Indiana under
a capital lease with Nationwide Care, Inc. as discussed in Note 3. The Company
began operations in July 1969.
Income Taxes
The shareholders of the Company have elected to be taxed as defined by the
S Corporation provisions of the Internal Revenue Code. Income and losses are
allocated to the shareholders; therefore, no provision is made by the Company
for state or federal taxes on income.
2. NOTE PAYABLE
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------- FEBRUARY 28
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Note payable to a 22% owner of the Company,
interest rate of 10%, payable on demand......... $456,721 $456,721 $ 456,721
======== ======== =========
</TABLE>
3. LEASES
The Company entered into a lease on February 28, 1986 with Nationwide Care,
Inc. (a related party -- see Note 4) to lease all property and equipment. The
term of the lease is for three five year periods and commenced on February 28,
1986 and the lease payment is adjusted annually by the gross national product
implicit price deflator twelve month moving average.
The lease is classified as a sales-type capital lease and is componentized
as follows at September 30, 1994:
<TABLE>
<S> <C>
Total estimated minimum lease payments to be received.................... $2,098,172
Less unearned income..................................................... 801,532
-----------
Net investment in sales-type lease....................................... 1,296,640
Less current portion..................................................... 146,573
-----------
$1,150,067
=========
</TABLE>
Because of the changing annual lease payments, as noted above, an estimated
average monthly payment of the lease was used to amortize the lease principal at
the initial commencement of the lease. Therefore, the excess of average payments
assumed over the actual payments received is classified as interest receivable
and will be reduced as actual payments received are in excess of average
payments assumed.
Future estimated minimum lease payments to be received as of September 30,
1994 are as follows:
<TABLE>
<S> <C>
1995............................................................. $296,721
1996............................................................. 307,403
1997............................................................. 318,469
1998............................................................. 329,934
1999............................................................. 341,812
Thereafter....................................................... 503,833
-----------
$2,098,172
=========
</TABLE>
F-24
<PAGE> 97
MEADOWVALE SKILLED CARE CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
4. RELATED PARTIES
The Company leases the facility to Nationwide Care, Inc., of which an
immediate family member of a 25.93% shareholder of the Company owns 51%. Lease
payments received were $240,948 in 1992, 1993 and 1994 and $100,395 for the five
months ended February 28, 1994 and 1995.
5. PLANNED TRANSACTIONS
As of February 27, 1995, the Company entered into an agreement with The
Hillhaven Corporation pursuant to which the shareholders of the Company will
exchange their shares for 125,000 common shares of The Hillhaven Corporation. It
is anticipated that this share exchange will be consummated in June 1995.
F-25
<PAGE> 98
ANNEX A
Investment Banking Group
World Financial Center
North Tower
New York, New York
10281-1330
Merrill Lynch
February 27, 1995
Board of Directors
The Hillhaven Corporation
1148 Broadway Plaza, 4th Floor
Tacoma, WA 98401-2264
Attention: Bruce L. Busby
Chairman of the Board
Gentlemen:
The Hillhaven Corporation (the "Company"), Acquisition Corp., a wholly
owned subsidiary of the Company (the "Purchaser"), and Nationwide Care, Inc.,
Philippe Enterprises, Inc. and Meadowvale Skilled Care Center, Inc.
(collectively, the "Subject Companies") and specified partners of Camelot Care
Centers, Shangri-La Partnership and Evergreen Woods, Ltd. (collectively, the
"Subject Partnerships" and, together with the Subject Companies, the "Subject
Entities") propose to enter into an agreement (the "Agreement") pursuant to
which the Subject Companies will be merged with and into the Purchaser and the
partners of the Subject Partnerships will assign to the Purchaser such partners'
interests in the Subject Partnerships (the "Merger"). Pursuant to the Agreement,
the holders of the common stock of the Subject Companies and the partners of the
Subject Partnerships, as the case may be, will have the right to receive, in the
aggregate, 5,000,000 shares of common stock of the Company (the "Company
Shares"), subject to adjustment if the average closing price per Company Share
as reported on the New York Stock Exchange for ten days immediately preceding
the consummation of the Merger is less than $24, but in no event greater than
5,500,000 Company Shares.
You have asked us whether, in our opinion, the proposed consideration to be
paid by the Company pursuant to the Merger is fair to the Company from a
financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Subject Entities' unaudited financial information for
the three fiscal years ended September 30, 1994 and for the
quarterly period ending December 31, 1994;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended May 31,
1994 and the Company's Form 10-Q and the related unaudited
financial information for the quarterly periods ending August 31,
1994 and November 30, 1994 and certain other filings with the
Securities and Exchange Commission made by the Company, including
proxy statements and registration statements during the last three
years;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Subject Entities and the Company, furnished to us
by the Subject Entities and the Company;
(4) Conducted discussions with members of senior management of the
Subject Entities and the Company concerning their respective
businesses and prospects and potential synergies which might be
realized following the Merger;
A-1
<PAGE> 99
(5) Compared the results of the operations of the Subject Entities
with those of certain companies which we deemed to be reasonably
similar to the Subject Entities;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain
other mergers and acquisitions which we deemed to be relevant;
(7) Considered the pro forma effect of the Merger on the combined
company's capitalization ratios and earnings per share;
(8) Reviewed a draft of the Agreement dated February 25, 1995; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters
as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Subject
Entities and the Company, and we have not independently verified such
information or undertaken an independent appraisal of the assets or liabilities
of the Subject Entities or the Company or conducted a physical inspection of the
Subject Entities' or the Company's properties or facilities. With respect to the
financial forecasts and estimates of potential synergies furnished to us by the
Subject Entities and the Company, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
Subject Entities or the Company's management as to the expected future financial
performance of the Subject Entities or the Company, as the case may be.
We have, in the past, provided financial advisory and financing services to
the Company. In the ordinary course of our business, we actively trade in the
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be paid by the Company pursuant to the Merger is
fair to the Company from a financial point of view.
This opinion is solely for the use and benefit of the Company and shall not
be disclosed publicly or made available to, or relied upon by, any third party
without out prior written approval.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ James F. Flaherty III
--------------------------------
Managing Director
Investment Banking Group
A-2
<PAGE> 100
ANNEX B
INDIANA BUSINESS CORPORATION LAW
CHAPTER 44. DISSENTERS' RIGHTS
23-1-44-1. "CORPORATION" DEFINED
As used in this chapter, "corporation" means the issuer of the shares held
by a dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
23-1-44-2. "DISSENTER" DEFINED
As used in this chapter, "dissenter" means a shareholder who is entitled to
dissent from corporate action under section 8 [IC 23-1-44-8] of this chapter and
who exercises that right when and in the manner required by sections 10 through
18 [IC 23-1-44-10 -- 23-1-44-18] of this chapter.
23-1-44-3. "FAIR VALUE" DEFINED
As used in this chapter, "fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
23-1-44-4. "INTEREST" DEFINED
As used in this chapter, "interest" means interest from the effective date
of the corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate that
is fair and equitable under all the circumstances.
23-1-44-5. "RECORD SHAREHOLDER" DEFINED
As used in this chapter, "record shareholder" means the person in whose
name shares are registered in the records of a corporation or the beneficial
owner of shares to the extent that treatment as a record shareholder is provided
under a recognition procedure or a disclosure procedure established under IC
23-1-30-4.
23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED
As used in this chapter, "beneficial shareholder" means the person who is a
beneficial owner of shares held by a nominee as the record shareholder.
23-1-44-7. "SHAREHOLDER" DEFINED
As used in this chapter, "shareholder" means the record shareholder or the
beneficial shareholder.
23-1-44-8. SHAREHOLDER DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party if:
(A) Shareholder approval is required for the merger by IC 23-1-40-3
or the articles of incorporation; and
(B) The shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
B-1
<PAGE> 101
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) Registered on a United States securities exchange registered under
the Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets -- National Market
Issues or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b); may not challenge the corporate action
creating (or that, but for the provisions of subsection (b), would have
created) the shareholder's entitlement.
23-1-44-9. BENEFICIAL SHAREHOLDER DISSENT
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one (1) person and notifies
the corporation in writing of the name and address of each person on whose
behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the beneficial
shareholder has power to direct the vote.
23-1-44-10. NOTICE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23-1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 12 [IC
23-1-44-12] of this chapter.
B-2
<PAGE> 102
23-1-44-11. NOTICE OF INTENT TO DISSENT
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23-1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23-1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter.
23-1-44-13. DEMAND FOR PAYMENT BY DISSENTER
(a) A shareholder sent a dissenters' notice described in IC 23-1-42-11 or
in section 12 [IC 23-1-44-12] of this chapter must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date required to be set forth in the dissenter's notice under section 12(b)(3)
[IC 23-1-44-12(b)(3)] of this chapter, and deposit the shareholder's
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action.
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23-1-44-14. TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 16 [IC 23-1-44-16] of
this chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
23-1-44-15. PAYMENT TO DISSENTER
(a) Except as provided in section 17 [IC 23-1-44-17] of this chapter, as
soon as the proposed corporate action is taken, or, if the transaction did not
need shareholder approval and has been completed, upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with section 13
[IC 23-1-44-13] of this chapter the amount the corporation estimates to be the
fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares; and
(3) A statement of the dissenter's right to demand payment under
section 18 [IC 23-1-44-18] of this chapter.
23-1-44-16. RETURN OF SHARES AND RELEASE OF RESTRICTIONS
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure.
23-1-44-17. OFFER OF FAIR VALUE FOR SHARES OBTAINED AFTER FIRST ANNOUNCEMENT
(a) A corporation may elect to withhold payment required by section 15 [IC
23-1-44-15] of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44-18] of this chapter.
23-1-44-18. DISSENTER DEMAND FOR FAIR VALUE UNDER CERTAIN CONDITIONS
(a) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and demand payment of
the dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of
this chapter), or reject the corporation's offer under section 17 [IC
23-1-44-17] of this chapter and demand payment of the fair value of the
dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15 of
this chapter or offered under section 17 of this chapter is less than the
fair value of the dissenter's shares;
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(2) The corporation fails to make payment under section 15 of this
chapter within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation made
or offered payment for the dissenter's shares.
23-1-44-19. EFFECT OF FAILURE TO PAY DEMAND -- COMMENCEMENT OF JUDICIAL
APPRAISAL PROCEEDING
(a) If a demand for payment under IC 23-1-42-11 or under section 18 [IC
23-1-44-18] of this chapter remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares. If the corporation
does not commence the proceeding within the sixty (60) day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or
superior court of the county where a corporation's principal office (or, if none
in Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment.
(1) For the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 17 [IC 23-1-44-17] of this chapter.
23-1-44-20. JUDICIAL DETERMINATION AND ASSESSMENT OF COSTS
(a) The court in an appraisal proceeding commenced under section 19 [IC
23-1-44-19] of this chapter shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against such parties and in such
amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 10 through 18 [IC 23-1-44-10 -- 23-1-44-18] of
this chapter; or
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(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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