<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1995
REGISTRATION NO. 33-58641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE HILLHAVEN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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NEVADA 8051 91-1459952
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1148 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(206) 572-4901
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD P. ADCOCK
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
THE HILLHAVEN CORPORATION
1148 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(206) 572-4901
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT THE
EFFECTIVE TIME OF THE EXCHANGES OF THE OUTSTANDING SHARES OF COMMON STOCK OF
NATIONWIDE CARE, INC. AND CERTAIN AFFILIATED ENTITIES FOR SHARES OF COMMON STOCK
OF THE REGISTRANT AS DESCRIBED IN THE ENCLOSED PROSPECTUS/INFORMATION STATEMENT.
------------------------
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If any of the securities being registered on this Form are being offered on
a continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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THE HILLHAVEN CORPORATION
CROSS REFERENCE SHEET REQUIRED BY ITEM 501(b) OF REGULATION S-K
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LOCATION IN PROSPECTUS/INFORMATION
ITEM OF FORM S-4 STATEMENT
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus/Information Statement.......... Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus/Information Statement
2. Inside Front and Outside Back Cover Pages
of Prospectus/Information Statement....... Inside Front Cover Page of Prospectus/
Information Statement; Table of Contents;
Available Information; Incorporation of
Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Cover Page; Summary; Selected Financial
Data; Comparison of Historical and
Equivalent Per Share Data (Unaudited);
Incorporation of Certain Documents by
Reference; Risk Factors; Summary Unaudited
Pro Forma Condensed Combined Financial
Information
4. Terms of the Transaction.................. Summary; Background of and Reasons for the
Share Exchange; Terms and Conditions of
the Share Exchange; Description of Capital
Stock; Principal Differences between
Hillhaven and Corporate Targets' Capital
Stock
5. Pro Forma Financial Information........... Selected Financial Data; Unaudited Pro
Forma Condensed Combined Financial
Statements
6. Material Contracts with the Company Being
Acquired.................................. Not applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ Summary; Resales of Hillhaven Common
Shares
8. Interests of Named Experts and Counsel.... Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................... Summary; Market Price and Dividend Data;
Incorporation of Certain Documents by
Reference; Risk Factors; Comparison of
Historical and Equivalent Per Share Data
(Unaudited); Selected Financial Data;
Summary Unaudited Pro Forma Condensed
Combined Financial Information; Unaudited
Pro Forma Condensed Combined Financial
Statements.
11. Incorporation of Certain Information by
Reference................................. Incorporation of Certain Documents by
Reference
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LOCATION IN PROSPECTUS/INFORMATION
ITEM OF FORM S-4 STATEMENT
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12. Information with Respect to S-2 or S-3
Registrants............................... Not Applicable
13. Incorporation of Certain Information by
Reference................................. Not Applicable
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants......... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies................................. Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................. Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies........... Summary; Market Price and Dividend Data;
Comparison of Historical and Equivalent
Per Share Data (Unaudited); Selected
Financial Data; The Nationwide Entities;
Nationwide Care, Inc. Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Description of Capital Stock; Principal
Differences Between Hillhaven and
Corporate Targets' Capital Stock; Index to
Financial Statements; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........ Not applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer...................... Incorporation of Certain Documents by
Reference; Corporate Targets' Special
Meetings; Other Matters to Voted Upon by
NCI Voting Common Shareholders; Corporate
Targets' Principal Shareholders
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS/INFORMATION STATEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 19, 1995
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.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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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................................................. 16
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
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.
2
<PAGE> 9
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.
3
<PAGE> 10
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
4
<PAGE> 11
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
5
<PAGE> 12
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> 13
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> 14
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> 15
$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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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.
15
<PAGE> 22
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.
16
<PAGE> 23
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.
17
<PAGE> 24
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
18
<PAGE> 25
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.
19
<PAGE> 26
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.
20
<PAGE> 27
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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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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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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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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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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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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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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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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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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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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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;
36
<PAGE> 43
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.
37
<PAGE> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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
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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.
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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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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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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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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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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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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.
62
<PAGE> 69
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.
63
<PAGE> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
(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> 103
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.
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(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.
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<PAGE> 105
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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<PAGE> 106
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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<PAGE> 107
(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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law and the Company's Amended and Restated
Articles of Incorporation and Amended and Restated By-Laws permit
indemnification of directors and officers in terms sufficiently broad to
indemnify officers and directors under certain circumstances for liabilities
(including expense reimbursement) arising under the Securities Act of 1933, as
amended (the "Securities Act"). The Company also maintains an indemnification
agreement with each of its directors and any officer designated by the Company's
Board of Directors insuring them against certain liabilities incurred by them in
the performance of their duties, including liabilities under the Securities Act.
In addition, the Company has directors and officers liability insurance
policies.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are filed or incorporated by reference in this
Registration Statement:
<TABLE>
<S> <C>
2.01 Amended and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests dated as of February 27, 1995 by and among The Hillhaven
Corporation, Nationwide Care, Inc., Phillippe Enterprises, Inc., Meadowvale Skilled
Care Center, Inc. and Specified Partners of Camelot Care Centers, Evergreen Woods,
Ltd., and Shangri-La Partnership
3.01 Amended and Restated Articles of Incorporation of Registrant (Incorporated by
reference to Exhibit J to Exhibit 2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1989, as amended)
3.02 Amended and Restated By-Laws of Registrant (Incorporated by reference to Exhibit 3.02
to Registrant's Annual Report on Form 10-K for the year ended May 31, 1994)
5.01 Opinion of Richard P. Adcock
5.02 Opinion of Woodburn and Wedge
8.01 Opinion of KPMG Peat Marwick LLP regarding Hillhaven tax matters
8.02 Opinion of Ice Miller Donadio & Ryan regarding NCI tax matters
8.03 Opinion of Ice Miller Donadio & Ryan regarding PEI tax matters
8.04 Opinion of Ice Miller Donadio & Ryan regarding Meadowvale tax matters
23.01 Consent of KPMG Peat Marwick LLP
23.02 Consent of Ernst & Young LLP
23.03 Consent of Richard P. Adcock (Included in Exhibit 5.01)
23.04 Consent of Woodburn and Wedge (Included in Exhibit 5.02)
23.05 Consent of Ice Miller Donadio & Ryan (Included in Exhibits 8.02, 8.03 and 8.04)
23.06 Consent of Merrill Lynch, Pierce, Fenner & Smith, Inc.
24.01 Power of Attorney*
</TABLE>
- ---------------
* Previously filed as part of this Registration Statement.
II-1
<PAGE> 110
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus/Information
Statement pursuant to Items 4, 19(b), 11 or 13 of Form S-4 within one business
day of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Registration Statement
through the date of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tacoma,
State of Washington, on May 19, 1995.
THE HILLHAVEN CORPORATION
By: /s/ RICHARD P. ADCOCK
------------------------------------
Richard P. Adcock
Senior Vice President
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ ---------------------------------- -------------
<S> <C> <C>
/s/ BRUCE L. BUSBY* Chief Executive Officer, Chairman May 19, 1995
- ------------------------------------------ of the Board and Director
Bruce L. Busby
/s/ CHRIS MARKER* President and Director May 19, 1995
- ------------------------------------------
Chris Marker
/s/ MARIS ANDERSONS* Director May 19, 1995
- ------------------------------------------
Maris Andersons
/s/ WALTER F. BERAN* Director May 19, 1995
- ------------------------------------------
Walter F. Beran
/s/ PETER DE WETTER* Director May 19, 1995
- ------------------------------------------
Peter de Wetter
/s/ DINAH JACOBS* Director May 19, 1995
- ------------------------------------------
Dinah Jacobs
/s/ ROBERT F. PACQUER* Senior Vice President and Chief May 19, 1995
- ------------------------------------------ Financial Officer
Robert F. Pacquer
/s/ JACK O. VANCE* Director May 19, 1995
- ------------------------------------------
Jack O. Vance
/s/ MICHAEL B. WEITZ* Vice President and Principal May 19, 1995
- ------------------------------------------ Accounting Officer
Michael B. Weitz
/s/ DONALD S. BURNS* Director May 19, 1995
- ------------------------------------------
Donald S. Burns
*By: /s/ RICHARD P. ADCOCK
- ------------------------------------------
Richard P. Adcock
Attorney-in-fact
</TABLE>
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<PAGE> 112
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ --------------------------------------------------------------------- -------------
<S> <C> <C>
2.01 Amended and Restated Agreement and Plan of Share Exchange and
Agreements to Assign Partnership Interests dated as of February 27,
1995 by and among The Hillhaven Corporation, Nationwide Care, Inc.,
Phillippe Enterprises, Inc., Meadowvale Skilled Care Center, Inc.
and Specified Partners of Camelot Care Centers, Evergreen Woods,
Ltd., and Shangri-La Partnership...................................
3.01 Amended and Restated Articles of Incorporation of Registrant
(Incorporated by reference to Exhibit J to Exhibit 2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1989, as amended).....................................
3.02 Amended and Restated By-Laws of Registrant (Incorporated by reference
to Exhibit 3.02 to Registrant's Annual Report on Form 10-K for the
year ended May 31, 1994)...........................................
5.01 Opinion of Richard P. Adcock.........................................
5.02 Opinion of Woodburn and Wedge........................................
8.01 Opinion of KPMG Peat Marwick LLP regarding Hillhaven tax matters.....
8.02 Opinion of Ice Miller Donadio & Ryan regarding NCI tax matters.......
8.03 Opinion of Ice Miller Donadio & Ryan regarding PEI tax matters.......
8.04 Opinion of Ice Miller Donadio & Ryan regarding Meadowvale tax
matters............................................................
23.01 Consent of KPMG Peat Marwick LLP.....................................
23.02 Consent of Ernst & Young LLP.........................................
23.03 Consent of Richard P. Adcock (Included in Exhibit 5.01)..............
23.04 Consent of Woodburn and Wedge (Included in Exhibit 5.02).............
23.05 Consent of Ice Miller Donadio & Ryan (Included in Exhibits 8.02, 8.03
and 8.04)..........................................................
23.06 Consent of Merrill Lynch, Pierce, Fenner & Smith, Inc................
24.01 Power of Attorney*...................................................
</TABLE>
- ---------------
* Previously filed as part of this Registration Statement.
<PAGE> 1
EXHIBIT 2.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF SHARE EXCHANGE
AND AGREEMENTS TO ASSIGN PARTNERSHIP INTERESTS
BY AND AMONG
THE HILLHAVEN CORPORATION
NATIONWIDE CARE, INC.
PHILLIPPE ENTERPRISES, INC.
MEADOWVALE SKILLED CARE CENTER, INC.
AND
SPECIFIED PARTNERS OF
CAMELOT CARE CENTERS
EVERGREEN WOODS, LTD.
AND
SHANGRI-LA PARTNERSHIP
DATED AS OF
FEBRUARY 27, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Preliminary Statement................................................................... 1
Terms and Conditions.................................................................... 2
ARTICLE I The Share Exchanges................................................... 2
SECTION 1.1. Share Exchanges....................................................... 2
SECTION 1.2. Effective Time of Share Exchanges..................................... 2
SECTION 1.3. Other Actions......................................................... 2
ARTICLE II Corporate Governance.................................................. 3
SECTION 2.1. [Intentionally Omitted]............................................... 3
SECTION 2.2. Directors and Officers................................................ 3
ARTICLE III Exchange of Shares; Assignment of Partnership
Interests; Prepayment of Subordinated Notes and
Redemption of Preferred Stock......................................... 3
SECTION 3.1. Effect of Share Exchanges............................................. 3
SECTION 3.2. Consideration for Share Exchanges..................................... 3
SECTION 3.3. Escrow................................................................ 3
SECTION 3.4. Surrender and Payment for the Target Common Shares.................... 4
SECTION 3.5. Redemption of Nationwide Subordinated Notes and Nationwide Preferred
Stock................................................................. 5
ARTICLE IV Representations and Warranties of Corporate Targets and Partners...... 5
SECTION 4.1. Organization; Power................................................... 5
SECTION 4.2. Capital Stock......................................................... 5
SECTION 4.3. Authority; No Violation............................................... 6
SECTION 4.4. Consents and Approvals................................................ 6
SECTION 4.5. Transactions with Certain Persons..................................... 6
SECTION 4.6. Books and Records..................................................... 7
SECTION 4.7. Financial Statements.................................................. 7
SECTION 4.8. Absence of Undisclosed Liabilities.................................... 7
SECTION 4.9. Actions Pending....................................................... 7
SECTION 4.10. Outstanding Debt and Related Matters.................................. 7
SECTION 4.11. Tax Matters........................................................... 7
SECTION 4.12. Absence of Changes or Events.......................................... 8
SECTION 4.13. Compliance with Laws; No Default...................................... 9
</TABLE>
<TABLE>
<S> <C> <C>
SECTION 4.14. Property.............................................................. 9
SECTION 4.15. Contracts............................................................. 10
SECTION 4.16. Licenses and Permits.................................................. 11
SECTION 4.17. Proprietary Information............................................... 11
SECTION 4.18. Title to Assets and Related Matters................................... 11
SECTION 4.19. Environmental Matters................................................. 11
SECTION 4.20. Labor Relations; Employees............................................ 12
SECTION 4.21. Employee Benefit Plans................................................ 12
SECTION 4.22. Insurance............................................................. 13
SECTION 4.23. Life Care Contracts................................................... 13
SECTION 4.24. Survey Reports........................................................ 13
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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SECTION 4.25. Payment Programs...................................................... 13
SECTION 4.26. Gratuitous Payments................................................... 14
SECTION 4.27. Brokers' or Finders' Fees............................................. 14
SECTION 4.28. Disclosure............................................................ 14
SECTION 4.29. Tax Representations................................................... 15
SECTION 4.30. Representations and Warranties as of Date Hereof;
No Other Representations and Warranties............................... 15
ARTICLE V Representations and Warranties of Acquiror............................ 15
SECTION 5.1. Organization; Power................................................... 15
SECTION 5.2. Capital Stock......................................................... 15
SECTION 5.3. Authority; No Violation; Etc.......................................... 15
SECTION 5.4. Consents and Approvals................................................ 16
SECTION 5.5. Reports............................................................... 16
SECTION 5.6. Due Authorization of Shares........................................... 16
SECTION 5.7. Compliance with Laws; No Default or Litigation........................ 16
SECTION 5.8. Tax Representations................................................... 17
SECTION 5.9. Brokers' or Finders' Fees............................................. 17
SECTION 5.10. Representations and Warranties as of Date Hereof...................... 17
ARTICLE VI Certain Pre-Closing Covenants of the Targets.......................... 17
SECTION 6.1. Maintenance of Corporate Status....................................... 17
SECTION 6.2. No Change in Capitalization........................................... 17
SECTION 6.3. Shareholders Meetings................................................. 17
SECTION 6.4. Operation of the Business............................................. 17
SECTION 6.5. Other Offers.......................................................... 18
SECTION 6.6. Compliance with the Securities Act; Affiliates........................ 18
SECTION 6.7. Taxes................................................................. 18
SECTION 6.8. Access; Review........................................................ 19
SECTION 6.9. Insurance............................................................. 19
SECTION 6.10. Monthly Financial Statements.......................................... 19
SECTION 6.11. Approvals, Notices and Consents....................................... 19
SECTION 6.12. The Targets' Actions; Supplements to Representations and Warranties... 19
SECTION 6.13. Notice of Material Adverse Change..................................... 20
SECTION 6.14. Pooling............................................................... 20
SECTION 6.15. Tax Statements........................................................ 20
SECTION 6.16. Cooperation........................................................... 20
SECTION 6.17. Nationwide to Use Its Best Efforts to Terminate Option................ 20
ARTICLE VII Certain Pre-Closing Covenants of Acquiror............................. 20
SECTION 7.1. Required Consents and Approvals....................................... 20
SECTION 7.2. Pre-transaction Notification.......................................... 20
SECTION 7.3. Registration Statement; NYSE Listing.................................. 20
SECTION 7.4. Notice of Material Adverse Change..................................... 20
SECTION 7.5. Pooling Actions....................................................... 21
SECTION 7.6. Pooling Letter........................................................ 21
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SECTION 7.7. Tax Statements........................................................ 21
SECTION 7.8. Environmental Surveys................................................. 21
SECTION 7.9. Cooperation........................................................... 21
ARTICLE VIII Conditions Precedent to the Performance of Acquiror................... 21
SECTION 8.1. Accuracy of Representations and Warranties of the Targets............. 21
SECTION 8.2. Compliance............................................................ 21
SECTION 8.3. Approval.............................................................. 21
SECTION 8.4. HSR Act Approval...................................................... 21
SECTION 8.5. Authorizations........................................................ 21
SECTION 8.6. Litigation............................................................ 22
SECTION 8.7. No Material Adverse Change............................................ 22
SECTION 8.8. Closing Deliveries.................................................... 22
SECTION 8.9. Dissenters' Rights.................................................... 22
SECTION 8.10. Pooling Letter........................................................ 22
SECTION 8.11. Exercise of Warrants.................................................. 22
SECTION 8.12. Tax Opinions.......................................................... 22
SECTION 8.13. Lease Extensions...................................................... 22
SECTION 8.14. Option Termination.................................................... 22
ARTICLE IX Conditions Precedent to Performance of the Corporate Targets and
Partners.............................................................. 22
SECTION 9.1. Accuracy of Representations and Warranties of Acquiror................ 22
SECTION 9.2. Compliance............................................................ 22
SECTION 9.3. Corporate Approval.................................................... 23
SECTION 9.4. Authorizations........................................................ 23
SECTION 9.5. Registration Statement................................................ 23
SECTION 9.6. Litigation............................................................ 23
SECTION 9.7. No Material Adverse Change............................................ 23
SECTION 9.8. HSR Act Waiting Periods............................................... 23
SECTION 9.9. Closing Deliveries.................................................... 23
SECTION 9.10. Tax Opinions.......................................................... 23
SECTION 9.11. Release of Guarantees................................................. 23
ARTICLE X Termination........................................................... 24
SECTION 10.1. Termination by Mutual Agreement....................................... 24
SECTION 10.2. Termination by Acquiror............................................... 24
SECTION 10.3. Termination by the Corporate Targets and Partners..................... 24
ARTICLE XI Additional Agreements................................................. 24
SECTION 11.1. Confidentiality....................................................... 24
SECTION 11.2. Employee Benefit Matters.............................................. 24
SECTION 11.3. Agreements Respecting Meadowvale...................................... 24
SECTION 11.4. Preservation of Tax-Free Reorganization Treatment..................... 25
SECTION 11.5. Publication of Financial Results...................................... 25
SECTION 11.6. The Shangri-La Partners............................................... 25
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ARTICLE XII The Closing........................................................... 25
SECTION 12.1. Time and Place........................................................ 25
SECTION 12.2. Deliveries to Acquiror at the Closing................................. 25
SECTION 12.3. Deliveries to the Targets at the Closing.............................. 26
ARTICLE XIII Indemnification....................................................... 26
SECTION 13.1. Indemnification of Acquiror........................................... 26
SECTION 13.2. Threshold and Maximum Amounts......................................... 27
SECTION 13.3. Survival of Indemnification Obligations............................... 27
ARTICLE XIV Supplemental Indemnification.......................................... 28
SECTION 14.1. Supplemental Indemnification of Acquiror.............................. 28
SECTION 14.2. Maximum Amounts....................................................... 28
SECTION 14.3. Survival of Indemnification Obligations............................... 28
ARTICLE XV Miscellaneous Provisions.............................................. 28
SECTION 15.1. Survival of Representations and Warranties............................ 28
SECTION 15.2. Definition of Knowledge............................................... 28
SECTION 15.3. Counterparts.......................................................... 29
SECTION 15.4. Entire Agreement...................................................... 29
SECTION 15.5. Exhibits and Schedules................................................ 29
SECTION 15.6. Parties in Interest................................................... 29
SECTION 15.7. Expenses.............................................................. 29
SECTION 15.8. Gender................................................................ 29
SECTION 15.9. Governing Law......................................................... 29
SECTION 15.10. Headings.............................................................. 29
SECTION 15.11. Modification and Waiver............................................... 29
SECTION 15.12. Notices............................................................... 29
SECTION 15.13. Press Releases........................................................ 30
SECTION 15.14. Rights of Parties..................................................... 30
SECTION 15.15. Successors............................................................ 30
SECTION 15.16. Intent; Construction.................................................. 30
SECTION 15.17. Release............................................................... 31
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF SHARE EXCHANGE AND
AGREEMENTS TO ASSIGN PARTNERSHIP INTERESTS
This Amended and Restated Agreement and Plan of Share Exchange and
Agreements to Assign Partnership Interests (the "Agreement") dated as of the
27th day of February, 1995, is by and among The Hillhaven Corporation, a Nevada
Corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to herein as the
"Corporate Targets"), the partners of Camelot Care Centers, an Indiana general
partnership ("Camelot"), (subject to Section 11.6 hereof) the partners of
Shangri-La Partnership, an Indiana general partnership ("Shangri-La") and the
limited partners of Evergreen Woods, Ltd., a Florida limited partnership
("Evergreen") (Camelot, Shangri-La and Evergreen are collectively referred to
herein as the "Partnership Targets"; the partners of Camelot and Shangri-La and
the limited partners of Evergreen are collectively referred to herein as the
"Partners"; the interests in the Partnerships held by the Partners are
collectively referred to herein as the "Partnership Interests"). The Corporate
Targets and the Partnership Targets are collectively referred to herein as the
"Targets."
PRELIMINARY STATEMENT
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. Nationwide and its subsidiaries operate
long-term health care centers located in Indiana, Ohio and Florida. Dr. Thomas
E. Phillippe, Sr. and Thomas E. Phillippe, Jr. (the "Phillippes") are the
majority owners of Nationwide. Shangri-La, which is owned by the Phillippes and
two other parties, owns an 81-bed long term care health care facility. PEI is
wholly-owned by the Phillippes and owns a 90 bed assisted living center in
Florida managed by Nationwide. Meadowvale is owned by certain relatives of the
Phillippes. Meadowvale owns a 120 bed long-term care center in Indiana leased by
Nationwide. Each of Camelot and Evergreen operates long term care facilities.
Nationwide owns in excess of 95% of the Partnership Interests of Camelot and
Evergreen.
The capital structure of Acquiror consists of 60 million authorized shares
of Common Stock, par value $0.75 per share, of which approximately 32,824,863
are outstanding (the "Acquiror Common Shares"); 25 million authorized shares of
preferred stock, par value $0.15 per share, of which the following series have
been designated: 3 million authorized shares of Series A Preferred Stock, of
which no shares are outstanding; 950 authorized shares of Series B Convertible
Preferred Stock, of which 618 shares have been designated as Subseries 1, of
which no shares are outstanding; 35,000 authorized shares of Series C Preferred
Stock, all of which are outstanding; and 300,000 authorized shares of Series D
Preferred Stock, of which approximately 63,403 shares are outstanding. The
capital structure of Nationwide consists of 48,000,000 authorized shares of
Common Stock, without par value, of which 7,431,458 shares are issued and
outstanding (the "Nationwide Voting Common"); 2,000,000 authorized shares of
Nonvoting Common Stock, without par value, of which 76,592 shares are issued and
outstanding (the "Nationwide Nonvoting Common")(the Nationwide Voting Common and
the Nationwide Nonvoting Common are collectively referred to herein as the
"Nationwide Common Shares"); and 2,000,000 authorized shares of Preferred Stock,
without par value, of which 300,000 shares of Redeemable Preferred Stock are
issued and outstanding (the "Nationwide Preferred Stock"). Nationwide also has
outstanding warrants to purchase 987,188 shares of Nationwide Nonvoting Common
(the "Nationwide Warrants"), which will be exercised prior to the Closing (as
defined in Section 12.1). The capital structure of PEI consists of 10,000
authorized shares of Common Stock, without par value, of which 2,000 are issued
and outstanding (the "PEI Common Shares"). The capital structure of Meadowvale
consists of 3,000 authorized shares of Common Stock, without par value, of which
3,000 are issued and outstanding (the "Meadowvale Common Shares"). The
Nationwide Common Shares, PEI Common Shares and Meadowvale Common Shares are
collectively referred to herein as the "Target Common Shares." Nationwide owns
substantially all of each of the Partnerships, except that Shangri-La is
controlled by the Phillippes. The ownership of the Partnerships is as set forth
in Section 1 of the statement of disclosure delivered by the
<PAGE> 7
Corporate Targets and the Partners to Acquiror in connection with the execution
of this Agreement (the "Disclosure Statement").
The parties to this Agreement previously had executed an Agreement and Plan
of Merger and Agreements to Assign Partnership Interests, dated as of February
27, 1995 (the "Original Agreement"). Subsequent to execution of the Original
Agreement, the parties determined to restructure the acquisitions of the
Corporate Targets in the form of statutory share exchanges, whereby all of the
outstanding common stock of each of the Corporate Targets would be exchanged for
Acquiror Common Shares (the "Share Exchanges"), so that the transactions
contemplated thereby would be treated as a "reorganization" within the meaning
of Sections 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the
"Code"). The parties to the Original Agreement have therefore executed this
Agreement to amend and restate the Original Agreement. The Board of Directors of
Acquiror deems the Share Exchanges pursuant to the terms of this Agreement
desirable and in the best interests of Acquiror. The Board of Directors of each
of the Corporate Targets deems each respective Share Exchange desirable and in
the best interests of the respective Corporate Target. The Board of Directors of
Acquiror has, by resolutions duly adopted, approved this Agreement. The Board of
Directors of each of the Corporate Targets has, by resolutions duly adopted,
approved this Agreement. The question of approval of each of the Share Exchanges
will be submitted to the shareholders of each of the respective Corporate
Targets. In connection with this Agreement, the Phillippes have agreed to
approve the Share Exchanges. Each of the Partners deems the assignment of his,
her or its Partnership Interests to be desirable and in his, her or its best
interest and, where appropriate, has approved such assignment.
It is intended that the Share Exchanges shall qualify for treatment as
"poolings of interests" transactions.
TERMS AND CONDITIONS
In consideration of the mutual covenants, agreements, representations and
warranties contained in this Agreement, and intending to be legally bound
thereby, the parties agree to amend and restate the Original Agreement in its
entirety as follows.
ARTICLE I
THE SHARE EXCHANGES
SECTION 1.1. Share Exchanges. Upon the terms and subject to the
satisfaction of the conditions precedent contained in this Agreement, each of
the shareholders of the Corporate Targets shall exchange their respective Target
Common Shares for Acquiror Common Shares. The Share Exchanges shall be effected
pursuant to the provisions of and with the effect provided in the Indiana
Business Corporation Law (the "BCL") and the Nevada General Corporation Law (the
"NCL").
SECTION 1.2. Effective Time of Share Exchanges. If (a) all of the
conditions precedent to the Share Exchanges as set forth in Article VIII and
Article IX of this Agreement are satisfied or waived, and (b) this Agreement is
not terminated prior to the Closing (as permitted by the provisions of this
Agreement, then as soon as reasonably practicable following the Closing,
Acquiror and the Corporate Targets shall cause Articles of Share Exchange
conforming to the requirements of the BCL and the NCL (the "Articles of Share
Exchange") to be filed with the Secretary of State of the State of Indiana (the
"Indiana Secretary of State") and the Secretary of State of the State of Nevada
(the "Nevada Secretary of State") with respect to each of the Share Exchanges,
in the manner provided under the BCL and the NCL. The Share Exchanges shall
become effective as of 12:01 a.m., Eastern Standard Time, on the date following
the date of such filing of the Articles of Share Exchange (the "Effective
Time").
SECTION 1.3. Other Actions. If after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
officers and directors of Acquiror shall have the authority to take that action.
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ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.1. [Intentionally Omitted].
SECTION 2.2. Directors and Officers. The persons set forth in Schedule 2.2
shall become the directors and officers, respectively, of each of the Corporate
Targets at the Effective Time, to serve until their successors shall have been
elected or appointed and qualified in the manner provided in their respective
Articles of Incorporation and Bylaws, or as otherwise provided by law.
ARTICLE III
EXCHANGE OF SHARES; ASSIGNMENT OF PARTNERSHIP INTERESTS;
PREPAYMENT OF SUBORDINATED NOTES AND REDEMPTION OF PREFERRED STOCK
SECTION 3.1. Effect of Share Exchanges. At the Effective Time, each of the
Target Common Shares will be exchanged for Acquiror Common Shares as provided in
this Agreement, and the former holders of Target Common Shares will be entitled
only to the exchange rights provided in this Agreement.
SECTION 3.2. Consideration for Share Exchanges.
(a) As of the Effective Time, the Target Common Shares issued and
outstanding immediately prior to the Effective Time shall be exchanged for the
number of Acquiror Common Shares as set forth in Schedule 3.2 (subject to
adjustment as described in Section 3.2(c), below) to this Agreement. At the
Closing, the Partners of the Partnerships (except Nationwide) shall assign to
Nationwide, free and clear of all liens, security interests and encumbrances,
their Partnership Interests and shall receive in exchange the number of Acquiror
Common Shares as is set forth in Schedule 3.2 (subject to adjustment as
described in Section 3.2(c), below). The total consideration to be received by
holders of the Target Common Shares and by the Partners of the Partnerships in
connection with the transactions contemplated herein is referred to herein as
the "Exchange Consideration."
(b) The Exchange Consideration shall consist of five million (5,000,000)
Acquiror Common Shares, provided that the average closing price of one Acquiror
Common Share as reported on the New York Stock Exchange ("NYSE") for the ten
(10) trading days immediately preceding the Closing Date (the "Trading Price")
is greater than or equal to Twenty-Four Dollars ($24.00). If the Trading Price
is less than Twenty-Four Dollars ($24.00), the Exchange Consideration shall
consist of the number (the "Consideration Number") of Acquiror Common Shares
equal to the quotient of (i) One Hundred Twenty Million Dollars ($120,000,000),
divided by the Trading Price; provided, however, that the Consideration Number
shall not be greater than five and one-half million (5,500,000) Acquiror Common
Shares.
(c) The allocation of Acquiror Common Shares among the Corporate Targets
and the Partners set forth in Schedule 3.2 shall be determined assuming that the
Exchange Consideration consists of five million (5,000,000) Acquiror Common
Shares. In the event of an adjustment in the Exchange Consideration as provided
in Section 3.2(b), above, the number of Acquiror Common Shares to be received in
exchange for each Target Common Share and each Partnership Interest,
respectively, shall be multiplied by a fraction, the numerator of which is the
number of Acquiror Common Shares which comprise the Exchange Consideration as
adjusted pursuant to Section 3.2(b), above, and the denominator of which is five
million (5,000,000).
SECTION 3.3. Escrow. As security for, and as the sole source for
satisfaction of, the indemnification obligations provided for in Article XIII
(except as provided in the proviso to Section 13.2(b) hereof), ten percent (10%)
of the number of Acquiror Common Shares received by the shareholders of the
Corporate Targets and the Partners that comprise the Exchange Consideration
shall be transferred by the shareholders of the Corporate Targets and the
Partners to and held by Bank One, Indianapolis, N.A., as escrow agent, in escrow
for the period and in accordance with the other terms, conditions and procedures
set forth in the Escrow Agreement attached hereto as Exhibit 3.3(a) (the
"Escrow"). In addition, as security for the indemnification obligations provided
for in Article XIV, five percent (5%) of the number of Acquiror Common
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<PAGE> 9
Shares received by the shareholders of the Corporate Targets and the Partners
that comprise the Exchange Consideration shall be transferred by the
shareholders of Nationwide to and held by Bank One, Indianapolis, N.A., as
escrow agent, in escrow for the period and in accordance with the other terms,
conditions and procedures set forth in the Supplemental Escrow Agreement
attached hereto as Exhibit 3.3(b) (the "Supplemental Escrow"); provided that the
Acquiror Common Shares to be delivered to the Supplemental Escrow shall be
deducted pro rata solely from the Acquiror Common Shares to be delivered to the
shareholders of Nationwide.
SECTION 3.4. Surrender and Payment for the Target Common Shares.
(a) At the Closing, each holder of Target Common Shares shall deliver to
Acquiror each certificate (a "Certificate") for such shares held of record by
such holder. Risk of loss and title to the Certificates shall pass upon delivery
of the certificates to Acquiror. At the Closing, each Partner shall deliver to
Acquiror such documents and instruments agreed to by Acquiror and the Partners.
Promptly following the Effective Time, Acquiror shall deliver to (i) each holder
so delivering his, her or its Certificate(s) or assigning his, her or its
Partnership Interest in exchange therefor the Acquiror Common Shares such holder
would be entitled to receive under Section 3.2, less such Acquiror Common Shares
to be escrowed pursuant to Section 3.3 and (ii) the Escrow and the Supplemental
Escrow, the balance of the Acquiror Common Shares otherwise deliverable pursuant
to Sections 3.2 and 3.3.
(b) No certificates or scrip representing fractional Acquiror Common Shares
shall be issued in the Share Exchanges or in connection with the assignment of
the Partnership Interests and no holder of any such fractional share interest
shall be entitled to vote, to receive any dividends or other distributions paid
or declared on Acquiror Common Shares, or to exercise any other rights as a
shareholder of Acquiror with respect to such fractional share interest.
(c) Each holder of Target Common Shares as of the Effective Time shall be
entitled to receive the applicable Exchange Consideration upon surrender to the
Acquiror of the Certificates representing the Target Common Shares owned by the
shareholder. Each Partner shall be entitled to receive the consideration
specified in Section 3.2 upon execution and delivery of such documents and
instruments to be agreed to by Acquiror and the Partners.
(d) In the event that any Certificate representing Target Common Shares is
lost, stolen or destroyed, Acquiror may require as a condition to the payment of
the Exchange Consideration with respect to such Target Common Shares pursuant to
this Agreement that the holder of such Target Common Shares execute such
affidavits and indemnities as Acquiror shall reasonably require.
(e) In the event a dividend or other distribution is declared by Acquiror
on the Acquiror Common Shares the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all Acquiror Common Shares issuable pursuant to this Agreement; provided that
no dividend or other distribution declared or made on the Acquiror Common Shares
shall be paid to the holder of any unsurrendered Certificate with respect to the
Acquiror Common Shares (including those Acquiror Common Shares deliverable into
the Escrow or the Supplemental Escrow) represented thereby until the holder of
such Certificate shall duly surrender such Certificate in accordance with this
Section 3.4; and provided further that no holder of any unsurrendered
Certificate shall have any rights (including voting rights, if applicable) with
respect to Acquiror Common Shares (including those Acquiror Common Shares
deliverable into the Escrow or the Supplemental Escrow) represented thereby
until the holder of such Certificate shall duly surrender such Certificate in
accordance with this Section 3.4.
(f) If, after the Effective Time, Certificates are presented to Acquiror,
they shall be exchanged for the Exchange Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Section 3.4.
(g) Following the Effective Time, if Certificates previously representing
Target Common Shares are not delivered to Acquiror or the payment of 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
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<PAGE> 10
the property of Acquiror (and to the extent not in its possession shall be paid
over to it), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, neither Acquiror nor any
other person shall be liable to any former holder of Target Common Shares for
any amount delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
SECTION 3.5. Redemption of Nationwide Subordinated Notes and Nationwide
Preferred Stock. At the Closing, the Subordinated Notes of Nationwide, as set
forth on Schedule 3.5 (the "Nationwide Subordinated Notes") shall be prepaid by
Acquiror, in accordance with the terms thereof; provided, however, that no
"Additional Premium" (as that term is defined in that certain Subordinated Note
Purchase Agreement dated as of July 27, 1993 between Nationwide and Continental
Bank, N.A.) shall be incurred in connection with the prepayment of the
Nationwide Subordinated Notes. At the Closing, the Nationwide Preferred Stock
shall be redeemed by Nationwide, in accordance with the terms thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CORPORATE TARGETS AND PARTNERS
For purposes of this Article IV, each of the representations and warranties
of the Corporate Targets shall be deemed to have been made with respect to the
Corporate Targets and their respective subsidiaries. As a material inducement to
Acquiror to enter into this Agreement and to consummate the transactions
contemplated hereby, the Corporate Targets and the Partners jointly and
severally represent and warrant to Acquiror that:
SECTION 4.1. Organization; Power. Each of the Corporate Targets is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. Each of the Corporate Targets is qualified as
a foreign corporation to transact business and is in good standing in each
jurisdiction, if any, in which the conduct of its business or the ownership or
leasing of its properties requires it to be so qualified. Each business entity
in which any of the Targets owns an equity interest, together with such entity's
jurisdiction of organization and such Target's percentage ownership interest
therein and the states in which the Targets and each such entity are qualified
as a foreign corporation or otherwise are listed in Section 4.1 of the
Disclosure Statement. Each of the Corporate Targets has all requisite corporate
power and authority to own, lease and operate its business as it is now being
conducted, and to enter into, execute and deliver this Agreement, to consummate
the transactions contemplated hereby, and to comply with and fulfill the terms
and conditions hereof. Each of the Corporate Targets has delivered to Acquiror
(a) true and complete copies of its Articles of Incorporation, as may be amended
or restated, certified by the Indiana Secretary of State, (b) Certificates of
Existence issued by the Indiana Secretary of State and by any other state in
which it is qualified to do business and (c) a copy of its Bylaws, as currently
in effect, certified as true and complete by the respective Corporate Target's
Secretary. Each of the Partnerships has been duly formed under the laws of its
jurisdiction of formation. Each of the Partnerships is duly qualified to do
business in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires it to be so qualified. Each of
the Partners has all requisite power and authority to enter into, execute and
deliver this Agreement, to consummate the transactions contemplated hereby, and
to comply with and fulfill the terms and conditions hereof. The Partners have
delivered to Acquiror true and complete copies of the partnership agreements of
each of the Partnerships.
SECTION 4.2. Capital Stock. The authorized capital stock of each of the
Corporate Targets is as set forth in the Preliminary Statement of this
Agreement. All issued and outstanding Common Shares of each Corporate Target are
validly issued and outstanding, fully paid and nonassessable. Except as set
forth in Section 4.2 of the Disclosure Statement, there are no outstanding
warrants, options, agreements, convertible securities or other commitments
pursuant to which any of the Corporate Targets are or may become obligated to
issue any Target Common Shares or other securities of any of the Corporate
Targets. Except as set forth in Section 4.2 of the Disclosure Statement, there
are not outstanding any agreements or commitments pursuant to which any of the
Corporate Targets are or may become obligated to purchase or redeem any of the
Target Common Shares or other securities. The ownership of the Partnerships is
as set forth in Section 1 of the Disclosure Statement.
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<PAGE> 11
SECTION 4.3. Authority; No Violation.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of each of the Corporate Targets and the
Partners. This Agreement is a valid and binding obligation of each of the
Corporate Targets and the Partners, enforceable against each of them in
accordance with its terms and conditions, except as the enforcement hereof may
be limited by bankruptcy, insolvency, moratorium or other laws relating to or
limiting creditors' rights generally or by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
(b) Except as set forth in Section 4.3 of the Disclosure Statement, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by each of the Corporate
Targets and the Partners with any of the provisions hereof, will:
(i) conflict with, violate, result in a breach of, constitute a
default (or an event that, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under any provision of the Articles of
Incorporation, Bylaws or partnership agreements of any of the Targets, or
any of the terms, conditions or provisions of any note, lien, bond,
mortgage, indenture, license, lease, contract, commitment, agreement,
understanding, arrangement, restriction or other instrument or obligation
to which any of the Corporate Targets or Partners is a party or by which
any of the Corporate Targets or Partners may be bound;
(ii) violate any law, rule or regulation of any government or
governmental agency or body, or any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental agency or body
applicable to any of the Targets; or
(iii) constitute an event that, with or without notice, lapse of time
or action by a third party, could result in the creation of any lien,
charge or encumbrance upon any of the assets of any of the Targets or cause
the maturity of any liability, obligation or debt of any of the Targets to
be accelerated or increased.
SECTION 4.4. Consents and Approvals. Except in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"),
the Securities Act of 1933, as amended ("Securities Act"), the Securities
Exchange Act of 1934, as amended ("Exchange Act"), the approval of the
shareholders of each of the Corporate Targets under the BCL and as set forth in
Section 4.4 of the Disclosure Statement, the execution, delivery and performance
of this Agreement by each of the Corporate Targets and the Partners, and the
consummation of the transactions contemplated hereby, will not require any
notice to, action of, filing with, or consent, authorization, order or approval
from any court, administrative agency or other governmental authority or agency,
or any individual, corporation, partnership, joint venture, association, firm,
organization, group or any other entity or enterprise. Any and all notices,
actions, filings, consents, authorizations, orders and approvals necessary to
consummate the transactions contemplated by this Agreement shall have been made
and obtained on or prior to and shall be in effect as of the Effective Time.
SECTION 4.5. Transactions with Certain Persons. Except as set forth in
Section 4.5 of the Disclosure Statement, during the past two years no Target
has, directly or indirectly, in the ordinary course of business or otherwise,
purchased, leased or otherwise acquired any property or obtained any services
from, or sold, leased or otherwise disposed of any property or furnished any
services (except with respect to remuneration for services rendered as a
director, officer or employee of any of the Targets in the ordinary course of
business) to, any current or former director, officer, employee or consultant of
any of the Targets, any person who is the beneficial owner (within the meaning
of Rule 13d-3 of the SEC under the Exchange Act) of 5% or more of the
outstanding Target Common Shares or any "affiliate" of any of the Targets as
defined in Rule 12b-2 under the Exchange Act (individually an "Affiliate"). None
of the Targets owes any amount to, or has any contract with or commitment to,
any Affiliate (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business), and no such Affiliate owes any amount to any of the Targets. No
properties or assets owned by any Affiliate or by any subsidiary or affiliate of
any Affiliate is used by any of the Targets in connection with their respective
businesses. No Affiliate is or during the past three years has been the direct
or indirect owner of any interest in any entity that is a
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competitor or supplier or a potential competitor or supplier of any of the
Targets, nor does any Affiliate receive or has any Affiliate received income
from any source other than the Targets that relates to the business of the
Targets or should properly accrue to the Targets.
SECTION 4.6. Books and Records. The minute books of each of the Corporate
Targets as previously made available to Acquiror contain accurate records of all
meetings of and corporate actions or written consents by the respective Board of
Directors, any committee thereof, and the shareholders of each of the Corporate
Targets. There have been no material transactions involving the business of any
of the Corporate Targets that should have been set forth in the respective books
of account, minute book, stock record book or stock transfer ledger, but which
have not been accurately set forth therein.
SECTION 4.7. Financial Statements. True and complete copies of the
consolidated balance sheets of Nationwide as of September 30, 1994 and 1993, and
the related statements of income, other shareholders' equity and cash flows for
the years then ended, as audited by Ernst & Young LLP, Certified Public
Accountants, (collectively, the "Audited Financial Statements") and the
unaudited consolidated balance sheets of the Targets as of December 31, 1994 and
1993, and the related statements of income for the year and, in the case of
Nationwide, the three months then ended (the "Unaudited Financial Statements"),
are set forth in Section 4.7 of the Disclosure Statement. The Audited Financial
Statements and the Unaudited Financial Statements (collectively the "Financial
Statements") (including any related schedules and/or notes) present fairly in
all material respects, the financial position of the Targets at the dates
thereof and the results of their operations and their cash flows for the periods
then ended, in conformity with generally accepted accounting principles.
SECTION 4.8. Absence of Undisclosed Liabilities. Except as set forth or
reserved against on the face of the balance sheets of any of the Targets
included in the Financial Statements ("Target Balance Sheets") or in Section 4.8
of the Disclosure Statement, as of the date of the respective Target Balance
Sheets, none of the Targets had any debts, liabilities or obligations of any
nature whatsoever (known or unknown, matured or unmatured, absolute, accrued,
fixed, contingent or otherwise, including, without limitation, any foreign or
domestic tax liabilities or deferred tax liabilities incurred in respect of or
measured by any Target's income, and products liability or any other liability
attributable to defects in products, materials or workmanship not covered by
insurance) that are required by generally accepted accounting principles to be
so set forth or reserved against that are not set forth or reserved against on
the Target Balance Sheets.
SECTION 4.9. Actions Pending. Section 4.9 of the Disclosure Statement lists
all actions, suits and proceedings pending, or to the knowledge of each of the
Targets, threatened (whether or not purportedly brought on behalf of any of the
Targets), and all investigations, to the knowledge of each of the Targets,
pending or threatened, against each of the Targets, or any properties or rights
of the Targets, by or before any court, arbitrator or administrative or
governmental body. None of such actions, suits or proceedings, would reasonably
be expected to have a material adverse effect on such Target's condition
(financial or otherwise), properties, assets, liabilities, operations or
prospects, or which in any manner challenges or seeks to prevent, enjoin, alter
or materially delay the transactions contemplated hereby.
SECTION 4.10. Outstanding Debt and Related Matters. None of the Targets has
outstanding any debt except as set forth in Section 4.10 of the Disclosure
Statement ("Existing Debt"). Except as set forth in Section 4.10 of the
Disclosure Statement, there exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement relating thereto.
Section 4.10 of the Disclosure Statement lists all contracts or commitments of
any of the Targets for the guaranty of any obligation of a third party (i.e., a
party not a Target) in excess of $10,000.
SECTION 4.11. Tax Matters.
(a) Each of the Targets has timely filed with the Internal Revenue Service
and other appropriate governmental authorities, or provided to its employees,
shareholders, consultants and other persons, as the case may be, all tax
returns, statements, forms or reports ("Returns") required to be filed or
provided by it on or before the Closing Date. All federal, state, county, local,
foreign and other taxes, including without limitation income (including gross,
adjusted gross and supplemental net income taxes), receipts, sales, use,
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franchise, value added, excise, recording, filing, real and personal property,
employees' income, unemployment, social security taxes (including withholding
obligations for trust fund taxes), and all other taxes (together with all
interest and penalties imposed thereon) ("Taxes"), due and payable by or on
behalf of each of the Targets have been timely paid in full or timely and fully
withheld and paid, as the case may be, except for Taxes being contested in good
faith by appropriate proceedings as described in Section 4.11 of the Disclosure
Statement. None of the Targets has been delinquent in the payment of any Tax
assessment (whether proposed or final) or governmental charge or deposit of any
kind or character.
(b) All accrued but unpaid Taxes accrued for tax periods or portions
thereof ending on or prior to December 31, 1994 are duly reflected as a
liability or reserved against on the respective Target's Balance Sheet and each
Target has established and maintained adequate reserves for Taxes for all prior
tax periods.
(c) None of the Targets (i) has any Tax deficiency or claim outstanding,
proposed or assessed against it and there is no basis for any such deficiency or
claim; (ii) has any audit, action, suit, proceeding or investigation for Taxes
pending or threatened against it; and (iii) has received any notice that any
deficiency, claim, audit, action, suit, proceeding or investigation may be made
against or with respect to it. Except as described in Section 4.11 of the
Disclosure Statement, during their existence none of the Targets has received
any notice of any material deficiency which has not been satisfactorily resolved
or other adjustment from the Internal Revenue Service or any other Taxing
Authority, and, except as set forth in Section 4.11 of the Disclosure Statement,
none of the Returns has been audited by the Internal Revenue Service.
(d) Except as described in Section 4.11 of the Disclosure Statement, there
is not now in force any extension of time with respect to the date on which any
Return was or is due to be filed or provided by or on behalf of or with respect
to any of the Targets or any waiver or agreement by any of the Targets for an
extension of time for the assessment of any Tax. No election has been made to
treat any of the Targets as a "collapsible corporation" under Section 341(f) of
the Internal Revenue Code of 1986, as amended (the "Code"). None of the Targets
is subject to any penalty by reason of a violation of any order, rule or
regulation of, or a default with respect to any Return required to be filed with
any governmental authority. Except as described in Section 4.11 of the
Disclosure Statement, none of the Targets has any pending requests with any
governmental authority for rulings as to payment of any Tax.
(e) All leases have been properly reported as either "capital" leases or
"true" leases, as those terms are commonly used for federal income tax purposes.
None of the property owned or used by any of the Targets is subject to a tax
benefit transfer lease executed in accordance with Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended by the Economic Recovery Tax Act of
1981.
(f) There are no liens for Taxes upon any of the Targets' assets, except
liens for current Taxes not yet due. Except as described in Section 4.11 of the
Disclosure Statement, none of the Targets is currently under any contractual
obligation to indemnify any other person with respect to Taxes and none of the
Targets is a party to any agreement providing for payments with respect to
Taxes. None of the Targets will be required, as a result of a change in method
of accounting, to include any adjustment under Section 481(c) of the Code in any
period ending after the Closing Date. Except as set forth in Section 4.11 of the
Disclosure Statement, no agreement exists that may cause any payment by any of
the Targets to be nondeductible in full or in part under Section 280G of the
Code. Since January 1, 1990, none of the Targets has been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code
but Nationwide is a common parent of such an affiliated group.
SECTION 4.12. Absence of Changes or Events. Except as set forth in Section
4.12 of the Disclosure Statement, since the most recent date of each Target
Balance Sheet delivered to Acquiror (the "Bring-down Date") the business of each
of the Targets has been conducted only in the ordinary course and consistent
with historical practices and, since the Bring-down Date, none of the Targets
has:
(a) Declared, set aside or made any payment of dividends or other
distributions to its shareholders upon or in respect of any the Target
Common Shares or purchased, retired or redeemed any Target Common Shares or
other securities issued by it;
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(b) Mortgaged, pledged or subjected to lien, mortgage, pledge, claim,
security interest, charge, encumbrance or restriction any material portion
of its tangible or intangible property, business or assets;
(c) Sold, transferred, leased to others or otherwise disposed of any
material portion of its tangible or intangible assets or properties, except
for inventory sold in the ordinary course of business;
(d) Encountered any actual or threatened labor union organizing
activity or collective bargaining agreement negotiation, had any actual or
threatened employee strikes, work stoppages, slow-downs or lock-outs, or
had any material change in its relationship with its employees, agents,
consultants, salespersons, distributors or independent contractors;
(e) Transferred or granted any concessions, leases, licenses,
agreements or other rights with respect to or under, or entered into any
settlement regarding the breach or infringement of, any United States or
foreign license, patent, copyright, trademark, service mark, trade name,
invention or similar rights, or modified any existing rights with respect
thereto;
(f) Made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed to pay,
conditionally or otherwise, any bonus, extra compensation, pension,
severance or vacation pay, to any director, officer, employee, consultant,
sales representative, distributor or independent contractor of such Targets
other than normal annual increases consistent with past practice, entered
into any employment contract with any officer or salaried employee,
instituted any employee welfare, bonus, stock option, profit-sharing,
retirement or similar plan or arrangement, or made any loan or advance to
any third party except those made pursuant to normal trade terms extended
to customers;
(g) Issued or sold any shares of its capital stock, partnership
interests, bonds, notes or other securities, or issued, granted or sold any
options, rights or warrants with respect thereto, or acquired any capital
stock or other securities of any corporation or any interest in any
business enterprise, or otherwise made any loan or advance to or investment
in any third party;
(h) Changed its accounting methods or practices, including without
limitation changes in depreciation or amortization policies or rates and in
the method of accounting for inventory;
(i) Suffered any change, event or condition that, in any case or in
the aggregate, has had or may have a material adverse effect on the
Target's condition (financial or otherwise), properties, assets,
liabilities, operations or prospects;
(j) Entered into any transaction, contract or commitment, other than
in the ordinary course of business; or
(k) Entered into any agreement or contract, made any commitment or
otherwise obligated itself to take any of the types of action described in
Subsections (a) through (j) of this Section 4.12.
SECTION 4.13. Compliance with Laws; No Default. Except as set forth in
Section 4.13 of the Disclosure Statement, none of the Targets is in default of
or has violated (nor is there any event or condition which, with notice or lapse
of time or both, would constitute a default or violation of) in any respect (i)
any contract, agreement, lease, consent order or other written commitment or
instrument to which it is a party or by which the assets or business of any of
the Targets are bound, or (ii) any law, rule, regulation, ordinance, writ,
injunction, development order, permit, resolution, approval, order, decree,
policy or guideline of any court or any foreign, federal, state, local or other
governmental department, commission, board, bureau, agency or instrumentality
(including without limitation applicable laws, rules and regulations relating to
environmental protection, antitrust, civil rights, health and occupational
health and safety).
SECTION 4.14. Property.
(a) Section 4.14 of the Disclosure Statement contains (i) the street
address and legal description of each parcel of all real property owned or
leased from third parties by any of the Targets, including all buildings,
structures and improvements located thereon ("Real Property") and (ii) a brief
description of the use to which each parcel of the Real Property is being
employed and/or the use for which it is currently intended.
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<PAGE> 15
(b) Each of the Targets owns or leases from third parties all tools,
furniture, machinery, computer hardware and software, supplies, vehicles,
equipment and other items of tangible personal property that are required to
conduct its business ("Personal Property").
(c) Except as set forth in Section 4.14 of the Disclosure Certificate, the
Real Property and each item of the Personal Property conforms in all material
respects to applicable federal, state, local and foreign laws, regulations and
ordinances, including without limitation, in the case of the Real Property,
those related to zoning, use or construction, and the Real Property is zoned for
the purposes for which it presently is used. The Real Property and each item of
the Personal Property is in good operating condition and repair, subject to
normal wear and tear, and is suitable for its intended use by the Target owning
or leasing such Real Property and Personal Property.
(d) With respect to each parcel of Real Property and each item of Personal
Property that is leased from third parties ("Leased Property"), the respective
Target is the owner and holder of the entire interest in the leasehold estates
purported to be granted by the leases or agreements, each of which is in full
force and effect and constitutes a legal, valid and binding obligation of the
respective parties thereto, enforceable in accordance with its terms. No consent
of any lessor of the Leased Property is required in connection with the
transactions contemplated by this Agreement, except as set forth in Schedule
4.14 of the Disclosure Certificate.
SECTION 4.15. Contracts.
(a) Section 4.15(a) of the Disclosure Statement lists all contracts,
leases, commitments, purchase orders, work orders, agreements, consent orders
and other arrangements, including all amendments thereto, to which each of the
Targets is a party or is subject or by which each of the Targets, its assets, or
its business is bound, that fall into one or more of the following categories
("Contracts"):
(i) All loans, lines of credit, security agreements, guaranties or
other payment obligations;
(ii) All employment agreements, contracts, policies and commitments
with or between any Target and any of its employees, directors or officers,
individually or as one or more groups, including without limitation those
relating to severance;
(iii) All agreements of guaranty or indemnification;
(iv) All agreements, contracts and commitments containing any covenant
limiting the right of any Target to engage in any line of business or
compete with any person;
(v) Each agreement, contract and commitment relating to capital
expenditures in excess of One Hundred Thousand Dollars ($100,000.00), or
Two Hundred and Fifty Thousand Dollars ($250,000.00) in the aggregate;
(vi) All agreements, contracts and commitments entered into that
individually involve the payment of One Hundred Thousand Dollars ($100,000)
or more over their remaining terms (including any period of extension or
renewal) and are not cancelable within sixty (60) days or less notice;
(vii) All agreements, contracts and commitments relating to the grant
or receipt of any license or royalty;
(viii) All agreements, contracts and commitments that require consent
by any other person in connection with the consummation of the transactions
contemplated by this Agreement and the Mergers either to prevent a breach
or to continue the effectiveness thereof; and
(ix) All agreements with any Affiliate of any Target.
(b) All of the Contracts are valid and binding obligations of the
respective parties thereto, enforceable in accordance with their respective
terms, are in full force and effect, and Acquiror will be entitled to the full
benefits thereof. Within 30 days of the date of this Agreement, the Targets will
deliver to Acquiror true and complete copies of all of the Contracts. With
respect to those Contracts which are substantially the same from facility to
facility of the Targets, the Targets have provided to Acquiror or its counsel an
example of a form of such Contracts, and such forms are substantially the same
from facility to facility.
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SECTION 4.16. Licenses and Permits.
(a) Section 4.16 of the Disclosure Statement contains a true and complete
list of certificates of need, franchises, licenses, permits, certificates,
approvals, resolutions, development orders, consents and other authorizations
necessary to own, lease or operate each of the Target's assets or to conduct its
business in compliance with applicable law ("Permits") and, with respect to each
Permit, the name of the licensor or grantor, a description of the subject
matter, the termination date, and the terms of any renewal options. Each of the
Targets has delivered to Acquiror true and complete copies of all of its
Permits.
(b) Each of the Targets lawfully obtained and currently possesses the
respective Permits and has fulfilled and performed its obligations under each of
the Permits. No event has occurred and no condition or state of facts exists
which constitutes or, after notice or lapse of time or both, would constitute a
breach or default under any of the Permits or would allow revocation or
termination of any of the Permits, or which might adversely affect the rights of
any Target under any of the Permits. No notice of cancellation, of default, or
of any dispute concerning any of the Permits, or of any event, condition or
state of facts described in the preceding sentence, has been received by, or is
known to, any Target or their respective officers, directors or employees.
Except as set forth in Section 4.16 of the Disclosure Statement, each of the
Permits is valid, subsisting and in full force and effect, and will continue in
full force and effect after the Merger, in each case without (i) the occurrence
of any breach, default or forfeiture of rights thereunder, or (ii) the consent,
approval or act of, or the making of any filing with, any governmental body,
regulatory commission or other person.
(c) The Permits include all applicable environmental, land use and growth
management obligations required by any federal, state, local, foreign or other
governmental department, commission, board, bureau, agency or instrumentality.
SECTION 4.17. Proprietary Information. Section 4.17 of the Disclosure
Statement contains a true and complete list and brief description of all
Intellectual Property, directly or indirectly related to the products, services
or operations of each of the Targets or necessary to use the assets or conduct
the business of the Targets as presently used or conducted. Each of the Targets
owns or possesses the licenses or other rights to use their respective names and
all the Intellectual Property identified in Section 4.17 of the Disclosure
Statement. Except as set forth in Section 4.17 of the Disclosure Statement, to
its knowledge, no Target is infringing upon or otherwise acting adversely to any
Intellectual Property, the rights to which are owned by any other person. There
is no claim or action by any person pending or threatened, with respect thereto.
For the purposes of this Agreement, "Intellectual Property" means the names
"Nationwide Care" (and any and all variations thereof) and all the corporate
names, trade names, trademarks, trademark applications, service marks, service
mark applications, theme concepts, copyrights, copyright applications, patents,
patent applications, inventions, trade secrets, shop rights, know-how, business
plans and strategies, proprietary processes and formulae, data bases, telephone
numbers and all other proprietary technical information, whether patentable or
unpatentable, directly or indirectly related to the products, services or
operations of the business or necessary to conduct the business as it is now
being conducted.
SECTION 4.18. Title to Assets and Related Matters. Each of the Targets has
good, valid, marketable and insurable title to all of the assets owned by it
free and clear of all mortgages, liens, pledges, charges, claims, security
interests, encumbrances, easements, encroachments, limitations, restrictions,
rights of third parties or other interests of any kind or character, except as
set forth in Section 4.18 of the Disclosure Statement and except for liens for
Taxes not yet due and payable.
SECTION 4.19. Environmental Matters.
(a) Except as set forth in Section 4.19 of the Disclosure Statement, all of
the Real Property and all operations conducted thereon, including without
limitation the respective Target's use of its assets and the Real Property, are
currently in compliance with all applicable federal, state, local and foreign
environmental, land use and growth management laws, regulations, rules,
ordinances, permits, development orders, approvals, resolutions and orders,
including all consent orders.
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(b) Except as set forth in Section 4.19 of the Disclosure Statement, with
respect to the Real Property, there exists no state of affairs and to each
Target's knowledge there has occurred no event that currently requires, or is
currently expected to require in the future, reporting or disclosure by the
Corporate Targets to any federal, state, local or foreign agency concerned with
environmental protection and management or land use control or growth
management.
(c) There are no pending or threatened claims by any private parties or
governmental agencies, and there are no pending or threatened judicial or
administrative actions, alleging violations of any federal, state, local or
foreign environmental, land use or growth management laws, regulations, rules,
ordinances, permits, development orders, approvals, resolutions or orders on or
connected with the Real Property, the assets or the operations conducted thereon
or at any time prior to the Closing Date.
(d) Section 4.19 of the Disclosure Statement contains a list and brief
description of all written and oral communications between each of the Targets
and any federal, state or local governmental authority with respect to any
removal, remediation or clean-up required to be undertaken, the results of any
inspection or compliance review, potential liability arising under or potential
violations of the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act and the Comprehensive
Environmental Response, Compensation and Liability Act and equivalent state and
local laws, regulations, rules, ordinances and all court and administrative
orders issued pursuant thereto, since January 1, 1991.
SECTION 4.20. Labor Relations; Employees.
(a) The Targets collectively employ approximately 4,500 employees. No
Target is a party to any collective bargaining agreement with respect to its
work force or any portion thereof. Except as set forth in Section 4.20 of the
Disclosure Statement:
(i) each Target has paid in full to all its employees all due and
owing wages, salaries, commissions, bonuses, fringe benefit payments and
all other direct and indirect compensation of any kind for all services
performed by them and each of them to the date hereof;
(ii) each Target is in compliance with (1) all federal, state, local
and foreign laws, regulations, rules, ordinances and court and
administrative orders dealing with employment and employment practices of
any kind, (2) all of the terms and conditions of employment of any kind
with respect to its business, and (3) all wages and hours requirements and
regulations;
(iii) there is no unfair labor practice, safety, health,
discrimination or wage claim, charge, complaint suit, arbitration or
proceeding pending or to each Target's knowledge threatened against or
involving such Target before the National Labor Relations Board,
Occupational Safety and Health Administration, Equal Employment Opportunity
Commission, Department of Labor or any other federal, state, local or
foreign agency;
(iv) there is no labor dispute, strike, work stoppage, interference
with production or slowdown in progress or threatened against or involving
such Target;
(v) there is no question of representation under the National Labor
Relations Act, as amended, or any similar state statute, pending with
respect to the employees of any Target;
(vi) there is no grievance pending or threatened which might have an
adverse effect on any Target or on the conduct of its business; and
(vii) there is no collective bargaining agreement currently being
negotiated or subject to negotiation or renegotiation by any Target.
SECTION 4.21. Employee Benefit Plans.
(a) Except as set forth in Section 4.21 of the Disclosure Statement, no
Target maintains any (i) employee welfare benefit plan (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or (ii) employee pension benefit plan (as defined in Section 3.(2)
of
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ERISA), (a) which was maintained or administered by the Target immediately prior
to Closing; (b) to which the Target contributed to, or was legally obligated to
contribute to immediately prior to Closing, or (c) under which the Target had
any liability immediately prior to Closing, with respect to its current or
former employees or independent contractors. Except as set forth in Section 4.21
of the Disclosure Statement, none of the Targets or any ERISA Affiliate is now
or has been in the past obligated to contribute to any multiemployer plan (as
defined in ERISA Section 3(37) or to any plan subject to Title IV of ERISA. For
purposes of this Agreement, "ERISA Affiliate" means any member (other than a
Target) of a group of business entities including a Target, which are treated as
a single employer under Section 414 of the Code.
(b) The only plans or arrangements maintained by any of the Targets for the
benefit of current or former employees (including, without limitation, the plans
referred to in paragraph (a)), are set forth in Section 4.21 of the Disclosure
Statement (collectively, the "Benefit Plans"). The Targets have delivered or
prior to the Closing shall deliver to Acquiror true and correct copies of each
of the Benefit Plans. Each of the Benefit Plans has been established and
maintained in all material respects in accordance with its terms and compliance
with all applicable laws, including, but not limited to, ERISA and the Code. As
of the Closing, all contributions required under applicable law or the terms of
any Benefit Plan or other agreement relating to a Benefit Plan to be paid by any
Target have been completely and timely made to such Benefit Plan when due, and
each Target has established adequate reserves on its books to meet liabilities
for contributions accrued but that have not been made because they are not yet
due and payable.
SECTION 4.22. Insurance.
(a) Each of the Targets is insured by financially sound and reputable
insurers with respect to its properties and the conduct of its businesses.
(b) Section 4.22 of the Disclosure Statement contains (i) a true and
complete list of all policies of liability, theft, fidelity, life, fire, product
liability, workers' compensation, health and other forms of insurance held by
the Targets and specifies the insurer, amount of coverage, type of insurance and
policy number; and (ii) for the past three (3) fiscal years, an accurate
description of any prior claims, any cancellation or significant increase in
premiums and any pending claims under those or predecessor policies.
(c) The policies listed in Section 4.22 of the Disclosure Statement are
outstanding, in full force and effect and all premiums billed with respect to
those policies have been paid. The insurance coverage provided by the policies
listed in Section 4.22 of the Disclosure Statement satisfies all contractual and
statutory requirements applicable to each Target, its assets or its business and
is in such amounts and insures against such liabilities and hazards as is
consistent with past practice and as is customarily maintained by other
companies operating in similar businesses. No Target has, during the past five
fiscal years, been denied or had revoked or rescinded by a carrier any policy of
insurance.
SECTION 4.23. Life Care Contracts. No Target is a party to any contract
pursuant to which such Target has agreed to care for any individual for such
individual's life.
SECTION 4.24. Survey Reports. A true and complete copy of the most recent
survey reports and any waivers of deficiencies, plans of correction and other
investigation reports issued with respect to any facility of any Target has been
delivered to Acquiror. Each facility is in compliance with all conditions and
standards of licensing and participation in the Medicare and Medicaid programs.
SECTION 4.25. Payment Programs. Each Target is now, and on the Closing Date
will be, certified for participation in, and party to valid provider agreements
for payment by, the federal Medicare and Medicaid programs (the "Programs");
provided, however, that Nationwide's Markle Health Care facility is not
certified for participation in the Medicare program. The Targets have filed all
cost reports in connection with their businesses and operations that are
required to be filed with any federal or state governmental or regulatory
authority (including pursuant to Titles XVIII and XIX of the Social Security
Act). A true and complete copy of all such cost reports has been provided to
Acquiror. Except as set forth in Section 4.25 of the Disclosure Statement, the
Targets have not received any notice of pending or threatened investigations by
any Program which poses a risk to the Targets' participation in the Program or
may result in any adjustments to reimbursements that have been paid, excluding
survey report deficiencies that have been corrected. All billing
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practices by the Target to all third payors, including the federal Medicare
program, state Medicaid programs and private insurance companies, have been
true, fair and correct and in compliance with all applicable laws, regulations
and policies of all such third payors, and the Targets have not billed for or
received any payment or reimbursement in excess of amounts allowed by law, other
than insignificant amounts subject to adjustment pursuant to periodic audits of
cost reports submitted by the Target. Neither any Target, nor any Affiliate
thereof, nor any director, officer or employee thereof, is a party to any
contract, lease, agreement or arrangement, including any joint venture or
consulting agreement with any physician, hospital, nursing facility, home health
agency or other person who is in a position to make or influence referrals to or
otherwise generate business for any Target to provide services, lease space,
lease equipment or engage in any other venture or activity, to the extent
prohibited by law or regulations.
SECTION 4.26. Gratuitous Payments. Neither any Target, nor any director,
officer or employee, nor any agent acting on behalf of or for the benefit of any
thereof, has directly or indirectly (i) offered or paid any remuneration, in
cash or in kind, to, or made any financial arrangements with, any past or
present customers, past or present suppliers, contractors or third party payors
of any Target in order to obtain business or payments from such persons, other
than entertainment activities in the ordinary and lawful course of business;
(ii) given or agreed to give, or has knowledge that there has been made or that
there is any agreement to make, any gift or gratuitous payment of any kind,
nature or description (whether in money, property or services) to any customer
or potential customer, supplier or potential supplier, contractors, third party
payor or any other person other than in connection with promotional or
entertainment activities in the ordinary and lawful course of business; (iii)
made or agreed to make, or is aware that there has been made or that there is
any agreement to make, any contribution, payment or gift of funds or property
to, or for the private use of, any governmental official, employee or agent if
either the contribution, payment or gift or the purpose of such contribution,
payment or gift is or was illegal under the laws of the United States or under
the laws of any state thereof or any other jurisdiction (foreign or domestic)
under which such payment, contribution or gift was made; (iv) established or
maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on any of its books or records for any reason; or (v) made,
or agreed to make, or has knowledge that there has been made or that the
intention or understanding that any part of such payment would be used for any
purpose other than that described in the documents supporting such payment.
SECTION 4.27. Brokers' or Finders' Fees. No agent, broker, investment
banker or other person or firm acting on behalf of the Targets or Partners or
any of their directors, executive officers, or partners or under the authority
of any of them, is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, from any of the parties
hereto in connection with any of the transactions contemplated hereby, except
for those fees or commissions set forth and described in Section 4.27 of the
Disclosure Statement which the Targets shall have paid in full prior to or at
the Closing, and evidence of payment for which shall have been delivered to
Acquiror at the Closing.
SECTION 4.28. Disclosure.
(a) No representation or warranty by any Corporate Target or Partner
contained in this Agreement and no statement made by any Corporate Target or
Partner contained in the Disclosure Statement or any certificate or other
instrument delivered or to be delivered pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. All information in the Disclosure Statement or any
Schedule, Exhibit or any contract delivered on behalf of the Corporate Targets
and the Partners pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to have been relied upon by Acquiror and
constitute representations and warranties by the Corporate Targets and the
Partners herein.
(b) None of the information supplied or to be supplied by the Targets for
inclusion in the registration statement on Form S-4 or other appropriate
registration form to be filed with the SEC by Acquiror in connection with the
offer and issuance of the Acquiror Common Shares in or as a result of the Share
Exchanges (the "Registration Statement"), will at the time the Registration
Statement becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
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SECTION 4.29. Tax Representations. The representations and warranties by
the shareholders of the Corporate Targets required under Section 6.15 shall be
true, correct and complete in all respects as of the Effective Time.
SECTION 4.30. Representations and Warranties as of Date Hereof; No Other
Representations and Warranties. The representations and warranties contained in
the foregoing Sections 4.1 through 4.29 inclusive are made as of the date
hereof, except as otherwise expressly indicated therein. None of the Corporate
Targets or Partners makes, and no party shall be entitled to rely upon, any
representation or warranty as to any fact or matter other than as expressly set
forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
As a material inducement to the Corporate Targets and the Partners to enter
into this Agreement and to consummate the transactions contemplated hereby,
Acquiror represents and warrants to the Corporate Targets and the Partners that:
SECTION 5.1. Organization; Power. Acquiror is a corporation duly organized
and validly existing under the laws of the State of Nevada, for which all
required annual reports have been filed with the Nevada Secretary of State and
for which no Articles of Dissolution appear as having been filed with the Nevada
Secretary of State. Acquiror has all the requisite corporate power and authority
to own, lease and operate its business as it is now being conducted and to enter
into this Agreement, to consummate the transactions contemplated hereby, and to
comply with and fulfill the terms and conditions of this Agreement.
SECTION 5.2. Capital Stock. The authorized shares of Acquiror are as set
forth in the Preliminary Statement to this Agreement. All issued and outstanding
Acquiror Common Shares are validly issued and outstanding, fully paid and
nonassessable.
SECTION 5.3. Authority; No Violation; Etc.
(a) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Acquiror. This Agreement is a
valid and binding obligation of Acquiror, enforceable against Acquiror in
accordance with its terms and conditions, except as the enforcement hereof and
thereof may be affected by bankruptcy, insolvency, moratorium or other laws
relating to or limiting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in a proceeding
at law or in equity.
(b) Except as set forth in Section 5.3 of the statement of disclosure
delivered by the Acquiror to the Corporate Targets and the Partners in
connection with the execution of this Agreement (the "Acquiror's Disclosure
Statement"), neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by Acquiror
with any of the provisions hereof, will:
(i) conflict with, violate, result in a breach of, constitute a
default (or an event that, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under any provision of the Articles of
Incorporation or Bylaws of Acquiror, or any of the terms, conditions or
provisions of any note, lien, bond, mortgage, indenture, license, lease,
contract, commitment, agreement, understanding, arrangement, restriction or
other instrument or obligation to which Acquiror is a party or by which
Acquiror may be bound;
(ii) violate any law, rule or regulation of any government or
governmental agency or body, or any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental agency or body
applicable to Acquiror; or
(iii) constitute an event that, with or without notice, lapse of time
or action by a third party, could result in the creation of any lien,
charge or encumbrance upon any of the assets of Acquiror or cause the
maturity of any liability, obligation or debt of Acquiror to be accelerated
or increased.
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SECTION 5.4. Consents and Approvals. Except in connection with the HSR Act,
the Securities Act and the Exchange Act, and as set forth in Section 5.4 of the
Acquiror's Disclosure Statement, the execution, delivery and performance of this
Agreement by Acquiror and the consummation of the transactions contemplated
hereby will not require any notice to, action of, filing with or consent,
authorization, order or approval from any court, administrative agency or other
governmental authority or agency, or any individual, corporation, partnership,
joint venture, association, firm, organization, group or any other entity or
enterprise.
SECTION 5.5. Reports. Acquiror has filed all required forms, reports and
documents with the SEC required to be filed by it pursuant to the federal
securities laws and the rules and regulations of the SEC thereunder (the
"Acquiror SEC Reports"), each of which complied, at the time such form, report
or document was filed, in all material respects with the then applicable
requirements of the Securities Act and the Exchange Act, and the rules and
regulations thereunder. None of the Acquiror SEC Reports, including without
limitation any financial statements or schedules included therein, at the time
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of Acquiror included in the Acquiror SEC Reports
(the "Acquiror Financial Statements") were prepared from Acquiror's books and
records in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Acquiror and its consolidated
subsidiaries as at the dates thereof and the results of their operations and
their cash flows for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal, recurring year-end
adjustments and any other adjustments described therein. Since the date of the
last audited balance sheet in the Acquiror Financial Statements (the "Acquiror
Bring Down Date"), neither Acquiror nor any of its subsidiaries has incurred any
liabilities or obligations, whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due, except
(i) as and to the extent set forth on the audited balance sheet of the Acquiror
and its subsidiaries as at the Acquiror Bring Down Date (including the notes
thereto), (ii) as incurred in connection with the transactions contemplated, or
as provided, by this Agreement, (iii) as incurred after the Acquiror Bring Down
Date in the ordinary course of business and consistent with past practices, (iv)
as described in the Acquiror SEC Reports or (v) as would not, individually or in
the aggregate, have a material adverse effect upon the business, assets or
condition, financial or otherwise, of Acquiror and its subsidiaries considered
as a whole. Acquiror has delivered to Nationwide all Acquiror SEC Reports filed
with the SEC since January 1, 1993.
SECTION 5.6. Due Authorization of Shares. The Acquiror Common Shares to be
issued at the Closing will, when issued, be duly authorized Common Shares of
Acquiror and, when delivered, will be duly and validly issued, fully paid and
nonassessable and qualified for trading on the NYSE subject to notice of
issuance.
SECTION 5.7. Compliance with Laws; No Default or Litigation. Except as set
forth in Section 5.7 of the Acquiror's Disclosure Statement, neither Acquiror
nor any of its subsidiaries is in default of or has violated (nor is there any
event or condition which, with notice or lapse of time or both, would constitute
a default or violation of) in any respect, (i) any contract, agreement, lease,
consent, order or other written commitment or instrument to which it is a party
or by which the assets or business of any of the Acquiror or its subsidiaries
are bound, or (ii) any law, rule, regulation, ordinance, writ, injunction,
development order, permit, resolution, approval, order, decree, policy or
guideline of any court or any foreign, federal, state, local or other
governmental department, commission, board, bureau, agency or instrumentality
(including without limitation applicable laws, rules and regulations relating to
environmental protection, antitrust, civil rights, health and occupational
health and safety) except where such default or violation would not,
individually or in the aggregate with all other defaults and/or violations, have
a material adverse effect on the business, assets or condition, financial or
otherwise, of Acquiror and its subsidiaries considered as a whole. Except as
disclosed in the Acquiror Financial Statements or as set forth in Section 5.7 of
the Acquiror's Disclosure Statement: neither Acquiror nor any of its
subsidiaries is presently engaged in or threatened with or aware of any
situation that could subject Acquiror or any of its subsidiaries (together, the
"Acquiring Companies") to any litigation (including appeals of lower court
decisions), arbitration, claim or other legal proceedings or governmental or
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any other investigation relating to the affairs of any of the Acquiring
Companies or any of their properties or assets that (a) questions the validity
or enforceability of this Agreement or that could prevent, hinder or delay
consummation of the transactions contemplated by this Agreement or (b) would
reasonably be expected to have a material adverse effect on the business, assets
or condition, financial or otherwise, of Acquiror and its subsidiaries
considered as a whole.
SECTION 5.8. Tax Representations. The representations and warranties by
Acquiror required under Section 7.7 shall be true, correct and complete in all
respects as of the Effective Time.
SECTION 5.9. Brokers' or Finders' Fees. Except for certain fees and expense
reimbursements to be paid by Acquiror to Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, no agent, broker, investment banker or other person or firm acting
on behalf of Acquiror or any of its directors or executive officers, or under
the authority of any of them is or will be entitled to any broker's or finder's
fee or any other commission or similar fee, directly or indirectly, from
Acquiror in connection with any of the transactions contemplated hereby.
SECTION 5.10. Representations and Warranties as of Date Hereof. The
representations and warranties contained in the foregoing Sections 5.1 through
5.9 inclusive are made as of the date hereof, except as otherwise expressly
indicated therein. The Acquiror does not make, and no party shall be entitled to
rely upon, any representation or warranty as to any fact or matter other than as
expressly set forth herein.
ARTICLE VI
CERTAIN PRE-CLOSING COVENANTS OF THE TARGETS
Each of the Corporate Targets and the Partners covenants and agrees that
between the date hereof and the Closing:
SECTION 6.1. Maintenance of Corporate Status. Each of the Corporate Targets
shall be maintained at all times as a corporation validly existing and in good
standing under the laws of the state of its incorporation and in good standing
as a foreign corporation in all states in which it is currently qualified to do
business. No amendment shall be made to the Articles of Incorporation or Bylaws
of any of the Corporate Targets without the prior written consent of Acquiror.
SECTION 6.2. No Change in Capitalization. No change will be made in the
number of issued and outstanding Target Common Shares, other than as a result of
the exercise of outstanding warrants or options to purchase Target Common Shares
in accordance with the terms of such warrants or options. No option, warrant or
any other right to purchase or to convert any obligation or security into Target
Common Shares will be sold, issued or granted by the Targets.
SECTION 6.3. Shareholders Meetings. Each of the Corporate Targets shall
cause a meeting of its shareholders to be duly called and held as soon as
practicable following the effectiveness of the Registration Statement (but not
earlier than 20 business days after the date of such effectiveness) for the
purpose of voting on the approval and adoption of this Agreement and the Share
Exchanges. The Board of Directors of each of the Corporate Targets shall
recommend approval and adoption of this Agreement and the Share Exchanges by the
respective Corporate Target's shareholders. In connection with such meeting,
each of the Targets:
(a) will cooperate with Acquiror in the prompt preparation of the
Registration Statement and use its best efforts to have the Registration
Statement declared effective by the SEC, and will thereafter mail to its
shareholders as promptly as practicable the Prospectus/Information
Statement and all other solicitation materials for use in connection with
the meeting of shareholders;
(b) will use its best efforts to obtain the necessary approvals by its
shareholders of this Agreement and the Share Exchanges; and
(c) will otherwise comply with all legal requirements applicable to
such meeting.
SECTION 6.4. Operation of the Business. Each of the Targets shall operate
its business diligently and only in the regular and ordinary course and manner
as it has previously been operated. Without limiting the
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generality of the foregoing, each of the Targets shall use all reasonable
efforts to (i) preserve its present business organization intact and conserve
its goodwill; (ii) keep available and maintain the services of all officers,
employees, agents and representatives on the same or substantially the same
terms; (iii) continue and preserve good relationships with suppliers, customers,
lenders and others having business dealings or relationships with the Targets;
(iv) maintain in full force and effect all Permits required for the operation of
the business as presently conducted; and (v) maintain and keep in good order,
consistent with past practice, all of the Targets's tangible assets, ordinary
wear and tear excepted. None of the Targets shall, without the prior written
consent of Acquiror: (i) incur any indebtedness to any third party, except trade
payables incurred in the ordinary course of business consistent with past
practices; (ii) declare, set aside or pay any dividends or other distributions
or payments on or in respect of its outstanding shares, or purchase, redeem or
otherwise acquire, or agree to purchase, redeem or otherwise acquire any Target
Common Shares; (iii) knowingly do any act or omit any act or permit any omission
to act within its control, which will cause a breach or default in any of the
Targets' contracts, commitments or obligations; (iv) except in the ordinary
course of business consistent with past practices, change or increase the rate
of compensation paid by any of the Targets to any of their directors, officers,
employees or agents, including without limitation the payment of bonuses and
arrangements for severance pay, or (v) enter into any agreement to do any of the
foregoing.
SECTION 6.5. Other Offers. From the date of this Agreement until it is
terminated in accordance with Article X, the Targets 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 Acquisition Proposal (as hereinafter defined). Until this Agreement shall be
terminated in accordance with Article X, the Targets will not enter into any
agreement to merge or consolidate with, issue Target Common Shares to, exchange
the Target Common Shares with, or sell a substantial portion of the Targets'
assets to, any person or entity. The Targets will promptly notify Acquiror after
receipt of any Acquisition Proposal or any request for nonpublic information
relating to the Targets in connection with an Acquisition Proposal or for access
to the personnel, properties, books or records of any of the Targets by any
person or entity that informs the Board of Directors or Partners of any of the
Targets that it is considering making, or has made, an Acquisition Proposal. The
term "Acquisition Proposal" as used herein means any offer or proposal for, or
any indication of interest in, a merger or other business combination involving
any of the Targets or the acquisition of a majority of the equity interest in,
or a majority of the assets of, any of the Targets, other than the transactions
contemplated by this Agreement.
SECTION 6.6. Compliance with the Securities Act; Affiliates. Each of the
Targets shall use its best efforts to cause each person who is an "affiliate,"
as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act, of such Target to deliver to the Target at or prior to the Effective Time a
written agreement to the effect that such person will not offer to sell, sell or
otherwise dispose of any Acquiror Common Shares issued in the Share Exchanges,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
that, in the opinion of legal counsel satisfactory to Acquiror, is exempt from
the registration requirements of the Securities Act, such agreement to be in
substantially the form attached hereto as Exhibit 6.6(a). Each of the Targets
shall use its best efforts to cause each such person not to take any action that
would impair Acquiror's ability to account for the Share Exchanges as poolings
of interests. Accordingly, each of the Targets shall use its best efforts to
cause each such person to deliver prior to the Effective Time a written
agreement in the form attached as Exhibit 6.6(b) to this Agreement, to the
effect that such person shall not sell or otherwise reduce his or her risk
relative to any Acquiror Common Shares received in connection with the Share
Exchanges (within the meaning of the SEC's Codification of Financial Reporting
Policies sec. 201.01) until Acquiror has published financial results (including
combined sales and net income) covering at least thirty days of post-Share
Exchange operations, except as permitted by Staff Accounting Bulletin No. 76
issued by the SEC.
SECTION 6.7. Taxes. Each of the Targets shall timely file all Tax reports
and Returns required to be filed with any governmental authority wherein the
nature of its activities is such as to require the filing thereof, and shall
promptly pay, when due, all federal, state, local and foreign taxes,
assessments, governmental charges, fees, interest and penalties lawfully levied
or assessed upon it or its properties.
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SECTION 6.8. Access; Review. Each of the Targets shall provide to Acquiror,
its attorneys, accountants, appraisers and other authorized representatives or
retained experts access upon reasonable notice to all the premises, books,
records, personnel and income tax returns of or relating to such Target during
normal business hours and shall furnish to such persons such financial and
operating data and other information as Acquiror or such persons may from time
to time reasonably request. In addition, each of the Targets shall authorize its
independent certified public accountants to give Acquiror's independent
certified public accountants access to books and records and work papers
regarding the Target's financial statements. No investigation, test, examination
or inquiry by Acquiror shall affect the representations and warranties contained
in this Agreement.
SECTION 6.9. Insurance. Each of the Targets shall maintain the types and
levels of insurance currently in effect to insure its assets and its business
against the risk of loss or damage attributable to casualty, storm, fire, theft,
burglary or riot.
SECTION 6.10. Monthly Financial Statements. On or prior to the thirtieth
day of each calendar month, each of the Targets shall deliver to Acquiror copies
(identified with a reference to this Section 6.10) of the unaudited monthly
balance sheet and statement of income of such Target for the immediately
preceding month (the "monthly statements"), prepared in a manner consistent with
past practices used in preparation of such statements, all of which when
delivered, shall be materially complete and correct, prepared from the books and
records of such Target in accordance with generally accepted accounting
principles (except for the omission of notes thereto) consistently applied and
maintained throughout such months, and shall in all material respects fairly
present the financial condition of such Target as at their respective dates and
the results of the operations of its business for the months covered thereby.
SECTION 6.11. Approvals, Notices and Consents. Promptly after the execution
of this Agreement, each of the Targets shall file all forms, applications and
reports, including without limitation all filings under the HSR Act, and take
such other action which is required to be taken or filed with any governmental
agency or authority in connection with the transactions contemplated by this
Agreement. Each of the Targets shall cooperate with Acquiror in promptly
producing such additional information as those authorities may require to allow
early termination of the notice period provided by the HSR Act or as otherwise
necessary to comply with statutory requirements and requests of the Federal
Trade Commission or the Department of Justice. Each of the Targets shall give
all additional notices to third parties and take such other action required to
be given or taken by it under any authorization, lease, note, mortgage,
indenture, agreement or other instrument or any law, rule, regulation, demand or
court or administrative order in connection with the transactions contemplated
by this Agreement, and shall use its best efforts to obtain all consents and
approvals necessary to enable it to consummate the transactions contemplated by
this Agreement. Each of the Targets shall use its reasonable efforts to obtain
estoppel certificates from the lessors under the leases of Real Property.
SECTION 6.12. The Targets' Actions; Supplements to Representations and
Warranties. From the date of this Agreement through the Closing, (a) each of the
Targets shall use its best efforts to cause the conditions to the obligations of
the Corporate Targets and the Partners set forth in Article IX to be satisfied
to the extent that the satisfaction of such conditions is within the control of
such Target; provided, however, that the foregoing shall not constitute a
limitation upon the covenants and obligations of the Corporate Targets and the
Partners otherwise set forth in this Agreement; (b) none of the Targets shall
take any action or omit to take any action within its control to the extent such
action or omission might result in a breach of any term or condition of this
Agreement or in any representation or warranty contained in this Agreement being
inaccurate or incorrect on and as of the Closing Date; and (c) each of the
Targets shall deliver to Acquiror, as soon as possible after discovery thereof,
but not later than at the Closing, supplemental information updating the
information set forth in the representations and warranties of the Targets set
forth in this Agreement to reflect subsequent occurrences, if any, (along with a
notice stating the representations and warranties, including the schedules
referred to therein, to which such supplemental information relates) so that
such representations and warranties as supplemented by such information will be
true and correct as of the Closing as if then made. The foregoing provisions
shall not be deemed to permit any transaction between the date hereof and the
Closing not otherwise contemplated or permitted by this Agreement nor shall any
action taken by any of the
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Targets pursuant to the foregoing provisions impair the exercise by Acquiror of
its rights as set forth in Section 10.2.
SECTION 6.13. Notice of Material Adverse Change. The Targets shall promptly
advise Acquiror in writing of any material adverse change in the assets or
financial condition, results of operations, businesses or properties of the
Targets considered as a whole.
SECTION 6.14. Pooling. None of the Targets shall take any action that would
prevent the Share Exchanges from qualifying for pooling of interests accounting
treatment.
SECTION 6.15. Tax Statements. The Targets will make and will use their
reasonable efforts to cause their respective shareholders to make the
representations and warranties contained in Exhibit 6.15, and such other
representations and warranties as considered reasonably necessary by the
accountants or counsel for purposes of rendering the opinions referred to in
Sections 8.12 and 9.10.
SECTION 6.16. Cooperation. Each of the Targets shall generally cooperate
with Acquiror and its officers, employees, attorneys, accountants and other
agents and, generally, do such other acts and things in good faith as may be
reasonable, necessary, or appropriate to timely effectuate the intents and
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
SECTION 6.17 Nationwide to Use Its Reasonable Best Efforts to Terminate
Option. Nationwide shall use its reasonable best efforts to terminate that
certain option to purchase the Marietta, Ohio facility pursuant to that certain
Lease Agreement by and between Marietta Convalescent Center, Inc. (previously
merged into Nationwide) and Jackson-Browne Enterprises, Inc., dated July 12,
1983. The terms of such termination shall be reasonably acceptable to Acquiror
and Acquiror shall assist Nationwide with the negotiations to terminate such
option to the extent Nationwide shall reasonably deem appropriate.
ARTICLE VII
CERTAIN PRE-CLOSING COVENANTS OF ACQUIROR
Acquiror covenants and agrees that between the date hereof and the Closing:
SECTION 7.1. Required Consents and Approvals. It shall use all reasonable
efforts to obtain all consents and approvals necessary to enable it to
consummate the transactions contemplated by this Agreement. Acquiror shall also
use its best efforts to obtain by April 28, 1995 all necessary consents from its
principal lenders, as set forth in Section 5.4 of Acquiror's Disclosure
Statement.
SECTION 7.2. Pre-transaction Notification. It shall file with the proper
authorities all forms and other documents necessary to be filed pursuant to the
HSR Act and regulations issued thereunder as promptly as possible and shall
cooperate with the Targets in promptly producing such additional information as
such authorities may require to allow early termination of the notice period
provided by the HSR Act or as otherwise necessary to comply with statutory
requirements and requests of the Federal Trade Commission or the Department of
Justice.
SECTION 7.3. Registration Statement; NYSE Listing.
(a) Acquiror shall promptly prepare and file with the SEC under the
Securities Act the Registration Statement and shall use all reasonable efforts
to cause the Registration Statement to be declared effective as promptly as
practicable. Acquiror shall take all reasonable action required to be taken
under applicable state securities or Blue Sky laws in connection with the
issuance of Acquiror Common Shares in the Share Exchanges.
(b) Acquiror shall take all such action as is reasonably necessary to
qualify the Acquiror Common Shares to be issued in the Share Exchanges for
trading on the NYSE effective upon notice of issuance.
SECTION 7.4. Notice of Material Adverse Change. Acquiror shall promptly
advise the Targets in writing of any material adverse change in Acquiror, its
assets or the financial condition, results of operations, businesses or
properties of Acquiror and its subsidiaries considered as a whole.
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SECTION 7.5. Pooling Actions. Neither Acquiror nor any of its subsidiaries
shall take any action that would prevent the Share Exchanges from qualifying for
pooling of interests accounting treatment.
SECTION 7.6. Pooling Letter. Prior to the date of Closing, Acquiror shall
have caused KPMG Peat Marwick LLP to deliver to Acquiror a letter with respect
to whether the Share Exchanges will qualify for pooling of interests accounting
treatment.
SECTION 7.7. Tax Statements. Acquiror will make the representations,
warranties and covenants contained in Exhibit 7.7, and such other
representations, warranties and covenants as considered reasonably necessary by
the accountants or counsel for purposes of rendering the opinions referred to in
Sections 8.12 and 9.10.
SECTION 7.8. Environmental Surveys. Acquiror shall use its reasonable
efforts to cause to have performed by April 28, 1995, at Acquiror's expense,
Phase I environmental surveys of all long-term health care facilities currently
operated but not owned by the Targets and to be operated by the Corporate
Targets following the Closing.
SECTION 7.9. Cooperation. Acquiror shall generally cooperate with each of
the Targets and its officers, employees, attorneys, accountants and other
agents, and, generally, do such other acts and things in good faith as may be
reasonable, necessary or appropriate to timely effectuate the intents and
purposes of this Agreement and the consummation of the transactions contemplated
hereby, including assisting the Targets in obtaining agreements to release at
the Closing the personal guarantees as described in Section 9.11. Prior to the
Closing Date, Acquiror agrees to disclose to the Targets any fact or matter that
comes to the attention of Acquiror that might indicate that any of the
representations or warranties of any of the Targets may be untrue, incorrect, or
misleading in any material respect.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE PERFORMANCE OF ACQUIROR
The obligations of Acquiror pursuant to the terms of this Agreement are
subject to the satisfaction, at the Closing, of each of the following
conditions:
SECTION 8.1. Accuracy of Representations and Warranties of the
Targets. Each of the representations and warranties of each of the Corporate
Targets and the Partners contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date with the same force and
effect as if made at and as of the Closing Date. For purposes of this Section
8.1, all references in such representations and warranties to "the date hereof,"
"the date of this Agreement" and like language shall mean the Closing Date.
SECTION 8.2. Compliance. Each of the Targets and the Partners shall have
performed, complied with and fulfilled in all material respects all the
covenants, agreements, obligations and conditions required by this Agreement to
be performed, complied with or fulfilled by it at or prior to the Closing.
SECTION 8.3. Approval. The execution and delivery of this Agreement by each
of the Corporate Targets and the Partners, and the performance of the Targets'
and Partners' covenants and obligations hereunder, shall have been duly
authorized by all necessary action on the part of such Target or Partner.
SECTION 8.4. HSR Act Approval. Any applicable waiting period under the HSR
Act relating to the Share Exchanges shall have expired or been terminated.
SECTION 8.5. Authorizations. All material permits, authorizations,
approvals and consents of and notices to any federal, state or local
governmental body, agency or authority or any other third party, which may be
required by law, regulation, rule, ordinance, order, decree, agreement,
indenture, lease or other instrument or document to which any of the Targets or
Acquiror is a party or by which such Target or Acquiror or its assets are bound
or which Acquiror may otherwise reasonably require in connection with the
execution of this Agreement or effectuation of the transactions contemplated by
this Agreement shall have been obtained or made by the respective Target or
Acquiror on terms and conditions reasonably satisfactory to
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Acquiror, other than licenses set forth in Section 4.16 of the Disclosure
Statement which cannot be transferred, but which must be issued to Acquiror
after the Closing.
SECTION 8.6. Litigation. 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 hereby.
SECTION 8.7. No Material Adverse Change. In the reasonable judgment of
Acquiror, between the date hereof, and the Closing, there shall not have been
any material adverse change or any event which is likely to result in any
material adverse change in the assets, business, financial condition or results
of operations of the Targets and their subsidiaries taken as a whole.
SECTION 8.8. Closing Deliveries. Acquiror shall have received from the
respective Target all of the instruments, documents and considerations described
in Section 12.2, and the form and substance of all such deliveries shall be
reasonably satisfactory in all material respects to Acquiror.
SECTION 8.9. Dissenters' Rights. Holders in excess of 5% of the Target
Common Shares shall not have exercised dissenters' rights under applicable law.
SECTION 8.10. Pooling Letter. Acquiror shall have received a letter from
KPMG Peat Marwick LLP, in form and substance reasonably satisfactory to
Acquiror, stating that the Share Exchanges will qualify for poolings of
interests accounting treatment.
SECTION 8.11. Exercise of Warrants. All warrants issued by Nationwide shall
have been exercised prior to the Closing.
SECTION 8.12. Tax Opinions. Acquiror shall have received opinions of KPMG
Peat Marwick LLP acceptable in form and content to Acquiror substantially to the
effect that the exchange of Target Common Shares for Acquiror Common Shares as
provided in this Agreement will, in each instance, constitute a reorganization
within the meaning of Section 368(a)(1)(B) of the Code, and each Corporate
Target and Acquiror will be a "party to reorganization" within the meaning of
Section 368(b) of the Code.
SECTION 8.13. Lease Extensions. The lease of Colonial Oaks Health Care
Center shall have been renewed in accordance with such lease for an additional
five year term, and the Targets shall have used their reasonable efforts to
obtain modifications to the lease of Ossian Health Care to provide for a five
year extension.
SECTION 8.14. Option Termination. That certain Option to Purchase dated
January 25, 1993 by and among Craig Moore, John Maxwell, the Anita Maxwell Trust
(collectively, the "Optionees") and Nationwide, relating to the Cambridge and
Parkwood facilities, shall have been terminated in exchange for the payment of
not more than $300,000 to the Optionees, and Acquiror agrees that such
termination and payment shall not constitute a breach of any representation,
warranty or other provision of this Agreement.
ARTICLE IX
CONDITIONS PRECEDENT TO PERFORMANCE OF THE CORPORATE TARGETS AND PARTNERS
The obligations of each of the Corporate Targets and Partners pursuant to
the terms of this Agreement are subject to the satisfaction, at the Closing, of
each of the following conditions:
SECTION 9.1. Accuracy of Representations and Warranties of Acquiror. Each
of the representations and warranties of Acquiror contained in this Agreement
shall be true and correct in all material respects at the Closing with the same
force and effect as if made at the Closing. For purposes of this Section 9.1,
all references in such representations and warranties to "the date hereof," "the
date of this Agreement" and like language shall mean the Closing Date.
SECTION 9.2. Compliance. Acquiror shall have performed, complied with and
fulfilled in all material respects all the covenants, agreements, obligations
and conditions required by this Agreement to be performed, complied with or
fulfilled by it at or prior to the Closing.
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SECTION 9.3. Corporate Approval. The execution and delivery of this
Agreement by Acquiror and the performance by Acquiror of all of its covenants
and obligations hereunder shall have been duly authorized by all necessary
corporate action on the part of Acquiror.
SECTION 9.4. Authorizations. All material permits, authorizations,
approvals and consents of and notices to any federal, state or local
governmental body, agency or authority or any other third party, which may be
required by law, regulation, rule, ordinance, order, decree, agreement,
indenture, lease or other instrument or document to which any of the Targets or
Acquiror is a party or by which such Target or Acquiror or its assets are bound
or which the Targets may otherwise reasonably require in connection with the
execution of this Agreement or effectuation of the transactions contemplated by
this Agreement shall have been obtained or made by the respective Target or
Acquiror on terms and conditions reasonably satisfactory to the Targets.
SECTION 9.5. Registration Statement. The Registration Statement shall have
become effective under the Securities Act and the Acquiror Common Shares to be
issued in the Share Exchanges shall have become qualified or registered (or
shall be exempt from qualification or registration) under comparable state
securities laws, and at or prior to the Effective Time no stop order suspending
the effectiveness of the Registration Statement or the qualification or
registration of the Acquiror Common Shares to be issued in the Share Exchanges
under the Blue Sky laws of any jurisdiction shall have been issued and no
proceeding for that purpose shall have been initiated or shall be threatened or
contemplated by the SEC or the authorities of any such jurisdictions, and the
Acquiror Common Shares shall be eligible for trading on the NYSE upon notice of
issuance.
SECTION 9.6. Litigation. 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 this
Agreement.
SECTION 9.7. No Material Adverse Change. In the reasonable judgment of the
Targets, between the date of execution and the Closing, there shall not have
been any material adverse change or any event which is likely to result in any
material adverse change in the assets, business, financial condition or results
of operations of Acquiror and its subsidiaries, taken as a whole.
SECTION 9.8. HSR Act Waiting Periods. Acquiror and the Targets shall have
filed all notifications required by the HSR Act with the Department of Justice
and the Federal Trade Commission and the applicable waiting periods with respect
thereto (including any extension thereof by reason of a request for additional
information) shall have expired or been terminated.
SECTION 9.9. Closing Deliveries. Each of the Targets shall have received
from Acquiror all of the instruments, documents and considerations described in
Section 12.3, and the form and substance of all such deliveries shall be
reasonably satisfactory in all material respects to the Targets.
SECTION 9.10. Tax Opinions. Nationwide shall have received opinions of Ice
Miller Donadio & Ryan acceptable in form and content to Nationwide,
substantially to the effect that the exchange of Target Common Shares for
Acquiror Common Shares as provided in this Agreement will, in each instance,
constitute a reorganization within the meaning of Section 368(a)(1)(B) of the
Code, and each Corporate Target and Acquiror will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
SECTION 9.11. Release of Guarantees. The beneficiaries with respect to the
personal guarantees by the shareholders of the Corporate Targets and/or Partners
in the Partnership Targets that are set forth in Section 9.11 of the Disclosure
Statement shall have agreed to release such guarantees at the time of the
Closing or Nationwide shall have agreed to indemnify such shareholders and/or
Partners for any losses resulting from such guarantees.
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ARTICLE X
TERMINATION
SECTION 10.1. Termination by Mutual Agreement. This Agreement may be
terminated by the mutual agreement in writing of the parties hereto at any time
prior to the Closing.
SECTION 10.2. Termination by Acquiror. This Agreement and any obligations
of Acquiror hereunder (other than its obligations under the Confidentiality
Agreement referred to in Section 11.1) may be terminated upon written notice to
that effect by Acquiror at any time prior to or at the Closing, if in the
judgment of Acquiror (a) any of the Targets or the Partners shall have breached
or failed to perform in any material respect any of its covenants or obligations
under this Agreement; (b) any representation or warranty of any of the Targets
or the Partners contained in this 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 Acquiror's performance of its obligations under
this Agreement is not capable of being met.
SECTION 10.3. Termination by the Corporate Targets and Partners. This
Agreement and any obligations of any of the Corporate Targets and Partners
hereunder (other than their obligations under the Confidentiality Agreement
referred to in Section 11.1) may be terminated upon written notice to that
effect by any of the Corporate Targets and the Partners at any time prior to or
at the Closing if in the judgment of such Target or Partner (a) Acquiror shall
have breached or failed to perform in any material respect any of its covenants
or obligations under this Agreement; (b) any representation or warranty of
Acquiror contained in this Agreement is false or misleading in any material
respect and cannot be cured prior to July 31, 1995; (c) any other material
condition precedent to such Target's or Partner's performance of its obligations
under this Agreement is not capable of being met; (d) the average closing price
of one Acquiror Common Share as reported by the NYSE for the ten (10) trading
days immediately preceding the Closing Date is less than $21.82; or (e) the
Share Exchanges have not been consummated by July 31, 1995.
ARTICLE XI
ADDITIONAL AGREEMENTS
SECTION 11.1. Confidentiality. Acquiror and each of the Targets agree that
the Confidentiality Agreement dated November 7, 1994 between Acquiror and
Nationwide shall remain in full force and effect at all times prior to the
Effective Time and after any termination of this Agreement, and each agrees to
comply with the terms of that agreement.
SECTION 11.2. Employee Benefit Matters. Acquiror agrees to continue in full
force and effect the Benefit Plans of the Targets referred to in Section 4.21 of
the Disclosure Statement and existing at the Effective Time until those
employees of the Targets who continue as employees of the Targets or Acquiror
after the Effective Time become eligible to participate in the employee benefit
plans of Acquiror. Acquiror will recognize such transferred employees' service
with any of the Targets for purposes of eligibility and vesting under such
Acquiror plans. Nothing set forth in this Agreement shall be construed to impose
any obligation on Acquiror to continue the employment of any person after the
Effective Time or give any person any rights to such employment; provided,
however, that Acquiror acknowledges that it will cause Nationwide to honor and
perform after the Effective Time the obligations of Nationwide pursuant to those
Employment Agreements set forth on Schedule 11.2(a). Acquiror also agrees that
prior to the termination of any employee whose name is set forth on Schedule
11.2(b), Acquiror will cause the Corporate Targets to give such employee thirty
days notice and will pay to such terminated employee as severance one week's
salary for each year such employee has been employed by Nationwide or its
affiliates, as set forth on Schedule 11.2(b), less applicable withholdings.
SECTION 11.3. Agreements Respecting Meadowvale. Prior to the Effective
Time, Meadowvale will transfer to Donald Cheesman ("Cheesman") real property
including land and a home built thereon located at 1529 West Lancaster Street,
Bluffton, Indiana and owned by Meadowvale (the "Residence"). In addition,
Meadowvale will repay to Cheesman all amounts owing by Meadowvale to Cheesman
pursuant to that certain
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Promissory Note dated February 1, 1986 executed by Meadowvale in favor of
Cheesman. After the Effective Time, Acquiror shall, subject to Section 11.6
below, cause Nationwide to honor and pay out of its own funds the debt in the
amount of $313,408 owed to Thomas E. Phillippe, Sr. by Shangri-La. The parties
to this Agreement agree that the transactions contemplated by this Section 11.3
shall not affect the amount of Exchange Consideration due pursuant to this
Agreement.
SECTION 11.4. Preservation of Tax-Free Reorganization Treatment. Acquiror
shall not take or cause to be taken any action, and shall not permit its
affiliates to take or cause to be taken any action within Acquiror's control,
whether before or after the Effective Time, which would disqualify any of the
Share Exchanges as a "reorganization" within the meaning of Section 368(a)(1)(B)
of the Code. Without limiting the foregoing, Acquiror may not participate in any
tax-free reorganization or share exchange without first (i) obtaining an
unqualified opinion, acceptable in form to the Representative (as defined in the
Agreement among Shareholders attached hereto as Exhibit 12.2(i)), of KPMG Peat
Marwick LLP that such reorganization or share exchange does not disqualify any
of the Share Exchanges as a tax-free reorganization within the meaning of
Section 368(a)(1)(B) of the Code; and (ii) providing such opinion to the
Representative.
SECTION 11.5. Publication of Financial Results. In accordance with the
Codification of Financial Reporting Policies of the Securities and Exchange
Commission, in order to permit the sale of Acquiror Common Shares following the
Closing and also to preserve the treatment of the transactions described herein
as a pooling of interests for accounting purposes, Acquiror agrees to publish
the financial results of the combined operations of Acquiror and the Targets,
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
and (b) 10 days following delivery of such financial information with respect to
the operations previously owned by the Targets as Acquiror considers reasonably
necessary to prepare the combined financial results described in this Section
11.5.
SECTION 11.6. The Shangri-La Partners. Shangri-La owns an 81-bed
long-term care center, known as Rolling Meadows Health Care Center (the "Rolling
Meadows Facility"). Pursuant to a certain Lease Agreement (the "Shangri-La
Lease") dated September 23, 1991 between Shangri-La and Rolling Meadows Health
Care Center, Inc. (the "Lessee"), Shangri-La has leased the Rolling Meadows
Facility to the Lessee. The Shangri-La Lease grants the Lessee the option to
purchase the Rolling Meadows Facility from Shangri-La. On March 1, 1995, the
Lessee notified Shangri-La of its intention to exercise this option.
Notwithstanding any other provision of this Agreement, if the Lessee purchases
the Rolling Meadows Facility prior to the Effective Time, (a) the partners of
Shangri-La shall not be considered parties to the Original Agreement or this
Agreement, and such partners shall be released and forever discharged from all
obligations thereunder or hereunder, including without limitation, any
obligation to assign their partnership interest to Nationwide and any
representation or warranty pursuant to Article IV hereof; and (b) Acquiror and
Nationwide shall be released and forever discharged from all obligations to the
partners of Shangri-La pursuant to the Original Agreement and this Agreement,
and the obligation to pay $313,408 to Thomas E. Phillippe, Sr. pursuant to
Section 11.3 above.
ARTICLE XII
THE CLOSING
SECTION 12.1. Time and Place. The closing of the transactions contemplated
by this Agreement shall take place at the offices of Ice Miller Donadio & Ryan,
One American Square, 34th Floor, Indianapolis, Indiana, at 10:00 a.m.
Indianapolis time on June 30, 1995, or on such other date as the parties
hereafter agree (the "Closing").
SECTION 12.2. Deliveries to Acquiror at the Closing. At the Closing, and
simultaneously with the deliveries to the Targets specified in Section 12.3, the
Corporate Targets and the Partners shall deliver or cause to be delivered to
Acquiror the following:
(a) Certificates of the President and Chief Financial Officer of each
of the Corporate Targets and of each of the Partners as to the accuracy of
its representations and warranties contained in this Agreement
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and as to its compliance with and fulfillment of all covenants, agreements,
obligations and conditions required by this Agreement.
(b) Copies of all resolutions adopted by the Board of Directors and
the shareholders of each of the Corporate Targets authorizing the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, together with a certificate, duly executed by the
Secretary of such Target, stating that such copies are true, complete and
correct, and that the resolutions have been duly adopted by the Board of
Directors and the shareholders, as the case may be, have not been amended
since adoption, and remain in full force and effect.
(c) Copies of all permits, authorizations, approvals and consents
required to be obtained pursuant to Section 8.5.
(d) An opinion of Ice Miller Donadio & Ryan, counsel to the Targets,
dated the Closing Date, in such form as shall be agreed to by the parties
hereto prior to the Closing, in their reasonable discretion.
(e) If required by Section 6.6, the written agreements and letters
described in Section 6.6.
(f) The Certificates and such documents and instruments as agreed to
by Acquiror and the Partners.
(g) The lease amendment referred to in Section 8.13.
(h) Noncompetition Agreements between Acquiror and each of the
Phillippes, in the form of Exhibit 12.2(h).
(i) Agreements among the shareholders of each of the Corporate Targets
in substantially the form of Exhibit 12.2(i).
(j) Resignations of each of the officers and directors of each of the
Corporate Targets.
(k) Evidence of redemption of the Nationwide Preferred Stock.
SECTION 12.3. Deliveries to the Targets at the Closing. At the Closing, and
simultaneously with the deliveries to Acquiror specified in Section 12.2,
Acquiror shall deliver or cause to be delivered to the Targets and the Partners
the following:
(a) Certificates of the President and Chief Financial Officer of
Acquiror as to the accuracy of its representations and warranties contained
in this Agreement and as to its compliance with and fulfillment of all
covenants, agreements, obligations and conditions required by this
Agreement.
(b) Copies of all permits, authorizations, approvals and consents
required to be obtained pursuant to Section 9.4.
(c) An opinion of Richard P. Adcock, General Counsel to Acquiror,
dated the Closing Date, in such form as shall be agreed to by the parties
hereto prior to the Closing, in their reasonable discretion.
(d) The Exchange Consideration (less any amounts to be delivered to
the Escrow and the Supplemental Escrow).
(e) Evidence of prepayment of the Nationwide Subordinated Notes.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.1. Indemnification of Acquiror. Subject to Section 13.2, and
except with respect to Supplemental Losses (as that term is defined in Section
14.1 hereof), Acquiror shall be indemnified and held harmless from and against
any damages, loss, cost, liability, or expense (including, without limitation,
costs and expenses of litigation, settlement and reasonable attorney's fees, but
net of amounts received under applicable insurance carried by the Targets)
("Losses") that may be incurred by or suffered by or asserted
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against Acquiror or any of its subsidiaries (hereinafter, 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 contained in Article IV of this Agreement (or any section of the
Disclosure Statement referred to in Article IV), or the breach prior to the
Effective Time of any of the covenants or agreements of any Target or Partner
contained in this Agreement or in any other instrument executed or delivered by
the Targets or the Partners.
SECTION 13.2. Threshold and Maximum Amounts.
(a) The Indemnified Party shall be entitled to indemnification under this
Article XIII only when the aggregate of all Losses suffered by the Indemnified
Party, with respect to which the Indemnified Party would otherwise be entitled
to indemnification hereunder exceeds Two Hundred and Fifty Thousand Dollars
($250,000.00) (the "Threshold Amount"), whereupon the Indemnified Party shall be
entitled to indemnification for any and all such Losses in excess of the
Threshold Amount; provided, however, that in the case of the incorrectness of
any representation contained in Section 4.2 or fraud, the Threshold Amount shall
not apply.
(b) Subject to Section 13.2(c) below, the aggregate dollar amount of all
Losses the Indemnified Party may be indemnified for under this Article XIII
shall not exceed the fair market value, as of the Closing Date, of the Acquiror
Common Shares delivered to the Escrow Agent for the Escrow pursuant to Section
3.3 (the "Escrow Value"); provided, however, that, in the case of the
incorrectness of any representation contained in Section 4.2 or fraud, the
Indemnified Party may be indemnified for an amount in excess of the Escrow
Value.
(c) Any and all Losses for which the Indemnified Party may be indemnified
under this Article XIII shall be paid or satisfied only by distribution to
Acquiror of the Acquiror Common Shares and cash, if any, held in the Escrow in
accordance with Section 3.3 and the Escrow Agreement attached hereto as Exhibit
3.3(a). The Indemnified Party shall have no recourse against any of the former
holders of the Target Common Shares, and such former holders shall have no
personal liability to the Indemnified Party with respect to the indemnification
provided for in Section 13.1, except to the extent such holders hold Acquiror
Common Shares and cash, if any, in the Escrow or, with respect to the Targets
and their respective officers, directors and employees only, as otherwise
provided in Section 13.2(b). Except with respect to Supplemental Losses,
indemnification pursuant to this Article XIII shall be the exclusive remedy of
Acquiror for a breach of a representation or warranty made by any Target or
Partner or a covenant of any Target or Partner set forth in this Agreement.
SECTION 13.3. Survival of Indemnification Obligations.
(a) The foregoing indemnification obligations shall survive, in the case of
the incorrectness of any representation contained in Section 4.2 or fraud,
indefinitely.
(b) Except as provided in Section 13.3(a) and subject to Section 13.3(c),
the foregoing indemnification obligations shall survive, in the case of the
representations and warranties of the Targets and Partners contained in Article
IV, until the date that Acquiror's independent accountants have completed the
first audit following the Effective Time of Acquiror's and the Targets' combined
operations, but not later than one year after the Closing Date. Acquiror Common
Shares and cash, if any, held in the Escrow shall be distributed, if available,
to the former holders of the Target Common Shares promptly following completion
of such audit, but not later than one year after the Closing Date.
(c) Notwithstanding the foregoing survival periods, if written notice of a
claim or written notice describing with particularity facts and circumstances
that exist and will be substantially likely, in the good faith judgment of
Acquiror, to give rise to a claim of indemnification hereunder has been given by
Acquiror to the Targets prior to the termination of any applicable
representation and warranty of the Targets or the termination of the Escrow as
specified in the Escrow Procedures, then the relevant representation and
warranty, and the term of the Escrow shall survive, solely as to such claim as
provided in the notice, until the claim has been finally resolved.
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ARTICLE XIV
SUPPLEMENTAL INDEMNIFICATION
SECTION 14.1. Supplemental Indemnification of Acquiror. Subject to Section
14.2, and in addition to the indemnification provided for in Article XIII
hereof, an Indemnified Party shall be indemnified and held harmless from and
against any Loss that may be incurred by or suffered by or asserted against such
Indemnified Party, but without duplication, arising out of or related to,
directly or indirectly, the litigation entitled Jerry K. Wright, Guardian of the
Estate and Person of Oleta May Skelton, an Adult Incompetent v. Nationwide Care,
Inc., Vigo Superior Court, State of Indiana, Cause No. 84D01-9409-CP-1618 (the
"Pending Matter")(Losses with respect to the Pending Matter are referred to
herein as "Supplemental Losses").
SECTION 14.2. Maximum Amounts.
(a) Subject to Section 14.2(b) below, the aggregate dollar amount of all
Supplemental Losses the Indemnified Party may be indemnified for under this
Article XIV shall not exceed the fair market value, as of the Closing Date, of
the Acquiror Common Shares delivered to the Escrow Agent for deposit in the
Supplemental Escrow pursuant to Section 3.3 (the "Supplemental Escrow Value").
(b) Any and all Supplemental Losses for which the Indemnified Party may be
indemnified under this Article XIV shall be paid or satisfied only by
distribution to Acquiror of the Acquiror Common Shares and cash, if any, held in
the Supplemental Escrow in accordance with Section 3.3 and the Supplemental
Escrow Agreement attached hereto as Exhibit 3.3(b). The Indemnified Party shall
have no recourse against any of the former holders of Nationwide, and such
former holders shall have no personal liability to the Indemnified Party with
respect to the indemnification provided for in Section 14.1, except to the
extent such holders hold Acquiror Common Shares and cash, if any, in the
Supplemental Escrow. Indemnification pursuant to this Article XIV shall be the
exclusive remedy of the Indemnified Party for the incurrence of a Supplemental
Loss.
SECTION 14.3. Survival of Indemnification Obligations. Notwithstanding the
provisions of Section 15.1, the indemnification obligations set forth in this
Article XIV with respect to Supplemental Losses shall survive until such time as
(a) the Pending Matter has been settled; (b) an order of a court of competent
jurisdiction has been entered and either no appeal can be taken from such order
or the time for such an appeal has run; or (c) a summary judgment or other order
has been granted to the effect that punitive damages will not be awarded with
respect to the Pending Matter.
ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1. Survival of Representations and Warranties. Except as set
forth in Sections 13.3 and 14.3, the representations and warranties contained in
this Agreement shall survive until the date that Acquiror's independent
accountants have completed the first audit following the Effective Time of
Acquiror's and the Targets' combined operations, but not later than one year
after the Closing Date.
SECTION 15.2. Definition of Knowledge. For purposes of this Agreement, "to
the knowledge of" or words of like import mean that the party to which the
statement is attributed:
(a) has made such investigations, and has made such inquiries of
directors, officers, partners and responsible employees of such party and
of legal counsel, independent auditors, actuaries and other persons who
have performed services for such party as shall be reasonably necessary to
determine the accuracy of such representation or warranty; and
(b) nothing has come to the person's attention in the course of such
investigation and review or otherwise, which would cause the person, in the
exercise of reasonable care (in accordance with the standards of what a
reasonable person in similar circumstances would have done to satisfy
himself as to the accuracy of the representation and warranty), to believe
that such representation and warranty is not true and correct in all
respects.
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SECTION 15.3. Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 15.4. Entire Agreement. This Agreement and the agreements to be
delivered pursuant to this Agreement and the Confidentiality Agreement between
the parties dated November 7, 1994 constitute the entire agreement among the
parties pertaining to the subject matter contained herein and therein and
supersede all other prior and contemporaneous agreements, representations and
understandings of the parties.
SECTION 15.5. Exhibits and Schedules. All exhibits and schedules attached
to this Agreement are incorporated herein and made a part hereof in the same
manner as if such exhibits and schedules were set forth at length herein.
SECTION 15.6. Parties in Interest. This Agreement will be binding upon and
inure solely to the benefit of each of the parties, and nothing in this
Agreement, express or implied, is intended to or will confer upon any other
person any right, benefit, or remedy; provided, however, each person receiving
Acquiror Common Shares in connection with the Share Exchanges or the assignments
of the Partnership Interests pursuant to this Agreement shall be a third-party
beneficiary of this Agreement and shall be entitled, after the Effective Time,
to enforce the Agreement against Acquiror for the benefit of such shareholders
with respect to the covenants of Acquiror contained herein and shall be entitled
to pursue all remedies available at law or in equity for, and Acquiror shall
indemnify such shareholders from, any Losses that may be incurred by or suffered
by or asserted against such shareholders (or any of them) arising out of or
related to, directly or indirectly, the incorrectness of any representations and
warranties of Acquiror in Article V of this Agreement or for any breach of any
of the covenants or agreements of Acquiror contained herein. Except in the case
of fraud, such indemnification obligations shall survive until the date that
Acquiror's independent accountants have completed the first audit following the
Effective Time of Acquiror's and the Targets' combined operations, but not later
than one year after the Closing Date.
SECTION 15.7. Expenses. Each of the parties shall pay all costs and
expenses incurred or to be incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions contemplated by this
Agreement, except as otherwise expressly provided for herein.
SECTION 15.8. Gender. Any reference to the masculine gender shall be deemed
to include the feminine and neuter genders unless the context otherwise
requires.
SECTION 15.9. Governing Law. This Agreement and all transactions
contemplated hereby shall be governed, construed and enforced in accordance with
the laws of the State of Washington, notwithstanding any state's choice of law
rules to the contrary.
SECTION 15.10. Headings. The subject headings of the articles and sections
of this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
SECTION 15.11. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by the
parties. 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 this Agreement or waive compliance with any of
the covenants or conditions contained herein and so waive performance of any of
the obligations of the other party hereto, and any defaults hereunder; provided,
however, that such waiver shall not affect or impair the waiving party's rights
with respect to any other warranty, representation or covenant or any default
hereunder, nor shall any waiver constitute a continuing waiver.
SECTION 15.12. Notices. All notices, requests, demands, waivers and other
communications required to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on (a) the date of service if served
personally on the party to whom notice is to be given, (b) the date sent if
given by telegram, confirmed facsimile transmission or telex addressed to the
party to whom notice is to be given or
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<PAGE> 35
(c) the third day after mailing if mailed to the party to whom notice is to be
given by certified mail, return receipt requested, and properly addressed as
follows:
If to Acquiror:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: General Counsel
Fax: (206) 756-4845
With a copy to:
Edmund O. Belsheim, Jr.
Bogle & Gates
Two Union Square
601 Union Street
Seattle, Washington 98101-2346
Fax: (206) 621-2660
If to any of the Targets:
Dr. Thomas E. Phillippe, Sr.
9200 Keystone Crossing
Suite 800
Indianapolis, Indiana 46240
Fax: (317) 848-3197
With a copy to:
Marcus B. Chandler
Ice Miller Donadio & Ryan
One American Square, Suite 3400
Indianapolis, Indiana 20036
Fax: (317) 236-2219
Any party may change the address to which notice is to be sent or the telephone
number for facsimile transmission pursuant to this Section 15.11 by giving
written notice thereof in compliance with this section.
SECTION 15.13. Press Releases. Acquiror and the Targets shall consult with
each other with respect to the form and substance of any press release or other
public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby.
SECTION 15.14. Rights of Parties. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any person other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over or against any party to this Agreement.
SECTION 15.15. Successors. This Agreement shall be binding on, and shall
inure to the benefit of, the parties and their respective successors and
assigns.
SECTION 15.16. Intent; Construction. It is the intent of the parties that
this Agreement and the transactions contemplated hereby will satisfy the
requirements contained in Section 368(a)(1)(B) of the Code and the regulations
promulgated thereunder, and that it will qualify as a corporate reorganization
without recognition of gain by any of the holders of Target Common Shares other
than to the extent any holder shall receive cash in lieu of fractional shares
for all or part of his, hers or its Target Common Shares, and this Agreement
shall be construed to effect the foregoing. Any transactions inconsistent with
the foregoing shall be void and of no force or effect.
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<PAGE> 36
SECTION 15.17. Release. NCI Acquisition Corp., a party to the Original
Agreement, is hereby released of any obligation under the Original Agreement and
shall have no obligation under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
THE HILLHAVEN CORPORATION
By: /s/ ROBERT F. PACQUER
------------------------------
Robert F. Pacquer
Senior Vice President and Chief
Financial Officer
Attest: /s/ RICHARD P. ADCOCK
------------------------
Richard P. Adcock
Secretary
NATIONWIDE CARE, INC.
By: /s/ THOMAS E. PHILLIPPE, SR.
------------------------------
Dr. Thomas E. Phillippe, Sr.
Chairman of the Board
Attest: /s/ GREGORY O. MERVINE
------------------------
Gregory O. Mervine
Secretary
PHILLIPPE ENTERPRISES, INC.
By: /s/ THOMAS E. PHILLIPPE, SR.
------------------------------
Dr. Thomas E. Phillippe, Sr.
President
Attest: /s/ THOMAS E. PHILLIPPE, JR.
-----------------------------
Thomas E. Phillippe, Jr.
Secretary
MEADOWVALE SKILLED CARE
CENTER, INC.
By: /s/ DONALD CHEESMAN
------------------------------
Donald Cheesman
President
Attest: /s/ JOAN M. PHILLIPPE
------------------------
Joan M. Phillippe
Secretary
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<PAGE> 37
THE PARTNERS OF
CAMELOT CARE CENTERS
/s/ RODNEY BENSON
-------------------------------------
Rodney Benson
THE PARTNERS OF
SHANGRI-LA PARTNERSHIP
/s/ THOMAS E. PHILLIPPE, SR.
-------------------------------------
Dr. Thomas E. Phillippe, Sr.
/s/ THOMAS E. PHILLIPPE, JR.
-------------------------------------
Thomas E. Phillippe, Jr.
/s/ LUPE M. BROWNE
-------------------------------------
Lupe M. Browne, as Executor of Estate
of Jim Browne
/s/ GREGORY O. MERVINE
-------------------------------------
Gregory O. Mervine
THE LIMITED PARTNERS OF
EVERGREEN WOODS, LTD.
/s/ THOMAS E. PHILLIPPE, SR.
-------------------------------------
Dr. Thomas E. Phillippe, Sr.
/s/ THOMAS E. PHILLIPPE, JR.
-------------------------------------
Thomas E. Phillippe, Jr.
/s/ LORENE BURNS
-------------------------------------
Lorene Burns
/s/ RODNEY BURNS
-------------------------------------
Rodney Burns
Each of the undersigned persons hereby agrees to vote all shares or
ownership interests owned by such person in each of the Targets (as defined in
this Agreement) in favor of approval of the transactions contemplated by this
Agreement.
/s/ THOMAS E. PHILLIPPE, SR.
-------------------------------------
Dr. Thomas E. Phillippe, Sr.
/s/ THOMAS E. PHILLIPPE, JR.
-------------------------------------
Thomas E. Phillippe, Jr.
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<PAGE> 38
EXHIBIT LISTING
<TABLE>
<S> <C>
Exhibit 3.3(a). Escrow Agreement
Exhibit 3.3(b). Supplemental Escrow Agreement
Exhibit 6.6(a). Affiliate Letter
Exhibit 6.6(b). Pooling Letter
Exhibit 6.15(a). Tax Certificate of Nationwide Care, Inc.
Exhibit 6.15(b). Tax Certificate of Phillippe Enterprises,
Inc.
Exhibit 6.15(c). Tax Certificate of Meadowvale Skilled Care
Center, Inc.
Exhibit 7.7(a). Tax Certificate of Acquiror for Nationwide
Care, Inc.
Exhibit 7.7(b). Tax Certificate of Acquiror for Phillippe
Enterprises, Inc.
Exhibit 7.7(c). Tax Certificate of Acquiror for Meadowvale
Skilled Care Center, Inc.
Exhibit 12.2(h). Noncompetition Agreement
Exhibit 12.2(i)(a). Agreement among Shareholders of Nationwide
Care, Inc.
Exhibit 12.2(i)(b). Agreement among Shareholders of Phillippe
Enterprises, Inc.
Exhibit 12.2(i)(c). Agreement among Shareholders of Meadowvale
Skilled Care Center, Inc.
</TABLE>
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<PAGE> 39
EXHIBIT 3.3 (A)
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made this day of
, 1995, by and among The Hillhaven Corporation, a Nevada Corporation
(such corporation and its subsidiaries being referred to herein collectively as
"Acquiror"), the individuals listed on Exhibit A (collectively, the
"Shareholders") and Bank One, Indianapolis, N.A. (the "Escrow Agent").
EXPLANATION STATEMENT
A. Acquiror and the Targets are parties to that certain Amended and
Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests dated as of February 27, 1995 (the "Share Exchange
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned thereto in the Share Exchange
Agreement.
B. Prior to the Effective Time, the Shareholders owned all the capital
stock of the Corporate Targets and all the partnership interests in the
Partnership Targets.
C. In order to induce Acquiror to enter into the Share Exchange Agreement
and to consummate the transactions contemplated thereby, the Shareholders wish
to execute and deliver this Agreement and to deposit or to cause to be deposited
in escrow hereunder certificates representing ten percent (10%) of the Acquiror
Common Shares that comprise the Exchange Consideration (such percentage of
shares being referred to herein collectively as the "Escrow Shares") to secure
the indemnification obligations under Article XIII of the Share Exchange
Agreement, the terms of which Article are incorporated herein by this reference.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
and in consideration of the mutual covenants herein contained, agree as follows:
1. DEPOSIT OF ESCROW SHARES; ESCROW ACCOUNT; SHAREHOLDER AGENT.
1.1 Promptly following the Effective Time, Acquiror shall withhold from
the Exchange Consideration and deposit with the Escrow Agent the Escrow Shares.
The Escrow Agent shall establish an account (the "Escrow Account") for the
Shareholders and place the Escrow Shares therein. The Escrow Agent agrees that
the Escrow Shares shall be held in the Escrow Account and disbursed by the
Escrow Agent in accordance with, and subject to the terms and conditions of,
this Agreement.
1.2 Acquiror and the Shareholders acknowledge and agree that, to the
extent and for so long as Escrow Shares are held by the Escrow Agent hereunder,
Acquiror shall have, as of and from the date such Escrow Shares are received by
the Escrow Agent, a perfected, first priority security interest in such Escrow
Shares to secure the payment of amounts, if any, payable pursuant to Article
XIII of the Share Exchange Agreement. In connection therewith, the Shareholders
expressly agree (i) that the Escrow Agent is acting solely as Acquiror's agent
to the extent necessary to perfect Acquiror's first-priority security interest
in the Escrow Shares and (ii) to execute and deliver such instruments as
Acquiror may from time to time reasonably request for the purpose of evidencing
and perfecting such security interest.
1.3 All of the Shareholders hereby appoint Thomas E. Phillippe, Jr., an
individual (the "Shareholder Agent"), as their attorney-in-fact to act as their
agent in the performance of all of their obligations and exercise of all of
their rights under this Agreement.
2. VOTING RIGHTS; DIVIDENDS ON ESCROW SHARES; SALE OF SHARES; INVESTMENT OF
CASH.
2.1 All voting rights with respect to the Escrow Shares shall remain with
the Shareholders. All cash dividends on Escrow Shares shall be distributed by
Acquiror to the Escrow Agent. Promptly, and no later than the thirtieth (30th)
calendar day following receipt thereof by the Escrow Agent, the Escrow Agent
shall distribute such dividends in respect of the Escrow Shares to the
Shareholders, respectively.
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<PAGE> 40
2.2 All non-cash dividends (including, without limitation, any stock split,
share dividend, rights offering or recapitalization) on any Escrow Shares shall
be added to the Escrow Account as additional Escrow Shares fully subject to the
terms of this Agreement.
2.3 At any time while there are Escrow Shares in the Escrow Account, the
Shareholder Agent may, by delivering written instructions to the Escrow Agent,
direct the Escrow Agent to sell one or more of the Escrow Shares on the NYSE and
deposit the sale proceeds into the Escrow Account, which proceeds shall be
distributed, designated, withheld and otherwise subject to the terms of this
Agreement in the same manner and to the same extent as the Escrow Shares, except
that the Escrow Agent shall designate and withhold cash in the Escrow Account,
to the extent thereof, to Pending Claim Notices and Escrow Disposition Notices
(as defined in Section 4.2) prior to applying any remaining Escrow Shares to
such claims.
2.4 All cash deposited into the Escrow Account shall be invested and
reinvested in the securities of any open-end or closed-end, management type
investment company or investment trust registered as such under the Federal
Investment Company Act of 1940 (which would be properly characterized as a
"Money Market Mutual Fund") which is made available by the Escrow Agent for the
liquid investment of funds for its client's accounts. The fact that the Escrow
Agent or any affiliate of the Escrow Agent is providing services to and
receiving remuneration from the investment company or trust as Investment
Advisor, Trustee, Transfer Agent, Registrar or otherwise, shall not preclude the
Escrow Agent from following this direction to invest in the securities of the
investment company or investment trust. In investing and reinvesting any such
monies, the Escrow Agent shall seek to obtain the best yields consistent with
safety of principal and ready marketability. The Escrow Agent shall have no duty
or right to invest cash on deposit in the Escrow Account other than as provided
in the foregoing sentence. Earnings on cash so invested shall be paid to the
Shareholders.
3. ACCOUNTING.
The Escrow Agent shall mail to Acquiror and the Shareholder Agent a written
accounting of all transactions relating to the Escrow Account not less
frequently than quarterly. The Shareholder Agent shall promptly deliver each
such accounting to the Shareholders.
4. DISPOSITION OF ESCROW SHARES.
4.1 Prior to the Distribution Date (as defined in Section 4.3), Acquiror
will issue, or cause to be issued, from time to time to the Escrow Agent and the
Shareholder Agent one or more Pending Claim Notices in the form of Exhibit B
(each a "Pending Claim Notice") describing with particularity existing facts and
circumstances, if any, that are substantially likely, in the good faith judgment
of Acquiror, to give rise to a claim of indemnification under Article XIII of
the Share Exchange Agreement and designating the number of Escrow Shares
necessary to satisfy in whole or, if there are not sufficient Escrow Shares in
the Escrow Account, in part such claim. The Shareholder Agent shall promptly
deliver each such Pending Claim Notice to the Shareholders. The Escrow Agent
shall withhold and distribute such designated number of Escrow Shares as
required by Sections 4.2 and 4.3. For all designations, withholdings and
distributions of Escrow Shares pursuant to a Pending Claim Notice or Escrow
Disposition Notice, the number of Escrow Shares to be designated, withheld
and/or distributed shall be (i) determined using the average closing price of
one Acquiror Common Share as reported on the NYSE for the ten (10) trading days
immediately preceding the date of such notice and (ii) rounded to the nearest
whole share. To the extent Acquiror and the Shareholder Agent are not in dispute
as to the distribution or retention of Escrow Shares withheld pursuant to a
Pending Claim Notice, Acquiror and the Shareholder Agent shall promptly prepare
an Escrow Disposition Notice (as defined in Section 4.2) directing the Escrow
Agent to so distribute or retain such Escrow Shares.
4.2 The Escrow Agent shall distribute the Escrow Shares only in accordance
with (i) written instructions contained in one or more notices in the form of
Exhibit C (each an "Escrow Disposition Notice") delivered to the Escrow Agent
and executed by Acquiror and the Shareholder Agent, (ii) a final arbitration
award secured under the provisions of Section 4.4 hereof, (iii) a certified or
file-stamped copy of an order of a court of competent jurisdiction pursuant to
Section 9 hereof or (iv) the procedures set forth in Section 4.3, as applicable.
The Escrow Agent shall promptly comply with such instructions, award, order or
procedures, as applicable, to the extent that there are sufficient Escrow Shares
in the Escrow Account to so comply.
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<PAGE> 41
4.3 Promptly following the date that Acquiror's independent accountants
have completed the first audit following the Effective Time of Acquiror's and
the Targets' combined operations, but not later than one year after the Closing
Date (such audit completion date being referred to herein as the "Distribution
Date"), the Escrow Agent shall distribute to each Shareholder from the Escrow
Account his or her percentage interest, as listed on Exhibit A, of the Escrow
Shares remaining in the Escrow Account less the number of Escrow Shares
specified in any unresolved Pending Claim Notice(s) received by the Escrow Agent
prior to the Distribution Date, which specified Escrow Shares the Escrow Agent
shall withhold from such distribution and not distribute except as provided in
clause (i), (ii) or (iii) of Section 4.2, as applicable. If the first audit of
Acquiror's and the Targets' combined operations is completed on or before the
date that is one year after the Closing Date, then Acquiror shall notify the
Escrow Agent and the Shareholder Agent in writing of such completion within five
(5) days following such completion.
4.4 Acquiror and the Shareholder Agent agree to use their respective best
efforts to resolve any dispute that may arise with respect to this Agreement,
including without limitation any dispute regarding the validity of or the amount
of Escrow Shares designated in any Pending Claim Notice, amicably and without
resort to any third party dispute resolution forum. At any time Acquiror on the
one hand or the Shareholder Agent on the other believes that a dispute exists
among the parties with respect to this Agreement, it or he shall give prompt
written notice thereof to the other party(s), including the Shareholders. Any
dispute which has not been settled or resolved within thirty (30) days of
receipt by Acquiror or the Shareholder Agent of the notice thereof shall be
submitted for binding arbitration in Marion County, Indiana in an arbitration
proceeding that, except as may otherwise be provided herein, shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association before a single arbitrator chosen in accordance with such rules. All
evidentiary and discovery matters shall be conducted in accordance with and
governed by the applicable Federal Rules of Civil Procedure. No later than 10
calendar days after the arbitrator is appointed, the arbitrator shall schedule
the arbitration for a hearing to commence on a mutually convenient date. All
discovery shall be completed no later than the commencement of the arbitration
hearing or 90 calendar days after the date that a proper demand for arbitration
is served, whichever occurs first, unless, upon a showing of good cause, the
arbitrator extends such period. The hearing shall commence no later than 90
calendar days after the arbitrator is appointed and shall continue until
completed. The arbitrator shall issue his or her award in writing no later than
20 calendar days after the conclusion of the hearing. The parties to this
Agreement agree that, in rendering an award, the arbitrator shall have no
jurisdiction to consider evidence with respect to or render any award of
judgment for punitive damages or any other amount awarded for purposes of
imposing a penalty. The arbitrator shall not have the power to amend this
Agreement in any respect. The arbitrator's decision shall be binding and
conclusive upon the parties. The costs of any arbitration conducted pursuant to
this Section 4.4 shall be borne by the non-prevailing party(s), as identified by
the arbitrator, regardless of whether the subject dispute is arbitrated to
completion; provided, that any such costs shall be paid solely out of the Escrow
Account. Each party hereto agrees to provide notice of the commencement of any
such arbitration proceeding to the Escrow Agent and the other parties, as the
case may be.
5. CONTROL OF LITIGATION.
5.1 Within 20 calendar days following receipt by Acquiror of notice of any
claim by a third party or of the commencement of any action or proceeding by a
third party which may give rise to an indemnity claim under Article XIII of the
Share Exchange Agreement, Acquiror shall notify the Shareholder Agent in writing
of such claim, action or proceeding, and the Shareholder Agent shall promptly
notify the shareholders of such claim, action or proceeding; provided, that
failure by Acquiror to give such notification shall not affect Acquiror's rights
to indemnification under Article XIII of the Share Exchange Agreement, except to
the extent the Shareholder Agent shall have been prejudiced as a result of such
failure. Upon receipt of such written notice, the Shareholder Agent shall be
entitled to participate in and, to the extent that it may wish, unless it is
reasonably foreseeable that the Losses from such claim, action or proceeding
will exceed the value of the Escrow Shares remaining in the Escrow Account or
such claim, action or proceeding involves a claim for injunction or other
specific relief, assume the defense, conduct or settlement of such claim, action
or proceeding by giving written notice thereof to Acquiror within forty-five
(45) days of his receipt of notice of such claim, action or proceeding. After
delivery of such notice to Acquiror, the Shareholders shall not be liable
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<PAGE> 42
to Acquiror for any legal expenses subsequently incurred by Acquiror in
connection with the defense, conduct or settlement of such claim, action or
proceeding; provided, that, if the Shareholder Agent fails to take reasonable
steps necessary to diligently defend such claim, action or proceeding within 20
calendar days after receiving written notice from Acquiror that it believes the
Shareholder Agent has failed to take such steps, then Acquiror may assume such
defense, and the Shareholders shall be liable for any expenses therefor. Without
limiting the foregoing sentence, if the Shareholder Agent assumes the defense of
a third party claim, action or proceeding hereunder, then Acquiror shall have
the right to participate in such defense at its own expense by giving prompt
written notice thereof to the Shareholder Agent. If, after assuming the defense
of a third party claim, action or proceeding hereunder, the Shareholder Agent
obtains an award from the third party claimant on behalf of the Shareholders,
then Acquiror shall be entitled to recover its costs, including reasonable
attorney's fees of outside counsel incurred in defending such claim and
obtaining such award, from the proceeds of such award; provided, that such
recovery shall not be a waiver of any right, claim or amount to which Acquiror
may otherwise be entitled. In the event the Shareholder Agent assumes the
defense of a claim, action or proceeding hereunder, the Shareholder Agent shall
be entitled to receive from the Escrow Agent distributions of cash or Escrow
Shares from the Escrow Account to reimburse the Shareholder Agent (and, thereby,
the Shareholders for whom he will be acting) for the reasonable costs incurred
in such defense as well as the costs of any settlement or damages paid with
respect to such claim, action or proceeding. The Escrow Agent shall make such a
distribution to the Shareholder Agent only upon the receipt of a properly
executed Escrow Disposition Notice.
5.2 To the extent that a third party may be responsible for a Loss
incurred or suffered by Acquiror, Acquiror either (a) may seek recovery of the
Loss from the third party, in which case the Shareholders shall be responsible
only to the extent that the Loss is not recoverable from the third party (other
than claims for Losses incurred in obtaining such recovery), or (b) seek
indemnification from the Shareholders for the Loss pursuant to Article XIII of
the Share Exchange Agreement, in which case Acquiror shall assign to the
Shareholders all rights relating to the Loss that Acquiror may have against the
third party, shall not release the third party from its obligations and shall
cooperate with the Shareholders and take all other action reasonably requested
by the Shareholders to enable them to seek recovery of the Loss from the third
party.
5.3 Notwithstanding anything herein to the contrary, neither Acquiror on
the one hand nor the Shareholder Agent on the other shall have the right to
settle or compromise a third-party claim, action or proceeding without obtaining
the prior written consent of the other, which consent shall not be unreasonably
withheld. In addition, the Shareholder Agent shall not permit to exist any lien,
encumbrance or other adverse charge upon any asset of, or consent to the
imposition of any injunction against, Acquiror or any of its respective
affiliates without obtaining its prior written consent, which consent shall not
be unreasonably withheld.
6. ESCROW PROVISIONS.
6.1 This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto, and the Escrow Agent shall
determine its duties solely by reference to this Agreement and not by reference
to the Share Exchange Agreement or any other agreement. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto, except this Agreement. Subject to Sections 1.1 and 1.2,
the Escrow Agent's duties hereunder shall be ministerial in nature.
6.2 Upon termination of this Agreement and delivery of the balance of the
Escrow Shares to the parties entitled thereto, the Escrow Agent shall be
discharged from any further obligation hereunder.
6.3 The Escrow Agent shall not be responsible for the sufficiency or
accuracy of the form, execution, validity or genuineness of documents or
securities now or hereafter deposited hereunder, or of any endorsement thereon,
or for any lack of endorsement thereon, or for any description therein, nor
shall the Escrow Agent be responsible or liable in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such document, security or endorsement.
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<PAGE> 43
6.4 The Escrow Agent shall not be liable to the other parties hereto for
any error of judgment, action taken or omitted in good faith or mistake of fact
or law, or anything which it may do or refrain from doing in connection
therewith, except in the case of its own gross negligence, willful misconduct or
bad faith.
6.5 The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith and in accordance with the advice of such counsel.
6.6 The Escrow Agent shall be entitled to be indemnified and held harmless
by Acquiror and the Shareholders, jointly and severally, for any and all claims,
liabilities, costs, payments and expenses, including reasonable fees of counsel
(who may be selected by the Escrow Agent), incurred by the Escrow Agent which
arise out of or in connection with any act or omission by it in the performance
of its obligations under this Agreement, except in the case of the Escrow
Agent's own gross negligence, willful misconduct or bad faith.
7. TIME OF PERFORMANCE. Whenever under the terms hereof the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day of the Escrow Agent shall be deemed to be in full
compliance.
8. DEATH, DISABILITY, ETC. The death, disability, bankruptcy or insolvency
of any of the Shareholders shall not affect or prevent the performance by the
Escrow Agent of its obligations and instructions received hereunder. Without
limiting the foregoing sentence, the Shareholder Agent shall notify the Escrow
Agent in writing of any person who or that, as a result of a Shareholder's
death, disability, bankruptcy or insolvency, should receive distributions, if
any, that would otherwise be made hereunder to such Shareholder.
9. RESOLUTION OF CONTROVERSIES. In the event any dispute or controversy
arises respecting the administration or disposition of the Escrow Shares, or any
part thereof, and such dispute or controversy has not been submitted to
arbitration as provided in Section 4.4 hereof, the Escrow Agent shall refuse to
comply with the conflicting claims and demands of the parties, and the Escrow
Agent shall not be or become liable in any way to any person for so refusing to
comply. The Escrow Agent shall be entitled to continue; to so refrain from
acting until it receives authorization in any of the forms stated in clauses
(i), (ii) and (iii) of Section 4.2. In the event of any such dispute or
controversy, the Escrow Agent shall have the right but not the obligation to
interplead the parties to such dispute or controversy in any court of competent
jurisdiction, including but not limited to the courts of the State of Indiana
and the United States District Court for the Southern District of Indiana which
shall be deemed to be courts of competent jurisdiction. Acquiror and the
Shareholders, jointly and severally, shall reimburse the Escrow Agent for all
expenses, fees and charges (including reasonable attorneys' fees and expenses)
reasonably incurred by the Escrow Agent in any such interpleader action.
10. RESIGNATION OR REMOVAL OF ESCROW AGENT. If the Escrow Agent resigns or
is removed, then Acquiror and the Shareholder Agent shall promptly, mutually
agree upon and name a substitute for the Escrow Agent ("Successor Escrow
Agent"), which shall be a bank or trust company and which shall perform the same
duties and responsibilities, and which shall be entitled to the same protection
and substantially equivalent fees, as the original Escrow Agent named herein.
The Escrow Agent shall have the unequivocal right to resign as Escrow Agent upon
at least thirty (30) days' prior written notice delivered to Acquiror and the
Shareholder Agent (who shall promptly deliver such notice to the Shareholders);
provided, that, in any event, such resignation shall not be effective until such
time as a Successor Escrow Agent has been appointed, has accepted its
appointment and has taken possession of the Escrow Shares. Upon mutual agreement
by Acquiror and the Shareholder Agent, the Escrow Agent may be removed upon at
least thirty (30) days' prior written notice; provided, that, in any event, such
removal shall not be effective until such time as a Successor Escrow Agent has
been appointed, has accepted its appointment and has taken possession of the
Escrow Shares. In either of said events, if a Successor Escrow Agent is not
appointed within said thirty-day period, the Escrow Agent, Acquiror or the
Shareholder Agent may petition a court of competent jurisdiction to name a
Successor Escrow Agent, whether by interpleader or other appropriate action, and
the decision of such court shall be binding upon all parties to this Agreement.
In any event, the Successor Escrow Agent shall have capital and surplus equal to
or greater than the capital and surplus of the Escrow Agent.
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<PAGE> 44
11. ACCEPTANCE OF ESCROW: COMPENSATION OF ESCROW AGENT. The Escrow Agent
hereby agrees to serve as Escrow Agent pursuant to this Agreement and to perform
the duties and responsibilities conferred upon it hereunder. Acquiror shall pay
the Escrow Agent periodically, and no less often than annually, a reasonable fee
for its services under this Escrow Agreement, which fee shall be determined in
accordance with the fee schedule for escrow accounts then adopted by the Escrow
Agent at the time Escrow Agent's services are rendered hereunder.
12. TERMINATION. This Agreement shall terminate without further action of
any party when all of the terms hereof shall have been fully performed.
13. NOTICES. Any notice, request, instruction or other document to be given
under this Agreement by any party shall be in writing and shall be delivered
personally, by registered or certified mail, postage prepaid, return receipt
requested, by overnight courier or by facsimile transmission, as follows:
(a) If to Acquiror, at:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98402
Attention: General Counsel
Facsimile: (206) 756-4845
With a copy to:
Edmund O. Belsheim, Jr.
Bogle & Gates
Two Union Square
601 Union Street
Seattle, WA 98101-2346
Facsimile: (206) 621-2660
(b) If to the Shareholders, at:
c/o Thomas E. Phillippe, Jr.
Attention:
Facsimile:
With a copy to:
Marcus B. Chandler, Esq.
ICE MILLER DONADIO & RYAN
One American Square
Box 82001
Indianapolis, IN 46282-0002
Facsimile: (317) 236-2219
or to such other address or person as any party may designate by a notice to the
other parties which is given in the manner required above. Any such notice,
request, instruction or other document shall be deemed to have been delivered
and received as of the date personally delivered, or if mailed, three days after
the date so mailed, or if telecopied, the date on which such telecopy is sent
(as confirmed by return facsimile transmission) or if by overnight courier the
day following the day on which such notice is properly placed with the courier.
14. COOPERATION WITH ESCROW AGENT. The parties to this Agreement shall
cooperate with the Escrow Agent, as the Escrow Agent reasonably deems necessary
or desirable to perform its duties and obligations under this Agreement. Without
limiting the foregoing, upon reasonable request from the Escrow Agent, the
parties shall provide the Escrow Agent with all information necessary to make
any distribution, including
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<PAGE> 45
names, addresses, social security numbers and tax identification numbers. The
Escrow Agent shall be entitled to rely upon the most recent information received
from any party without further inquiry and each party shall be responsible for
notifying the Escrow Agent of any new or changed information pertaining to such
party.
15. TAXES: REPORTS TO GOVERNMENTAL AUTHORITIES. The Shareholders severally
agree to assume any obligations imposed now or hereafter by any applicable tax
law with respect to any payment from the Escrow Account to the Shareholders
under this Agreement and undertake to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding taxes and any other
taxes, assessments or other governmental charges and any certifications and
governmental reporting required in connection therewith.
16. MISCELLANEOUS.
16.1 This Agreement may not be amended or modified in any way except by an
instrument in writing signed by all of the parties hereto.
16.2 This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Indiana without reference to its conflicts of law
provisions.
16.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
16.4 The headings contained in this Agreement are for convenience only,
shall not affect this Agreement in any way, and shall not be used to construe or
interpret the scope or intent of this Agreement.
16.5 This Agreement shall inure to the benefit of and shall bind the
parties hereto and their respective heirs, devisees, personal representatives,
successors, transferees and assigns; provided, that, except as otherwise
expressly set forth in this Agreement, including without limitation Section 10,
neither the rights nor the obligations of any party may be assigned or delegated
without the prior written consent of the other parties.
IN WITNESS WHEREOF, the parties have duly executed and have caused to be
duly executed this Agreement as of the date first written above.
THE HILLHAVEN CORPORATION
By
-----------------------------------
Name:
Title:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
BANK ONE, INDIANAPOLIS, N.A.
By
-----------------------------------
Name:
Title:
-40-
<PAGE> 46
EXHIBIT A
SHAREHOLDERS
<TABLE>
<CAPTION>
INDIVIDUAL PERCENTAGE
- ----------
<S> <C>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
-41-
<PAGE> 47
EXHIBIT B
PENDING CLAIM NOTICE
<TABLE>
<S> <C>
To: Bank One, Indianapolis, N.A.
From: The Hillhaven Corporation
Date:
------------------------------
</TABLE>
This Pending Claim Notice is delivered to you pursuant to Section 4.1 of
the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by and among
The Hillhaven Corporation, a Nevada corporation, the Shareholders and Bank One,
Indianapolis, N.A. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to those terms in the Escrow Agreement.
Please be advised that you are hereby instructed to withhold from the
distribution to the Shareholders that is due to be made on the Distribution Date
from the Escrow Account a total of Escrow Shares.
The undersigned maintains in good faith that it is entitled to
indemnification in the aforementioned amount of Escrow Shares pursuant to the
terms of the Share Exchange Agreement based upon the following:
[LIST INDEMNIFICATION ITEMS AND THE AMOUNT OF EACH ITEM. ATTACH ANY
DOCUMENTS REASONABLY DEMONSTRATING THE INDEMNIFICATION ITEMS.]
The Shareholder Agent has been sent a copy of this Pending Claim Notice
along with any attached information relating to the claimed right to
indemnification.
Signed this day of , 199 .
THE HILLHAVEN CORPORATION
By
--------------------------------
Name:
Title:
-42-
<PAGE> 48
EXHIBIT C
ESCROW DISPOSITION NOTICE
<TABLE>
<S> <C>
To: Bank One, Indianapolis, N.A.
From: The Hillhaven Corporation
Thomas E. Phillippe, Jr.
Date:
-------------------------------
</TABLE>
This Escrow Disposition Notice is delivered to you pursuant to Section 4.2
of the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by and
among The Hillhaven Corporation, a Nevada corporation, the Shareholders and Bank
One, Indianapolis, N.A. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to those terms in the Escrow Agreement.
Please be advised that you are hereby directed to [distribute from] [retain
in] the Escrow Account the property now held in your possession and described
herein in the following manner, to wit:
[STATE THE NUMBER OF ESCROW SHARES TO BE DISTRIBUTED OR RETAINED AND, IF
DISTRIBUTED, THE RECIPIENT(S) OF SUCH SHARES]
Signed this day of , 199 .
THE HILLHAVEN CORPORATION
By
-----------------------------------
Name:
Title:
--------------------------------------
Thomas E. Phillippe, Jr.
-43-
<PAGE> 49
EXHIBIT D
ESCROW AGENT FEES
DOLLARS ($ ) PER YEAR
-44-
<PAGE> 50
EXHIBIT 3.3(B)
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made this day of ,
1995, by and among The Hillhaven Corporation, a Nevada Corporation (such
corporation and its subsidiaries being referred to herein collectively as
"Acquiror"), the individuals listed on Exhibit A (collectively, the
"Shareholders") and Bank One, Indianapolis, N.A. (the "Escrow Agent").
EXPLANATION STATEMENT
A. Acquiror and the Targets are parties to that certain Amended and
Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests dated as of February 27, 1995 (the "Share Exchange
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned thereto in the Share Exchange
Agreement.
B. Prior to the Effective Time, the Shareholders owned all the capital
stock of Nationwide Care, Inc., an Indiana corporation.
C. In order to induce Acquiror to enter into the Share Exchange Agreement
and to consummate the transactions contemplated thereby, the Shareholders wish
to execute and deliver this Agreement and to deposit or to cause to be deposited
in escrow hereunder certificates representing five percent (5%) of the Acquiror
Common Shares that comprise the Exchange Consideration (such percentage of
shares being referred to herein collectively as the "Escrow Shares") to secure
the indemnification obligations under Article XIV of the Share Exchange
Agreement, the terms of which Article are incorporated herein by this reference.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
and in consideration of the mutual covenants herein contained, agree as follows:
1. DEPOSIT OF ESCROW SHARES; ESCROW ACCOUNT; SHAREHOLDER AGENT.
1.1 Promptly following the Effective Time, Acquiror shall withhold from
the Exchange Consideration and deposit with the Escrow Agent the Escrow Shares.
The Escrow Agent shall establish an account (the "Escrow Account") for the
Shareholders and place the Escrow Shares therein. The Escrow Agent agrees that
the Escrow Shares shall be held in the Escrow Account and disbursed by the
Escrow Agent in accordance with, and subject to the terms and conditions of,
this Agreement.
1.2 Acquiror and the Shareholders acknowledge and agree that, to the
extent and for so long as Escrow Shares are held by the Escrow Agent hereunder,
Acquiror shall have, as of and from the date such Escrow Shares are received by
the Escrow Agent, a perfected, first priority security interest in such Escrow
Shares to secure the payment of amounts, if any, payable pursuant to Article XIV
of the Share Exchange Agreement. In connection therewith, the Shareholders
expressly agree (i) that the Escrow Agent is acting solely as Acquiror's agent
to the extent necessary to perfect Acquiror's first-priority security interest
in the Escrow Shares and (ii) to execute and deliver such instruments as
Acquiror may from time to time reasonably request for the purpose of evidencing
and perfecting such security interest.
1.3 All of the Shareholders hereby appoint Thomas E. Phillippe, Jr., an
individual (the "Shareholder Agent"), as their attorney-in-fact to act as their
agent in the performance of all of their obligations and exercise of all of
their rights under this Agreement.
2. VOTING RIGHTS; DIVIDENDS ON ESCROW SHARES; SALE OF SHARES; INVESTMENT OF
CASH.
2.1 All voting rights with respect to the Escrow Shares shall remain with
the Shareholders. All cash dividends on Escrow Shares shall be distributed by
Acquiror to the Escrow Agent. Promptly, and no later than the thirtieth (30th)
calendar day following receipt thereof by the Escrow Agent, the Escrow Agent
shall distribute such dividends in respect of the Escrow Shares to the
Shareholders, respectively.
-45-
<PAGE> 51
2.2 All non-cash dividends (including, without limitation, any stock
split, share dividend, rights offering or recapitalization) on any Escrow Shares
shall be added to the Escrow Account as additional Escrow Shares fully subject
to the terms of this Agreement.
2.3 At any time while there are Escrow Shares in the Escrow Account, the
Shareholder Agent may, by delivering written instructions to the Escrow Agent,
direct the Escrow Agent to sell one or more of the Escrow Shares on the NYSE and
deposit the sale proceeds into the Escrow Account, which proceeds shall be
distributed, designated, withheld and otherwise subject to the terms of this
Agreement in the same manner and to the same extent as the Escrow Shares.
2.4 All cash deposited into the Escrow Account shall be invested and
reinvested in the securities of any open-end or closed-end, management type
investment company or investment company or investment trust registered as such
under the Federal Investment Company Act of 1940 (which would be properly
characterized as a "Money Market Fund") which is made available by the Escrow
Agent for the liquid investment of funds for its clients' accounts. The fact
that the Escrow Agent or any affiliate of the Escrow Agent is providing services
to and receiving remuneration from the investment company or trust as Investment
Advisor, Trustee, Transfer Agent, Registrar or otherwise, shall not preclude the
Escrow Agent from following this direction to invest in the securities of the
investment company or investment trust. In investing and reinvesting any such
monies, the Escrow Agent shall seek to obtain the best yields consistent with
safety of principal and ready marketability. The Escrow Agent shall have no duty
or right to invest cash on deposit in the Escrow Account other than as provided
in the foregoing sentence. Earnings on cash so invested shall be paid to the
Shareholders.
3. ACCOUNTING.
The Escrow Agent shall mail to Acquiror and the Shareholder Agent a written
accounting of all transactions relating to the Escrow Account not less
frequently than quarterly. The Shareholder Agent shall promptly deliver each
such accounting to the Shareholders.
4. DISPOSITION OF ESCROW SHARES.
4.1 The Escrow Agent shall distribute the Escrow Shares only in accordance
with (i) written instructions contained in the form of Exhibit B (the "Escrow
Disposition Notice") delivered to the Escrow Agent and executed by Acquiror and
the Shareholder Agent, (ii) a final arbitration award secured under the
provisions of Section 4.3 hereof, or (iii) a certified or file-stamped copy of
an order of a court of competent jurisdiction pursuant to Section 9, as
applicable. The Escrow Agent shall promptly comply with such instructions, award
or order, as applicable, to the extent that there are sufficient Escrow Shares
in the Escrow Account to so comply. The number of Escrow Shares to be
distributed hereunder shall be (i) determined using the average closing price of
one Acquiror Common Share as reported on the NYSE for the ten (10) trading days
immediately preceding the date of such distribution and (ii) rounded to the
nearest whole share. The Shareholder Agent shall give the Shareholders prompt
written notice of any proposed disposition of Escrow Shares from the Escrow
Account.
4.2 Promptly following the earlier of the date that the [redacted]
Litigation (as defined in this Section 4.2) has been settled or otherwise
finally resolved or the date that a summary judgment to the effect that punitive
damages will not be allowed in such litigation has been granted, either of which
must be reflected in a final order of a court of competent jurisdiction from
which appeal may not be taken (due to lapse of time or otherwise), Acquiror and
the Shareholder Agent shall, subject to Section 4.3, prepare and deliver to the
Escrow Agent the Escrow Disposition Notice, and the Escrow Agent shall
distribute the Escrow Shares to the Shareholders and/or Acquiror in accordance
therewith. As used herein, the "[redacted] Litigation" shall mean [redacted].
4.3 Acquiror and the Shareholder Agent agree to use their respective best
efforts to resolve any dispute that may arise with respect to this Agreement
amicably and without resort to any third party dispute resolution forum. At any
time Acquiror on the one hand or the Shareholder Agent on the other believes
that a dispute exists among the parties with respect to this Agreement, it or he
shall give prompt written notice thereof to the other party(s), including the
Shareholders. Any dispute which has not been settled or resolved within thirty
(30) days of receipt by Acquiror or the Shareholder Agent of the notice thereof
shall be submitted for binding arbitration in Marion County, Indiana in an
arbitration proceeding that, except as may otherwise be provided
-46-
<PAGE> 52
herein, shall be conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association before a single arbitrator chosen in
accordance with such rules. All evidentiary and discovery matters shall be
conducted in accordance with and governed by the applicable Federal Rules of
Civil Procedure. No later than 10 calendar days after the arbitrator is
appointed, the arbitrator shall schedule the arbitration for a hearing to
commence on a mutually convenient date. All discovery shall be completed no
later than the commencement of the arbitration hearing or 90 calendar days after
the date that a proper demand for arbitration is served, whichever occurs first,
unless, upon a showing of good cause, the arbitrator extends such period. The
hearing shall commence no later than 90 calendar days after the arbitrator is
appointed and shall continue until completed. The arbitrator shall issue his or
her award in writing no later than 20 calendar days after the conclusion of the
hearing. The parties to this Agreement agree that, in rendering an award, the
arbitrator shall have no jurisdiction to consider evidence with respect to or
render any award of judgment for punitive damages or any other amount awarded
for purposes of imposing a penalty. The arbitrator shall not have the power to
amend this Agreement in any respect. The arbitrator's decision shall be binding
and conclusive upon the parties. The costs of any arbitration conducted pursuant
to this Section 4.3 shall be borne by the non-prevailing party(s), as identified
by the arbitrator, regardless of whether the subject dispute is arbitrated to
completion; provided, that any such costs shall be solely paid out of the Escrow
Account. Each party hereto agrees to provide notice of the commencement of any
such arbitration proceeding to the Escrow Agent and the other parties, as the
case may be.
5. CONTROL OF LITIGATION.
5.1 The Shareholder Agent shall control the defense, conduct or settlement
of the [redacted] Litigation, and Acquiror shall have the right, at its own
expense, to participate therein by giving written notice to the Shareholder
Agent. If the Shareholder Agent obtains an award from the third party claimant
in the [redacted] Litigation on behalf of the Shareholders, then Acquiror shall
be entitled to recover its costs, including reasonable attorney's fees of
outside counsel incurred in defending such claim and obtaining such award, from
the proceeds of such award; provided, that such recovery shall not be a waiver
of any right, claim or amount to which Acquiror may otherwise be entitled.
5.2 Notwithstanding anything herein to the contrary, the Shareholder Agent
shall not have the right to settle or compromise the [redacted] Litigation
without obtaining the prior written consent of Acquiror, which consent shall not
be unreasonably withheld. In addition, the Shareholder Agent shall not permit to
exist any lien, encumbrance or other adverse charge upon any asset of, or
consent to the imposition of any injunction against, Acquiror or any of its
affiliates without obtaining its prior written consent, which consent shall not
be unreasonably withheld.
6. ESCROW PROVISIONS.
6.1 This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto, and the Escrow Agent shall
determine its duties solely by reference to this Agreement and not by reference
to the Share Exchange Agreement or any other agreement. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto, except this Agreement. Subject to Sections 1.1 and 1.2,
the Escrow Agent's duties hereunder shall be ministerial in nature.
6.2 Upon termination of this Agreement and delivery of the balance of the
Escrow Shares to the parties entitled thereto, the Escrow Agent shall be
discharged from any further obligation hereunder.
6.3 The Escrow Agent shall not be responsible for the sufficiency or
accuracy of the form, execution, validity or genuineness of documents or
securities now or hereafter deposited hereunder, or for any endorsement thereon,
or for any lack of endorsement thereon, or for any description therein, nor
shall the Escrow Agent be responsible or liable in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such document, security or endorsement.
6.4 The Escrow Agent shall not be liable to the other parties hereto for
any error of judgment, action taken or omitted in good faith or mistake of fact
or law, or anything which it may do or refrain from doing in connection
therewith, except in the case of its own gross negligence, willful misconduct or
bad faith.
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<PAGE> 53
6.5 The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith and in accordance with the advice of such counsel.
6.6 The Escrow Agent shall be entitled to be indemnified and held harmless
by Acquiror and the Shareholders, jointly and severally, for any and all claims,
liabilities, costs, payments and expenses, including reasonable fees of counsel
(who may be selected by the Escrow Agent), incurred by the Escrow Agent which
arise out of or in connection with any act or omission by it in the performance
of its obligations under this Agreement, except in the case of the Escrow
Agent's own gross negligence, willful misconduct or bad faith.
7. TIME OF PERFORMANCE. Whenever under the terms hereof the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day of the Escrow Agent shall be deemed to be in full
compliance.
8. DEATH, DISABILITY, ETC. The death, disability, bankruptcy or insolvency
of any of the Shareholders shall not affect or prevent the performance by the
Escrow Agent of its obligations and instructions received hereunder. Without
limiting the foregoing sentence, the Shareholder Agent shall notify the Escrow
Agent in writing of any person who or that, as a result of a Shareholder's
death, disability, bankruptcy or insolvency, should receive distributions, if
any, that would otherwise be made hereunder to such Shareholder.
9. RESOLUTION OF CONTROVERSIES. In the event any dispute or controversy
arises respecting the administration or disposition of the Escrow Shares, or any
part thereof, and such dispute or controversy has not been submitted to
arbitration as provided in Section 4.3 hereof, the Escrow Agent shall refuse to
comply with the conflicting claims and demands of the parties, and the Escrow
Agent shall not be or become liable in any way to any person for so refusing to
comply. The Escrow Agent shall be entitled to continue to so refrain from acting
until it receives authorization in any of the forms stated in clauses (i), (ii)
and (iii) of the first sentence of Section 4.1. In the event of any such dispute
or controversy, the Escrow Agent shall have the right but not the obligation to
interplead the parties to such dispute or controversy in any court of competent
jurisdiction, including but not limited to the courts of the State of Indiana
and the United States District Court for the Southern District of Indiana which
shall be deemed to be courts of competent jurisdiction, and to deposit with such
court the Escrow Shares remaining in the Escrow Account, or any portion thereof.
Thereafter the Escrow Agent shall be fully released and discharged from all
further obligations hereunder with respect to the Escrow Shares held in the
Escrow Account or the portion thereof deposited with the court in such
proceedings, except in the case of its own gross negligence, willful misconduct,
or bad faith. Acquiror and the Shareholders, jointly and severally, shall
reimburse the Escrow Agent for all expenses, fees and charges (including
reasonable attorneys' fees and expenses) reasonably incurred by the Escrow Agent
in any such interpleader action.
10. RESIGNATION OR REMOVAL OF ESCROW AGENT. If the Escrow Agent resigns or
is removed, then Acquiror and the Shareholder Agent shall promptly mutually
agree upon and name a substitute for the Escrow Agent ("Successor Escrow
Agent"), which shall be a bank or trust company and which shall perform the same
duties and responsibilities, and which shall be entitled to the same protection
and substantially equivalent fees, as the original Escrow Agent named herein.
The Escrow Agent shall have the unequivocal right to resign as Escrow Agent upon
at least thirty (30) days' prior written notice delivered to Acquiror and the
Shareholder Agent (who shall promptly deliver such notice to the Shareholders);
provided, that, in any event, such resignation shall not be effective until such
time as a Successor Escrow Agent has been appointed, has accepted its
appointment and has taken possession of the Escrow Shares. Upon mutual agreement
by Acquiror and the Shareholder Agent, the Escrow Agent may be removed upon at
least thirty (30) days' prior written notice; provided, that, in any event, such
removal shall not be effective until such time as a Successor Escrow Agent has
been appointed, has accepted its appointment and has taken possession of the
Escrow Shares. In either of said events, if a Successor Escrow Agent is not
appointed within said thirty-day period, the Escrow Agent, Acquiror or the
Shareholder Agent may petition a court of competent jurisdiction to name a
Successor Escrow Agent, whether by interpleader or other appropriate action, and
the decision of such court shall be binding upon all parties to this Agreement.
In any event, the Successor Escrow Agent shall have capital and surplus equal to
or greater than the capital and surplus of the Escrow Agent.
-48-
<PAGE> 54
11. ACCEPTANCE OF ESCROW: COMPENSATION OF ESCROW AGENT. The Escrow Agent
hereby agrees to serve as Escrow Agent pursuant to this Agreement and to perform
the duties and responsibilities conferred upon it hereunder. The Escrow Agent
has agreed to serve hereunder for such fees as are set forth in Exhibit C, which
fees are to be paid as described in Exhibit C. Such fees shall be borne by
Acquiror. Acquiror shall pay the Escrow Agent periodically, and no less often
than annually, a reasonable fee for its services under this Escrow Agreement,
which fee shall be determined in accordance with the fee schedule for escrow
accounts then adopted by Escrow Agent at the time the Escrow Agent's services
are rendered hereunder.
12. TERMINATION. This Agreement shall terminate without further action of
any party when all of the terms hereof shall have been fully performed.
13. NOTICES. Any notice, request, instruction or other document to be given
under this Agreement by any party shall be in writing and shall be delivered
personally, by registered or certified mail, postage prepaid, return receipt
requested, by overnight courier or by facsimile transmission, as follows:
(a) If to Acquiror, at:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98402
Attention: General Counsel
Facsimile: (206) 756-4845
With a copy to:
Edmund O. Belsheim, Jr.
Bogle & Gates
Two Union Square
601 Union Street
Seattle, WA 98101-2346
Facsimile: (206) 621-2660
(b) If to the Shareholders, at:
c/o Thomas E. Phillippe, Jr.
---------------------------------------------
---------------------------------------------
Attention:
Facsimile:
With a copy to:
Marcus B. Chandler, Esq.
ICE MILLER DONADIO & RYAN
One American Square
Box 82001
Indianapolis, IN 46282-0002
Facsimile: (317) 236-2219
or to such other address or person as any party may designate by a notice to the
other parties which is given in the manner required above. Any such notice,
request, instruction or other document shall be deemed to have been delivered
and received as of the date personally delivered, or if mailed, three days after
the date so mailed, or if telecopied, the date on which such telecopy is sent
(as confirmed by return facsimile transmission) or if by overnight courier the
day following the day on which such notice is properly placed with the courier.
14. COOPERATION WITH ESCROW AGENT. The parties to this Agreement shall
cooperate with the Escrow Agent, as the Escrow Agent reasonably deems necessary
or desirable to perform its duties and obligations under this Agreement. Without
limiting the foregoing, upon reasonable request from the Escrow Agent, the
parties shall provide the Escrow Agent with all information necessary to make
any distribution, including names, addresses, social security numbers and tax
identification numbers. The Escrow Agent shall be entitled to rely upon the most
recent information received from any party without further inquiry and each
party shall be responsible for notifying the Escrow Agent of any new or changed
information pertaining to such party.
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<PAGE> 55
15. TAXES: REPORTS TO GOVERNMENTAL AUTHORITIES. The Shareholders severally
agree to assume any obligations imposed now or hereafter by any applicable tax
law with respect to any payment from the Escrow Account to the Shareholders
under this Agreement and undertake to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding taxes and any other
taxes, assessments or other governmental charges and any certifications and
governmental reporting required in connection therewith.
16. MISCELLANEOUS.
16.1 This Agreement may not be amended or modified in any way except by an
instrument in writing signed by all of the parties hereto.
16.2 This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Indiana without reference to its conflicts of law
provisions.
16.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
16.4 The headings contained in this Agreement are for convenience only,
shall not affect this Agreement in any way, and shall not be used to construe or
interpret the scope or intent of this Agreement.
16.5 This Agreement shall inure to the benefit of and shall bind the
parties hereto and their respective heirs, devisees, personal representatives,
successors, transferees and assigns; provided, that, except as otherwise
expressly set forth in this Agreement, including without limitation Section 10,
neither the rights nor the obligations of any party may be assigned or delegated
without the prior written consent of the other parties.
IN WITNESS WHEREOF, the parties have duly executed and have caused to be
duly executed this Agreement as of the date first written above.
THE HILLHAVEN CORPORATION
By
--------------------------------
Name:
Title:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
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BANK ONE, INDIANAPOLIS, N.A.
By
--------------------------------
Name:
Title:
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EXHIBIT A
SHAREHOLDERS
INDIVIDUAL
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
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EXHIBIT B
ESCROW DISPOSITION NOTICE
To: Bank One, Indianapolis, N.A.
From: The Hillhaven Corporation
Thomas E. Phillippe, Jr.
Date:
---------------------------
This Escrow Disposition Notice is delivered to you pursuant to Section 4.1
of the Escrow Agreement, dated , 1995 (the "Escrow Agreement"), by
and among The Hillhaven Corporation, a Nevada corporation, the Shareholders and
Bank One, Indianapolis, N.A. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to those terms in the Escrow Agreement.
Please be advised that you are hereby directed to distribute from the
Escrow Account the property now held in your possession and described herein in
the following manner, to wit:
[STATE THE NUMBER OF ESCROW SHARES/AMOUNT OF CASH TO BE DISTRIBUTED AND THE
RECIPIENT(S) OF SUCH SHARES/CASH]
Signed this day of , 1995.
THE HILLHAVEN CORPORATION
By
----------------------------------
Name:
Title:
-------------------------------------
Thomas E. Phillippe, Jr.
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EXHIBIT C
ESCROW AGENT FEES
DOLLARS ($ ) PER YEAR
-53-
<PAGE> 59
EXHIBIT 6.6(A)
, 1995
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Gentlemen:
Reference is made to the Restated and Amended Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests dated as of February 27,
1995 (the "Agreement"), by and among The Hillhaven Corporation ("Acquiror"),
Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc. ("PEI"),
Meadowvale Skilled Care Center, Inc. ("Meadowvale") and specified Partners of
Camelot Care Centers ("Camelot"), Evergreen Woods, Ltd. ("Evergreen") and
Shangri-La Partnership (Nationwide, PEI and Meadowvale are collectively referred
to herein as the "Corporate Targets"; Camelot and Evergreen are collectively
referred to herein as the "Partnership Targets"; the Corporate Targets and
Partnership Targets are collectively referred to herein as the "Targets"),
providing for the exchange of all of the outstanding common stock of each of the
Corporate Targets for common stock of the Acquiror and the assignment of all
interests in the Partnership Targets to Nationwide (collectively, the
"Acquisitions"). Pursuant to the Agreement, I may receive a certain number of
shares of Common Stock, par value $0.75 per share, of Acquiror in exchange for
the shares of Common Stock of the Corporate Targets (the "Target Common Shares")
or interests in the Partnership Targets (the "Target Interests") owned by me
(all shares of Acquiror Common Stock to be acquired by me pursuant to the
Agreement being hereinafter referred to as "Acquiror Common Shares").
I have been advised that I may be deemed to be an "affiliate" of at least
one of the Targets within the meaning of Rule 144 of the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"),
and as that term is used in paragraphs (c) and (d) of Rule 145 under the Act.
For all purposes of this letter, the term "affiliate" shall have the foregoing
meaning. I understand that the Targets are obligated, pursuant to Section 6.6 of
the Agreement, to use their best efforts to cause me, and each person identified
as a possible affiliate, to deliver this letter (hereinafter referred to as an
"Affiliate Letter") to Acquiror.
A. In connection with, and in consideration of, the matters set forth
above:
1. I confirm that I have no agreement (oral or written) with any other
affiliate of the Targets pursuant to which I am subject to restrictions on
sales similar to the restrictions in this Affiliate Letter. I represent and
warrant that as of the date hereof I beneficially own such Target Common
Shares and Target Interests as are listed on Schedule A attached hereto.
2. I understand that the Acquiror Common Shares will, upon the
effectiveness of the Acquisitions, be registered with the SEC under the
Act. However, I also understand that, since I may be an affiliate of one of
the Targets at the time the Agreement is submitted to the stockholders and
partners of the Targets for approval and the distribution by me as a former
affiliate of a Target of Acquiror Common Shares has not been registered
under the Act, any sale or disposition by me of any of the Acquiror Common
Shares may, under current law, be made only in conformity with the
provisions of Rule 145(d) under the Act, pursuant to an effective
registration statement under the Act, or pursuant to an exemption from
registration thereunder. I understand that the provisions of Rule 145(d)
restrict my sales, during the two-year period after the effective date of
the Acquisitions, and permit sales, in general, while Acquiror is subject
to the requirements to file, and is filing, periodic reports under Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, 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 Acquiror securities sold for my account during the preceding
three-month period, does not exceed, generally, the greater of (i) one
percent of the outstanding shares of Common Stock of Acquiror, or (ii) the
average weekly volume of trading in such securities on all national
securities exchanges and/or reported through the automated quotation system
of a registered securities association during the four-week period
preceding any such sale, all as set forth in more detail in Rules 144 and
145 under the Act.
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3. In view of the foregoing paragraph 2, unless the Agreement is
terminated, I agree that after the effective date of the Acquisitions, I
will not offer to sell, sell or otherwise dispose of Acquiror Common Shares
except (i) pursuant to an effective registration statement; (ii) pursuant
to the provisions of Rule 145 under the Act; or (iii) pursuant to another
exemption from registration under the Act.
4. I have carefully read this letter and understand the limitations
stated herein upon the sale, transfer or other disposition of (i) Target
Common Shares and Target Interests beneficially owned by me or hereafter
acquired by me and (ii) Acquiror Common Shares that I may acquire pursuant
to the Agreement.
B. In connection herewith, Acquiror represents, warrants, acknowledges and
agrees as follows:
1. Acquiror shall not give, or cause to be given, stop transfer
instructions to the transfer agent of Acquiror with respect to any of the
Acquiror Common Shares issued in connection with the Acquisitions except
for such instructions as shall be in conformity with the provisions hereof,
and shall place, or cause to be placed, on any certificate representing
such Acquiror Common Shares only the following legend:
The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement
dated , 1995 between the registered holder and The
Hillhaven Corporation, a copy of which is on file at the principal
offices of The Hillhaven Corporation.
2. Acquiror shall 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 Act to be satisfied.
Very truly yours,
--------------------------------------
Agreed this day of
, 1995:
The Hillhaven Corporation
- ---------------------------------------------------------
Name:
Title:
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EXHIBIT 6.6(B)
, 1995
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Gentlemen:
Reference is made to the Restated and Amended Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests dated as of February 27,
1995 (the "Agreement"), by and among The Hillhaven Corporation ("Acquiror"),
Nationwide Care, Inc. ("Nationwide"), Phillippe Enterprises, Inc. ("PEI"),
Meadowvale Skilled Care Center, Inc. ("Meadowvale") and specified Partners of
Camelot Care Centers ("Camelot"), Evergreen Woods, Ltd. ("Evergreen") and
Shangri-La Partnership (Nationwide, PEI and Meadowvale are collectively referred
to herein as the "Corporate Targets"; Camelot and Evergreen are collectively
referred to herein as the "Partnership Targets"; the Corporate Targets and
Partnership Targets are collectively referred to herein as the "Targets"),
providing for the exchange of all of the outstanding common stock of each of the
Corporate Targets for common stock of the Acquiror and the assignment of all
interests in the Partnership Targets to Nationwide (collectively, the
"Acquisitions"). Pursuant to the Agreement, I may receive a certain number of
shares of Common Stock, par value $0.75 per share, of Acquiror in exchange for
the shares of Common Stock of the Corporate Targets (the "Target Common Shares")
or interests in the Partnership Targets (the "Target Interests") owned by me
(all shares of Acquiror Common Stock to be acquired by me pursuant to the
Agreement being hereinafter referred to as "Acquiror Common Shares").
I understand that the Targets are obligated, pursuant to Section 6.6 of the
Agreement, to use their best efforts to cause each shareholder of the Corporate
Targets and each partner of the Partnership Targets to deliver this letter
(hereinafter referred to as the a "Pooling Letter") to Acquiror.
In connection with, and in consideration of, the matters set forth above:
1. I confirm that I have no agreement (oral or written) with any
other shareholder or partner of the Targets pursuant to which I am subject
to restrictions on sales similar to the restrictions in this Pooling
Letter. I represent and warrant that as of the date hereof I beneficially
own such Target Common Shares and Target Interests as are listed on
Schedule A attached hereto.
2. I understand that, for accounting purposes, it is anticipated that
the Acquisitions will qualify for pooling-of-interests accounting treatment
under generally accepted accounting principles and that, in order for the
Acquisitions to so qualify, shareholders or partners of any Target can sell
Target Common Shares, Target Interests and Acquiror Common Shares only in
accordance with certain restrictions. In this connection, I will not make
any sales of Target Common Shares or Target Interests prior to the
effective date of the Acquisitions, or sales of Acquiror Common Shares
after the effective date of the Acquisitions, that would cause the criteria
for pooling-of-interests accounting treatment to be violated, it being
understood that sales of shares in accordance with paragraph 3 below shall
be deemed not to violate my obligations under this Pooling Letter.
3. In view of the foregoing paragraph 2, unless the Agreement is
terminated, I agree that with respect to the period beginning on the
effective date of the Acquisitions and ending at such time as financial
results covering at least 30 days of post-Acquisition combined operations
have been published, I will not sell, transfer or otherwise dispose of, or
reduce my interest in, or risk relating to, any Acquiror Common Shares
received by me pursuant to the Agreement, unless prior to any such
transaction I have obtained a letter from an independent public accounting
firm satisfactory to Acquiror to the effect that such transactions will not
cause the criteria for pooling-of-interests accounting to be violated.
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4. I have carefully read this letter and understand the limitations
stated herein upon the sale, transfer or other disposition of (i) Target
Common Shares and Target Interests beneficially owned by me or hereafter
acquired by me and (ii) Acquiror Common Shares that I may acquire pursuant
to the Agreement.
Very truly yours,
------------------------------------
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EXHIBIT 6.15(A)
CERTIFICATE
EXECUTED BY NATIONWIDE CARE, INC.
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 9.10 of the Reorganization Agreement, the
undersigned has requested the opinions of Ice Miller Donadio & Ryan as to
certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In accordance with Section 8.12 of the Reorganization
Agreement, Acquiror has requested the opinions of KPMG Peat Marwick LLP as to
certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In rendering their opinions, Ice Miller Donadio & Ryan and
KPMG Peat Marwick LLP may assume that, and the undersigned hereby certifies,
represents, and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick
LLP that: (1) the Share Exchange will be consummated in accordance with the
terms, conditions, and other provisions of the Transaction Documents; and (2)
all of the factual information, descriptions, representations, and assumptions
set forth in the Transaction Documents, in the Form S-4 Registration Statement
filed with the Securities and Exchange Commission on April 14, 1995 in
connection with the Share Exchange, as amended (the "Registration Statement"),
and in this Certificate are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time of the Share Exchange (the
"Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick LLP as
follows:
THE SHARE EXCHANGE
Nationwide operates long-term health care centers primarily located in
Indiana, Ohio and Florida. Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe,
Jr. are the majority owners of Nationwide. The capital structure of Nationwide
consists of: 48,000,000 authorized shares of Common Stock, without par value, of
which approximately 7,431,458 shares are issued and outstanding (the "Nationwide
Voting Common"); 2,000,000 authorized shares of Nonvoting Common Stock, without
par value, of which 76,592 shares are issued and outstanding (the "Nationwide
Nonvoting Common") (the Nationwide Voting Common and the Nationwide Nonvoting
Common are collectively referred to herein as the "Nationwide Common Shares");
and 2,000,000 authorized shares of Preferred Stock, without par value, of which
300,000 shares of Redeemable Preferred Stock are issued and outstanding (the
"Nationwide Preferred Stock"). Nationwide also has outstanding warrants to
purchase 987,188 shares of Nationwide Nonvoting Common (the "Nationwide
Warrants"). Nationwide files a consolidated return with its one subsidiary, and
Nationwide does not have an excess loss account with respect to the stock of, or
gains deferred under Treasury Regulation sec. 1.1502-13 with respect to, any
such subsidiary. The Share Exchange is totally unrelated to the Nationwide 1993
reorganization.
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The Transaction Documents provide that all of the outstanding Nationwide
Common Shares will be exchanged solely for shares of Acquiror Voting Common
Stock ("Acquiror Common Shares"). The Share Exchange will be consummated in
accordance with the Indiana Business Corporation Law, as amended ("BCL"), and
the Nevada General Corporation Law, as amended ("NCL"). The Share Exchange was
approved by the Board of Directors of Nationwide on April 12, 1995 and is
subject to the approval of the holders of a majority of the outstanding shares
of Nationwide stock at a duly called and held meeting of the Nationwide
shareholders on or about June 23, 1995.
At the Effective Time, each Nationwide Common Share then outstanding will
be exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
Prior to the Effective Time, the Nationwide Preferred Stock will be
redeemed by Nationwide with its own funds and without reimbursement directly or
indirectly from Acquiror. Prior to the Effective Time, the Nationwide Warrants
shall be exercised into the corresponding number of Nationwide Nonvoting Common
pursuant to the terms of the Warrants, and the resulting Nationwide Nonvoting
Common will be exchanged for that number of Acquiror Common Shares determined in
accordance with the Reorganization Agreement, rounded to the nearest whole
share.
At the Closing, the Nationwide Subordinated Notes will be prepaid directly
by Acquiror. The Nationwide Subordinated Notes are debt (not stock or equity)
under general principles of federal taxation law, and Acquiror will not pay any
amounts in excess of such indebtedness. The Nationwide Common Shares held by the
holders of the Nationwide Subordinated Notes shall be valued in the Share
Exchange in the same manner as other Nationwide Common Shares.
Except for the redemption of the Nationwide Preferred Stock, there have
been and will be no distributions to any of the Nationwide shareholders with
respect to their Nationwide stock in contemplation of the Share Exchange, and no
Nationwide stock has been or will be sold, redeemed or otherwise disposed of in
contemplation of the Share Exchange. Nationwide shareholders are entitled to
dissenters' rights in connection with the proposed Share Exchange. Any payments
to dissenters in connection with the Share Exchange shall be made by Nationwide
out of its own funds without reimbursement directly or indirectly from Acquiror.
Except for the Nationwide Warrants, there are no outstanding options or
warrants to purchase any Nationwide stock or outstanding securities or other
instruments or rights convertible into any Nationwide stock or which constitute
equity under general principles of federal tax law, and no such options,
warrants, securities, instruments, or rights have been or will be issued or
cancelled in contemplation of the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value and they do not represent
liabilities. None of the Acquiror Common Shares are being transferred pursuant
to the Reorganization Agreement in exchange for such Partnership Interests. The
shareholders of the Targets and Partners of the Partnerships were not the
primary obligors with respect to the obligations which they personally
guaranteed and which will be released prior to the Share Exchange. The Target
Common Shares held by the Partners and by the guarantors shall be valued in the
Share Exchange in the same manner as the other Target Common Shares. Any debts
owed by any Partnership to any of the Target shareholders shall be paid by
Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal
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Revenue Code of 1986, as amended (the "Code"). In the Merger, Acquiror
shareholders will receive only Vencor voting Common Shares and cash in lieu of
fractional shares. The Merger is not a condition to, integrated with, nor
interdependent upon, the Share Exchange.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the Acquiror Common Shares received by
each Nationwide shareholder will be approximately equal to the fair market
value of the Nationwide Common Shares surrendered in exchange therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the shareholders of Nationwide who own one percent or more of
the shares of Nationwide stock, and to the best of the knowledge of the
management of Nationwide, except for the Merger, there is no plan or
intention on the part of the remaining shareholders of Nationwide to sell,
exchange, pledge, or otherwise dispose of a number of Acquiror Common
Shares received in the Share Exchange (or Vencor voting Common Shares
received in the Merger) that would reduce the Nationwide shareholders'
ownership of such Acquiror Common Shares (i.e., the Acquiror Common Shares
received in the Share Exchange)(or Vencor voting Common Shares) to a number
of shares having an aggregate value, as of the Effective Time (and as of
the effective time of the Merger), of less than 50 percent of the value of
all of the formerly outstanding shares of Nationwide stock as of the same
dates. For purposes of this representation, shares of Nationwide stock
surrendered by dissenters will be treated as outstanding shares of
Nationwide stock at the Effective Time. Moreover, shares of Nationwide
stock and Acquiror Common Shares (or Vencor voting Common Shares) held by
Nationwide shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the Share Exchange (including the Nationwide Preferred
Stock) will be considered in making this representation. Except for the
redemption of the Nationwide Preferred Stock, there have been and will be
no distributions to the Nationwide shareholders with respect to their
Nationwide stock (or Vencor Voting Common Shares) made in contemplation of
the Share Exchange (or the Merger), and no Nationwide stock (or Vencor
voting Common Shares) has been or will be sold, redeemed or otherwise
disposed of in contemplation of the Share Exchange (or the Merger).
3. Nationwide has no plan or intention to issue additional shares of
its stock that would result in Acquiror losing control of Nationwide within
the meaning of Code Section 368(c).
4. Acquiror will acquire Nationwide stock solely in exchange for
Acquiror voting stock (Acquiror Common Shares). For purposes of this
representation, Nationwide stock redeemed for cash or other property
furnished by Acquiror will be considered as acquired by Acquiror. Further,
no liabilities of Nationwide or the Nationwide shareholders will be assumed
by Acquiror, nor will any of the Nationwide stock be subject to any
liabilities. Specifically,
(a) the Nationwide Subordinated Notes are bona fide debt (and not
stock or equity) for federal income tax purposes;
(b) the Nationwide Common Shares held by persons who are also
holders of Nationwide Subordinated Notes will be exchanged for the same
per share number of Acquiror Common Shares as will Nationwide Common
Shares held by persons who are not holders of Nationwide Subordinated
Notes;
(c) no holder of Nationwide Common Shares or Nationwide Preferred
Stock is or has been a guarantor of the Nationwide Subordinated Notes;
(d) the amount of the option termination payment is equal to the
fair market value of the amount the Optionees are entitled to receive
solely as consideration for the termination of the Option to Purchase
dated January 25, 1993. The option termination payment will be made by
Nationwide out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by Acquiror, nor will Acquiror directly
or indirectly reimburse Nationwide for any amount of such payment. The
Nationwide Common Shares held by persons who are also Optionees will be
exchanged for the same
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per share number of Acquiror Common Shares as will Nationwide Common
Shares held by persons who are not Optionees; and
(e) no shareholder of Nationwide is a primary obligor on
indebtedness which they personally guarantee and from which personal
guarantee the shareholder will be released pursuant to the
Reorganization Agreement. No debtor with respect to any indebtedness
subject to a guarantee that will be released is so thinly capitalized
that a guarantor is considered the true debtor of such indebtedness for
federal tax purposes. The Nationwide Common Shares held by persons who
are guarantors will be exchanged for the same per share number of
Hillhaven Common Shares as will Nationwide Common Shares held by persons
who are not guarantors.
5. At the Effective Time, Nationwide will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Nationwide that, if
exercised or converted, would affect Acquiror's acquisition or retention of
control of Nationwide, as defined in Code Section 368(c).
6. Nationwide will pay its dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by Acquiror, nor will Acquiror directly or
indirectly reimburse Nationwide for any payments to dissenters.
7. The liabilities of Nationwide were incurred by Nationwide in the
ordinary course of its business.
8. Acquiror does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Nationwide stock,
including ownership by any Acquiror subsidiary.
9. Nationwide will pay its expenses incurred in connection with the
Share Exchange. Nationwide will not pay the expenses of Acquiror or the
Nationwide shareholders incurred in connection with the Share Exchange;
provided, however, that Nationwide may pay certain expenses it was
previously obligated to pay by contract in connection with the issuance of
the Nationwide Warrants, Nationwide Subordinated Notes and Nationwide
Preferred Stock out of its own funds and without reimbursement directly or
indirectly from Acquiror.
10. There is no intercorporate indebtedness existing between Acquiror
and Nationwide or between Acquiror and any Nationwide subsidiary that was
issued, acquired, or will be settled at a discount.
11. Neither Nationwide nor any Nationwide subsidiary is an investment
company as defined in Code Sections 368 (a)(2)(F)(iii) and
368(a)(2)(F)(iv).
12. Neither Nationwide nor any Nationwide subsidiary is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Code Section 368(a)(3)(A).
13. At the Effective Time, the fair market value of the assets of
Nationwide will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
14. None of the compensation received by any shareholder who is an
employee of Nationwide or any other Target will be separate consideration
for, or allocable to, any of their shares of Nationwide stock. None of the
Acquiror Common Shares received by any shareholder who is an employee of
Nationwide or any other Target will be separate consideration for, or
allocable to, any employment agreement. The compensation paid to any
shareholder who is an employee of Nationwide or any other Target will be
for services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
15. At the time of the Nationwide Reorganization in July 1993, there
was no plan or intention on the part of Nationwide or the Nationwide
shareholders to engage in the Share Exchange, the Merger, or any other
sale, exchange or other disposition of the stock or substantial amount of
the assets of Nationwide.
16. Following the Share Exchange, Nationwide will continue its
historic business or use a significant portion of its historic business
assets in a business.
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17. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in the
Registration Statement. Nationwide has looked for opportunities to expand
its nursing care operations and increase its operating efficiencies.
Nationwide also recognizes that some of its senior management executives,
who are both officers and directors, are approaching retirement age, and
others have expressed a desire to reduce or discontinue their role in the
management of Nationwide. Consequently, Nationwide, in considering business
expansion opportunities, has looked for businesses with strong senior
management with experience in the nursing care industry. Nationwide
determined that Acquiror offers an opportunity for it to meet these
objectives. Nationwide believes that a combination of its operations with
Acquiror will provide increased opportunity and flexibility for profitable
expansion and diversification, will enhance its ability to provide more
efficient and dependable service, and will result in operating efficiencies
and cost savings.
18. To the extent that a portion of the Acquiror Common Shares issued
by Acquiror in exchange for Nationwide Common Shares will be placed in
escrow by the Nationwide shareholders and will be made subject to a
condition pursuant to the Reorganization Agreement and the Escrow Agreement
and Supplemental Escrow Agreement, for possible return to Acquiror under
specified conditions: (a) there is a valid business reason for establishing
the arrangement in that the escrow is a mechanism to accomplish an exchange
price adjustment, bargained for at arm's-length, in the event of a breach
by Nationwide; (b) the Acquiror Common Shares subject to such arrangement
will appear as issued and outstanding on the balance sheet of Acquiror and
such Acquiror Common Shares will be legally outstanding under applicable
state law; (c) all dividends paid on such Acquiror Common Shares will be
distributed currently to the Nationwide shareholders; (d) all voting rights
of such Acquiror Common Shares will be exercisable by or on behalf of the
Nationwide shareholders or their authorized agent; (e) no such Acquiror
Common Shares will be subject to restrictions requiring their return to
Acquiror because of death, failure to continue employment, or similar
restrictions; (f) all such Acquiror Common Shares will be released from the
arrangement within five years from the date of consummation of the Share
Exchange (except where there is a bona fide dispute as to whom the Acquiror
Common Shares should be released); (g) at least 50 percent of the number of
each class of Acquiror Common Shares issued initially to the Nationwide
shareholders will not be subject to the arrangement; (h) the return of the
Acquiror Common Shares will not be triggered by an event the occurrence or
nonoccurrence of which is within the control of the Nationwide
shareholders; (i) the return of Acquiror Common Shares will not be
triggered by the payment of additional tax or reduction in tax paid as a
result of an Internal Revenue Service audit of the Nationwide shareholders
or the corporations either (i) with respect to the Share Exchange, or (ii)
when the Share Exchange involves persons related within the meaning of Code
Section 267(c)(4); and (j) the mechanism for the calculation of the number
of Acquiror Common Shares to be returned is objective and readily
ascertainable.
The foregoing is provided to Ice Miller Donadio & Ryan and to KPMG Peat
Marwick LLP in connection with the preparation of their opinions. We understand
that the opinions will be premised on the basis that all of the facts,
representations, and assumptions on which they are relying, whether contained
herein or elsewhere, are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time. Ice Miller Donadio & Ryan and KPMG
Peat Marwick LLP reserve the right to request additional representations prior
to the issuance of their opinions.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 19th day of May, 1995.
NATIONWIDE CARE, INC.
By:
-----------------------------
Dr. Thomas E. Phillippe, Sr.,
Chairman of the Board
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EXHIBIT 6.15(B)
CERTIFICATE
EXECUTED BY PHILLIPPE ENTERPRISES, INC.
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 9.10 of the Reorganization Agreement, the
undersigned has requested the opinions of Ice Miller Donadio & Ryan as to
certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In accordance with Section 8.12 of the Reorganization
Agreement, the Acquiror has requested the opinions of KPMG Peat Marwick LLP as
to certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In rendering their opinions, Ice Miller Donadio & Ryan and
KPMG Peat Marwick LLP may assume that, and the undersigned hereby certifies,
represents, and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick,
LLP that: (1) the Share Exchange will be consummated in accordance with the
terms, conditions, and other provisions of the Transaction Documents; and (2)
all of the factual information, descriptions, representations, and assumptions
set forth in the Transaction Documents, in the Form S-4 Registration Statement
filed with the Securities and Exchange Commission on April 14, 1995 in
connection with the Share Exchange, as amended (the "Registration Statement"),
and in this Certificate are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time of the Share Exchange (the
"Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick, LLP as
follows:
THE SHARE EXCHANGE
PEI owns the Heritage at Hernando Assisted Living Center in Brooksville,
Florida, which is currently managed by Nationwide. Dr. Thomas E. Phillippe, Sr.
and Thomas E. Phillippe, Jr. each own 50% of the issued and outstanding PEI
Common Shares.
The capital structure of PEI consists of 10,000 authorized shares of Common
Stock, without par value, of which 2,000 are issued and outstanding (the "PEI
Common Shares"). PEI has no subsidiaries. There are no outstanding options to
purchase PEI Common Shares or outstanding securities or other instruments
convertible into PEI Common Shares or which constitute equity under general
principles of federal tax law, and no such options, warrants, securities,
instruments, or rights have been or will be issued or cancelled in contemplation
of the Share Exchange.
The Transaction Documents provide that all of the outstanding PEI Common
Shares will be exchanged solely for Acquiror voting Common Stock ("Acquiror
Common Shares"). The Share Exchange will be consummated in accordance with the
Indiana Business Corporation Law, as amended ("BCL"), and the Nevada General
Corporation Law, as amended ("NCL"). The Share Exchange was approved by the
Board of Directors of PEI on April 12, 1995 and will be approved by unanimous
written consent of the holders of all of the outstanding PEI Common Shares prior
to Closing.
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At the Effective Time, each PEI Common Share then outstanding will be
exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value, nor do they represent
liabilities. None of the Acquiror Common Shares are being transferred pursuant
to the Reorganization Agreement in exchange for such Partnership Interests. The
shareholders of the Targets and the Partners of the Partnerships were not the
primary obligors with respect to the obligations which they personally
guaranteed and which will be released prior to the Share Exchange. The Target
Common Shares held by the Partners and by the guarantors shall be valued in the
Share Exchange in the same manner as the other Target Common Shares. Any debts
owed by any Partnership to any of the Target shareholders shall be paid by
Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Section 368(a)(1)(A) and 368(A)(2)(D)
of the Internal Revenue Code of 1986, as amended (the "Code"). In the Merger,
Acquiror shareholders will receive only Vencor voting Common Shares and cash in
lieu of fractional shares.The Merger is not a condition to, integrated with, nor
interdependent upon, the Share Exchange.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the Acquiror Common Shares received by
each PEI shareholder will be approximately equal to the fair market value
of the PEI Common Shares surrendered in exchange therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the shareholders of PEI who own one percent or more of the PEI
Common Shares, and to the best of the knowledge of the management of PEI,
except for the Merger, there is no plan or intention on the part of the
remaining shareholders of PEI to sell, exchange, pledge or otherwise
dispose of a number of Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the Merger) that would
reduce the PEI shareholders' ownership of such Acquiror Common Shares
(i.e., the Acquiror Common Shares received in the Share Exchange) (or
Vencor voting Common Shares received in the Merger) to a number of shares
having an aggregate value, as of the Effective Time (and as of the
effective time of the Merger), of less than 50 percent of the value of all
of the formerly outstanding PEI Common Shares as of the same dates. For
purposes of this representation, PEI Common Shares surrendered by
dissenters will be treated as outstanding PEI Common Shares at the
Effective Time. Moreover, PEI Common Shares and Acquiror Common Shares (or
Vencor voting Common Shares) held by PEI shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Share Exchange will be
considered in making this representation. There have been and will be no
distributions to the PEI shareholders with respect to their PEI Common
Shares (or Vencor voting Common Shares) made in contemplation of the Share
Exchange (or the Merger), and no PEI Common Shares (or Vencor voting Common
Shares) have been or will be sold, redeemed or otherwise disposed of in
contemplation of the Share Exchange (or the Merger).
3. PEI has no plan or intention to issue additional shares of its
stock that would result in Acquiror losing control of PEI within the
meaning of Code Section 368(c).
4. Acquiror will acquire PEI Common Shares solely in exchange for
Acquiror voting stock (Acquiror Common Shares). For purposes of this
representation, PEI Common Shares redeemed for
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cash or other property furnished by Acquiror will be considered as acquired
by Acquiror. Further, no liabilities of PEI or the PEI shareholders will be
assumed by Acquiror, nor will any of the PEI Common Shares be subject to
any liabilities. Specifically,
(a) no holders of PEI Common Shares are also holders of Nationwide
Subordinated Notes;
(b) no holder of PEI Common Shares is or has been a guarantor of
the Nationwide Subordinated Notes; and
(c) no shareholder of PEI is a primary obligor on indebtedness
which they personally guaranteed and from which personal guarantee the
shareholder will be released pursuant to the Reorganization Agreement.
No debtor with respect to any indebtedness subject to a guarantee that
will be released is so thinly capitalized that a guarantor is considered
the true debtor of such indebtedness for federal tax purposes. No amount
of consideration for PEI Common Shares surrendered in the Share Exchange
is represented by the release of the personal guarantees of the
guarantors.
5. At the Effective Time, PEI will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to
which any person could acquire stock in PEI that, if exercised or
converted, would affect Acquiror's acquisition or retention of control of
PEI, as defined in Code Section 368(c).
6. PEI will pay its dissenting shareholders the value of their stock
out of its own funds (there will be no dissenters). No funds will be
supplied for that purpose, directly or indirectly, by Acquiror, nor will
Acquiror directly or indirectly reimburse PEI for any payments to
dissenters.
7. The liabilities of PEI were incurred by PEI in the ordinary course
of its business.
8. Acquiror does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any PEI stock,
including ownership by any Acquiror subsidiary.
9. PEI will pay its expenses incurred in connection with the Share
Exchange. PEI will not pay the expenses of Acquiror or the PEI shareholders
incurred in connection with the Share Exchange.
10. There is no intercorporate indebtedness existing between Acquiror
and PEI that was issued, acquired, or will be settled at a discount.
11. PEI is not an investment company as defined in Code Sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
12. PEI is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
13. At the Effective Time, the fair market value of the assets of PEI
will exceed the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
14. None of the compensation received by any shareholder who is an
employee of PEI or any other Target will be separate consideration for, or
allocable to, any of their PEI Common Shares. None of the Acquiror Common
Shares received by any shareholder who is an employee of PEI or any other
Target will be separate consideration for, or allocable to, any employment
agreement. The compensation paid to any shareholder who is an employee of
PEI or any other Target will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
15. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in the
Registration Statement. PEI has looked for opportunities to expand its
nursing care operations and increase operating efficiencies. PEI also
recognizes that some of its senior management executives, who are both
officers and directors, are approaching retirement age, and others have
expressed a desire to reduce or discontinue their role in the management of
PEI. Consequently, PEI in considering business expansion opportunities, has
looked for businesses with strong senior management with experience in the
nursing care industry. PEI determined that Acquiror offers an opportunity
for it to meet these objectives. PEI believes that a combination of its
operations with Acquiror will provide increased opportunity and flexibility
for profitable expansion and diversification, will enhance its ability to
provide more efficient and dependable service, and will result in operating
efficiencies and cost savings.
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16. To the extent that a portion of the Acquiror Common Shares issued
by Acquiror in exchange for PEI Common Shares will be placed in escrow by
the PEI shareholders and will be made subject to a condition pursuant to
the Reorganization Agreement and the Escrow Agreement and Supplemental
Escrow Agreement, for possible return to Acquiror under specified
conditions: (a) there is a valid business reason for establishing the
arrangement in that the escrow is a mechanism to accomplish an exchange
price adjustment, bargained for at arm's-length, in the event of a breach
by PEI; (b) the Acquiror Common Shares subject to such arrangement will
appear as issued and outstanding on the balance sheet of Acquiror and such
Acquiror Common Shares will be legally outstanding under applicable state
law; (c) all dividends paid on such Acquiror Common Shares will be
distributed currently to the PEI shareholders; (d) all voting rights of
such Acquiror Common Shares will be exercisable by or on behalf of the PEI
shareholders or their authorized agent; (e) no such Acquiror Common Shares
will be subject to restrictions requiring their return to Acquiror because
of death, failure to continue employment, or similar restrictions; (f) all
such Acquiror Common Shares will be released from the arrangement within
five years from the date of consummation of the Share Exchange (except
where there is a bona fide dispute as to whom the Acquiror Common Shares
should be released); (g) at least 50 percent of each class of Acquiror
Common Shares issued initially to the PEI shareholders will not be subject
to the arrangement; (h) the return of the Acquiror Common Shares will not
be triggered by an event the occurrence or nonoccurrence of which is within
the control of the PEI shareholders; (i) the return of Acquiror Common
Shares will not be triggered by the payment of additional tax or reduction
in tax paid as a result of an Internal Revenue Service audit of the PEI
shareholders or the corporations either (i) with respect to the Share
Exchange, or (ii) when the Share Exchange involves persons related within
the meaning of Code Section 267(c)(4); and (j) the mechanism for the
calculation of the number of Acquiror Common Shares to be returned is
objective and readily ascertainable.
The foregoing is provided to Ice Miller Donadio & Ryan and to KPMG Peat
Marwick LLP in connection with the preparation of their opinions. We understand
that the opinions will be premised on the basis that all of the facts,
representations, and assumptions on which they are relying, whether contained
herein or elsewhere, are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time. Ice Miller Donadio & Ryan and KPMG
Peat Marwick LLP reserve the right to request additional representations prior
to the issuance of their opinions.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 19th day of May, 1995.
PHILLIPPE ENTERPRISES, INC.
By:
--------------------------------------
Dr. Thomas E. Phillippe, Sr., Chairman
of the Board
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EXHIBIT 6.15(C)
CERTIFICATE
EXECUTED BY MEADOWVALE SKILLED CARE CENTER, INC.
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 9.10 of the Reorganization Agreement, the
undersigned has requested the opinions of Ice Miller Donadio & Ryan as to
certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In accordance with Section 8.12 of the Reorganization
Agreement, Acquiror has requested the opinions of KPMG Peat Marwick LLP as to
certain federal income tax consequences of the Share Exchange as a condition
precedent to Closing. In rendering their opinions, Ice Miller Donadio & Ryan and
to KPMG Peat Marwick LLP may assume that, and the undersigned hereby certifies,
represents, and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick
LLP that: (1) the Share Exchange will be consummated in accordance with the
terms, conditions, and other provisions of the Transaction Documents; and (2)
all of the factual information, descriptions, representations, and assumptions
set forth in the Transaction Documents, in the Form S-4 Registration Statement
filed with the Securities and Exchange Commission on April 14, 1995 in
connection with the Share Exchange, as amended (the "Registration Statement"),
and in this Certificate are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time of the Share Exchange (the
"Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to Ice Miller Donadio & Ryan and to KPMG Peat Marwick LLP as
follows:
THE SHARE EXCHANGE
Meadowvale is owned by seven shareholders. Meadowvale owns the Meadowvale
Care Center in Bluffton, Indiana, which is currently leased to Nationwide.
The capital structure of Meadowvale consists of 3,000 authorized shares of
Common Stock, without par value, all of which are issued and outstanding (the
"Meadowvale Common Shares"). Joan Phillippe, Dr. Thomas E. Phillippe, Sr.'s
wife, and certain members of her family own 100% of the Meadowvale Common
Shares. Meadowvale has no subsidiaries. There are no outstanding options to
purchase Meadowvale stock or outstanding securities or other instruments
convertible into Meadowvale stock or which constitute equity under general
principles of federal tax law, and no such options, warrants, securities,
instruments, or rights have been or will be issued or cancelled in contemplation
of the Share Exchange.
Prior to the Effective Time, Meadowvale will transfer the Residence to
Cheesman, and repay to Cheesman the debt owed by Meadowvale to Cheesman. These
payments shall be made directly by Meadowvale out of its own funds and without
reimbursement directly or indirectly from Acquiror. Except for the foregoing,
there have been and will be no distributions to any of the Meadowvale
shareholders with respect to their Meadowvale Common Shares in contemplation of
the Share Exchange, and no Meadowvale Common
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Shares have been or will be sold, redeemed or otherwise disposed of in
contemplation of the Share Exchange. Meadowvale shareholders are entitled to
dissenters' rights in connection with the proposed Share Exchange. Any payments
to dissenters in connection with the Share Exchange shall be made by Meadowvale
out of its own funds without reimbursement directly or indirectly from Acquiror.
The Transaction Documents provide that all of the outstanding Meadowvale
Common Shares will be exchanged solely for shares of Acquiror voting Common
Stock ("Acquiror Common Shares"). The Share Exchange will be consummated in
accordance with the Indiana Business Corporation Law, as amended ("BCL"), and
the Nevada General Corporation Law, as amended ("NCL"). The Share Exchange was
approved by the Board of Directors of Meadowvale on April 12, 1995 and is
subject to the approval of the holders of a majority of the outstanding shares
of Meadowvale stock at a duly called and held meeting of the Meadowvale
shareholders on or about June , 1995.
At the Effective Time, each Meadowvale Common Share then outstanding will
be exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value, and they do not represent
liabilities. None of the Acquiror Common Shares are being transferred pursuant
to the Reorganization Agreement in exchange for such Partnership Interests. The
shareholders of the Targets and the Partners of the Partnerships were not the
primary obligors with respect to the obligations which they personally
guaranteed and which will be released prior to the Share Exchange. The Target
Common Shares held by the Partners and by the guarantors shall be valued in the
Share Exchange in the same manner as the other Target Common Shares. Any debts
owed by any Partnership to any of the Target shareholders shall be paid by
Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). In
the Merger, Acquiror shareholders will receive only Vencor voting Common Shares
and cash in lieu of fractional shares. The Merger is not a condition to,
integrated with, nor interdependent upon, the Share Exchange.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the shares of Acquiror Common Stock
received by each Meadowvale shareholder will be approximately equal to the
fair market value of the Meadowvale Common Shares surrendered in exchange
therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the shareholders of Meadowvale who own one percent or more of
the Meadowvale Common Shares, and to the best of the knowledge of the
management of Meadowvale, there is no plan or intention on the part of the
remaining shareholders of Meadowvale to sell, exchange, pledge, or
otherwise dispose of a number of Acquiror Common Shares received in the
Share Exchange (or Vencor voting Common Shares received in the Merger) that
would reduce the Meadowvale shareholders' ownership of such Acquiror Common
Shares (i.e., the Acquiror Common Shares received in the Share Exchange)
(or Vencor voting Common Shares) to a number of shares having an aggregate
value, as of the Effective Time (and as of the effective time of the
Merger), of less than 50 percent of the value of all of the formerly
outstanding Meadowvale Common Shares as of the same dates. For purposes of
this representation, Meadowvale Common Shares surrendered by dissenters
will be treated as outstanding Meadowvale Common Shares at the Effective
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Time. Moreover, Meadowvale Common Shares and Acquiror Common Shares (or
Vencor Voting Common Shares) held by Meadowvale shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the Share Exchange
will be considered in making this representation. Other than the
distribution of the residence to Chessman, there have been and will be no
distributions to the Meadowvale shareholders with respect to their
Meadowvale Common Shares (or Vencor Voting Common Shares) made in
contemplation of the Share Exchange (or the Merger), and no Meadowvale
Common Shares (or Vencor Voting Common Shares) have been or will be sold,
redeemed or otherwise disposed of in contemplation of the Share Exchange
(or the Merger). Moreover, for purposes of this representation, the value
of all of the formerly outstanding Meadowvale Common Shares as of the
Effective Time (and as of the effective time of the Merger) will be
determined as if the transfer of the Residence to Cheesman did not occur.
3. Meadowvale has no plan or intention to issue additional shares of
its stock that would result in Acquiror losing control of Meadowvale within
the meaning of Code Section 368(c).
4. Acquiror will acquire Meadowvale stock solely in exchange for
Acquiror voting stock (Acquiror Common Shares). For purposes of this
representation, Meadowvale stock redeemed for cash or other property
furnished by Acquiror will be considered as acquired by Acquiror. Further,
no liabilities of Meadowvale or the Meadowvale shareholders will be assumed
by Acquiror, nor will any of the Meadowvale stock be subject to any
liabilities. Specifically,
(a) no holders of Meadowvale Common Shares are also holders of
Nationwide Subordinated Notes;
(b) no holder of Meadowvale Common Shares is or has been a
guarantor of the Nationwide Subordinated Notes;
(c) Meadowvale will repay the Cheesman Promissory Note pursuant to
section 11.3 of the Reorganization Agreement out of its own funds. No
funds will be supplied for that purpose, directly or indirectly, by
Acquiror, nor will Acquiror directly or indirectly reimburse Meadowvale
for any amount of the repayment of the Cheesman Promissory Note;
(d) no shareholder of Meadowvale is a primary obligor on
indebtedness which they personally guaranteed and from which personal
guarantee the shareholder will be released pursuant to the
Reorganization Agreement;
(e) no debtor with respect to any indebtedness subject to a
guarantee that will be released is so thinly capitalized that a
guarantor is considered the true debtor of such indebtedness for federal
tax purposes; and
(f) the Meadowvale Common Shares held by persons who are guarantors
will be exchanged for the same per share number of Acquiror Common
Shares as will Meadowvale Common Shares held by persons who are not
guarantors.
5. At the Effective Time, Meadowvale will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Meadowvale that, if
exercised or converted, would affect Acquiror's acquisition or retention of
control of Meadowvale, as defined in Code Section 368(c).
6. Meadowvale will pay its dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by Acquiror, nor will Acquiror directly or
indirectly reimburse Meadowvale for any payments to dissenters.
7. The liabilities of Meadowvale were incurred by Meadowvale in the
ordinary course of its business.
8. Acquiror does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Meadowvale stock,
including ownership by any Acquiror subsidiary.
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9. Meadowvale will pay its expenses incurred in connection with the
Share Exchange. Nationwide will not pay the expenses of Acquiror or the
Meadowvale shareholders incurred in connection with the Share Exchange.
10. There is no intercorporate indebtedness existing between Acquiror
and Meadowvale that was issued, acquired, or will be settled at a discount.
11. Meadowvale is not an investment company as defined in Code
Sections 368 (a)(2)(F)(iii) and 368(a)(2)(F)(iv).
12. Meadowvale is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Code Section 368(a)(3)(A).
13. At the Effective Time, the fair market value of the assets of
Meadowvale will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
14. None of the compensation received by any shareholder who is an
employee of Meadowvale or any other Target will be separate consideration
for, or allocable to, any of their Meadowvale Common Shares. None of the
Acquiror Common Shares received by any shareholder who is an employee of
Meadowvale or any other Target will be separate consideration for, or
allocable to, any employment agreement. The compensation paid to any
shareholder who is an employee of Meadowvale or any other Target will be
for services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
15. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in the
Registration Statement. Meadowvale has looked for opportunities to expand
its nursing care operations and increase operating efficiencies. Meadowvale
also recognizes that some of its senior management executives, who are both
officers and directors, are approaching retirement age, and others have
expressed a desire to reduce or discontinue their role in the management of
Meadowvale. Consequently, Meadowvale, in considering business expansion
opportunities, has looked for businesses with strong senior management with
experience in the nursing care industry. Meadowvale determined that
Acquiror offers an opportunity for it to meet these objectives. Meadowvale
believes that a combination of its operations with Acquiror will provide
increased opportunity and flexibility for profitable expansion and
diversification, will enhance its ability to provide more efficient and
dependable service, and will result in operating efficiencies and cost
savings.
16. To the extent that a portion of the Acquiror Common Shares issued
by Acquiror in exchange for Meadowvale Common Shares will be placed in
escrow by the Meadowvale shareholders and will be made subject to a
condition pursuant to the Reorganization Agreement and the Escrow Agreement
and Supplemental Escrow Agreement, for possible return to Acquiror under
specified conditions: (a) there is a valid business reason for establishing
the arrangement in that the escrow is a mechanism to accomplish an exchange
price adjustment, bargained for at arm's-length, in the event of a breach
by Meadowvale; (b) the Acquiror Common Shares subject to such arrangement
will appear as issued and outstanding on the balance sheet of Acquiror and
such Acquiror Common Shares will be legally outstanding under applicable
state law; (c) all dividends paid on such Acquiror Common Shares will be
distributed currently to the Meadowvale shareholders; (d) all voting rights
of such Acquiror Common Shares will be exercisable by or on behalf of the
Meadowvale shareholders or their authorized agent; (e) no such Acquiror
Common Shares will be subject to restrictions requiring their return to
Acquiror because of death, failure to continue employment, or similar
restrictions; (f) all such Acquiror Common Shares will be released from the
arrangement within five years from the date of consummation of the Share
Exchange (except where there is a bona fide dispute as to whom the Acquiror
Common Shares should be released); (g) at least 50 percent of each class of
Acquiror Common Shares issued initially to the Meadowvale shareholders will
not be subject to the arrangement; (h) the return of the Acquiror Common
Shares will not be triggered by an event the occurrence or nonoccurrence of
which is within the control of the Meadowvale shareholders; (i) the return
of Acquiror Common Shares will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an Internal Revenue
Service audit
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of the Meadowvale shareholders or the corporations either (i) with respect
to the Share Exchange, or (ii) when the Share Exchange involves persons
related within the meaning of Code Section 267(c)(4); and (j) the mechanism
for the calculation of the number of Acquiror Common Shares to be returned
is objective and readily ascertainable.
The foregoing is provided to Ice Miller Donadio & Ryan and to KPMG Peat
Marwick LLP in connection with the preparation of their opinions. We understand
that the opinions will be premised on the basis that all of the facts,
representations, and assumptions on which they are relying, whether contained
herein or elsewhere, are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time. Ice Miller Donadio & Ryan and KPMG
Peat Marwick LLP reserve the right to request additional representations prior
to the issuance of their opinions.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 19th day of May, 1995.
MEADOWVALE SKILLED CARE CENTER, INC.
By:
--------------------------------------
Dr. Donald Cheesman, President
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EXHIBIT 7.7(A)
CERTIFICATE
EXECUTED FOR NATIONWIDE CARE, INC. BY THE HILLHAVEN CORPORATION
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 8.12 of the Reorganization Agreement, the
undersigned has requested the opinions of KPMG Peat Marwick LLP as to certain
federal income tax consequences of the Share Exchange as a condition precedent
to Closing. In accordance with Section 9.10 of the Reorganization Agreement,
Nationwide has requested the opinions of Ice Miller Donadio & Ryan as to certain
federal income tax consequences of the Share Exchange as a condition precedent
to Closing. This Certificate is issued by Acquiror in accordance with Section
7.7 of the Reorganization Agreement. In rendering their opinions, KPMG Peat
Marwick LLP and Ice Miller Donadio & Ryan may assume that, and the undersigned
hereby certifies, represents, and warrants to KPMG Peat Marwick LLP and to Ice
Miller Donadio & Ryan that: (1) the Share Exchange will be consummated in
accordance with the terms, conditions, and other provisions of the Transaction
Documents; and (2) all of the factual information, descriptions,
representations, and assumptions set forth in the Transaction Documents, in the
Form S-4 Registration Statement filed with the Securities and Exchange
Commission on April 14, 1995 in connection with the Share Exchange, as amended
(the "Registration Statement"), and in this Certificate are accurate and
complete in all respects and will be accurate and complete in all respects at
the time the Registration Statement becomes effective and at the Effective Time
of the Share Exchange (the "Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to KPMG Peat Marwick LLP and to Ice Miller Donadio & Ryan as
follows:
THE SHARE EXCHANGE
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of 60
million authorized shares of voting Common Stock, par value $.75 per share (the
"Acquiror Common Shares"), of which approximately 32,824,863 are outstanding; 25
million authorized shares of preferred stock, par value $0.15 per share, of
which the following series have been designated: 3 million authorized shares of
Series A Preferred Stock, of which no shares are outstanding; 950 authorized
shares of Series B Convertible Preferred Stock, of which 618 shares have been
designated as Subseries 1, of which no shares are outstanding; 35,000 authorized
shares of Series C Preferred Stock, all of which are outstanding; and 300,000
authorized shares of Series D Preferred Stock, of which approximately 63,403 are
outstanding.
The Transaction Documents provide that all of the outstanding Nationwide
Common Shares will be exchanged solely for Acquiror Common Shares. The Share
Exchange will be consummated in accordance with the Indiana Business Corporation
Law, as amended ("BCL"), and the Nevada General Corporation Law, as amended
("NCL"). The Share Exchange was approved by the Board of Directors of Acquiror
on April 12, 1995, and does not require the approval of the Acquiror
shareholders.
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At the Effective Time, each Nationwide Common Share then outstanding will
be exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
Prior to the Effective Time, the Nationwide Preferred Stock will be
redeemed by Nationwide with its own funds and without reimbursement directly or
indirectly from Acquiror. Immediately prior to the Effective Time, the
Nationwide Warrants shall be exercised into the corresponding number of
Nationwide Nonvoting Common pursuant to the terms of the Warrants, and the
resulting Nationwide Nonvoting Common will be exchanged for that number of
Acquiror Common Shares determined in accordance with the Reorganization
Agreement, rounded to the nearest whole share.
At the Closing, the Nationwide Subordinated Notes will be prepaid directly
by Acquiror. The Nationwide Subordinated Notes are bona fide debt (not stock or
equity) under general principles of federal tax law, and Acquiror will pay only
the fair market value of such indebtedness, and will not pay any amounts in
excess of such indebtedness. The Nationwide Common Shares held by the holders of
the Nationwide Subordinated Notes shall be valued in the Share Exchange in the
same manner as the other Nationwide Common Shares.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. None of the Acquiror Common Shares are being transferred pursuant to
the Reorganization Agreement in exchange for such Partnership Interests. Any
debts owed by any Partnership to any of the Target shareholders shall be paid by
Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
Acquiror will not make, directly or indirectly, any payments to dissenters
or any other distributions to the Nationwide shareholders with respect to their
Nationwide Common Shares in contemplation of or in connection with the Share
Exchange.
Except for the Nationwide Warrants, Acquiror is not aware of any
outstanding options or warrants to purchase Nationwide shares or outstanding
securities or other instruments or rights, convertible into Nationwide shares or
which constitute equity under general principles of federal tax law, and no such
options, warrants, securities, instruments or rights have been or will be issued
or cancelled in contemplation of the Share Exchange.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Code Sections 368(a)(1)(A) and
368(a)(2)(D). In the Merger, Acquiror shareholders will receive only Vencor
voting Common Shares and cash in lieu of fractional shares. The Merger is not a
condition to, integrated with, nor interdependent upon, the Share Exchange, and
if it occurs, it will have independent, meaningful economic significance and
will be undertaken for valid business purposes apart from federal income taxes.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the Acquiror Common Shares received by
each Nationwide shareholder will be approximately equal to the fair market
value of the Nationwide Common Shares surrendered in exchange therefor.
2. Following the Share Exchange, Acquiror will not permit Nationwide
to issue additional shares of stock that would result in Acquiror losing
control of Nationwide within the meaning of Code Section 368(c).
3. Acquiror has no plan or intention to reacquire any of its stock
issued in the Share Exchange.
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4. Acquiror has no plan or intention to liquidate Nationwide or any
Nationwide subsidiary; to merge Nationwide or any Nationwide subsidiary
with and into another corporation; to cause or permit Nationwide to sell or
otherwise dispose of any of its assets, or the assets of any Nationwide
subsidiary, except for dispositions made in the ordinary course of business
or to sell or otherwise dispose of the stock of Nationwide or any
Nationwide subsidiary except for transfers described in Code Section 368
(a)(2)(C).
5. Following the Share Exchange, Nationwide will continue its historic
businesses or use a significant portion of its historic business assets in
a business.
6. Acquiror will pay its expenses incurred in connection with the
Share Exchange. Acquiror will not pay the expenses of Nationwide or the
Nationwide shareholders, if any, incurred in connection with the Share
Exchange.
7. Acquiror will acquire Nationwide Common Shares solely in exchange
for Acquiror voting stock (Acquiror Common Shares). For purposes of this
representation, Nationwide Common Shares redeemed for cash or other
property furnished by Acquiror will be considered as acquired by Acquiror.
Further, no liabilities of Nationwide or the Nationwide shareholders will
be assumed by Acquiror, nor will any of the Nationwide Common Shares be
subject to any liabilities.
8. Nationwide will pay dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by Acquiror, nor will Acquiror directly or
indirectly reimburse Nationwide for any payments to dissenters.
9. There is no intercorporate indebtedness existing between Acquiror
and Nationwide or between Acquiror and any Nationwide subsidiaries that was
issued, acquired, or will be settled at a discount.
10. Acquiror is not an investment company as defined in Code Sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
11. Acquiror is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
12. Acquiror does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Nationwide Common
Shares or other Nationwide stock, including any ownership by any Acquiror
subsidiary. Acquiror will not acquire, directly or indirectly, any
Nationwide Common Shares or other Nationwide stock prior to the Effective
Time.
13. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in the
Registration Statement and for the reasons that Acquiror and its
subsidiaries have looked for growth opportunities which would increase
their percentage share of the nursing care market while increasing their
operating efficiencies by achieving economies of scale as a larger service
provider. Due in part to the proximity of the service areas, Acquiror
determined that Nationwide represented such an opportunity and expressed an
interest in combining the resources of the companies. Acquiror believes
that a combination of its operations with Nationwide will provide increased
opportunity and flexibility for profitable expansion and diversification,
will enhance their ability to provide more efficient and dependable
service, and will result in operating efficiencies and cost savings.
14. To the knowledge of Acquiror, none of the compensation received by
any shareholder who is an employee of Nationwide or any other Target will
be separate consideration for, or allocable to, any of such shareholder's
Nationwide Common Shares. To the knowledge of Acquiror, none of the
Acquiror Common Shares received by any shareholder who is an employee of
Nationwide or any other Target will be separate consideration for, or
allocable to, any employment agreement. To the knowledge of Acquiror, the
compensation paid to any shareholder who is an employee of Nationwide or
any other Target will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
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15. The payment of cash in lieu of fractional Vencor Common Shares in
the Merger is solely for the purpose of avoiding the expense and
inconvenience to Vencor of issuing fractional Vencor Common Shares and does
not represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to the shareholders of
Acquiror instead of issuing fractional Vencor Common Shares will not exceed
one percent of the total consideration that will be issued in the Merger
for their Acquiror Common Shares. The fractional share interest of each of
the shareholders of Acquiror will be aggregated, and no shareholders of
Acquiror will receive cash in an amount equal to or greater than the value
of one full Vencor Common Share.
16. To the extent that a portion of the Acquiror Common Shares issued
in exchange for the Nationwide Common Shares will be placed in escrow by
the Nationwide shareholders and will be made subject to a condition
pursuant to the Reorganization Agreement and the Escrow Agreement and
Supplemental Escrow Agreement, for possible return to Acquiror under
specified conditions: (a) there is a valid business reason for establishing
the arrangement in that the escrow is a mechanism to accomplish an exchange
price adjustment, bargained for at arm's-length, in the event of a breach
by Nationwide; (b) the Acquiror Common Shares subject to such arrangement
will appear as issued and outstanding on the balance sheet of Acquiror and
such Acquiror Common Shares will be legally outstanding under applicable
state law; (c) all dividends paid on such Acquiror Common Shares will be
distributed currently to the Nationwide shareholders; (d) all voting rights
of such Acquiror Common Shares will be exercisable by or on behalf of the
Nationwide shareholders or their authorized agent; (e) no such Acquiror
Common Shares will be subject to restrictions requiring their return to
Acquiror because of death, failure to continue employment, or similar
restrictions; (f) all such Acquiror Common Shares will be released from the
arrangement within five years from the date of consummation of the Share
Exchange (except where there is a bona fide dispute as to whom the Acquiror
Common Shares should be released); (g) at least 50 percent of each class of
Acquiror Common Shares issued initially to the Nationwide shareholders will
not be subject to the arrangement; (h) the return of the Acquiror Common
Shares will not be triggered by an event the occurrence or nonoccurrence of
which is within the control of the Nationwide shareholders; (i) the return
of Acquiror Common Shares will not be triggered by the payment of
additional tax or reduction in tax paid as a result of an Internal Revenue
Service audit of the Nationwide shareholders or the corporations either (i)
with respect to the Share Exchange, or (ii) when the Share Exchange
involves persons related within the meaning of Code Section 267(c)(4); and
(j) the mechanism for the calculation of the number of Acquiror Common
Shares to be returned is objective and readily ascertainable.
17. The purpose of the Acquiror rights plan is to provide a mechanism
by which Acquiror, a publicly traded corporation, can, in the future,
provide shareholders with rights to purchase Acquiror stock at
substantially less than fair market value as a means of responding to
unsolicited offers to acquire Acquiror. The plan provides that in the event
of an unsolicited offer in the future to acquire Acquiror under certain
circumstances (a "triggering event"), the Acquiror shareholders will have
the right to purchase Acquiror stock. The rights may be redeemed at any
time by Acquiror without shareholder approval until they become exercisable
for one cent per right. Until a triggering event, the rights are not
exercisable or separately tradeable, transferrable, or detachable, nor are
they represented by any certificate other than the Acquiror Common Share
certificate. Until a triggering event and then a "flip-in" or "flip-over"
event occur, the exercise price is anticipated to substantially exceed the
value of the Acquiror stock at all times during the life of the right. The
likelihood that the rights would, at any time, be exercised is both remote
and speculative. No event has occurred, or is anticipated to occur, that
would make the rights exercisable.
The foregoing is provided to KPMG Peat Marwick LLP and to Ice Miller
Donadio & Ryan in connection with the preparation of their opinions. We
understand that the opinions will be premised on the basis that all of the
facts, representations, and assumptions on which they are relying, whether
contained herein or elsewhere, are accurate and complete in all respects and
will be accurate and complete in all respects at the time the Registration
Statement becomes effective and at the Effective Time. Ice Miller Donadio & Ryan
and KPMG Peat Marwick LLP reserve the right to request additional
representations prior to the issuance of their opinions.
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IN WITNESS WHEREOF, the undersigned have executed this Certificate as of
this 19th day of May, 1995.
THE HILLHAVEN CORPORATION
By:
--------------------------------
Printed:
---------------------------
Title:
-----------------------------
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EXHIBIT 7.7(B)
CERTIFICATE
EXECUTED BY THE HILLHAVEN CORPORATION
FOR PHILLIPPE ENTERPRISES, INC.
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 8.12 of the Reorganization Agreement, the
undersigned has requested the opinions of KPMG Peat Marwick LLP as to certain
federal income tax consequences of the Share Exchange as a condition precedent
to Closing. In accordance with Section 9.10 of the Reorganization Agreement, PEI
has requested the opinions of Ice Miller Donadio & Ryan as to certain federal
income tax consequences of the Share Exchange as a condition precedent to
Closing. This Certificate is issued by Acquiror in accordance with Section 7.7
of the Reorganization Agreement. In rendering their opinions, KPMG Peat Marwick
LLP and Ice Miller Donadio & Ryan may assume that, and the undersigned hereby
certifies, represents, and warrants to KPMG Peat Marwick LLP and to Ice Miller
Donadio & Ryan that: (1) the Share Exchange will be consummated in accordance
with the terms, conditions, and other provisions of the Transaction Documents;
and (2) all of the factual information, descriptions, representations, and
assumptions set forth in the Transaction Documents, in the Form S-4 Registration
Statement filed with the Securities and Exchange Commission on April 14, 1995 in
connection with the Share Exchange, as amended (the "Registration Statement"),
and in this Certificate are accurate and complete in all respects and will be
accurate and complete in all respects at the time the Registration Statement
becomes effective and at the Effective Time of the Share Exchange (the
"Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to KPMG Peat Marwick LLP and to Ice Miller Donadio & Ryan as
follows:
THE SHARE EXCHANGE
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of 60
million authorized shares of voting Common Stock, par value $.75 per share (the
"Aquiror Common Shares") of which approximately 32,824,863 are outstanding; 25
million authorized shares of preferred stock, par value $0.15 per share, of
which the following series have been designated: 3 million authorized shares of
Series A Preferred Stock, of which no shares are outstanding; 950 authorized
shares of Series B Convertible Preferred Stock, of which 618 shares have been
designated as Subseries 1, of which no shares are outstanding; 35,000 authorized
shares of Series C Preferred Stock, all of which are outstanding; and 300,000
authorized shares of Series D Preferred Stock, of which approximately 63,403 are
outstanding.
The Transaction Documents provide that all of the outstanding PEI Common
Shares will be exchanged solely for Acquiror Common Shares. The Share Exchange
will be consummated in accordance with the Indiana Business Corporation Law, as
amended ("BCL"), and the Nevada General Corporation Law, as
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amended ("NCL"). The Share Exchange was approved by the Board of Directors of
Acquiror on April 12, 1995, and does not require the approval of the Acquiror
shareholders.
At the Effective Time, each PEI Common Share then outstanding will be
exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
At the Closing, certain commercial indebtedness of PEI may be prepaid
directly by Acquiror (the "PEI Indebtedness"). The PEI Indebtedness is bona fide
debt (not stock or equity) under general principles of federal tax law, and
Acquiror will pay only the fair market value of such indebtedness, and will not
pay any amounts in excess of such indebtedness. The holders of the PEI
Indebtedness are not shareholders of PEI.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. None of the Acquiror Common Shares is being transferred pursuant to
the Reorganization Agreement in exchange for such Partnership Interests. Any
debts owed by any Partnership to any of the Target shareholders shall be paid by
Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
Acquiror will not make, directly or indirectly, any distributions to the
PEI shareholders with respect to their PEI Common Shares in contemplation of the
Share Exchange or any payments to dissenters in connection with the Share
Exchange.
Acquiror is not aware of any outstanding options or warrants to purchase
PEI shares or outstanding securities or other instruments or rights, convertible
into PEI shares or which constitute equity under general principles of federal
tax law, and no such options, warrants, securities, instruments or rights have
been or will be issued or cancelled in contemplation of the Share Exchange.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Code Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). In
the Merger, Acquiror shareholders will receive only Vencor voting Common Shares
and cash in lieu of fractional shares. The Merger is not a condition to,
integrated with, nor interdependent upon, the Share Exchange, and if it occurs,
it will have independent, meaningful economic significance and will be
undertaken for valid business purposes apart from federal income taxes.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the Acquiror Common Shares received by each
PEI shareholder will be approximately equal to the fair market value
of the PEI Common Shares surrendered in exchange therefor.
2. Following the Share Exchange, Acquiror will not permit PEI to issue
additional shares of its stock that would result in Acquiror losing
control of PEI within the meaning of Code Section 368(c).
3. Acquiror has no plan or intention to reacquire any of its stock issued
in the Share Exchange.
4. Acquiror has no plan or intention to liquidate PEI or any PEI
subsidiary; to merge PEI or any PEI subsidiary with and into another
corporation; to cause or permit PEI to sell or otherwise dispose of
any of its assets, or the assets of any PEI subsidiary, except for
dispositions made in the ordinary course of business; or to sell or
otherwise dispose of the stock of PEI or any PEI subsidiary except for
transfers described in Code Section 368(a)(2)(C).
5. Following the Share Exchange, PEI will continue its historic business
or use a significant portion of its historic business assets in a
business.
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6. Acquiror will pay its expenses incurred in connection with the Share
Exchange. Acquiror will not pay the expenses of PEI or the PEI
shareholders, if any, incurred in connection with the Share Exchange.
7. Acquiror will acquire PEI Common Shares solely in exchange for Acquiror
voting stock (Acquiror Common Shares). For purposes of this
representation, PEI Common Shares redeemed for cash or other property
furnished by Acquiror will be considered as acquired by Acquiror.
Further, no liabilities of PEI or the PEI shareholders will be assumed
by Acquiror, nor will any of the PEI Common Shares be subject to any
liabilities.
8. There is no intercorporate indebtedness existing between Acquiror and
PEI or between Acquiror and any PEI subsidiaries that was issued,
acquired, or will be settled at a discount.
9. Acquiror is not an investment company as defined in Code Sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
10. Acquiror is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
11. Acquiror does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any PEI Common Shares,
including any ownership by any Acquiror subsidiary. Acquiror will not
acquire, directly or indirectly, any PEI Common Shares prior to the
Effective Time.
12. The Share Exchange is being effected for bona fide business reasons,
including without limitation the reasons set forth in the Registration
Statement and for the reasons that Acquiror and its subsidiaries have
looked for growth opportunities which would increase their percentage
share of the nursing care market while increasing their operating
efficiencies by achieving economies of scale as a larger service
provider. Due in part to the proximity of the service areas, Acquiror
determined that PEI represented such an opportunity and expressed an
interest in combining the resources of the companies. Acquiror believes
that a combination of its operations with PEI will provide increased
opportunity and flexibility for profitable expansion and
diversification, will enhance their ability to provide more efficient
and dependable service, and will result in operating efficiencies and
cost savings.
13. To the knowledge of Acquiror, none of the compensation received by any
shareholder who is an employee of PEI or any other Target will be
separate consideration for, or allocable to, any of such shareholder's
PEI Common Shares. To the knowledge of Acquiror, none of the Acquiror
Common Shares received by any shareholder who is an employee of PEI or
any other Target will be separate consideration for, or allocable to,
any employment agreement. To the knowledge of Acquiror, the
compensation paid to any shareholder who is an employee of PEI or any
other Target will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
14. To the extent that a portion of the Acquiror Common Shares issued in
exchange for the PEI Common Shares will be placed in escrow by the PEI
shareholders and will be made subject to a condition pursuant to the
Reorganization Agreement and the Escrow Agreement and Supplemental
Escrow Agreement, for possible return to Acquiror under specified
conditions: (a) there is a valid business reason for establishing the
arrangement in that the escrow is a mechanism to accomplish an exchange
price adjustment, bargained for at arm's-length, in the event of a
breach by PEI; (b) the Acquiror Common Shares subject to such
arrangement will appear as issued and outstanding on the balance sheet
of Acquiror and such Acquiror Common Shares will be legally outstanding
under applicable state law; (c) all dividends paid on such Acquiror
Common Shares will be distributed currently to the PEI shareholders;
(d) all voting rights of such Acquiror Common Shares will be
exercisable by or on behalf of the PEI shareholders or their authorized
agent; (e) no such Acquiror Common Shares will be subject to
restrictions requiring their return to Acquiror because of death,
failure to continue employment, or similar restrictions; (f) all such
Acquiror Common Shares will be released from the arrangement within
five years from the date of consummation of the Share
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Exchange (except where there is a bona fide dispute as to whom the
Acquiror Common Shares should be released); (g) at least 50 percent of
the number of each class of Acquiror Common Shares issued initially to
the PEI shareholders will not be subject to the arrangement; (h) the
return of the Acquiror Common Shares will not be triggered by an event
the occurrence or nonoccurrence of which is within the control of the
PEI shareholders; (i) the return of Acquiror Common Shares will not be
triggered by the payment of additional tax or reduction in tax paid as
a result of an Internal Revenue Service audit of the PEI shareholders
or the corporations either (i) with respect to the Share Exchange, or
(ii) when the Share Exchange involves persons related within the
meaning of Code Section 267(c)(4); and (j) the mechanism for the
calculation of the number of Acquiror Common Shares to be returned is
objective and readily ascertainable.
15. The payment of cash in lieu of fractional Vencor Common Shares is
solely for the purpose of avoiding the expense and inconvenience to
Vencor of issuing fractional Vencor Common Shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to the shareholders of
Acquiror instead of issuing fractional shares of Vencor Common Shares
will not exceed one percent of the total consideration that will be
issued in the Merger for their Acquiror Common Shares. The fractional
share interests of each of the shareholders of Acquiror will be
aggregated and no shareholders of Acquiror will receive cash in an
amount equal to or greater than the value of one full Vencor Common
Share.
16. The purpose of the Acquiror rights plan is to provide a mechanism by
which Acquiror, a publicly traded corporation, can, in the future,
provide shareholders with rights to purchase Acquiror stock at
substantially less than fair market value as a means of responding to
unsolicited offers to acquire Acquiror. The plan provides that in the
event of an unsolicited offer in the future to acquire Acquiror under
certain circumstances (a "triggering event"), the Acquiror
shareholders will have the right to purchase Acquiror stock. The
rights may be redeemed at any time by Acquiror without shareholder
approval until they become exercisable for one cent per right. Until a
triggering event, the rights are not exercisable or separately
tradeable, transferrable, or detachable, nor are they represented by
any certificate other than the Acquiror Common Share certificate.
Until a triggering event and then a "flip-in" or "flip-over" event
occur, the exercise price is anticipated to substantially exceed the
value of the Acquiror stock at all times during the life of the right.
The likelihood that the rights would, at any time, be exercised is
both remote and speculative. No event has occurred, or is anticipated
to occur, that would make the rights exercisable.
The foregoing is provided to KPMG Peat Marwick LLP and to Ice Miller
Donadio & Ryan in connection with the preparation of their opinions. We
understand that the opinions will be premised on the basis that all of the
facts, representations, and assumptions on which they are relying, whether
contained herein or elsewhere, are accurate and complete in all respects and
will be accurate and complete in all respects at the time the Registration
Statement becomes effective and at the Effective Time. Ice Miller Donadio & Ryan
and KPMG Peat Marwick LLP reserve the right to request additional
representations prior to the issuance of their opinions.
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of
this 19th day of May, 1995.
THE HILLHAVEN CORPORATION
By:
--------------------------------
Printed:
---------------------------
Title:
-----------------------------
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EXHIBIT 7.7(C)
CERTIFICATE
EXECUTED BY THE HILLHAVEN CORPORATION
FOR MEADOWVALE SKILLED CARE CENTER, INC.
This Certificate is executed and delivered in connection with the Amended
and Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests, by and among The Hillhaven Corporation, a Nevada
corporation ("Acquiror"), Nationwide Care, Inc., an Indiana corporation
("Nationwide"), Phillippe Enterprises, Inc., an Indiana corporation ("PEI"),
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale")
(Nationwide, PEI and Meadowvale are collectively referred to as the "Targets"),
the partners of Camelot Care Centers, an Indiana general partnership
("Camelot"), the partners of Shangri-La Partnership, an Indiana general
partnership, and the limited partners of Evergreen Woods, Ltd., a Florida
limited partnership ("Evergreen") (Camelot and Evergreen are collectively
referred to as the "Partnerships"), dated as of February 27, 1995
("Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Terms which are not defined herein and are used with
initial capitalization when the rules of grammar would not otherwise so require
and which are defined in the Transaction Documents shall have the meanings
assigned to such terms in the Transaction Documents.
In accordance with Section 8.12 of the Reorganization Agreement, the
undersigned has requested the opinions of KPMG Peat Marwick LLP as to certain
federal income tax consequences of the Share Exchange as a condition precedent
to Closing. In accordance with Section 9.10 of the Reorganization Agreement,
Meadowvale has requested the opinions of Ice Miller Donadio & Ryan as to certain
federal income tax consequences of the Share Exchange as a condition precedent
to Closing. This Certificate is issued by Acquiror in accordance with Section
7.7 of the Reorganization Agreement. In rendering their opinions, KPMG Peat
Marwick LLP and Ice Miller Donadio & Ryan may assume that, and the undersigned
hereby certifies, represents, and warrants to KPMG Peat Marwick LLP and to Ice
Miller Donadio & Ryan that: (1) the Share Exchange will be consummated in
accordance with the terms, conditions, and other provisions of the Transaction
Documents; and (2) all of the factual information, descriptions,
representations, and assumptions set forth in the Transaction Documents, in the
Form S-4 Registration Statement filed with the Securities and Exchange
Commission on April 14, 1995 in connection with the Share Exchange, as amended
(the "Registration Statement"), and in this Certificate are accurate and
complete in all respects and will be accurate and complete in all respects at
the time the Registration Statement becomes effective and at the Effective Time
of the Share Exchange (the "Effective Time").
Pursuant to the foregoing, the undersigned hereby certifies, represents,
and warrants to KPMG Peat Marwick LLP and to Ice Miller Donadio & Ryan as
follows:
THE SHARE EXCHANGE
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of 60
million authorized shares of voting Common Stock, par value $.75 per share (the
"Acquiror Common Shares") of which approximately 32,824,863 are outstanding; 25
million authorized shares of preferred stock, par value $0.15 per share, of
which the following series have been designated: 3 million authorized shares of
Series A Preferred Stock, of which no shares are outstanding; 950 authorized
shares of Series B Convertible Preferred Stock, of which 618 shares have been
designated as Subseries 1, of which no shares are outstanding; 35,000 authorized
shares of Series C Preferred Stock, all of which are outstanding; and 300,000
authorized shares of Series D Preferred Stock, of which approximately 63,403 are
outstanding.
Prior to the Effective Time, Meadowvale will transfer the Residence to
Cheesman, and repay to Cheesman the debt owed by Meadowvale to Cheesman. Those
payments shall be made directly by Meadowvale out of its own funds and without
reimbursement directly or indirectly from Acquiror.
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The Transaction Documents provide that all of the outstanding Meadowvale
Common Shares will be exchanged solely for Acquiror Common Shares. The Share
Exchange will be consummated in accordance with the Indiana Business Corporation
Law, as amended ("BCL"), and the Nevada General Corporation Law, as amended
("NCL"). The Share Exchange was approved by the Board of Directors of Acquiror
on April 12, 1995, and does not require the approval of the Acquiror
shareholders.
At the Effective Time, each Meadowvale Common Share then outstanding will
be exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. None of the Acquiror Common Shares is being transferred pursuant to
the Reorganization Agreement in exchange for such Partnership Interests. Any
debts owned by any Partnership to any of the Target shareholders shall be paid
by Nationwide out of its own funds without reimbursement directly or indirectly
from Acquiror. Acquiror is making no payment of cash or Acquiror Common Shares
or other property or assuming any liabilities in connection with or pursuant to
the assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payments.
Acquiror will not make, directly or indirectly, any distributions to the
Meadowvale shareholders with respect to their Meadowvale Common Shares in
contemplation of the Share Exchange or any payments to dissenters in connection
with the Share Exchange.
Acquiror is not aware of any outstanding options or warrants to purchase
Meadowvale shares or outstanding securities or other instruments or rights,
convertible into Meadowvale shares or which constitute equity under general
principles of federal tax law, and no such options, warrants, securities,
instruments or rights have been or will be issued or cancelled in contemplation
of the Share Exchange.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and Veritas
Holdings Corp., a Delaware Corporation and wholly-owned subsidiary of Vencor
("Veritas"), entered into an Agreement and Plan of Merger dated as of April 23,
1995, pursuant to which Acquiror will be merged with and into Veritas (the
"Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). In
the Merger, Acquiror shareholders will receive only Vencor voting Common Shares
and cash in lieu of fractional shares. The Merger is not a condition to,
integrated with, nor interdependent upon, the Share Exchange, and if it occurs,
it will have independent, meaningful economic significance and will be
undertaken for valid business reasons apart from federal income taxes.
ADDITIONAL REPRESENTATIONS
1. The fair market value of the Acquiror Common Shares received by each
Meadowvale shareholder will be approximately equal to the fair market
value of the Meadowvale Common Shares surrendered in exchange therefor.
2. Following the Share Exchange, Acquiror will not permit Meadowvale to
issue additional shares of its stock that would result in Acquiror
losing control of Meadowvale within the meaning of Code Section 368(c).
3. Acquiror has no plan or intention to reacquire any of its stock issued
in the Share Exchange.
4. Acquiror has no plan or intention to liquidate Meadowvale or any
Meadowvale subsidiary; to merge Meadowvale or any Meadowvale subsidiary
with and into another corporation; to cause or permit Meadowvale to
sell or otherwise dispose of any of its assets, or the assets of any
Meadowvale subsidiary, except for dispositions made in the ordinary
course of business; or to sell or otherwise dispose of the stock of
Meadowvale or any Meadowvale subsidiary except for transfers described
in Code Section 368 (a)(2)(C).
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5. Following the Share Exchange, Meadowvale will continue its historic
business or use a significant portion of its historic business assets
in a business.
6. Acquiror will pay its expenses incurred in connection with the Share
Exchange. Acquiror will not pay the expenses of Meadowvale or the
Meadowvale shareholders, if any, incurred in connection with the Share
Exchange.
7. Acquiror will acquire Meadowvale Common Shares solely in exchange for
Acquiror voting stock (Acquiror Common Shares). For purposes of this
representation, Meadowvale Common Shares redeemed for cash or other
property furnished by Acquiror will be considered as acquired by
Acquiror. Further, no liabilities of Meadowvale or the Meadowvale
shareholders will be assumed by Acquiror, nor will any of the
Meadowvale Common Shares be subject to any liabilities.
8. Meadowvale will pay its dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by Acquiror, nor will Acquiror
directly or indirectly reimburse Meadowvale for any payments to
dissenters.
9. There is no intercorporate indebtedness existing between Acquiror and
Meadowvale that was issued, acquired, or will be settled at a
discount.
10. Acquiror is not an investment company as defined in Code Sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
11. Acquiror is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
12. Acquiror does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any Meadowvale Common
Shares, including any ownership by any Acquiror subsidiary. Acquiror
will not acquire, directly or indirectly, any Meadowvale Common Shares
prior to the Effective Time.
13. The Share Exchange is being effected for bona fide business reasons,
including without limitation the reasons set forth in the Registration
Statement and for the reasons that Acquiror and its subsidiaries have
looked for growth opportunities which would increase their percentage
share of the nursing care market while increasing their operating
efficiencies by achieving economies of scale as a larger service
provider. Due in part to the proximity of the service areas, Acquiror
determined that Meadowvale represented such an opportunity and
expressed an interest in combining the resources of the companies.
Acquiror believes that a combination of its operations with Meadowvale
will provide increased opportunity and flexibility for profitable
expansion and diversification, will enhance their ability to provide
more efficient and dependable service, and will result in operating
efficiencies and cost savings.
14. To the knowledge of Acquiror, none of the compensation received by any
shareholder who is an employee of Meadowvale or any other Target will
be separate consideration for, or allocable to, any of such
shareholder's Meadowvale Common Shares. To the knowledge of Acquiror,
none of the Acquiror Common Shares received by any shareholder who is
an employee of Meadowvale or any other Target will be separate
consideration for, or allocable to, any employment agreement. To the
knowledge of Acquiror, the compensation paid to any shareholder who is
an employee of Meadowvale or any other Target will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
15. The payment of cash in lieu of fractional Vencor Common Shares is
solely for the purpose of avoiding the expense and inconvenience to
Vencor of issuing fractional Vencor Common Shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to the shareholders of
Acquiror instead of issuing fractional shares of Vencor Common Shares
will not exceed one percent of the total consideration that will be
issued in the Merger for their Acquiror Common Shares. The fractional
share interest of each of the shareholders
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of Acquiror will be aggregated and no shareholders of Acquiror will
receive cash in an amount equal to or greater than the value of one
full Vencor Common Share.
16. To the extent that a portion of the shares of Acquiror Common Shares
issued in exchange for the Meadowvale Common Shares will be placed in
escrow by the Meadowvale shareholders and will be made subject to a
condition pursuant to the Reorganization Agreement and the Escrow
Agreement and Supplemental Escrow Agreement, for possible return to
Acquiror under specified conditions: (a) there is a valid business
reason for establishing the arrangement in that the escrow is a
mechanism to accomplish an exchange price adjustment, bargained for at
arm's-length, in the event of a breach by Meadowvale; (b) the Acquiror
Common Shares subject to such arrangement will appear as issued and
outstanding on the balance sheet of Acquiror and such Acquiror Common
Shares will be legally outstanding under applicable state law; (c) all
dividends paid on such Acquiror Common Shares will be distributed
currently to the Meadowvale shareholders; (d) all voting rights of
such Acquiror Common Shares will be exercisable by or on behalf of the
Meadowvale shareholders or their authorized agent; (e) no such
Acquiror Common Shares will be subject to restrictions requiring their
return to Acquiror because of death, failure to continue employment,
or similar restrictions; (f) all such Acquiror Common Shares will be
released from the arrangement within five years from the date of
consummation of the Share Exchange (except where there is a bona fide
dispute as to whom the Acquiror Common Shares should be released); (g)
at least 50 percent of the number of each class of Acquiror Common
Shares issued initially to the Meadowvale shareholders will not be
subject to the arrangement; (h) the return of the Acquiror Common
Shares will not be triggered by an event the occurrence or
nonoccurrence of which is within the control of the Meadowvale
shareholders; (i) the return of Acquiror Common Shares will not be
triggered by the payment of additional tax or reduction in tax paid as
a result of an Internal Revenue Service audit of the Meadowvale
shareholders or the corporations either (i) with respect to the Share
Exchange, or (ii) when the Share Exchange involves persons related
within the meaning of Code Section 267(c)(4); and (j) the mechanism
for the calculation of the number of Acquiror Common Shares to be
returned is objective and readily ascertainable.
17. The purpose of the Acquiror rights plan is to provide a mechanism by
which Acquiror, a publicly traded corporation, can, in the future,
provide shareholders with rights to purchase Acquiror stock at
substantially less than fair market value as a means of responding to
unsolicited offers to acquire Acquiror. The plan provides that in the
event of an unsolicited offer in the future to acquire Acquiror under
certain circumstances (a "triggering event"), the Acquiror shareholders
will have the right to purchase Acquiror stock. The rights may be
redeemed at any time by Acquiror without shareholder approval until
they become exercisable for one cent per right. Until a triggering
event, the rights are not exercisable or separately tradeable,
transferrable, or detachable, nor are they represented by any
certificate other than the Acquiror Common Share certificate. Until a
triggering event and then a "flip-in" or "flip-over" event occur, the
exercise price is anticipated to substantially exceed the value of the
Acquiror stock at all times during the life of the right. The
likelihood that the rights would, at any time, be exercised is both
remote and speculative. No event has occurred, or is anticipated to
occur, that would make the rights exercisable.
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The foregoing is provided to KPMG Peat Marwick LLP and to Ice Miller
Donadio & Ryan in connection with the preparation of their opinions. We
understand that the opinions will be premised on the basis that all of the
facts, representations, and assumptions on which they are relying, whether
contained herein or elsewhere, are accurate and complete in all respects and
will be accurate and complete in all respects at the time the Registration
Statement becomes effective and at the Effective Time. Ice Miller Donadio & Ryan
and KPMG Peat Marwick LLP reserve the right to request additional
representations prior to the issuance of their opinions.
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of
this 19th day of May, 1995.
THE HILLHAVEN CORPORATION
By:
--------------------------------
Printed:
---------------------------
Title:
----------------------------
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EXHIBIT 12.2(H)
PART 1
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement"), dated [ ], 1995,
is made among The Hillhaven Corporation, a Nevada corporation ("Acquiror"), and
Dr. Thomas E. Phillippe, Sr. ("Phillippe"), an individual.
WHEREAS, Phillippe and certain other persons have, on this date, as part of
a single transaction, delivered to Acquiror all the issued and outstanding
shares of the capital stock of Nationwide Care, Inc. ("Nationwide"), Phillippe
Enterprises, Inc., and Meadowvale Skilled Care Center, Inc., each an Indiana
corporation (collectively, the "Corporate Targets"), and delivered to Nationwide
all the outstanding interests in Camelot Care Centers, a general partnership
governed by the laws of Indiana, Shangri-La Partnership, a general partnership
governed by the laws of Indiana, and Evergreen Woods, Ltd., a Florida limited
partnership (together, the "Partnership Targets") (the Corporate Targets and the
Partnership Targets being referred to herein collectively as the "Targets"),
pursuant to that certain Amended and Restated Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests among Acquiror and the
Targets, dated as of February 27, 1995 (the "Share Exchange Agreement"; such
transaction contemplated therein hereinafter referred to as the "Transaction");
WHEREAS, Acquiror and the Targets are engaged in various locations in the
following businesses (i) owning, operating and managing nursing homes and
assisted living centers and (ii) providing home health care and rehabilitation
therapy care (the foregoing businesses being referred to herein collectively as
the "Business Activities");
WHEREAS, Phillippe has acquired knowledge relating to the Business
Activities as a result of Phillippe's relationship with the Targets; and
WHEREAS, as part of, and a condition precedent to, the Transaction,
Phillippe has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein set forth, the parties hereto, intending to be legally bound, agree as
follows:
1. Definitions. All capitalized terms used and not defined herein
shall have the meanings given such terms in the Share Exchange Agreement.
References to "Phillippe" herein shall mean Phillippe and any of his
Affiliates.
2. Rights of Acquiror. Covenants herein contained are cumulative to
the rights of Acquiror under the laws of the United States, the states of
Washington, Indiana, Ohio and Florida and other states, as applicable,
respecting Acquiror's rights to protect itself from the competition of
Phillippe.
3. Non-Competition. Phillippe agrees that, for a period of five (5)
years from the date of the Effective Time, Phillippe shall not, directly or
indirectly:
(a) have an interest in, own, manage, operate, control, be
connected with as a stockholder (other than as a stockholder 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 (5) mile
radius of any facility or other location at or from which Acquiror, a
Target or any of their respective Affiliates conducts any of the
Business Activities as of the date hereof.
(b) (i) solicit, recruit or hire any employee of Acquiror, a Target
or any of their respective Affiliates or any person who has worked for
Acquiror, a Target or any of their respective Affiliates
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within the six months preceding such solicitation, recruitment or hire;
or (ii) solicit or encourage any employee of Acquiror, a Target or any
of their respective Affiliates to leave such employment.
4. Specific Performance. Phillippe acknowledges that his failure to
comply with the provisions of this Agreement will result in irreparable and
continuing damage to Acquiror for which there will be no adequate remedy at
law and that, in the event of a failure of Phillippe so to comply, Acquiror
and its successors and assigns shall be entitled to injunctive relief and
to such other and further relief as may be proper and necessary to ensure
compliance with the provisions of this Agreement.
5. Amendments. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by each party hereto.
6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been
signed by each of the parties and delivered to each other party.
7. Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to
such subject matter.
8. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be
held invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof or other applications of such
provision.
9. Governing Law. This Agreement shall be governed by and construed
in all respects in accordance with the laws of the State of Indiana,
without regard to the conflicts of law principles of such state.
10. Arbitration. Any claim or controversy relating to the breach,
interpretation or enforcement of this Agreement shall be submitted to final
and binding arbitration in Marion County, Indiana, in an arbitration
proceeding that, except as may otherwise be provided herein, shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association before a single arbitrator chosen in
accordance with such rules. All evidentiary and discovery matters shall be
conducted in accordance with and governed by the applicable Federal Rules
of Civil Procedure. No later than 10 calendar days after the arbitrator is
appointed, the arbitrator shall schedule the arbitration for a hearing to
commence on a mutually convenient date. All discovery shall be completed no
later than the commencement of the arbitration hearing or 90 calendar days
after the date that a proper demand for arbitration is served, whichever
occurs first, unless, upon a showing of good cause, the arbitrator extends
such period. The hearing shall commence no later than 90 calendar days
after the arbitrator is appointed and shall continue until completed. The
arbitrator shall issue his or her award in writing no later than 20
calendar days after the conclusion of the hearing. The arbitrator shall not
have the power to amend this Agreement in any respect. The arbitrator's
decision shall be binding and conclusive upon the parties.
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IN WITNESS WHEREOF, the parties have duly executed and have caused to be
duly executed this Agreement as of the date first above written.
THE HILLHAVEN CORPORATION
By:
--------------------------------
Robert F. Pacquer
Senior Vice President and
Chief Financial Officer
------------------------------------
Dr. Thomas E. Phillippe, Sr.
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EXHIBIT 12.2(H)
PART 2
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement"), dated [ ],
1995, is made among The Hillhaven Corporation, a Nevada corporation
("Acquiror"), and Thomas E. Phillippe, Jr. ("Phillippe"), an individual.
WHEREAS, Phillippe and certain other persons have, on this date, as part of
a single transaction, delivered to Acquiror all the issued and outstanding
shares of the capital stock of Nationwide Care, Inc. ("Nationwide"), Phillippe
Enterprises, Inc., and Meadowvale Skilled Care Center, Inc., each an Indiana
corporation (collectively, the "Corporate Targets"), and delivered to Nationwide
all the outstanding interests in Camelot Care Centers, a general partnership
governed by the laws of Indiana, and Evergreen Woods, Ltd., a Florida limited
partnership (together, the "Partnership Targets") (the Corporate Targets and the
Partnership Targets being referred to herein collectively as the "Targets"),
pursuant to that certain Amended and Restated Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests among Acquiror and the
Targets, dated as of February 27, 1995 (the "Share Exchange Agreement"; such
transaction contemplated therein hereinafter referred to as the "Transaction");
WHEREAS, Acquiror and the Targets are engaged in various locations in the
following businesses (i) owning, operating and managing nursing homes and
assisted living centers and (ii) providing home health care and rehabilitation
therapy care (the foregoing businesses being referred to herein collectively as
the "Business Activities");
WHEREAS, Phillippe has acquired knowledge relating to the Business
Activities as a result of Phillippe's relationship with the Targets; and
WHEREAS, as part of, and a condition precedent to, the Transaction,
Phillippe has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein set forth, the parties hereto, intending to be legally bound, agree as
follows:
1. Definitions. All capitalized terms used and not defined herein
shall have the meanings given such terms in the Share Exchange Agreement.
References to "Phillippe" herein shall mean Phillippe and any of his
Affiliates.
2. Rights of Acquiror. Covenants herein contained are cumulative to
the rights of Acquiror under the laws of the United States, the states of
Washington, Indiana, Ohio and Florida and other states, as applicable,
respecting Acquiror's rights to protect itself from the competition of
Phillippe.
3. Non-Competition. Phillippe agrees that, for a period of five (5)
years from the date of the Effective Time, Phillippe shall not, directly or
indirectly:
(a) have an interest in, own, manage, operate, control, be
connected with as a stockholder (other than as a stockholder 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 (5) mile
radius of any facility or other location at or from which Acquiror, a
Target or any of their respective Affiliates conducts any of the
Business Activities as of the date hereof.
(b) (i) solicit, recruit or hire any employee of Acquiror, a Target
or any of their respective Affiliates or any person who has worked for
Acquiror, a Target or any of their respective Affiliates within the six
months preceding such solicitation, recruitment or hire; or (ii) solicit
or encourage any employee of Acquiror, a Target or any of their
respective Affiliates to leave such employment.
-89-
<PAGE> 95
4. Specific Performance. Phillippe acknowledges that his failure to
comply with the provisions of this Agreement will result in irreparable and
continuing damage to Acquiror for which there will be no adequate remedy at
law and that, in the event of a failure of Phillippe so to comply, Acquiror
and its successors and assigns shall be entitled to injunctive relief and
to such other and further relief as may be proper and necessary to ensure
compliance with the provisions of this Agreement.
5. Amendments. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by each party hereto.
6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been
signed by each of the parties and delivered to each other party.
7. Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to
such subject matter.
8. Severability. If any provision of this Agreement or the application
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision hereof or other applications of such provision.
9. Governing Law. This Agreement shall be governed by and construed in
all respects in accordance with the laws of the State of Indiana, without
regard to the conflicts of law principles of such state.
10. Arbitration. Any claim or controversy relating to the breach,
interpretation or enforcement of this Agreement shall be submitted to final
and binding arbitration in Marion County, Indiana, in an arbitration
proceeding that, except as may otherwise be provided herein, shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association before a single arbitrator chosen in
accordance with such rules. All evidentiary and discovery matters shall be
conducted in accordance with and governed by the applicable Federal Rules
of Civil Procedure. No later than 10 calendar days after the arbitrator is
appointed, the arbitrator shall schedule the arbitration for a hearing to
commence on a mutually convenient date. All discovery shall be completed no
later than the commencement of the arbitration hearing or 90 calendar days
after the date that a proper demand for arbitration is served, whichever
occurs first, unless, upon a showing of good cause, the arbitrator extends
such period. The hearing shall commence no later than 90 calendar days
after the arbitrator is appointed and shall continue until completed. The
arbitrator shall issue his or her award in writing no later than 20
calendar days after the conclusion of the hearing. The arbitrator shall not
have the power to amend this Agreement in any respect. The arbitrator's
decision shall be binding and conclusive upon the parties.
-90-
<PAGE> 96
IN WITNESS WHEREOF, the parties have duly executed and have caused to be
duly executed this Agreement as of the date first above written.
THE HILLHAVEN CORPORATION
By:
------------------------------
Robert F. Pacquer
Senior Vice President and
Chief Financial Officer
----------------------------------
Thomas E. Phillippe, Jr.
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<PAGE> 97
EXHIBIT 12.2(I)(A)
AGREEMENT AMONG SHAREHOLDERS
THIS AGREEMENT AMONG SHAREHOLDERS ("Agreement") is entered into as of
, 1995, by and among all of the shareholders (the "Shareholders") of
Nationwide Care, Inc., an Indiana corporation ("Nationwide").
PRELIMINARY STATEMENTS
Nationwide, The Hillhaven Corporation, a Nevada corporation ("Acquiror"),
Phillippe Enterprises, Inc., an Indiana corporation ("PEI"), Meadowvale Skilled
Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and
Meadowvale are collectively referred to as the "Corporate Targets"), the
partners of Camelot Care Centers, an Indiana general partnership ("Camelot"),
the partners of Shangri-La Partnership, an Indiana general partnership, and the
limited partners of Evergreen Woods, Ltd., a Florida limited partnership
("Evergreen") (Camelot and Evergreen are collectively referred to as the
"Partnerships"), have entered into that certain Amended and Restated Agreement
and Plan of Share Exchange and Agreements to Assign Partnership Interests, dated
as of February 27, 1995, as amended (the "Reorganization Agreement"), and the
documents executed and delivered in connection therewith (collectively with the
Reorganization Agreement, the "Transaction Documents"), pursuant to which all of
the shares of common stock of Nationwide will be exchanged solely for Acquiror
Voting Common Stock (the "Share Exchange") in a reorganization within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended
(the "Code"). Voting Acquiror Common Shares will be the only consideration
issued to the Shareholders in the Share Exchange.
Section 9.10 of the Reorganization Agreement provides that, as a condition
precedent to the consummation of the Share Exchange, Nationwide shall receive
opinions of counsel that the Share Exchange will qualify as a reorganization
within the meaning of Code Section 368(a)(1)(B). The Shareholders desire to set
forth their agreement concerning ownership of the Acquiror Common Shares
received in the Share Exchange in order to facilitate the issuance of the
opinions referred to in Section 9.10 of the Reorganization Agreement and to
otherwise ensure that the continuity of shareholder interest requirement set
forth in Treasury Regulation sec. 1.368-1(b) will be satisfied with respect to
the Share Exchange.
Terms which are not defined herein and are used with initial capitalization
when the rules of grammar would not otherwise so require and which are defined
in the Transaction Documents shall have the meanings assigned to such terms in
the Transaction Documents.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings and
promises set forth in this Agreement, the Shareholders agree as follows:
TERMS AND CONDITIONS
SECTION 1. Representations, Warranties, and Covenants of the
Shareholders. Each Shareholder represents, warrants, covenants and agrees that
such Shareholder will not dissent in or to the transactions contemplated by the
Agreement and Plan of Merger by and among Acquiror, Vencor, Inc., a Delaware
corporation ("Vencor"), and Veritas Holdings Corp., a Delaware corporation and
wholly-owned subsidiary of Vencor ("Veritas"), dated as of April 23, 1995 (the
"Merger"), or otherwise accept any consideration other than Vencor voting Common
Shares or cash in lieu of fractional shares of Vencor Common Shares from Vencor
in exchange for Acquiror Common Shares. Each Shareholder severally represents,
warrants, and covenants to the other Shareholders that, except for the
possibility of the Merger, the Shareholder has no plan, intention, or
arrangement to sell, exchange, pledge or otherwise dispose of a number of the
Acquiror Common Shares received in the Share Exchange (or Vencor voting Common
Shares received in the Merger) that would reduce that Shareholder's ownership of
the Acquiror Common Shares to a number of Acquiror Common Shares (or Vencor
voting Common Shares) having a value, determined as of the Effective Time of the
Share Exchange (the "Effective Time"), of less than 50 percent of the value of
the Nationwide stock held by that Shareholder immediately before the Share
Exchange. For purposes of this representation, warranty, and covenant,
Nationwide stock (including voting and nonvoting common stock and preferred
stock) and
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<PAGE> 98
Acquiror Common Shares (or Vencor voting Common Shares) held by the Shareholder
and otherwise sold, redeemed, or disposed of prior or subsequent to the Share
Exchange have been considered in making this representation, warranty, and
covenant. Each Shareholder further represents, warrants, and covenants that such
Shareholder has no plan, intention, or arrangement to sell, exchange, pledge or
otherwise dispose of any Acquiror Common Shares received in the Share Exchange
(or Vencor voting Common Shares received in the Merger) except as set forth on
Exhibit A.
SECTION 2. Prohibition on Disposition within Two Years. No Shareholder
shall, within two years of the Effective Time, or within two years of the
effective time of the Merger, whichever is later, sell, exchange, pledge, or
otherwise dispose of any of the Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the Merger), except as set
forth on Exhibit A, unless and until (a) such sale, exchange, pledge, or
disposition would not reduce the fair market value of the Acquiror Common Shares
(or Vencor voting Common Shares) (determined as of the Effective Time) retained
by that Shareholder to an amount less than fifty percent (50%) of the fair
market value of the Nationwide stock held by that Shareholder immediately before
the Share Exchange (determined in the same manner as set forth in Section 1 of
this Agreement); or (b) in the event such sale, exchange, pledge, or disposition
would reduce the fair market value of the Acquiror Common Shares (or Vencor
voting Common Shares) (determined as of the Effective Time) retained by that
Shareholder to an amount less than fifty percent (50%) of the fair market value
of the Nationwide stock held by that Shareholder immediately before the Share
Exchange, (i) such Shareholder obtains and delivers to Thomas E. Phillippe, Jr.,
acting as 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 (ii) the Representative and 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.
SECTION 3. Nonwaiver. The failure of any Shareholder or of the
Representative to insist in any one or more instances upon performance of any
provisions of this Agreement or to pursue rights under this Agreement shall not
be construed as a waiver of any such provisions or the relinquishment of any
such rights.
SECTION 4. Governing Law. The laws of the State of Indiana shall govern the
validity, performance, enforcement, interpretation and any other aspect of this
Agreement.
SECTION 5. Modification. This Agreement may not be modified or altered
except by written instrument duly executed by all of the Shareholders.
SECTION 6. Entire Agreement. The Transaction Documents and this Agreement
contain the entire agreement of the Shareholders with respect to the subject
matter of this Agreement and shall be deemed to supersede all prior agreements,
whether written or oral, and the terms and provisions of any such prior
agreements shall be deemed to have been merged into this Agreement.
-93-
<PAGE> 99
SECTION 7. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
</TABLE>
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<PAGE> 100
EXHIBIT A
<TABLE>
<CAPTION>
NUMBER OF SHARES
WHICH THE
SHAREHOLDER HAS
A PLAN,
INTENTION, OR
ARRANGEMENT TO
SELL, EXCHANGE,
PLEDGE, OR
NUMBER OF OTHERWISE
SHAREHOLDER SHARES HELD DISPOSE OF
----------- ----------- ----------------
<S> <C> <C>
VOTING COMMON SHARES
Lorene Burns..................................... 35,418
Rod Benson....................................... 159,694
Kathy Benson..................................... 60,000
Joe Edwards...................................... 66,570
Don Polston...................................... 30,000
Kaylynn Cheesman................................. 7,500
Mark Benson...................................... 7,500
Dan Benson....................................... 7,500
David Benson..................................... 7,500
Lorayn Hoop...................................... 113,172
Phil Caldwell.................................... 3,750
Chuck Cooper..................................... 3,750
William Phillippe................................ 79,206
Joe Phillippe.................................... 22,540
Mike Goodspeed................................... 24,624
Tom Phillippe, Jr................................ 1,475,812
Tom Phillippe, Sr................................ 1,982,967
Tom Phillippe, Sr., as Trustee under Annuity
Trust for the benefit of Tom Phillippe, Jr..... 850,000
Tom Phillippe, Sr., as Trustee under Annuity
Trust for the benefit of Towana Moore.......... 850,000
Tom Phillippe, Sr., as Trustee under Annuity
Trust for the benefit of Stacey Mervine........ 850,000
Indiana Wesleyan................................. 50,000
Towana Moore..................................... 264,865
Craig Moore...................................... 110,736
Greg & Stacy Mervine............................. 368,354
Warrants to be exercised......................... 987,188
TOTAL FOR VOTING COMMON SHARES:................ 8,418,646
NONVOTING COMMON SHARES
Ford S. Bartholomew.............................. 3,192
Matthew W. Clary................................. 1,596
Jeffrey M. Mann.................................. 2,394
M. Ann O'Brien................................... 16,754
Robert F. Perille................................ 18,350
Christopher J. Perry............................. 32,710
Thomas E. Van Pelt............................... 1,596
TOTAL FOR NONVOTING COMMON SHARES:............. 76,592
</TABLE>
-95-
<PAGE> 101
EXHIBIT 12.2(I)(B)
AGREEMENT AMONG SHAREHOLDERS
THIS AGREEMENT AMONG SHAREHOLDERS ("Agreement") is entered into as of
, 1995, by and among all of the shareholders (the "Shareholders") of
Phillippe Enterprises, Inc., an Indiana corporation ("PEI").
PRELIMINARY STATEMENTS
PEI, The Hillhaven Corporation, a Nevada corporation ("Acquiror"),
Nationwide Care, Inc., an Indiana corporation ("Nationwide"), Meadowvale Skilled
Care Center, Inc., an Indiana corporation ("Meadowvale") (Nationwide, PEI and
Meadowvale are collectively referred to as the "Targets"), the partners of
Camelot Care Centers, an Indiana general partnership ("Camelot"), the partners
of Shangri-La Partnership, an Indiana general partnership, and the limited
partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen")
(Camelot and Evergreen are collectively referred to as the "Partnerships"), have
entered into that certain Amended and Restated Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests, dated as of February
27, 1995 (the "Reorganization Agreement"), and the documents executed and
delivered in connection therewith (collectively with the Reorganization
Agreement, the "Transaction Documents"), pursuant to which all of the shares of
common stock of Nationwide will be exchanged solely for Acquiror Voting Common
Stock (the "Share Exchange") in a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
Voting Acquiror Common Shares will be the only consideration issued to the
Shareholders in the Share Exchange.
Section 9.10 of the Reorganization Agreement provides that, as a condition
precedent to the consummation of the Share Exchange, Nationwide shall receive
opinions of counsel that the Share Exchange will qualify as a reorganization
within the meaning of Code Section 368(a)(1)(B). The Shareholders desire to set
forth their agreement concerning ownership of the Acquiror Common Shares
received in the Share Exchange in order to facilitate the issuance of the
opinions referred to in Section 9.10 of the Reorganization Agreement and to
otherwise ensure that the continuity of shareholder interest requirement set
forth in Treasury Regulation sec. 1.368-1(b) will be satisfied with respect to
the Share Exchange.
Terms which are not defined herein and are used with initial capitalization
when the rules of grammar would not otherwise so require and which are defined
in the Transaction Documents shall have the meanings assigned to such terms in
the Transaction Documents.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings and
promises set forth in this Agreement, the Shareholders agree as follows:
TERMS AND CONDITIONS
SECTION 1. Representations, Warranties, and Covenants of the
Shareholders. Each Shareholder represents, warrants, covenants and agrees that
such Shareholder will not dissent in or to the transactions contemplated by the
Agreement and Plan of Merger by and among Acquiror, Vencor, Inc., a Delaware
corporation ("Vencor"), and Veritas Holdings Corp., a Delaware corporation and
wholly-owned subsidiary of Vencor ("Veritas"), dated as of April 23, 1995 (the
"Merger"), or otherwise accept any consideration other than Vencor voting Common
Shares or cash in lieu of fractional shares of Vencor Common Shares from Vencor
in exchange for Acquiror Common Shares. Each Shareholder severally represents,
warrants, and covenants to the other Shareholders that, except for the
possibility of the Merger, the Shareholder has no plan, intention, or
arrangement to sell, exchange, pledge, or otherwise dispose of a number of the
Acquiror Common Shares received in the Share Exchange (or Vencor voting Common
Shares received in the Merger) that would reduce that Shareholder's ownership of
the Acquiror Common Shares to a number of Acquiror Common Shares (or Vencor
voting Common Shares) having a value, determined as of the Effective Time of the
Share Exchange (the "Effective Time"), of less than 50 percent of the value of
the PEI stock held by that Shareholder immediately before the Share Exchange.
For purposes of this representation, warranty, and covenant, PEI stock
(including voting and nonvoting common stock and preferred stock) and Acquiror
Common Shares (or Vencor voting Common Shares) held by the Shareholder and
otherwise sold, redeemed, or disposed of prior or subsequent to the Share
Exchange have been considered in making this representation,
-96-
<PAGE> 102
warranty, and covenant. Each Shareholder further represents, warrants, and
covenants that such Shareholder has no plan, intention, or arrangement to sell,
exchange, pledge, or otherwise dispose of any Acquiror Common Shares received in
the Share Exchange (or Vencor voting Common Shares received in the Merger)
except as set forth on Exhibit A.
SECTION 2. Prohibition on Disposition within Two Years. No Shareholder
shall, within two years of the Effective Time, or within two years of the
effective time of the Merger, whichever is later, sell, exchange, pledge, or
otherwise dispose of any of the Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the Merger), except as set
forth on Exhibit A, unless and until (a) such sale, exchange, pledge, or
disposition would not reduce the fair market value of the Acquiror Common Shares
(or Vencor voting Common Shares) (determined as of the Effective Time) retained
by that Shareholder to an amount less than fifty percent (50%) of the fair
market value of the PEI stock held by that Shareholder immediately before the
Share Exchange (determined in the same manner as set forth in Section 1 of this
Agreement); or (b) in the event such sale, exchange, pledge, or disposition
would reduce the fair market value of the Acquiror Common Shares (or Vencor
voting Common Shares) (determined as of the Effective Time) retained by that
Shareholder to an amount less than fifty percent (50%) of the fair market value
of the PEI stock held by that Shareholder immediately before the Share Exchange,
(i) such Shareholder obtains and delivers to Thomas E. Phillippe, Jr., acting as
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 (ii) the Representative and 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.
SECTION 3. Nonwaiver. The failure of any Shareholder or of the
Representative to insist in any one or more instances upon performance of any
provisions of this Agreement or to pursue rights under this Agreement shall not
be construed as a waiver of any such provisions or the relinquishment of any
such rights.
SECTION 4. Governing Law. The laws of the State of Indiana shall govern the
validity, performance, enforcement, interpretation and any other aspect of this
Agreement.
SECTION 5. Modification. This Agreement may not be modified or altered
except by written instrument duly executed by all of the Shareholders.
SECTION 6. Entire Agreement. The Transaction Documents and this Agreement
contain the entire agreement of the Shareholders with respect to the subject
matter of this Agreement and shall be deemed to supersede all prior agreements,
whether written or oral, and the terms and provisions of any such prior
agreements shall be deemed to have been merged into this Agreement.
SECTION 7. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
</TABLE>
-97-
<PAGE> 103
EXHIBIT A
<TABLE>
<CAPTION>
NUMBER OF SHARES
WHICH THE
SHAREHOLDER HAS
A PLAN,
INTENTION, OR
ARRANGEMENT TO
SELL, EXCHANGE,
PLEDGE, OR
NUMBER OF OTHERWISE
SHAREHOLDER SHARES HELD DISPOSE OF
----------- ----------- ----------------
<S> <C> <C>
VOTING COMMON SHARES
Dr. Thomas E. Phillippe, Sr...................... 1,000
Thomas E. Phillippe, Jr.......................... 1,000
-----
Total Voting Common Shares..................... 2,000
=====
</TABLE>
-98-
<PAGE> 104
EXHIBIT 12.2(I)(C)
AGREEMENT AMONG SHAREHOLDERS
THIS AGREEMENT AMONG SHAREHOLDERS ("Agreement") is entered into as of
, 1995, by and among all of the shareholders (the "Shareholders") of
Meadowvale Skilled Care Center, Inc., an Indiana corporation ("Meadowvale").
PRELIMINARY STATEMENTS
Meadowvale, The Hillhaven Corporation, a Nevada corporation ("Acquiror"),
Nationwide Care, Inc., an Indiana Corporation ("Nationwide"), Phillippe
Enterprises, Inc., an Indiana corporation ("PEI") (Meadowvale Nationwide, PEI
are collectively referred to as the "Targets"), the partners of Camelot Care
Centers, an Indiana general partnership ("Camelot"), the partners of Shangri-La
Partnership, an Indiana general partnership, and the limited partners of
Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot and
Evergreen are collectively referred to as the "Partnerships"), have entered into
that certain Amended and Restated Agreement and Plan of Share Exchange and
Agreements to Assign Partnership Interests, dated as of February 27, 1995 (the
"Reorganization Agreement"), and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"), pursuant to which all of the shares of common stock of
Nationwide will be exchanged solely for Acquiror Voting Common Stock (the "Share
Exchange") in a reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended (the "Code"). Voting Acquiror Common
Shares will be the only consideration issued to the Shareholders in the Share
Exchange.
Section 9.10 of the Reorganization Agreement provides that, as a condition
precedent to the consummation of the Share Exchange, Nationwide shall receive
opinions of counsel that the Share Exchange will qualify as a reorganization
within the meaning of Code Section 368(a)(1)(B). The Shareholders desire to set
forth their agreement concerning ownership of the Acquiror Common Shares
received in the Share Exchange in order to facilitate the issuance of the
opinions referred to in Section 9.10 of the Reorganization Agreement and to
otherwise ensure that the continuity of shareholder interest requirement set
forth in Treasury Regulation sec. 1.368-1(b) will be satisfied with respect to
the Share Exchange.
Terms which are not defined herein and are used with initial capitalization
when the rules of grammar would not otherwise so require and which are defined
in the Transaction Documents shall have the meanings assigned to such terms in
the Transaction Documents.
NOW, THEREFORE, in consideration of the mutual covenants, undertakings and
promises set forth in this Agreement, the Shareholders agree as follows:
TERMS AND CONDITIONS
SECTION 1. Representations, Warranties, and Covenants of the
Shareholders. Each Shareholder represents, warrants, covenants and agrees that
such Shareholder will not dissent in or to the transactions contemplated by the
Agreement and Plan of Merger by and among Acquiror, Vencor, Inc., a Delaware
corporation ("Vencor"), and Veritas Holdings Corp., a Delaware corporation and
wholly-owned subsidiary of Vencor ("Veritas"), dated as of April 23, 1995 (the
"Merger"), or otherwise accept any consideration other than Vencor voting Common
Shares or cash in lieu of fractional shares of Vencor Common Shares from Vencor
in exchange for Acquiror Common Shares. Each Shareholder severally represents,
warrants, and covenants to the other Shareholders that, except for the
possibility of the Merger, the Shareholder has no plan, intention, or
arrangement to sell, exchange, pledge, or otherwise dispose of a number of the
Acquiror Common Shares received in the Share Exchange (or Vencor voting Common
Shares received in the Merger) that would reduce that Shareholder's ownership of
the Acquiror Common Shares to a number of Acquiror Common Shares (or Vencor
voting Common Shares) having a value, determined as of the Effective Time of the
Share Exchange (the "Effective Time"), of less than 50 percent of the value of
the Meadowvale stock held by that Shareholder immediately before the Share
Exchange. For purposes of this representation, warranty, and covenant,
Meadowvale stock (including voting and nonvoting common stock and preferred
stock) and Acquiror Common Shares (or Vencor voting Common Shares) held by the
Shareholder and otherwise sold, redeemed, or disposed of prior or subsequent to
the Share Exchange have been considered in
-99-
<PAGE> 105
making this representation, warranty, and covenant. Moreover, for purposes of
this representation, the value of all of the formerly outstanding Meadowvale
Common Shares as of the Effective Time (and as of the effective time of the
Merger) will be determined as if the transfer of the Residence to Cheesman did
not occur. Each Shareholder further represents, warrants, and covenants that
such Shareholder has no plan, intention, or arrangement to sell, exchange,
pledge, or otherwise dispose of any Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the Merger) except as set
forth on Exhibit A.
SECTION 2. Prohibition on Disposition within Two Years. No Shareholder
shall, within two years of the Effective Time, or within two years of the
effective time of the Merger, whichever is later, sell, exchange, pledge or
otherwise dispose of any of the Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the Merger) except as set
forth on Exhibit A, unless and until (a) such sale, exchange, pledge, or
disposition would not reduce the fair market value of the Acquiror Common Shares
(or Vencor voting Common Shares) (determined as of the Effective Time) retained
by that Shareholder to an amount less than fifty percent (50%) of the fair
market value of the Meadowvale stock held by that Shareholder immediately before
Share Exchange (determined in the same manner as set forth in Section 1 of this
Agreement); or (b) in the event such sale, exchange, pledge, or disposition
would reduce the fair market value of the Acquiror Common Shares (or Vencor
voting Common Shares) (determined as of the Effective Time) retained by that
Shareholder to an amount less than fifty percent (50%) of the fair market value
of the Meadowvale stock held by that Shareholder immediately before the Share
Exchange, (i) such Shareholder obtains and delivers to Thomas E. Phillippe, Jr.,
acting as 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 (ii) the Representative and 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.
SECTION 3. Nonwaiver. The failure of any Shareholder or of the
Representative to insist in any one or more instances upon performance of any
provisions of this Agreement or to pursue rights under this Agreement shall not
be construed as a waiver of any such provisions or the relinquishment of any
such rights.
SECTION 4. Governing Law. The laws of the State of Indiana shall govern the
validity, performance, enforcement, interpretation and any other aspect of this
Agreement.
SECTION 5. Modification. This Agreement may not be modified or altered
except by written instrument duly executed by all of the Shareholders.
SECTION 6. Entire Agreement. The Transaction Documents and this Agreement
contain the entire agreement of the Shareholders with respect to the subject
matter of this Agreement and shall be deemed to supersede all prior agreements,
whether written or oral, and the terms and provisions of any such prior
agreements shall be deemed to have been merged into this Agreement.
-100-
<PAGE> 106
SECTION 7. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
</TABLE>
-101-
<PAGE> 107
EXHIBIT A
<TABLE>
<CAPTION>
NUMBER OF SHARES
WHICH THE
SHAREHOLDER HAS
A PLAN,
INTENTION, OR
ARRANGEMENT TO
SELL, EXCHANGE,
PLEDGE, OR
NUMBER OF OTHERWISE
SHAREHOLDER SHARES HELD DISPOSE OF
----------- ----------- ----------------
<S> <C> <C>
VOTING COMMON SHARES
Joan Phillippe................................. 778
Joyce Greeno................................... 778
Donald Cheesman................................ 666
David Cheesman................................. 182
Darla Mitchener................................ 182
Debbie Showalter............................... 182
Dawn Robertson................................. 182
-----
Total voting Common Shares............. 3,000
=====
</TABLE>
-102-
<PAGE> 1
EXHIBIT 5.01
[LOGO]
May 19, 1995
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Ladies and Gentlemen:
I am the General Counsel of The Hillhaven Corporation, a Nevada
corporation (the "Company"). I am acting as counsel to the Company in
connection with the Registration Statement under the Securities Act of 1933, as
amended (Registration No. 33-58641) filed by the Company with the Securities
and Exchange Commission on Form S-4 (the "Registration Statement"), and the
proposed issuance by the Company of up to 5,500,000 shares of its common stock,
par value $0.75 per share (the "Shares"), in exchange for the outstanding
common stock 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"),
respectively, pursuant to the terms and subject to the conditions of that
certain Amended and Restated Agreement and Plan of Share Exchange and
Agreements to Assign Partnership Interests dated as of February 27, 1995 (the
"Share Exchange Agreement") by and among the Company, NCI, PEI, Meadowvale and
certain NCI-affiliated partnerships.
In connection with the foregoing, I am of the opinion that the Shares
will, when exchanged in accordance with the terms and conditions of the Share
Exchange Agreement, be legally issued, fully paid and nonassessable.
I am a member of the bar of the State of Claifornia and express no opinion
as to the laws of any jurisdiction except the State of California and the
federal laws of the United States. As to matters governed by Nevada law, I have
relied solely upon the opinion of Woodburn and Wedge, a copy of which is being
filed as Exhibit 5.02 to the Registration Statement. I have also relied, among
other things, upon my examination of such corporate records of the Company and
certificates of officers of the Company and of public officials as I have
deemed appropriate.
<PAGE> 2
[LOGO]
The Hillhaven Corporation
May 19, 1995
Page 2
I hereby authorize and consent to the use of this opinion as Exhibit 5.01
to the Registration Statement and to the reference to me under the heading
"Legal Matters" in the Prospectus/Information Statement which is a part of the
Registration Statement. In giving such consent, I do not thereby admit that I
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ RICHARD P. ADCOCK
-----------------------------
Richard P. Adcock
General Counsel
<PAGE> 1
Exhibit 5.02
[LETTERHEAD]
May 19, 1995
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Ladies and Gentlemen:
We have acted as special Nevada counsel to The Hillhaven Corporation, a
Nevada corporation ("Company"), in connection with the registration under the
Securities Act of 1933, as amended, of 5,500,000 shares of the Company's Common
Stock, $0.75 par value per share (the "Shares") issuable in exchange for the
outstanding stock of Nationwide Care, Inc., an Indiana corporation, Phillippe
Enterprises, Inc., an Indiana corporation, and Meadowvale Skilled Care Center,
Inc., an Indiana corporation (collectively, the "Share Exchanges").
In connection with this opinion, we have examined the following
documents:
A. Amended and Restated Articles of Incorporation of the Company,
as amended to date, on file with the Nevada Secretary of State;
B. Amended and Restated Bylaws of the Company, as amended to date;
C. Resolutions adopted by the Board of Directors of the Company
pertaining to the Shares and the Share Exchanges; and
D. The Registration Statement as filed by the Company with the
Securities and Exchange Commission on Form S-4 under File No. 33-58641
(the "Registration Statement"), including the Prospectus/Information
Statement (the "Prospectus") constituting a part of such Registration
Statement.
<PAGE> 2
The Hillhaven Corporation
May 19, 1995
Page 2
In addition, we have examined such other documents as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed.
As to certain questions of fact, we have relied, without further
investigation, upon certificates of governmental authorities and of officers of
the Company. Additionally, we have assumed that the signatures on all documents
examined by us are genuine, that all documents submitted to us as originals are
authentic and that all documents submitted to us as copies or as facsimiles of
copies or originals, conform with the originals, which assumptions we have not
independently verified.
Based upon the foregoing and the examination of such legal authorities
as we have deemed relevant, and subject to the limitations set forth below, we
are of the opinion that the Shares to which the Registration Statement and
Prospectus relate, when issued in connection with the Share Exchanges, will be
validly issued, fully paid and non-assessable.
The foregoing opinion is limited to the matters expressly set forth
herein and no opinion may be implied or inferred beyond the matters expressly
stated. We disclaim any obligation to update this letter for events occurring
after the date of this letter, or as a result of knowledge acquired by us after
that date, including changes in any of the statutory or decisional law after
the date of this letter. We are members of the bar of the State of Nevada. We
are not opining on, and assume no responsibility as to, the applicability to or
the effect on any of the matters covered herein of the laws of any other
jurisdiction, other than the laws of Nevada as presently in effect. We express
no opinion as to the effect and application of any United States federal law,
rule or regulation or any securities or blue sky laws of any state, including
the State of Nevada.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name in the Prospectus under
the heading "Legal
<PAGE> 3
The Hillhaven Corporation
May 19, 1995
Page 3
Matters." In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
WOODBURN and WEDGE
BY: /s/ KIRK S. SCHUMACHER
-------------------------------
Kirk S. Schumacher
<PAGE> 1
[KPMG Peat Marwick LLP LETTERHEAD]
EXHIBIT 8.01
May 19, 1995
The Board of Directors
The Hillhaven Corporation
Corporate Office
1148 Broadway Plaza
Tacoma, Washington 98402
Dear Board Members:
You have requested the opinion of KPMG Peat Marwick LLP ("KPMG") regarding
certain federal income tax consequences resulting from the proposed exchanges
of the outstanding common stock of Nationwide Care, Inc. ("Nationwide"),
Phillippe Enterprises, Inc. ("PEI"), and Meadowvale Skilled Care Center, Inc.
("Meadowvale") (singularly referred to herein as a "Corporate Target" and
collectively as the "Corporate Targets") for newly issued shares of common
stock of The Hillhaven Corporation ("Hillhaven"). The exchange of the
outstanding common stock of a Corporate Target for common stock of Hillhaven
is singularly referred to herein as a "Share Exchange" and collectively as the
"Share Exchanges".
Specifically, you have requested us to opine that the form and substance of
each Share Exchange will constitute a tax-free reorganization under Section(1)
368(a)(1)(B) of the Internal Revenue Code of 1986 ("IRC" or the "Code"), as
amended, that each Corporate Target and Hillhaven will be a "party to a
reorganization" within the meaning of section 368(b) of the Code, and that no
gain or loss will be recognized by Hillhaven or the Corporate Target
Shareholders in the Share Exchange. For purposes of this opinion, we have
excluded from our consideration the impact of a proposed merger of Hillhaven
with an affiliate of Vencor, Inc. ("Vencor Merger"). Therefore, for purposes of
this opinion, it is assumed the Vencor Merger is not consummated.
FACTS AND REPRESENTATIONS
You have submitted for our consideration certain representations as to the
proposed transaction and the Amended and Restated Agreement and Plan of
Share Exchange and Agreements to Assign Partnership Interests dated as of
February 27, 1995 (the "Agreement")(2) by and among Hillhaven, Nationwide, PEI,
Meadowvale and specified partners of certain Nationwide affiliated partnerships.
- ------------------------
(1) All section references are to the Internal Revenue Code of 1986, as
amended, and the regulations thereunder, unless otherwise indicated.
(2) Capitalized terms not otherwise defined herein are intended to have the same
meaning as used in the Amended and Restated Agreement and Plan of Share
Exchange and Agreements to Assign Partnership Interests.
<PAGE> 2
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 2
Hillhaven, a Nevada corporation, has 60,000,000 authorized shares of voting
common stock ("Hillhaven Common Shares"), of which approximately 32,848,463
shares are issued and outstanding. Hillhaven Common Shares are listed on the
New York Stock Exchange. Hillhaven has 35,000 shares of Series C Preferred
Shares issued and outstanding, and 63,403 shares of Series D Preferred Shares
issued and outstanding. All of the shares of Hillhaven are validly issued,
fully paid and nonassessable. No other classes or series of stock are
outstanding. Hillhaven is the common parent of a consolidated group.
Nationwide, an Indiana corporation, has 7,431,460 shares of voting common stock
issued and outstanding and 76,592 shares of nonvoting common stock issued and
outstanding (collectively referred to herein as "Nationwide Common Shares").
Nationwide also has 300,000 shares of redeemable preferred stock issued and
outstanding ("Nationwide Preferred Shares"), which will be redeemed prior to
the Effective Time by Nationwide. No other classes or series of stock or other
instruments that constitute equity under general principles of federal tax law
are outstanding. Nationwide has outstanding warrants to purchase 987,188 shares
of nonvoting common stock of Nationwide ("Nationwide Warrants"), which will be
exercised prior to the Effective Time. Other than the Nationwide Warrants,
Nationwide does not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any person could
acquire stock in Nationwide. Nationwide has senior subordinated notes with
outstanding principal in the amount of $12,000,000 (the "Senior Subordinated
Notes"), which will be prepaid at Closing by Hillhaven.
PEI, an Indiana corporation, has 2,000 shares of voting common stock issued and
outstanding (the "PEI Common Shares"). Meadowvale, an Indiana corporation, has
3,000 shares of voting common stock issued and outstanding (the "Meadowvale
Common Shares"). No other classes or series of stock of PEI or Meadowvale or
other instruments that constitute equity under general principles of federal
tax law are outstanding. Neither PEI nor Meadowvale has outstanding any
warrants, options, convertible securities or any other type of right pursuant
to which any person could acquire stock in PEI or Meadowvale, respectively.
The Nationwide Common Shares, the PEI Common Shares and the Meadowvale Common
Shares are collectively referred to herein as the "Target Common Shares". All
outstanding Target Common Shares are validly issued, fully paid and
nonassessable.
Dr. Thomas E. Phillippe, Sr. and Thomas E. Phillippe, Jr. (collectively, the
"Phillippes") together own approximately 81 percent of the voting securities of
Nationwide and 100 percent of the voting securities of PEI.
<PAGE> 3
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 3
Nationwide owns 99.98 percent and 99 percent, respectively, of the partnership
interests in Camelot Care Centers ("Camelot"), and Indiana general partnership,
and Evergreen Woods, Ltd. ("Evergreen"), a Florida limited partnership. Camelot
and Evergreen are collectively referred to hereinafter as the "Partnership
Targets". The partners of Camelot and Evergreen (other than Nationwide) are
collectively referred to hereinafter as the "Partners". The interests in the
Partnership Targets held by the Partners are collectively referred to as the
"Partnership Interests".
Shangri-La Partnership ("Shangri-La"), an Indiana general partnership owned 65%
by the Phillippes and originally a party to the Share Exchange Agreement, has
sold its principal assets and neither the partners of Shangri-La nor Shangri-La
are now parties to the Share Exchange Agreement.
Nationwide was incorporated on September 30, 1992 for the purpose of
facilitating a restructuring that took place on July 27, 1993 (the
"Restructuring"). In the Restructuring, several partnerships and corporations
owned by the Phillippes (the "Nationwide Businesses") and several entities not
controlled by the Phillippes (the "Non-Controlled Entities") were acquired and
combined into Nationwide. The business purposes for the Restructuring 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. In the Restructuring:
(i) each of the Nationwide Businesses that was a corporation was merged
with and into Nationwide;
(ii) each partner of a Nationwide Business that was a partnership
contributed his or her partnership interest to Nationwide (except that
partnership interests representing one percent or less of Camelot and
Evergreen remained outstanding and not owned by Nationwide);
(iii) each of the Non-Controlled Entities was merged with and into
Nationwide; and
(iv) each partner and shareholder of the Nationwide Businesses and
Non-Controlled Entities received shares of common stock of Nationwide,
plus cash in lieu of fractional shares, in exchange for their shares
and/or partnership interests in the Nationwide Businesses and Non-
Controlled Entities surrendered in the Restructuring.
Hillhaven previously adopted a plan (the "Rights Plan") pursuant to which it
made a dividend distribution of one right (singularly referred to herein as a
"Right" and collectively as the "Rights") for each Hillhaven Common Share
outstanding on January 31, 1990 and authorized the issuance of additional
Rights for Hillhaven Common Stock issued after that date. The principal purpose
of the Rights Plan was to establish a mechanism by which Hillhaven could, in
the future, provide shareholders with rights to purchase stock at substantially
less than fair market
<PAGE> 4
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 4
value as a means of responding to unsolicited offers to acquire Hillhaven. A
Right becomes exercisable into a fraction of a share of Series A Preferred
Stock upon the occurrence of certain triggering events. The fractional shares
of Series A Preferred Stock have voting, dividend and liquidation rights that
make it the economic equivalent of one common share. A Right holder as such has
no rights as a Hillhaven shareholder, including no right to vote or receive
dividends or distributions. A Right as such is not exercisable or separately
tradable, nor is it represented by any certificate other than the common stock
certificate itself. Hillhaven may redeem the Rights at $.01 per Right at any
time until they become exercisable. As of the date the Share Exchanges are
effective ("Effective Date"), the likelihood that the Rights would, at any
time, be exercised will be both remote and speculative. No event has occurred,
or is anticipated to occur, that would make the Rights exercisable.
The shareholders of each Corporate Target have entered into agreements
concerning ownership of Hillhaven Common Shares received in the Share Exchanges
(the "Shareholders Agreements"). One of the stated purposes of the Shareholders
Agreements is to ensure that the continuity of shareholder interest requirement
of section 1.368-1(b) of the Treasury Regulations will be satisfied with
respect to the Share Exchanges. In the Shareholders Agreements, each
shareholder severally represents, warrants and covenants to the other
shareholders that the shareholder has no plan, intention, or arrangement to
sell, exchange or otherwise dispose (other than pursuant to the Vencor Merger)
of a stated amount of Hillhaven Common Shares received in the Share Exchange.
Each shareholder further represents, warrants and covenants to the other
shareholders that the shareholder will not, within two years of the Effective
Time, or within two years of the Effective Time of the Vencor Merger, whichever
is later, sell, exchange or otherwise dispose (other than pursuant to the Vencor
Merger) of Hillhaven Common Shares received in the Share Exchange unless (i)
the amount of shares sold, exchanged or disposed does not exceed a stated
amount, or (ii) in the event the amount of shares sold, exchanged or disposed
does exceed the stated amount, that the shareholders obtains and delivers an
unqualified opinion from knowledgeable counsel to the effect that such sale,
exchange or disposition does not affect the qualification of the
Share Exchange as a tax-free reorganization.
As part of, and a condition precedent to, the Share Exchanges, Dr. Thomas E.
Phillippe, Sr. and Thomas E. Phillippe, Jr. have each entered into a
noncompetition agreement with Hillhaven. Under the noncompetition agreements,
the Phillippes agree not to undertake certain actions for a period of five
years from the Effective Time. No cash or other property is payable to the
Phillippes as consideration under the terms of the noncompetition agreements.
For what have been represented to be valid business purposes, Hillhaven,
Nationwide, PEI, Meadowvale, and the Partnership Targets want to combine their
businesses. In order to reach that result, the following transactions shall
occur pursuant to the Agreement:
<PAGE> 5
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 5
(1) At the Effective Time, each of the shareholders of the Corporate
Targets shall exchange their respective Target Common Shares for
Hillhaven Common Shares. The exchange of the outstanding common stock
of a Corporate Target for common stock of Hillhaven has been previously
defined singularly as a "Share Exchange" and collectively as the "Share
Exchanges". The Share Exchanges shall be effected pursuant to the
provisions of the Indiana Business Corporation Law (the "IBCL") and the
Nevada General Corporation Law (the "NCL"). Each Share Exchange is
intended to qualify as a tax-free reorganization within the meaning of
IRC Section 368(a)(1)(B).
(2) At the Closing, the Partners of the Partnership Targets shall assign to
Nationwide their Partnership Interests. The Partnership Interests have
no value, nor do they represent liabilities. Accordingly, no
consideration will be provided to the Partners in exchange for the
assignment of their Partnership Interests to Nationwide.
(3) The total consideration to be received by holders of the Target Common
Shares in connection with the Share Exchanges (the "Exchange
Consideration") shall consist of 5,000,000 Hillhaven Common Shares,
provided that the average closing price of one Hillhaven Common Share
as reported on the New York Stock Exchange 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
Exchange Consideration shall consist of the number of Hillhaven Common
Shares equal to the quotient of (i) $120,000,000, divided by (ii) the
Trading Price; provided, however, that the total number of shares shall
not be greater than 5,500,000.
(4) As security for, and as the sole source for satisfaction of, the
indemnification obligations of the Corporate Targets provided for in
Article XIII of the Agreement, ten percent of the number of Hillhaven
Common Shares that comprise the Exchange Consideration (the "Escrow
Shares") shall be transferred by the shareholders of the Corporate
Targets to an escrow agent to be held in escrow (the "Escrow"). In
addition, as security for the indemnification obligations of the
Corporate Targets provided for in Article XIV of the Agreement, five
percent of the number of Hillhaven Common Shares that comprise the
Exchange Consideration (the "Supplemental Escrow Shares") shall be
transferred by the shareholders of Nationwide to an escrow agent to
be held in escrow (the "Supplemental Escrow").
(5) No certificates or scrip representing fractional Hillhaven Common
Shares shall be issued in the Share Exchanges or in connection with
the assignment of the Partnership Interests and no holder of any
such fractional share interest shall be entitled to vote, to receive
any dividends or other distributions paid or declared on Hillhaven
Common Shares, or to exercise any other rights as a shareholder of
Hillhaven with respect to such fractional share
<PAGE> 6
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 6
interest. Further, no cash shall be issued in lieu of fractional
Hillhaven Common Shares in the Share Exchange.
(6) No holders in excess of five percent of the Target Common Shares shall
exercise their right to dissent to the Share Exchanges under applicable
law.
(7) At the Closing, the Nationwide Subordinated Notes shall be prepaid by
Hillhaven, in accordance with the terms thereof; provided, however,
that no "Additional Premium" (as that term is defined in that certain
Subordinated Note Purchase Agreement dated as of July 27, 1993
between Nationwide and Continental Bank, N.A.) shall be incurred in
connection with the prepayment of the Nationwide Subordinated Notes.
(8) At the Closing, certain commercial indebtedness of PEI may be prepaid
directly by Hillhaven (the "PEI Indebtedness"). The PEI Indebtedness
is bona fide debt (not stock or equity) under general principles of
federal tax law, and Hillhaven will pay only the fair market value of
such indebtedness, and will not pay any amounts in excess of such
indebtedness. The holders of the PEI Indebtedness are not shareholders
of PEI.
(9) At the Closing, the Nationwide Preferred Stock shall be redeemed by
Nationwide, in accordance with the terms thereof (the "Nationwide
Preferred Stock Redemption").
(10) Prior to the Closing, each Nationwide Warrant will be exercised into
one share of nonvoting common stock of Nationwide.
(11) Prior to the Effective Time, Meadowvale will transfer to Donald
Cheesman ("Cheesman") real property including land and a home built
thereon located at 1529 West Lancaster Street, Bluffton, Indiana and
owned by Meadowvale (the "Residence"). The approximate fair market
value of the Residence is between $100,000 and $150,000. 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 Cheeman (the "Cheesman
Promissory Note"). Prior to the Effective Time, Nationwide may loan
funds to Meadowvale to repay the Cheesman Promissory Note. Any such
loan will be bona fide debt (not stock or equity) under general
principles of federal tax and Meadowvale will pay only the fair market
value of such indebtedness, and will not pay any amounts in excess of
such indebtedness. The loan will be made from Nationwide's own funds
without reimbursement directly or indirectly from Hillhaven.
(12) As a condition precedent to the Share Exchanges, that certain Option to
Purchase dated January 25, 1993 by and among Craig Moore, John Maxwell,
the Anita Maxwell Trust (collectively, the "Optionees") and Nationwide,
relating to the Cambridge and Parkwood facilities, shall have been
terminated in exchange for the payment of not more than $300,000 to
the Optionees (the "Option Termination Payment").
(13) As a condition precedent to the Share Exchanges, the beneficiaries
with respect to certain personal guarantees by the shareholders of the
Corporate Targets and/or Partners in the Partnership Targets
(singularly referred to herein as a "Guarantor" or collectively as the
"Guarantors") shall have agreed to release such guarantees at the time
of the Closing. Although the Agreement provides that, in lieu of the
release of guarantees on certain indebtedness, Nationwide can agree to
indemnify such shareholders and/or Partners for any losses resulting
from such guarantees, no indemnification by Nationwide will be required
because all guarantees shall be released.
<PAGE> 7
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 7
The following representations have been made by Hillhaven, the Corporate
Targets or the shareholders of the Corporate Targets in regard to each Share
Exchange:
(a) The fair market value of the Hillhaven Common Shares received by
each shareholder of a Corporate Target in the Share Exchange of such
Corporate Target will be approximately equal to the fair market value
of the Target Common Shares surrendered in such Share Exchange.
(b) Except for the possibility of the Vencor Merger, there is no
plan or intention by the shareholders of a Corporate Target who
own one percent or more of the stock of the Corporate Target and, to
the best of the knowledge of such Corporate Target's management, there
is no plan or intention on the part of the remaining shareholders of
the Corporate Target to sell, exchange, pledge or otherwise dispose of
a number of Hillhaven Common Shares received in the Share Exchange of
such Corporate Target that would reduce the Corporate Target
shareholders' ownership of Hillhaven Common Shares received in the
Share Exchange of such Corporate Target to a number of shares having a
value, as of the Effective Date, of less than 50 percent of the value
of all of the formerly outstanding stock of the Corporate Target as of
the Effective Date. For purposes of this representation, shares of
Corporate Target stock surrendered by dissenters or exchanged for cash
in lieu of fractional shares of Hillhaven Common Shares will be treated
as outstanding Corporate Target stock on the Effective Date. Shares of
Corporate Target stock and shares of Hillhaven Common Shares held by
the shareholders of the Corporate Target and otherwise sold, redeemed
(including the Nationwide Preferred Stock Redemption), or disposed of
prior or subsequent to the Share Exchange will be considered in making
this representation. Moreover, for purposes of this representation, the
value of all of the formerly outstanding stock of Meadowvale as of the
Effective Date will be determined as if the transfer of the Residence
to Cheesman did not occur.
(c) No Corporate Target has a plan or intention to issue additional
shares of its stock that would result in Hillhaven losing control of
the Corporate Target within the meaning of section 368(c) of the Code.
(d) Hillhaven has no plan or intention to liquidate a Corporate Target; to
merge a Corporate Target into another corporation; to cause a Corporate
Target to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business; or to sell or
otherwise dispose of any of the stock of a Corporate Target acquired in
the Share Exchanges, except for transfers described in section
368(a)92)(C) of the Code.
(e) Neither Hillhaven nor its affiliates has a plan or intention to
reacquire any of its stock issued in the Share Exchanges.
<PAGE> 8
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 8
(f) Hillhaven, each Corporate Target, and the shareholders of each
Corporate Target will pay their respective expenses, if any, incurred
in connection with the transactions contemplated under the Agreement;
provided, however, that Nationwide may pay certain expenses it
was previously obligated to pay by contract in conneciton with the
issuance of the Nationwide Warrants, Nationwide Subordinated Notes and
Nationwide Preferred Stock out of its own funds and without
reimbursement directly or indirectly from Hillhaven.
(g) Hillhaven will acquire the stock of each Corporate Target solely in
exchange for Hillhaven Common Shares. For purposes of this
representation, the stock of a Corporate Target redeemed for cash or
other property directly or indirectly furnished by or reimbursed to a
Corporate Target by Hillhaven will be considered as acquired by
Hillhaven. No liabilities of a Corporate Target or the shareholders of
a Corporate Target will be assumed by Hillhaven, nor will any of the
stock of a Corporate Target be subject to any liabilities.
Specifically,
(i) the Senior Subordinated Debt of Nationwide and the PEI
Indebtedness are each bona fide debts (and not stock or equity)
for federal income tax purposes;
(ii) the Nationwide Common Shares held by persons who are also
holders of Senior Subordinated Debt will be exchanged for the
same per share number of Hillhaven Common Shares as will
Nationwide Common Shares not held by persons who are holders
of Senior Subordinated Debt. No holders of Meadowvale Common
Shares or PEI Common Shares are also holders of Senior
Subordinated Debt of Nationwide. No holder of stock of a
Corporate Target is also a holder of the PEI Indebtedness.
(iii) no holder of stock of a Corporate Target (both Target Common
Shares and Nationwide Preferred Stock) is or has been a
guarantor of the Senior Subordinated Debt or the PEI
Indebtedness;
(iv) Meadowvale will repay the Cheesman Promissory Note out of its
own funds or out of a loan from Nationwide made prior to the
Effective Time. No funds will be supplied for that purpose,
directly or indirectly, by Hillhaven, nor will Hillhaven
directly or indirectly reimburse Meadowvale for any amount of
the repayment of the Cheesman Promissory Note;
(v) the amount of the Option Termination Payment is equal to the
fair market value of the amount the Optionees are entitled to
receive solely as consideration for the termination of the
Option to Purchase dated January 25, 1993. The Nationwide
Common Shares held by persons who are also Optionees will be
exchanged for the same per share number of Hillhaven Common
Shares as will Nationwide Common Shares not held by persons who
are also Optionees. No holders of Meadowvale Common Shares of
PEI Common Shares are also Optionees; and
<PAGE> 9
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 9
(vi) no shareholder of a Corporate Target is a primary obligor
on indebtedness which they personally guarantee and from which
personal guarantee the shareholder will be released pursuant to
the Agreement. No debtor with respect to any indebtedness
subject to a guarantee that will be released is so thinly
capitalized that a Guarantor is considered the true debtor of
such indebtedness for federal tax purposes. The Nationwide
Common Shares held by persons who are Guarantors will be
exchanged for the same per share number of Hillhaven Common
Shares as will Nationwide Common Shares held by persons who are
not Guarantors. The Meadowvale Common Shares held by persons
who are Guarantors will be exchanged for the same per share
number of Hillhaven Common Shares as will Nationwide Common
Shares held by persons who are not Guarantors. None of the
Hillhaven Common Shares received by a shareholder of PEI in the
PEI Share Exchange is allocable to or consideration for the
release of the personal guarantee by such shareholder pursuant
to the Agreement.
(h) On the Effective Date, no Corporate Target will have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in the Corporate
Target that, if exercised or converted, would affect Hillhaven's
acquisition of control of the Corporate Target, as defined in section
368(c) of the Code.
(i) Neither Hillhaven nor its affiliates own, directly or indirectly, nor
have they owned during the past five years, directly or indirectly, any
stock of a Corporate Target.
(j) Following the Share Exchanges, each Corporate Target will continue
its historic businesses or use a significant portion of its historic
business assets in a business.
(k) No two parties to each Share Exchange are investment companies as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(l) Neither Hillhaven nor the Corporate Targets are under the jurisdiction
of a court in a Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(m) The liabilities of the Corporate Targets were incurred by the
Corporate Targets in the ordinary course of their businesses; with the
exception of the potential loan by Nationwide to Meadowvale for
purposes of paying the Cheesman Promissory Note.
(n) There is no intercorporate indebtedness existing between Hillhaven
and any Corporate Target or Corporate Target subsidiary that was
issued, acquired, or will be settled at a discount.
<PAGE> 10
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 10
(o) Each Corporate Target will pay its dissenting shareholders the value
of their stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by Hillhaven, nor will Hillhaven
directly or indirectly reimburse a Corporate Target for any payments to
dissenters.
(p) On the Effective Date, the fair market value of the assets of each
Corporate Target will exceed the sum of its liabilities plus the
liabilities, if any, to which the assets are subject.
(q) At the time of Nationwide Restructuring in July, 1993, there was no
plan or intention on the part of the Corporate Targets or the
shareholders of the Corporate Targets to engage in a sale, exchange or
other disposition of the stock or substantial amount of the assets of
any Corporate Target.
(r) None of the compensation received by any shareholder-employees of
the Corporate Targets will be separate consideration for, or allocable
to, any of their Target Common Shares. Additionally, none of the
Hillhaven Common Shares received by any shareholder-employees will be
separate consideration for, or allocable to, any employment agreement.
The compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(s) With respect to the Escrow and the Supplement Escrow:
(i) there is a valid business reason for establishing the Escrow
and the Supplemental Escrow;
(ii) the Escrow Shares and the Supplemental Escrow Shares will appear
as issued and outstanding on the balance sheet of Hillhaven and
such shares are legally outstanding under applicable state law;
(iii) all dividends paid on the Escrow Shares and the Supplemental
Escrow Shares will be distributed currently to the exchanging
shareholders;
(iv) all voting rights of the Escrow Shares and the Supplemental
Escrow Shares are exercisable by or on behalf of the
shareholders or their authorized agent;
(v) no Escrow Shares or Supplemental Escrow Shares are subject
to restrictions requiring their return to Hillhaven because of
death, failure to continue employment, or similar restrictions;
<PAGE> 11
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 11
(vi) all the Escrow Shares and Supplemental Escrow Shares are
released from the escrow arrangement within 5 years of the
Effective Date (except where there is a bona fide dispute
as to whom the stock should be released);
(vii) at least 50 percent of the number of shares of each class of
stock issued initially to the shareholders is not subject to
the Escrow Share arrangement or the Supplement Escrow Share
arrangement;
(viii) the return of the Escrow Shares or the Supplemental Escrow
Shares will not be triggered by an event the occurrence or
nonoccurrence of which is within the control of the
shareholders;
(ix) the return of the Escrow Shares or the Supplemental Escrow
Shares will not be triggered by the payment of additional tax
or reduction in tax paid as a result of an audit by the IRS of
the shareholders or the corporations either (a) with respect to
the Share Exchanges, or (b) when the Share Exchanges involve
persons related within the meaning of section 267(c)(4) of the
Code; and
(x) the mechanism for the calculation of the number of Escrow Shares
or supplement Escrow Shares to be returned is objective and
readily ascertainable.
(t) There is no plan or intention for the Corporate Targets to sell,
exchange, or otherwise dispose of their assets or to discontinue the
historic business of the facilities.
OPINION
Based solely on the above Facts and Representations and subject to the Scope of
the Opinion outlined below, it is our opinion that;
(1) Each Share Exchange will constitute a reorganization within the
meaning of IRC Section 368(a)(1)(B).
(2) Hillhaven and the Corporate Targets will each be "a party to a
reorganization" within the meaning of IRC Section 368(b).
(3) No gain or loss will be recognized by Hillhaven in the Share Exchanges
of the Target Common Shares in exchange for Hillhaven Common Shares
pursuant to IRC Section 1032(a).
<PAGE> 12
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 12
(4) No gain or loss will be recognized by the Corporate Target Shareholders
to the extent the Corporate Target Common Shares are exchanged solely
for Hillhaven Common Shares in the Share Exchanges pursuant to IRC
Section 354(a)(1).
SCOPE OF THE OPINION
Our opinion is based upon the information contained in the Agreement and the
facts and representations set forth in this letter. If any fact, assumption,
or representation is not entirely complete or accurate, it is imperative that
we be informed immediately in writing because the incompleteness or inaccuracy
could cause us to change our opinion. We have not reviewed all the legal
documents necessary to effectuate the steps to be undertaken and we assume that
all steps will be effectuated under state and federal law and will be
consistent with the Agreement submitted to us.
The opinion contained herein is rendered only with respect to the four holdings
set forth herein and KPMG expresses no opinion with respect to any other
federal, foreign, state or local tax or legal aspect of the proposed
transactions. Specifically, this opinion does not address the taxability of
any party resulting from the assignment by the minority partners of their
partnership interests in certain Partnership Targets pursuant to the Agreement.
This opinion does not address the taxability of any party resulting from the
redemption of the Nationwide Preferred Shares or the transfer of the Residence
to Donald Cheesman prior to the Share Exchanges. This opinion also does not
address the taxability to any party resulting from the acquisition, settlement
or repayment of indebtedness (including the Senior Subordinated Debt, the PEI
Indebtedness and the Cheesman Promissory Note) in connection with the
Agreement. Further, this opinion does not address the taxability to the
holders of the Nationwide Warrants upon their exercise of such warrants.
ON APRIL 23, 1995, HILLHAVEN ENTERED INTO AN AGREEMENT AND PLAN OF MERGER WITH
VENCOR, INC. IF THE VENCOR MERGER IS CONSUMMATED, THE SHAREHOLDERS OF
HILLHAVEN WILL EXCHANGE THEIR SHARES FOR SHARES OF VENCOR, INC. OR A VENCOR,
INC. AFFILIATE. THE IMPACT OF THE VENCOR MERGER ON THE SHARE EXCHANGES IS NOT
INCLUDED IN THE SCOPE OF THIS OPINION. THEREFORE, IF THE VENCOR MERGER IS
CONSUMMATED, THERE WILL BE A NEED TO REEVALUATE THIS OPINION.
The opinion is not binding upon any tax authority or any court and no assurance
can be given that a position contrary to that expressed herein will not be
asserted by a tax authority and ultimately sustained by a court. In rendering
our opinion, we are relying upon the relevant provisions of the Internal
Revenue Code of 1986, as amended, the regulations thereunder, and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We assume no duty to inform you of any
<PAGE> 13
KPMG Peat Marwick LLP
The Board of Directors
The Hillhaven Corporation
May 19, 1995
Page 13
changes in our opinion due to changes in law that may occur subsequent
to the issuance of this letter.
Finally, KPMG is rendering this opinion only to Hillhaven and cannot be relied
upon by any persons other than Hillhaven. We have been advised that the
Corporate Targets and the shareholders of the Corporate Targets have received
appropriate tax counsel with respect to the Share Exchanges and will not rely
on this opinion in any manner.
KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 8.02
[ICE MILLER DONADIO & RYAN LETTERHEAD]
May 19, 1995
Board of Directors
Nationwide Care, Inc.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240
Dear Board of Directors:
We have acted as counsel to Nationwide Care, Inc., an Indiana
corporation ("Nationwide"), in connection with the proposed exchange of shares
of Common Stock of Nationwide ("Nationwide Common Shares") for shares of Common
Stock of The Hillhaven Corporation ("Acquiror") pursuant to the Amended and
Restated Agreement and Plan of Share Exchange and Agreements to Assign
Partnership Interests by and among Acquiror, Nationwide, Meadowvale Skilled
Care Center, Inc., an Indiana corporation ("Meadowvale"), Phillippe
Enterprises, Inc., an Indiana corporation ("PEI") (Nationwide, PEI and
Meadowvale are collectively referred to as the "Targets"), the partners of
Camelot Care Centers, an Indiana general partnership ("Camelot"), the partners
of Shangri-La Partnership, an Indiana general partnership and the limited
partners of Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen")
(Camelot and Evergreen are collectively referred to as the "Partnerships"),
dated as of February 27, 1995 (the "Reorganization Agreement"); and the
documents executed and delivered in connection therewith (collectively
with the Reorganization Agreement, the "Transaction Documents"). Pursuant to
the Reorganization Agreement, each of the Nationwide shareholders will
exchange their Nationwide Common Shares for Acquiror Common Shares (the "Share
Exchange"). Our opinions hereinafter set forth are given pursuant to Section
9.11 of the Reorganization Agreement. Terms which are not defined herein and
are used with initial capitalization when the rules of grammar would not
otherwise so require and which are defined in the Transaction Documents shall
Have the meanings assigned to such terms in the Transaction Documents.
<PAGE> 2
Board of Directors
May 19, 1995
Page 2
Representation of the Facts
In connection with our opinions hereinafter set forth, the parties to
the Reorganization Agreement have represented to us and advised us of the
following facts:
Nationwide operates long-term health care centers primarily located in
Indiana, Ohio and Florida. Dr. Thomas E. Phillippe, Sr. and Thomas E.
Phillippe, Jr. are the majority owners of Nationwide. The capital structure of
Nationwide consists of: 48,000,000 authorized shares of Common Stock, without
par value, of which approximately 7,431,458 shares are issued and outstanding
(the "Nationwide Voting Common"); 2,000,000 authorized shares of Nonvoting
Common Stock, without par value, of which 76,592 shares are issued and
outstanding (the "Nationwide Nonvoting Common") (the Nationwide Voting Common
and the Nationwide Nonvoting Common are collectively referred to herein as the
"Nationwide Common Shares"); and 2,000,000 authorized shares of Preferred
Stock, without par value, of which 300,000 shares of Redeemable Preferred Stock
are issued and outstanding (the "Nationwide Preferred Stock"). Nationwide also
has outstanding warrants to purchase 987,188 shares of Nationwide Nonvoting
Common (the "Nationwide Warrants"). Nationwide files a consolidated return with
its one subsidiary, and Nationwide does not have an excess loss account with
respect to the stock of such subsidiary. The Share Exchange is totally
unrelated to the Nationwide 1993 reorganization.
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of
60 million authorized shares of voting Common Stock, par value $.75 per share
(the "Acquiror Common Shares"), of which approximately 32,824,863 are
outstanding; 25 million authorized shares of preferred stock, par value $0.15
per share, of which the following series have been designated: 3 million
authorized shares of Series A Preferred Stock, of which no shares are
outstanding, 950 authorized shares of Series B Convertible Preferred Stock, of
which 618 shares have been designated as Subseries 1, of which no shares are
outstanding; 35,000 authorized shares of Series C Preferred Stock, par value
$0.15 per share, all of which are outstanding; and 300,000 authorized shares
of Series D Preferred Stock, par value $0.15 per share, of which approximately
63,403 are outstanding.
The Transaction Documents provide that all of the Nationwide Common
Shares will be exchanged solely for shares of Acquiror Common Shares. The Share
Exchange was approved by the Board of Directors of Nationwide on April 12,
1995, and is subject to the approval of, and we assume will be approved by, the
holders of a majority of the outstanding shares of Nationwide at a duly called
and held meetings of the Nationwide shareholders on or about June 23, 1995. The
Share Exchange was approved by the Board of Directors of Acquiror on April 12,
1995, and does not require the approval of the Acquiror shareholders.
At the Effective Time, all of the outstanding Nationwide Common Shares
will be exchanged for that number of Acquiror Common Shares determined in
accordance with the
<PAGE> 3
Board of Directors
May 19, 1995
Page 3
Reorganization Agreement, rounded to the nearest whole share. Other than
Acquiror Common Shares, there will be no cash or other property exchanged in
the Share Exchange.
Prior to the Effective Time, the Nationwide Preferred Stock will be
redeemed by Nationwide with its own funds and without reimbursement directly or
indirectly from Acquiror. Prior to the Effective Time, the Nationwide Warrants
will be exercised into the corresponding number of Nationwide Nonvoting Common
pursuant to the terms of the Warrants, and the resulting Nationwide Nonvoting
Common will be exchanged for that number of Acquiror Common Shares determined
in accordance with the Reorganization Agreement, rounded to the nearest whole
share.
At the Closing, the Nationwide Subordinated Notes will be prepaid
directly by Acquiror. The Nationwide Subordinated Notes are bona fide debt
(not stock or equity) under general principles of federal tax law, and
Acquiror will pay only the fair market value of such indebtedness, and will
not pay any amounts in excess of such indebtedness. The Nationwide Common
Shares held by the holders of the Nationwide Subordinated Notes shall be
valued in the Share Exchange in the same manner as the other Nationwide Common
Shares.
Except for the redemption of the Nationwide Preferred Stock, there have
been and will be no distributions to any of the Nationwide shareholders with
respect to their Nationwide stock in contemplation of the Share Exchange, and
no Nationwide stock has been or will be sold, redeemed or otherwise disposed of
in contemplation of the Share Exchange. Nationwide shareholders are entitled to
dissenters' rights in connection with the proposed Share Exchange. Any payments
to dissenters or other Nationwide shareholders in connection with the Share
Exchange shall be made by Nationwide out of its own funds without reimbursement
directly or indirectly from Acquiror.
Prior to the Effective Time, Nationwide may loan funds to Meadowvale to
repay a debt owed to Cheesman pursuant to the Promissory Note dated February 1,
1986. Any such loan will be bona fide debt (not stock or equity) under general
principles of federal tax and Meadowvale will pay only the fair market value of
such indebtedness, and will not pay any amounts in excess of such indebtedness.
The loan will be made from Nationwide's own funds without reimbursement
directly or indirectly from Acquiror.
Except for the Nationwide Warrants, there are no outstanding options or
warrants to purchase any Nationwide stock or outstanding securities or other
instruments or rights convertible into any Nationwide stock or which constitute
equity under general principles of federal tax law, and no such options,
warrants, securities, instruments, or rights have been or will be issued or
cancelled in contemplation of the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value and they do not represent
liabilities. None of the Acquiror Common Shares are being transferred pursuant
to the Reorganization Agreement in exchange for such Partnership Interests.
The shareholders of the Targets and the Partners of the Partnerships were
<PAGE> 4
Board of Directors
May 19, 1995
Page 4
not the primary obligors with respect to the obligations which they personally
guaranteed and which will be released prior to the Share Exchange. The
Target Common Shares held by the Partners and by the guarantors shall be
valued in the Share Exchange in the same manner as the other Target Common
Shares. Any debts owed by any Partnership to any of the Target shareholders
shall be paid by Nationwide out of its own funds without reimbursement directly
or indirectly from Acquiror. Acquiror is making no payment of cash or Acquiror
Common Shares or other property or assuming any liabilities in connection with
or pursuant to the assumption of the Partnership Interests, releases of
guarantees or the Noncompetition Agreements, and will not directly or
indirectly reimburse Nationwide for any such payments.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and
Veritas Holdings Corp., a Delaware corporation and wholly-owned subsidiary of
Vencor ("Veritas"), entered into an Agreement and Plan of Merger dated as of
April 23, 1995, pursuant to which Acquiror will be merged with and into Veritas
("Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). In
the Merger, Acquiror shareholders will receive only Vencor voting Common Shares
and cash in lieu of fractional shares. We also assume that no Nationwide
shareholders will dissent from and to the Merger. The Merger is not a condition
to, integrated with, nor interdependent upon, the Share Exchange, and we have
been advised that the Merger may not occur and, if it occurs, it will have
independent, meaningful economic significance, and will be undertaken for valid
businesses purposes apart from federal income taxes. We express no opinion as
to the effect of the Merger on the Share Exchange, and our opinions herein are
based on the assumption that the Merger will have no effect on the Share
Exchange.
<PAGE> 5
Board of Directors
May 19, 1995
Page 5
Scope of Investigation
In connection with our opinions hereinafter set forth, we have
investigated such questions of law as we have deemed necessary or appropriate
for purposes of this opinion. We have also examined the following documents:
1. The Transaction Documents;
2. The Agreement Among Shareholders of Nationwide to be executed on
or before the Closing ("Agreement Among Shareholders");
3. The Certificate executed by Nationwide of even date herewith and
delivered by Nationwide to us (the "Nationwide Certificate"); and
4. The Certificate executed by Acquiror of even date herewith and
delivered by Acquiror to us (the "Acquiror Certificate").
As to questions of fact material to our opinion, we have relied
exclusively, without independent investigation, upon the statements and
representations of Nationwide, the Nationwide shareholders, and Acquiror, and
our opinions are limited by the facts and circumstances as represented to and
understood by us.
Additional Assumptions and Representations
For purposes of our opinions hereinafter set forth, we have assumed and
you have represented that: (1) all of the terms of the Share Exchange are
contained in the Transaction Documents, and the Share Exchange will be
consummated in accordance with the terms, conditions, and other provisions of
the Transaction Documents; (2) as of the Effective Time, all applicable federal
and state regulatory approvals and other approvals necessary to consummate the
Share Exchange will have been received and will be in full force and effect,
and all applicable waiting periods will have expired; and (3) all of the
factual information, descriptions, representations, and assumptions set forth
in the "Representations of the Facts," the Transaction Documents, the Form S-4
Registration Statement filed with the Securities and Exchange Commission on
April 14, 1995 in connection with the Share Exchange, as amended (the
"Registration Statement"), and in the certificates and agreements identified
above are accurate and complete
<PAGE> 6
Board of Directors
May 19, 1995
Page 6
in all respects and will be accurate and complete in all respects at the time
the Registration Statement becomes effective and at the Effective Time.
In our examinations, we have assumed the genuineness of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. In addition, we have assumed: (1)
the genuineness of all signatures; (2) the legal capacity of all natural
persons and the power and authority of all parties to execute and deliver such
documents; (3) the due authorization, execution, and delivery of the documents
by all parties thereto; and (4) that the documents are legal, valid, and
binding as against all parties. We have assumed that the Agreement Among
Shareholders will be executed prior to closing in good faith and delivered by
the holders of shares of Nationwide stock as indicated thereon. We have also
assumed that the certificates identified above were executed and delivered in
good faith by Nationwide and the Acquiror.
You have represented the following which we have assumed with your
permission without independent investigation:
1. The fair market value of the Acquiror Common Shares received
by each Nationwide shareholder will be approximately equal to
the fair market value of the Nationwide Common Shares
surrendered in exchange therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the Nationwide shareholders who own one percent
or more of the Nationwide Shares, and, to the best of the
knowledge of the management of Nationwide, except for the
Merger, there is no plan or intention on the part of the
remaining shareholders of Nationwide to sell, exchange, pledge,
or otherwise dispose of a number of Acquiror Common Shares
received in the Share Exchange (or Vencor voting Common Shares
received in the Merger) that would reduce Nationwide
shareholders' ownership of such Acquiror Common Shares (or
Vencor voting Common Shares) to a number of shares having an
aggregate value, as of the Effective Time (and as of the
effective time of the Merger), of less than 50 percent of the
value of all of the formerly outstanding Nationwide Common
Shares as of the same dates. For purposes of this assumption,
Nationwide Common Shares surrendered by dissenters will be
treated as outstanding Nationwide Common Shares at the
Effective Time. Moreover, Nationwide Common Shares and
Acquiror Common Shares (or Vencor voting Common Shares) held
by Nationwide shareholders and otherwise sold, redeemed,
pledged, or disposed of prior or subsequent to the Share
Exchange (including Nationwide Preferred Stock) will be
considered in making this assumption. Except as
<PAGE> 7
Board of Directors
May 19, 1995
Page 7
expressly discussed above, there have not been and will be no
distributions to any Nationwide shareholders with respect to
their Nationwide Common Shares (or Vencor Voting Common Shares)
made in contemplation of the Share Exchange (or the Merger),
and no Nationwide Common Shares (or Vencor Voting Common
Shares) have been or will be sold, redeemed, pledged or
otherwise disposed of in contemplation of the Share Exchange
(or the Merger).
3. Acquiror will acquire the Nationwide Common Shares solely in
exchange for Acquiror voting stock (Acquiror Common Shares).
For purposes of this representation, Nationwide Common Shares
redeemed for cash or other property furnished by Acquiror will
be considered as acquired by Acquiror. Further, no liabilities
of Nationwide or the Nationwide shareholders will be assumed by
Acquiror, nor will any of the Nationwide Common Shares be
subject to any liabilities. Specifically,
(i) the Nationwide Subordinated Notes are bona fide
debt (and not stock or equity) for federal income tax
purposes;
(ii) the Nationwide Common Shares held by persons who are
also holders of Nationwide Subordinated Notes will be
exchanged for the same per share number of Acquiror
Common Shares as will Nationwide Common Shares not held
by persons who are holders of Nationwide Subordinated
Notes;
(iii) no holder of Nationwide Common Shares or Nationwide
Preferred Stock is or has been a guarantor of the
Nationwide Subordinated Notes;
(iv) the amount of the option termination payment is equal
to the fair market value of the amount the optionees
are entitled to receive solely as consideration for the
termination of the Option to Purchase dated January 25,
1993. The option termination payment will be made by
Nationwide out of its own funds. No funds will be
supplied for that purpose, directly or indirectly, by
Acquiror, nor will Acquiror directly or indirectly
reimburse Nationwide for any amount of such payment.
The
<PAGE> 8
Board of Directors
May 19, 1995
Page 8
Nationwide Common Shares held by persons who are also
optionees will be exchanged for the same per share
number of Acquiror Common Shares as will Nationwide
Common Shares not held by persons who are also
optionees; and
(v) no shareholder of Nationwide is a primary obligor on
indebtedness which they personally guaranteed of and
from which personal guarantee the shareholder will be
released pursuant to the Reorganization Agreement. No
debtor with respect to any indebtedness subject to a
guarantee that will be released is so thinly
capitalized that a guarantor is considered the true
debtor of such indebtedness for federal tax purposes.
The Nationwide Common Shares held by persons who are
guarantors will be exchanged for the same per share
number of Acquiror Common Shares as will Nationwide
Common Shares held by persons who are not guarantors.
4. At the Effective Time, Nationwide will not have outstanding any
warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in
Nationwide that, if exercised or converted, would affect
Acquiror's acquisition or retention of control of Nationwide,
as defined in Code Section 368(c).
5. Nationwide will pay its dissenting shareholders the value of
their stock out of its own funds. No funds will be supplied for
that purpose, directly or indirectly, by Acquiror, nor will
Acquiror directly or indirectly reimburse Nationwide for any
payments to dissenters.
6. The liabilities of Nationwide were incurred by Nationwide in
the ordinary course of its business.
7. Nationwide, Acquiror, and the Nationwide shareholders will pay
their respective expenses, if any, incurred in connection with
the Share exchange; provided, however, that Nationwide may pay
certain expenses it was previously obligated to pay by contract
in connection with the issuance of the Nationwide Warrants,
Nationwide Subordinated Notes and Nationwide Preferred Stock
out of its own funds and without reimbursement directly or
indirectly from Acquiror.
<PAGE> 9
Board of Directors
May 19, 1995
Page 9
8. There is no intercorporate indebtedness existing between
Acquiror and Nationwide, or between Acquiror and any Nationwide
subsidiary, that was issued, acquired, or will be settled at a
discount.
9. Neither Nationwide nor Acquiror is an investment company as
defined in Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
10. Neither Nationwide nor Acquiror is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Code
Section 368(a)(3)(A).
11. The fair market value of the assets of Nationwide will exceed
the sum of its liabilities, plus the amount of liabilities, if
any, to which the assets are subject.
12. None of the compensation received by any shareholder who is an
employee of Nationwide or any other Target will be separate
consideration for, or allocable to, any of such shareholder's
Nationwide Common Shares. None of the Acquiror Common Shares
received by any shareholder who is an employee of Nationwide
or any other Target will be separate consideration for, or
allocable to, any employment agreement. The compensation paid
to any shareholder who is an employee of Nationwide or any
other Target will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
13. At the time of the Nationwide Reorganization in July 1993, there
was no plan or intention on the part of Nationwide or the
Nationwide shareholders to engage in the Share Exchange, the
Merger, or any other sale, exchange or other disposition of the
stock or substantial amount of the assets of Nationwide.
14. Following the Share Exchange, Nationwide will continue its
historic business or use a significant portion of its historic
business assets in a business.
<PAGE> 10
Board of Directors
May 19, 1995
Page 10
15. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in
the Registration Statement and for the reasons that Acquiror
and its subsidiaries have looked for growth opportunities which
would increase their percentage share of the nursing care
market while increasing their operating efficiencies by
achieving economies of scale as a larger service provider. Due
in part to the proximity of the service areas, Acquiror
determined that Nationwide represented such an opportunity and
expressed an interest in combining the resources of the
companies. Acquiror believes that a combination of their
operations with Nationwide will provide increased opportunity
and flexibility for profitable expansion and diversification,
will enhance their ability to provide more efficient and
dependable service, and will result in operating efficiencies
and cost savings.
Nationwide has looked for opportunities to expand its nursing
care operations and increase its operating efficiencies.
Nationwide also recognizes that some of its senior management
executives, who are both officers and directors, are
approaching retirement age, and others have expressed a desire
to reduce or discontinue their role in the management of
Nationwide. Consequently, Nationwide, in considering business
expansion opportunities, has looked for businesses with strong
senior management with experience in the nursing care
industry. Nationwide determined that Acquiror offers an
opportunity for it to meet these objectives. Nationwide
believes that a combination of its operations with Acquiror
will provide increased opportunity and flexibility for
profitable expansion and diversification, will enhance its
ability to provide more efficient and dependable service, and
will result in operating efficiencies and cost savings.
16. Following the Share Exchange, Nationwide will not issue
additional shares of its stock that would result in Acquiror
losing control of Nationwide within the meaning of Code Section
368(c).
<PAGE> 11
Board of Directors
May 19, 1995
Page 11
17. Acquiror has no plan or intention to reacquire any of its stock
issued in the Share Exchange.
18. Acquiror has no plan or intention to liquidate Nationwide or
any subsidiary of Nationwide; to merge Nationwide or any
subsidiary of Nationwide with and into another corporation; to
cause or permit Nationwide to sell or otherwise dispose of any
of its assets, or the assets of any subsidiary of Nationwide,
except for dispositions made in the ordinary course of
business; or to sell or otherwise dispose of the stock of
Nationwide or any subsidiary of Nationwide except for transfers
described in Code Section 368(a)(2)(C).
19. Acquiror does not own, directly or indirectly, and has not
owned during the past five years, directly or indirectly, any
Nationwide shares, including any ownership by any Acquiror
subsidiary. Acquiror will not acquire, directly or indirectly,
any shares of Nationwide stock prior to the Effective Time.
20. The payment of cash in lieu of fractional Vencor Common
Shares is solely for the purpose of avoiding the expense and
inconvenience to Vencor of issuing fractional Vencor Common
Shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid
in the Merger to the shareholders of Acquiror instead of
issuing fractional shares of Vencor Common Shares will not
exceed one percent of the total consideration that will be
issued in the Merger for their Acquiror Common Shares. The
fractional share interest of each of the shareholders of
Acquiror will be aggregated and no shareholders of Acquiror
will receive cash in an amount equal to or greater than the
value of one full Vencor Common Share.
21. To the extent that a portion of the Acquiror Common Shares
issued in exchange for the Nationwide Common Shares will be
placed in escrow by the Nationwide shareholders and will be
made subject to a condition pursuant to the Reorganization
Agreement and the Escrow Agreement and Supplemental Escrow
Agreement, for possible return to Acquiror under specified
conditions: (a) there is a valid business reason for
establishing the arrangement in that the escrow is a mechanism
to accomplish an exchange price adjustment, bargained for at
arm's-length, in the event of a breach by Nationwide;
<PAGE> 12
Board of Directors
May 19, 1995
Page 12
(b) the Acquiror Common Shares subject to such arrangement
will appear as issued and outstanding on the balance sheet of
Acquiror and such Acquiror Common Shares will be legally
outstanding under applicable state law; (c) all dividends paid
on such Acquiror Common Shares will be distributed currently
to Nationwide shareholders; (d) all voting rights of such
Acquiror Common Shares will be exercisable by or on behalf of
Nationwide shareholders or their authorized agent; (e) no such
Acquiror Common Shares will be subject to restrictions
requiring their return to Acquiror because of death, failure to
continue employment, or similar restrictions; (f) all such
Acquiror Common Shares will be released from the arrangement
within five years from the date of consummation of the Share
Exchange (except where there is a bona fide dispute as to whom
the Acquiror Common Shares should be released); (g) at least 50
percent of the number of shares of each class of Acquiror
Common Shares issued initially to Nationwide shareholders will
not be subject to the arrangement; (h) the return of the
Acquiror Common Shares will not be triggered by an event the
occurrence or nonoccurrence of which is within the control of
Nationwide shareholders; (i) the return of Acquiror Common
Shares will not be triggered by the payment of additional tax
or reduction in tax paid as a result of an Internal Revenue
Service audit of Nationwide shareholders or the corporations
either (i) with respect to the Share Exchange, or (ii) when the
Share Exchange involves persons related within the meaning of
Code Section 267(c)(4); and (j) the mechanism for the
calculation of the number of Acquiror Common Shares to be
returned is objective and readily ascertainable.
22. The purpose of the Acquiror rights plan is to provide a
mechanism by which Acquiror, a publicly traded corporation,
can, in the future, provide shareholders with rights to
purchase Acquiror stock at substantially less than fair market
value as a means of responding to unsolicited offers to acquire
Acquiror. The plan provides that in the event of an unsolicited
offer in the future to acquire Acquiror under certain
circumstances (a "triggering event"), the Acquiror shareholders
will have the right to purchase Acquiror stock. The rights may
be redeemed at any time by Acquiror without shareholder
approval until they become exercisable for one cent per right.
Until a triggering event, the rights are not exercisable or
separately tradeable, transferrable, or detachable, nor are
they represented by any certificate other than the Acquiror
Common Share certificate. Until a triggering event and then a
"flip-in" or "flip-over" event occur, the exercise price is
anticipated to exceed the value of the Acquiror stock at all
times during the life of the right. The likelihood that the
rights would, at any time, be
<PAGE> 13
Board of Directors
May 19, 1995
Page 13
exercised is both remote and speculative. No event has
occurred, or is anticipated to occur, that would make the
rights exercisable.
Opinions
Based upon and subject to the foregoing, and subject to the
qualifications, limitations, and assumptions set forth in this letter, we are
of the opinion that:
(a) The Share Exchange will constitute a reorganization within the
meaning of Code Section 368(a)(1)(B), in which Nationwide and
Acquiror will each be a "party to a reorganization" within
the meaning of Code Section 368(b).
(b) No gain or loss will be recognized by the Nationwide
shareholders to the extent Nationwide Common Shares are
exchanged solely for Acquiror Common Shares pursuant to the
Share Exchange. Code Section 354(a)(1).
(c) No gain or loss will be recognized by Nationwide to the extent
Nationwide Common Shares are exchanged by the Nationwide
shareholders solely for Acquiror Common Shares pursuant to the
Share Exchange. Rev. Rul. 57-278, 1957-1 C.B. 124.
(d) The basis of the Acquiror Common Shares received by the
Nationwide shareholders in exchange for their Nationwide
Common Shares will be the same, in each instance, as the basis
of the Nationwide Common Shares surrendered in exchange
therefor. Code Section 358(a)(1).
(e) The holding period of the Acquiror Common Shares received by
the Nationwide shareholders in exchange for their Nationwide
Common Shares will include, in each instance, the holding
period of the Nationwide Common Shares surrendered in exchange
therefor, provided the Nationwide Common Shares were held by
such shareholder as a capital asset on the date of the
exchange. Code Section 1223(1).
The opinions set forth in this letter are limited to the foregoing
federal income tax consequences of the Share Exchange and are based solely on,
and are limited to, the federal income tax laws of the United States of
America. We express no opinion as to any other federal laws, or any foreign,
state, or local laws, and we express no opinion as to any federal, state or
<PAGE> 14
Board of Directors
May 19, 1995
Page 14
other tax consequences of the other aspects of the Share Exchange, including
without limitation the assignment of the Partnership Interests, the release of
any guarantees the assumption by Nationwide and the payment by Nationwide of
Partnership debts, the redemption of the Nationwide Preferred Stock, the
repayment of the Nationwide Subordinated Notes, the exercise of Nationwide
Warrants, the lapse of restrictions on restricted shares, the payment of any
compensation to Nationwide employees, the extension or repayment of any loan by
Nationwide to Meadowvale, the payment by Nationwide of expenses of the holders
of the Nationwide Warrants, the payments, if any, to dissenters, and the return
of escrowed shares to Acquiror. We also express no opinion as to the effect of
the Merger on the Share Exchange.
The opinions expressed in this letter speak as to the documents, facts,
and the law in existence as of the date hereof and at no time subsequent
hereto. No opinion is expressed in this letter concerning the tax treatment of
the Share Exchange under other provisions of the Code and regulations adopted
thereunder or under foreign, state or local law, or as to the tax treatment of
any conditions existing at the time of, or the effects resulting from, the
Share Exchange that are not specifically covered above.
We assume no obligation to update our opinions for any deletions,
additions, or modifications to any laws applicable to the Share Exchange
subsequent to the date hereof. The opinions expressed herein are matters of
professional judgment and are not a guarantee of results.
The opinions expressed in this letter are solely for the benefit of the
addressee hereof in connection with the transactions provided for in, or
contemplated by, the Transaction Documents. Because tax consequences can vary
among shareholders due to each shareholder's unique circumstances, each
Nationwide shareholder should consult such shareholder's own tax advisor for
assurance as to the particular tax consequences to such shareholder as a result
of the Share Exchange.
The opinions expressed in this letter are issued upon the condition and
understanding that the opinions expressed herein will be updated prior to
Closing, and that this letter will be superseded by such updated opinions and
this letter will thereby be rendered null and void.
The opinions expressed in this letter may not be used for any other
purpose or otherwise distributed or relied upon by any person. Except for
reproductions for inclusion in transcripts of the documentation relating to the
Transaction Documents, and inclusion in the Registration Statement on Form S-4
(Registration No. 33-58641) and the related Prospectus/Information Statement of
the Hillhaven Corporation for registration of 5,500,000 shares of its common
stock, to which such inclusion we hereby consent, this opinion may not be
quoted or reproduced, in whole or in part, in any other document without our
prior written consent.
Very truly yours,
/s/ ICE MILLER DONADIO & RYAN
<PAGE> 1
EXHIBIT 8.03
[ICE MILLER DONADIO & RYAN LETTERHEAD]
May 19, 1995
Board of Directors
Phillippe Enterprises, Inc.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240
Dear Board of Directors:
We have acted as counsel to Phillippe Enterprises, Inc., an Indiana
corporation ("PEI"), in connection with the proposed exchange of shares of
Common Stock of PEI (the "PEI Common Shares") for shares of Common Stock of The
Hillhaven Corporation ("Acquiror") pursuant to the Amended and Restated
Agreement and Plan of Share Exchange and Agreements to Assign Partnership
Interests by and among Acquiror, PEI, Nationwide Care, Inc., an Indiana
corporation ("Nationwide"), Meadowvale Skilled Care Center, Inc., an Indiana
corporation ("Meadowvale") (Nationwide, PEI and Meadowvale are collectively
referred to as the "Targets"), the partners of Camelot Care Centers,
an Indiana general partnership ("Camelot"), the partners of Shangri-La
Partnership, an Indiana general partnership and the limited partners of
Evergreen Woods, Ltd., a Florida limited partnership ("Evergreen") (Camelot
and Evergreen are collectively referred to as the "Partnerships"), dated as
of February 27, 1995 (the "Reorganization Agreement"); and the documents
executed and delivered in connection therewith (collectively with
the Reorganization Agreement, the "Transaction Documents"). Pursuant to the
Reorganization Agreement, each of the PEI shareholders will exchange their
PEI Common Shares for shares of Acquiror Common Stock (the "Share Exchange").
Our opinions hereinafter set forth are given pursuant to Section 9.11 of the
Reorganization Agreement. Terms which are not defined herein and are used
with initial capitalization when the rules of grammar would not otherwise so
require and which are defined in the Transaction Documents shall have the
meanings assigned to such terms in the Transaction Documents.
<PAGE> 2
Board of Directors
May 19, 1995
Page 2
Representations of the Facts
In connection with our opinions hereinafter set forth, the parties to
the Reorganization Agreement have represented to us and advised us of the
following facts:
PEI is wholly owned by Dr. Thomas E. Phillippe, Sr. and Thomas E.
Phillippe, Jr. PEI owns a 90 bed assisted living center in Florida managed by
Nationwide. The capital structure of PEI consists of 10,000 authorized PEI
Common Shares without par value, of which 2,000 are issued and outstanding. PEI
has no subsidiaries. There are no outstanding options or warrants to purchase
PEI Common Shares or outstanding securities or other instruments convertible
into PEI Common Shares or which constitute equity under general principles of
federal tax law, and no such options, warrants, securities, instruments, or
rights have been or will be issued or cancelled in contemplation of the Share
Exchange.
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of
60 million authorized shares of voting Common Stock, par value $.75 per share
(the "Acquiror Common Shares"), of which approximately 32,824,863 are
outstanding; 25 million authorized shares of preferred stock, par value $0.15
per share, of which the following series have been designated: 3 million
authorized shares of Series A Preferred Stock, of which no shares are
outstanding; 950 authorized shares of Series B Convertible Preferred Stock, of
which 618 shares have been designated as Subseries 1, of which no shares are
outstanding; 35,000 authorized shares of Series C Preferred Stock, par value
$0.15 per share, all of which are outstanding; and 300,000 authorized
shares of Series D Preferred Stock, par value $0.15 per share, of which
approximately 63,403 are outstanding.
There have been and will be no distributions to any of the PEI
shareholders with respect to their PEI stock in contemplation of the Share
Exchange, and no PEI stock has been or will be sold, redeemed or otherwise
disposed of in contemplation of the Share Exchange. PEI shareholders are
entitled to dissenters' rights in connection with the proposed Share Exchange.
Any payments to dissenters in connection with the Share Exchange shall be made
by PEI out of its own funds without reimbursement directly or indirectly from
Acquiror.
The Transaction Documents provide that all of the PEI Common Shares
will be exchanged solely for Acquiror Common Shares. The Share Exchange was
approved by the Board of Directors of PEI on April 12, 1995, and will be
approved by unanimous written
<PAGE> 3
Board of Directors
May 19, 1995
Page 3
consent of the holders of all of the outstanding shares of PEI prior to
Closing. The Share Exchange was approved by the Board of Directors of Acquiror
on April 12, 1995, and does not require the approval of the Acquiror
shareholders.
At the Effective Time, all of the outstanding PEI Common Shares will be
exchanged for that number of Acquiror Common Shares determined in accordance
with the Reorganization Agreement, rounded to the nearest whole share. Other
than Acquiror Common Shares, there will be no cash or other property exchanged
in the Share Exchange.
At the Closing, certain commercial indebtedness of PEI may be prepaid
directly by Acquiror (the "PEI Indebtedness"). The PEI Indebtedness is bona
fide debt (not stock or equity) under general principles of federal tax law,
and Acquiror will pay only the fair market value of such indebtedness, and will
not pay any amounts in excess of such indebtedness. The holders of the PEI
Indebtedness are not sharehoders of PEI.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value and they do not
represent liabilities. None of the Acquiror Common Shares are being transferred
pursuant to the Reorganization Agreement in exchange for such Partnership
Interests. The shareholders of the Targets and the Partners of the Partnerships
were not the primary obligors with respect to the obligations which they
personally guaranteed and which will be released prior to the Share Exchange.
The Target Common Shares held by the Partners and by the guarantors shall be
valued in the Share Exchange in the same manner as the other Target Common
Shares. Any debts owned by any Partnership to any of the Target shareholders
shall be paid by Nationwide out of its own funds without reimbursement directly
or indirectly from Acquiror. Acquiror is making no payment of cash or Acquiror
Common Shares or other property or assuming any liabilities in connection with
or pursuant to the assumption of the Partnership Interests, releases of
guarantees or the Noncompetition Agreements, and will not directly or
indirectly reimburse Nationwide for any such payments.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and
Veritas Holdings Corp., a Delaware corporation and wholly-owned subsidiary of
Vencor ("Veritas"), entered into an Agreement and Plan of Merger dated as of
April 23, 1995, pursuant to which Acquiror will be merged with and into Veritas
("Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). In
the Merger, Acquiror shareholders will receive only Vencor voting Common Shares
and cash in lieu of fractional shares. We also assume that no PEI shareholders
will dissent from and to the Merger. The Merger is not a condition to,
integrated with, nor interdependent upon, the Share Exchange, and we have been
advised that the Merger may not occur and, if it occurs, it will have
independent, meaningful economic significance, and will be undertaken for valid
business purposes apart from federal income taxes.
<PAGE> 4
Board of Directors
May 19, 1995
Page 4
We express no opinion as to the effect of the Merger on the Share Exchange,
and our opinions herein are based on the assumption that the Merger will have
no effect on the Share Exchange.
Scope of Investigation
In connection with our opinions hereinafter set forth, we have
investigated such questions of law as we have deemed necessary or appropriate
for purposes of this opinion. We have also examined the following documents:
1. The Transaction Documents;
2. The Agreement Among Shareholders of PEI executed on or before
the Closing ("Agreement Among Shareholders");
3. The Certificate executed by PEI of even date herewith and
delivered by PEI to us (the "PEI Certificate"); and
4. The Certificate executed by Acquiror of even date herewith and
delivered by Acquiror to us (the "Acquiror Certificate").
As to questions of fact material to our opinion, we have relied
exclusively, without independent investigation, upon the statements and
representations of PEI, the PEI shareholders, and Acquiror, and our opinions
are limited by the facts and circumstances as represented to and understood by
us.
Additional Assumptions and Representations
For purposes of our opinions hereinafter set forth, we have assumed and
you have represented that: (1) all of the terms of the Share Exchange are
contained in the Transaction Documents, and the Share Exchange will be
consummated in accordance with the terms, conditions, and other provisions of
the Transaction Documents; (2) as of the Effective Time, all applicable
federal and state regulatory approvals and other approvals necessary to
consummate the Share Exchange will have been received and will be in full force
and effect, and all applicable waiting periods will have expired; and (3) all
of the factual information, descriptions, representations, and assumptions set
forth in the "Representation of the Facts," the Transaction
<PAGE> 5
Board of Directors
May 19, 1995
Page 5
Documents, the Form S-4 Registration Statement filed with the Securities
and Exchange Commission on April 14, 1995 in connection with the Share
Exchange, as amended (the "Registration Statement"), and in the certificates
and agreements identified above are accurate and complete in all respects and
will be accurate and complete in all respects at the time the Registration
Statement becomes effective and at the Effective Time.
In our examinations, we have assumed the genuineness of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. In addition, we have assumed: (1) the
genuineness of all signatures; (2) the legal capacity of all natural persons
and the power and authority of all parties to execute and deliver such
documents; (3) the due authorization, execution, and delivery of the documents
by all parties thereto; and (4) that the documents are legal, valid, and
binding as against all parties. We have assumed that the Agreement Among
Shareholders will be executed prior to Closing in good faith and delivered by
the holder of shares of PEI stock as indicated thereon. We have also assumed
that the certificates identified above were executed and delivered in good
faith by PEI and the Acquiror.
You have represented the following which we have assumed with your
permission without independent investigation:
1. The fair market value of the Acquiror Common Shares received
by each PEI shareholder will be approximately equal to the fair
market value of the PEI Common Shares surrendered in exchange
therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the PEI shareholders who own one percent or more
of the shares of PEI, and, to the best of the knowledge of the
management of PEI, except for the Merger, there is no plan or
intention on the part of the remaining shareholders of PEI to
sell, exchange, pledge, or otherwise dispose of a number of
Acquiror Common Shares received in the Share Exchange (or
Vencor voting Common Shares received in the Merger) that would
reduce PEI shareholders' ownership of such Acquiror Common
Shares (or Vencor voting Common Shares) to a number of shares
having an aggregate value, as of the Effective Time (and as of
the effective time of the Merger), of less than 50 percent of
the value of all of the formerly outstanding PEI Common Shares
as of the same dates. For purposes of this assumption, PEI
Common Shares and Acquiror Common Shares (or Vencor voting
Common Shares) held by PEI shareholders and otherwise sold,
redeemed, pledged, or disposed of prior or subsequent to the
Share Exchange will be considered in making this assumption.
Except as expressly discussed above, there have not
<PAGE> 6
Board of Directors
May 19, 1995
Page 6
been and will be no distributions to any PEI shareholders with
respect to their PEI Common Shares (or Vencor Common Shares)
made in contemplation of the Share Exchange, and no PEI Common
Shares (or Vencor Common Shares) have been or will be sold,
redeemed or otherwise disposed of in contemplation of the Share
Exchange (or the Merger).
3. Acquiror will acquire the PEI Common Shares solely in exchange
for Acquiror voting stock (Acquiror Common Shares). For
purposes of this representation, PEI Common Shares redeemed
for cash or other property furnished by Acquiror will be
considered as acquired by Acquiror. Further, no liabilities of
PEI or the PEI shareholders will be assumed by Acquiror, nor
will any of the PEI Common Shares be subject to any
liabilities. Specifically,
(a) no holders of PEI Common Shares are also holders
of Nationwide Subordinated Notes or the PEI Indebtedness;
(b) no holder of PEI Common Shares is or has been a
guarantor of the Nationwide Subordinated Notes; and
(c) no shareholder of PEI is a primary obligor on
indebtedness which they personally guaranteed and from which
personal guarantee the shareholder will be released pursuant
to the Reorganization Agreement, including the PEI
Indebtedness. No debtor with respect to any indebtedness
subject to a guarantee (including the PEI Indebtedness) that
will be released is so thinly capitalized that a guarantor is
considered the true debtor of such indebtedness for federal
tax purposes. The PEI Common Shares held by persons who are
guarantors will be exchanged for the same per share number of
Acquiror Common Shares as will PEI Common Shares held by
persons who are not guarantors.
4. At the Effective Time, PEI will not have outstanding any
warrants, options convertible securities, or any other type
of right pursuant to which any person could acquire stock in
PEI that, if exercised or converted, would affect Acquiror's
acquisition or retention of control of PEI, as defined in
Code Section 368(c).
5. PEI will pay its dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by Acquiror, nor will Acquiror
directly or indirectly reimburse PEI for any payments to
dissenters.
6. The liabilities of PEI were incurred by PEI in the ordinary
course of its business.
7. PEI, Acquiror, and the PEI shareholders will pay their
respective expenses, if any, incurred in connection with the
Share Exchange.
8. There is no intercorporate indebtedness existing between
Acquiror and PEI that was issued, acquired, or will be settled
at a discount.
9. Neither PEI nor Acquiror is an investment company as defined in
Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
10. Neither PEI nor Acquiror is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Code
Section 368(a)(3)(A).
<PAGE> 7
Board of Directors
May 19, 1995
Page 7
11. The fair market value of the assets of PEI will exceed the sum
of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
12. None of the compensation received by any shareholder who is an
employee of PEI or any other Target will be separate
consideration for, or allocable to, any of such shareholder's
PEI Common Shares. None of the Acquiror Common Shares received
by any shareholder who is an employee of PEI or any other
Target will be separate consideration for, or allocable to, any
employment agreement. The compensation paid to any shareholder
who is an employee of PEI or any other Target will be for
services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for
similar services.
13. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in
the Registration Statement and for the reasons that Acquiror
and its subsidiaries have looked for growth opportunities which
would increase their percentage share of the nursing care
market while increasing their operating efficiencies by
achieving economies of scale as a larger service provider. Due
in part to the proximity of the service areas, Acquiror
determined that PEI represented such an opportunity and
expressed an interest in combining the resources of the
companies. Acquiror believes that a combination of their
operations with PEI will provide increased opportunity and
flexibility for profitable expansion and diversification, will
enhance their ability to provide more efficient and dependable
service, and will result in operating efficiencies and cost
savings.
PEI has looked for opportunities to expand its nursing care
operations and increase its operating efficiencies. PEI also
recognizes that some of its senior management executives, who
are both officers and directors, are approaching retirement
age, and others have expressed a desire to reduce or discontinue
their role in the management of PEI. Consequently, PEI, in
considering business expansion opportunities, has looked for
businesses with strong senior management with experience in the
nursing care industry. PEI determined that Acquiror offers an
opportunity for it to meet these objectives. PEI believes that
a combination of its operations with Acquiror will provide
increased opportunity and flexibility for profitable expansion
and diversification, will enhance its ability to provide more
efficient and dependable service, and will result in operating
efficiencies and cost savings.
<PAGE> 8
Board of Directors
May 19, 1995
Page 8
14. Following the Share Exchange, PEI will not issue additional
shares of its stock that would result in Acquiror losing
control of PEI within the meaning of Code Section 368(c).
15. Acquiror has no plan or intention to reacquire any of its
stock issued in the Share Exchange.
16. Acquiror has no plan or intention to liquidate PEI or any
subsidiary of PEI; to merge PEI or any subsidiary of
PEI with and into another corporation; to cause or permit PEI
to sell or otherwise dispose of any of its assets, or the
assets of any subsidiary of PEI, except for dispositions made
in the ordinary course of business; or to sell or otherwise
dispose of the stock of PEI or any subsidiary of PEI except for
transfers described in Code Section 368(a)(2)(C).
17. Following the Share Exchange, PEI will continue its historic
business or use a significant portion of its historic business
assets in a business.
18. Acquiror does not own, directly or indirectly, and has not
owned during the past five years, directly or indirectly,
any PEI shares, including any ownership by any Acquiror
subsidiary. Acquiror will not acquire, directly or indirectly,
any of PEI Common Shares prior to the Effective Time.
19. The payment of cash in lieu of fractional Vencor Common Shares
is solely for the purpose of avoiding the expense and
inconvenience to Vencor of issuing fractional Vencor Common
Shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid
in the Merger to the Shareholders of Acquiror instead of issuing
fractional Vencor Common Shares will not exceed one percent of
the total consideration that will be issued in the Merger for
their Acquiror Common Shares. The fractional share interest of
each of the shareholders of Acquiror will be aggregated and
no shareholders of Acquiror will receive cash in an amount
equal to or greater than the value of one full Vencor Common
Share.
20. To the extent that a portion of the Acquiror Common Shares
issued in exchange for the PEI Common Shares will be placed in
escrow by the PEI shareholders and will be made subject to a
condition pursuant to the Reorganization Agreement and the
Escrow Agreement and Supplemental Escrow Agreement, for
possible return to Acquiror under specified conditions:
(a) there is a valid business reason for establishing the
arrangement in that the escrow is
<PAGE> 9
Board of Directors
May 19, 1995
Page 9
a mechanism to accomplish an exchange price adjustment,
bargained for at arm's-length, in the event of a breach by PEI;
(b) the Acquiror Common Shares subject to such arrangement will
appear as issued and outstanding on the balance sheet of
Acquiror and such Acquiror Common Shares will be legally
outstanding under applicable state law; (c) all dividends paid
on such Acquiror Common Shares will be distributed currently to
PEI shareholders; (d) all voting rights of such Acquiror Common
Shares will be exercisable by or on behalf of PEI shareholders
or their authorized agent; (e) no such Acquiror Common Shares
will be subject to restrictions requiring their return to
Acquiror because of death, failure to continue employment, or
similar restrictions; (f) all such Acquiror Common Shares will
be released from the arrangement within five years from the
date of consummation of the Share Exchange (except where there
is a bona fide dispute as to whom the Acquiror Common Shares
should be released); (g) at least 50 percent of the number of
each class of Acquiror Common Shares issued initially to PEI
shareholders will not be subject to the arrangement; (h) the
return of the Acquiror Common Shares will not be triggered by
an event the occurrence or nonoccurrence of which is within the
control of PEI shareholders; (i) the return of Acquiror Common
Shares will not be triggered by the payment of additional tax
or reduction in tax paid as a result of an Internal Revenue
Service audit of PEI shareholders or the corporations either
(i) with respect to the Share Exchange, or (ii) when the Share
Exchange involves persons related within the meaning of Code
Section 267(c)(4); and (j) the mechanism for the calculation of
the number of Acquiror Common Shares to be returned is
objective and readily ascertainable.
21. The purpose of the Acquiror rights plan is to provide a
mechanism by which Acquiror, a publicly traded corporation,
can, in the future, provide shareholders with rights to
purchase Acquiror stock at substantially less than fair market
value as a means of responding to unsolicited offers to acquire
Acquiror. The plan provides that in the event of an
unsolicited offer in the future to acquire Acquiror under
certain circumstances (a "triggering event"), the Acquiror
shareholders will have the right to purchase Acquiror stock.
The rights may be redeemed at any time by Acquiror without
shareholder approval until they become exercisable for one cent
per right. Until a triggering event, the rights are not
exercisable or separately tradeable, transferrable, or
detachable, nor are they represented by any certificate other
than the Acquiror Common Share certificate. Until a triggering
event and then a "flip-in" or "flip-over" event occur, the
exercise price is anticipated to exceed the value of the
Acquiror stock at all times
<PAGE> 10
Board of Directors
May 19, 1995
Page 10
during the life of the right. The likelihood that the
rights would, at any time, be exercised is both remote and
speculative. No event has occurred, or is anticipated to occur,
that would make the rights exercisable.
Opinions
Based upon and subject to the foregoing, and subject to the
qualifications, limitations, and assumptions set forth in this letter, we are
of the opinion that:
(a) The Share Exchange will constitute a reorganization within
the meaning of Code Section 368(a)(1)(B), in which PEI and
Acquiror will each be a "party to a reorganization" within the
meaning of Code Section 368(b).
(b) No gain or loss will be recognized by the PEI shareholders to
the extent PEI Common Shares are exchanged solely for Acquiror
Common Shares pursuant to the Share Exchange. Code Section
354(a)(1).
(c) No gain or loss will be recognized by PEI to the extent PEI
Common Shares are exchanged by the PEI shareholders solely for
Acquiror Common Shares pursuant to the Share Exchange. Rev.
Rul. 57-278, 1957-1 C.B. 124.
(d) The basis of the Acquiror Common Shares received by the PEI
shareholders in exchange for their PEI Common Shares will be
the same, in each instance, as the basis of the PEI Common
Shares surrendered in exchange therefor. Code Section
358(a)(1).
(e) The holding period of the Acquiror Common Shares received
by the PEI shareholders in exchange for their PEI Common Shares
will include, in each instance, the holding period of the PEI
Common Shares surrendered in exchange therefor, provided the
PEI Common Shares were held by such shareholder as a capital
asset on the date of the exchange. Code Section 1223(1).
The opinions expressed in this letter are limited to the foregoing
federal income tax consequences of the Share Exchange and are based solely on,
and are limited to, the federal income tax laws of the United States of
America. We express no opinion as to any other federal laws, or any foreign,
state, or local laws, and we express no opinion as to any federal, state or
other tax consequences of the other aspects of the Share Exchange, including
without limitation the assignment of the Partnership interests, the release of
any guarantees, the repayment of PEI Indebtedness by Acquiror on PEI's behalf
and the return of the escrowed shares to Acquiror. We also express no opinion
as to the effect of the Merger on the Share Exchange.
<PAGE> 11
Board of Directors
May 19, 1995
Page 11
The opinions expressed in this letter speak as to the documents, facts,
and the law in existence as of the date hereof and at no time subsequent
hereto. No opinion is expressed in this letter concerning the tax treatment of
the Share Exchange under other provisions of the Code and regulations adopted
thereunder or under foreign, state or local law, or as to the tax treatment of
any conditions existing at the time of, or the effects resulting from, the
Share Exchange that are not specifically covered above.
We assume no obligation to update our opinions for any deletions,
additions, or modifications to any laws applicable to the Share Exchange
subsequent to the date hereof. The opinions expressed herein are matters of
professional judgment and are not a guarantee of results.
The opinions expressed in this letter are solely for the benefit of
the addressee hereof in connection with the transactions provided for in, or
contemplated by, the Transaction Documents. Because tax consequences can vary
among shareholders due to each shareholder's unique circumstances, each
Meadowvale shareholder should consult such shareholder's own tax advisor for
assurance as to the particular tax consequences to such shareholder as a result
of the Share Exchange.
The opinions expressed in this letter are issued upon the condition and
understanding that the opinions expressed herein will be updated prior to
Closing, and that this letter will be superseded by such updated opinions and
this letter will thereby be rendered null and void.
The opinions expressed in this letter may not be used for any other
purpose or otherwise distributed or relied upon by any person. Except for
reproductions for inclusion in transcripts of the documentation relating to the
Transaction Documents, and for inclusion in the Registration Statement on Form
S-4 (Registration No. 33-58641) and the related Prospectus/Information
Statement of The Hillhaven Corporation for registration of 5,500,000 shares of
its common stock, to which such inclusion we hereby consent, this opinion may
not be quoted or reproduced, in whole or in part, in any other document without
our prior written consent.
Very truly yours,
/S/ ICE MILLER DONADIO & RYAN
<PAGE> 1
EXHIBIT 8.04
[ICE MILLER DONADIO & RYAN LETTERHEAD]
May 19, 1995
Board of Directors
Meadowvale Skilled Care Center, Inc.
9200 Keystone Crossing, Suite 800
Indianapolis, Indiana 46240
Dear Board of Directors:
We have acted as counsel to Meadowvale Skilled Care Center, Inc., an
Indiana corporation ("Meadowvale"), in connection with the proposed exchange of
shares of Common Stock of Meadowvale ("Meadowvale Common Shares") for shares
of Common Stock of The Hillhaven Corporation ("Acquiror") pursuant to the
Amended and Restated Agreement and Plan of Share Exchange and Agreements to
Assign Partnership Interests by and among Acquiror, Meadowvale, Nationwide
Care, Inc., an Indiana corporation ("Nationwide"), Phillippe Enterprises, Inc.,
an Indiana corporation ("PEI") (Nationwide, PEI and Meadowvale are collectively
referred to as the "Targets"), the partners of Camelot Care Centers, an Indiana
general partnership ("Camelot"), the partners of Shangri-La Partnership, an
Indiana general partnership and the limited partners of Evergreen Woods, Ltd.,
a Florida limited partnership ("Evergreen") (Camelot and Evergreen are
collectively referred to as the "Partnerships"), dated as of February 27, 1995
(the "Reorganization Agreement"); and the documents executed and delivered in
connection therewith (collectively with the Reorganization Agreement, the
"Transaction Documents"). Pursuant to the Reorganization Agreement, each of the
Meadowvale shareholders will exchange their Meadowvale Common Shares for
Acquiror Common Shares (the "Share Exchange"). Our opinions hereinafter set
forth are given pursuant to Section 9.11 of the Reorganization Agreement. Terms
which are not defined herein and are used with initial capitalization when the
rules of grammar would not otherwise so require and which are defined in the
Transaction Documents shall have the meanings assigned to such terms in the
Transaction Documents.
<PAGE> 2
Board of Directors
May 19, 1995
Page 2
Representations of the Facts
In connection with our opinions hereinafter set forth, the parties to
the Reorganization Agreement have represented to us and advised us of the
following facts:
Meadowvale is owned by seven shareholders. Meadowvale owns a 120 bed
long-term care center in Indiana leased by Nationwide. The capital structure of
Meadowvale consists of 3,000 authorized Meadowvale Common Shares, without par
value, all of which are issued and outstanding. Meadowvale has no subsidiaries.
There are no outstanding options or warrants to purchase Meadowvale Common
Shares or outstanding securities or other instruments convertible into
Meadowvale Common Shares or which constitute equity under general principles of
federal tax law, and no such options, warrants, securities, instruments, or
rights have been or will be issued or cancelled in contemplation of the Share
Exchange.
Prior to the Effective Time, Meadowvale will transfer the Residence
to Cheesman, and repay to Cheesman the debt owed by Meadowvale to Cheesman.
These payments shall be made directly by Meadowvale out of its own funds and
without reimbursement directly or indirectly from Acquiror.
Acquiror and its subsidiaries operate nursing centers, pharmacies and
retirement housing communities. The capital structure of Acquiror consists of
60 million authorized shares of voting Common Stock, par value $.75 per share
(the "Acquiror Common Shares"), of which approximately 32,824,863 are
outstanding; 25 million authorized shares of preferred stock, par value $0.15
per share, of which the following series have been designated: 3 million
authorized shares of Series A Preferred Stock, of which no shares are
outstanding; 950 authorized shares of Series B Convertible Preferred Stock, of
which 618 shares have been designated as Subseries 1, of which no shares are
outstanding; 35,000 authorized shares of Series C Preferred Stock, par value
$0.15 per share, all of which are outstanding; and 300,000 authorized shares of
Series D Preferred Stock, par value $0.15 per share, of which approximately
63,403 are outstanding.
Other than the transfer of the Residence to Cheesman, there have
been and will be no distributions to any of the Meadowvale shareholders with
respect to their Meadowvale stock in contemplation of the Share Exchange, and
no Meadowvale stock has been or will be sold, redeemed or otherwise disposed of
in contemplation of the Share Exchange. Meadowvale shareholders are entitled to
dissenters' rights in connection with the proposed Share Exchange. Any payments
to dissenters in connection with the Share Exchange shall be made by Meadowvale
out of its own funds without reimbursement directly or indirectly from
Acquiror.
<PAGE> 3
Board of Directors
May 19, 1995
Page 3
The Transaction Documents provide that all of the Meadowvale Common
Shares will be exchanged solely for Acquiror Common Shares. The Share Exchange
was approved by the Board of Directors of Meadowvale on April 12, 1995, and is
subject to the approval of, and we assume will be approved by, the holders of
a majority of the outstanding shares of Meadowvale at a duly called and held
meeting of the Meadowvale shareholders on or about June 23, 1995. The Share
Exchange was approved by the Board of Directors of Acquiror on April 12, 1995,
and does not require the approval of the Acquiror shareholders.
At the Effective Time, all of the outstanding Meadowvale Common Shares
will be exchanged for that number of Acquiror Common Shares determined in
accordance with the Reorganization Agreement, rounded to the nearest whole
share. Other than Acquiror Common Shares, there will be no cash or other
property exchanged in the Share Exchange.
At the Effective Time, the Partnership Interests shall be assigned to
Nationwide. The Partnership Interests have no value and they do not
represent liabilities. None of the Acquiror Common Shares are being
transferred pursuant to the Reorganization Agreement in exchange for such
Partnership Interests. The shareholders of the Targets and the Partners of the
Partnerships were not the primary obligors with respect to the obligations which
they personally guaranteed and which will be released prior to the Share
Exchange. The Target Common Shares held by the Partners and by the
guarantors shall be valued in the Share Exchange in the same manner as the
other Target Common Shares. Any debts owed by any Partnership to any of
the Target shareholders shall be paid by Nationwide out of its
own funds without reimbursement directly or indirectly from Acquiror.
Acquiror is making no payment of cash or Acquiror Common Shares or other
property or assuming any liabilities in connection with or pursuant to the
assumption of the Partnership Interests, releases of guarantees or the
Noncompetition Agreements, and will not directly or indirectly reimburse
Nationwide for any such payment.
The Acquiror, Vencor, Inc., a Delaware corporation ("Vencor"), and
Veritas Holdings Corp., a Delaware corporation and wholly-owned subsidiary of
Vencor ("Veritas"), entered into an Agreement and Plan of Merger dated as of
April 23, 1995, pursuant to which Acquiror will be merged with and into Veritas
(the "Merger") in a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 4
Board of Directors
May 19, 1995
Page 4
In the Merger, Acquiror shareholders will receive only Vencor voting Common
Shares and cash in lieu of fractional shares. We have also assumed that no
Meadowvale shareholders will dissent from and to the Merger. The Merger is not
a condition to, integrated with, nor interdependent upon, the Share Exchange,
and that the Merger may not occur and, if it occurs, it will have independent,
meaningful economic significance, and will be undertaken for valid business
purposes apart from federal income taxes. We express no opinion as to the
effect of the Merger on the Share Exchange, and our opinions herein are based
on the assumption that the Merger will have no effect on the Share Exchange.
Scope of Investigation
In connection with our opinions hereinafter set forth, we have
investigated such questions of law as we have deemed necessary or appropriate
for purposes of this opinion. We have also examined the following documents:
1. The Transaction Documents;
2. The Agreement Among Shareholders of Meadowvale to be executed
on or before the Closing ("Agreement Among Shareholders");
3. The Certificate executed by Meadowvale on May 18, 1995
and delivered by Meadowvale to us (the "Meadowvale
Certificate"); and
4. The Certificate executed by Acquiror of even date herewith and
delivered by Acquiror to us ("Acquiror Certificate").
As to questions of fact material to our opinion, we have relied
exclusively, without independent investigation, upon the statements and
representations of Meadowvale, the Meadowvale shareholders, and Acquiror, and
our opinions are limited by the facts and circumstances as represented to and
understood by us.
<PAGE> 5
Board of Directors
May 19, 1995
Page 5
Additional Assumptions and Representations
For purposes of our opinions hereinafter set forth, we have assumed and
you have represented that: (1) all of the terms of the Share Exchange are
contained in the Transaction Documents, and the Share Exchange will be
consummated in accordance with the terms, conditions, and other provisions of
the Transaction Documents; (2) as of the Effective Time, all applicable federal
and state regulatory approvals and other approvals necessary to consummate the
Share Exchange will have been received and will be in full force and effect,
and all applicable waiting periods will have expired; and (3) all of the
factual information, descriptions, representations, and assumptions set forth
in the "Representations of the Facts," the Transaction Documents, the Form S-4
Registration Statement filed with the Securities and Exchange Commission on
April 14, 1995 in connection with the Share Exchange as amended (the
"Registration Statement"), and in the certificates and agreements identified
above are accurate and complete in all respects and will be accurate and
complete in all respects at the time the Registration Statement becomes
effective and at the Effective Time.
In our examinations, we have assumed the genuineness of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. In addition, we have assumed: (1) the
genuineness of all signatures; (2) the legal capacity of all natural persons
and the power and authority of all parties to execute and deliver such
documents; (3) the due authorization, execution and delivery of the documents
by all parties thereto; and (4) that the documents are legal, valid and binding
as against all parties. We have assumed that the Agreement Among Shareholders
will be executed prior to closing in good faith and delivered by the holders of
shares of Meadowvale stock as indicated thereon. We have also assumed that the
certificates identified above were executed and delivered in good faith by
Meadowvale and the Acquiror.
You have represented the following which we have assumed with your
permission without independent investigation:
1. The fair market value of the Acquiror Common Shares received
by each Meadowvale shareholder will be approximately equal
to the fair market value of the Meadowvale Common Shares
surrendered in exchange therefor.
2. Except for the possibility of the Merger, there is no plan or
intention by the Meadowvale shareholders who own one percent
or more of the shares of Meadowvale, and, to the best of the
knowledge of the management of Meadowvale, except for the
Merger, there is no plan or intention on the part of the
remaining shareholders
<PAGE> 6
Board of Directors
May 19, 1995
Page 6
of Meadowvale to sell, exchange, pledge, or otherwise dispose
of a number of Acquiror Common Shares received in the Share
Exchange (or Vencor voting Common Shares received in the
Merger) that would reduce Meadowvale shareholders' ownership of
such Acquiror Common Shares (or Vencor voting Common Shares)
to a number of shares having an aggregate value, as of the
Effective Time (and as of the effective time of the Merger),
of less than 50 percent of the value of all of the formerly
outstanding Meadowvale Common Shares as of the same dates. For
purposes of this assumption, Meadowvale Common Shares
surrendered by dissenters will be treated as outstanding
Meadowvale Common Shares at the Effective Time. Moreover,
Meadowvale Common Shares and Acquiror Common Shares (or Vencor
voting Common Shares) held by Meadowvale shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to
the Share Exchange will be considered in making this
assumption. Other than the distribution of the Residence to
Cheesman, there have not been and will be no distributions to
any Meadowvale shareholders with respect to their Meadowvale
Common Shares (or Vencor Voting Common Shares) made in
contemplation of the Share Exchange (or the Merger), and no
Meadowvale Common Shares (or Vencor Voting Common Shares) have
been or will be sold, redeemed or otherwise disposed of in
contemplation of the Share Exchange (or the Merger). Moreover,
for purposes of this representation, the value of all of the
formerly outstanding Meadowvale Common Shares as of the
Effective Time (and as of the effective time of the Merger)
will be determined as if the transfer of the Residence to
Cheesman did not occur.
3. Acquiror will acquire the Meadowvale Common Shares solely in
exchange for Acquiror voting stock (Acquiror Common Shares).
For purposes of this representation, Meadowvale Common Shares
redeemed for cash or other property furnished by Acquiror will
be considered as acquired by Acquiror. Further, no
liabilities of Meadowvale or the Meadowvale shareholders will
be assumed by Acquiror, nor will any of the Meadowvale Common
Shares be subject to any liabilities.
4. At the Effective Time, Meadowvale will not have outstanding any
warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in
Meadowvale that, if exercised or converted, would affect
Acquiror's acquisition or retention of control of Meadowvale,
as defined in Code Section 368(c).
5. Meadowvale will pay its dissenting shareholders the value of
their stock out of its own funds. No funds will be supplied for
that purpose, directly or indirectly, by Acquiror, nor will
Acquiror directly or indirectly reimburse Meadowvale for any
payments to dissenters.
<PAGE> 7
Board of Directors
May 19, 1995
Page 7
6. The liabilities of Meadowvale were incurred by Meadowvale in
the ordinary course of its business.
7. Meadowvale, Acquiror, and the Meadowvale shareholders will pay
their respective expenses, if any, incurred in connection with
the Share Exchange.
8. There is no intercorporate indebtedness existing between
Acquiror and Meadowvale that was issued, acquired, or will be
settled at a discount.
9. Neither Meadowvale nor Acquiror is an investment company as
defined in Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
10. Neither Meadowvale nor Acquiror is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Code
Section 368(a)(3)(A).
11. At the Effective Time, the fair market value of the assets of
Meadowvale will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
12. None of the compensation received by any shareholder who is an
employee of Meadowvale or any other Target will be separate
consideration for, or allocable to, any of such shareholder's
Meadowvale Common Shares. None of the Acquiror Common Shares
received by any shareholder who is an employee of Meadowvale or
any other Target will be separate consideration for, or
allocable to, any employment agreement. The compensation paid
to any shareholder who is an employee of Meadowvale or any
other Target will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
13. The Share Exchange is being effected for bona fide business
reasons, including without limitation the reasons set forth in
the Registration Statement and for the reasons that Acquiror
and its subsidiaries have looked for growth opportunities which
would increase their percentage share of the nursing care
market while increasing their operating efficiencies by
achieving economies of scale as a larger service provider. Due
in part to the proximity of the service areas, Acquiror
determined that Meadowvale represented such an opportunity and
expressed an interest in combining the resources of the
companies. Acquiror believes that a
<PAGE> 8
Board of Directors
May 19, 1995
Page 8
combination of their operations with Meadowvale will provide
increased opportunity and flexibility for profitable expansion
and diversification, will enhance their ability to provide more
efficient and dependable service, and will result in operating
efficiencies and cost savings.
Meadowvale has looked for opportunities to expand its nursing
care operations and increase its operating efficiencies.
Meadowvale also recognizes that some of its senior management
executives, who are both officers and directors, are
approaching retirement age, and others have expressed a desire
to reduce or discontinue their role in the management of
Meadowvale. Consequently, Meadowvale, in considering business
expansion opportunities, has looked for businesses with strong
senior management with experience in the nursing care industry.
Meadowvale determined that Acquiror offers an opportunity for
it to meet these objectives. Meadowvale believes that a
combination of its operations with Acquiror will provide
increased opportunity and flexibility for profitable expansion
and diversification, will enhance its ability to provide more
efficient and dependable service, and will result in operating
efficiencies and cost savings.
14. Following the Share Exchange, Meadowvale will not issue
additional shares of its stock that would result in Acquiror
losing control of Meadowvale within the meaning of Code Section
368(c).
15. Acquiror has no plan or intention to reacquire any of its stock
issued in the Share Exchange.
16. Acquiror has no plan or intention to liquidate Meadowvale or
any subsidiary of Meadowvale; to merge Meadowvale or any
subsidiary of Meadowvale with and into another corporation;
to cause or permit Meadowvale to sell or otherwise dispose of
any of its assets, or the assets of any subsidiary of
Meadowvale, except for dispositions made in the ordinary course
of business; or to sell or otherwise dispose of the stock of
Meadowvale or any subsidiary of Meadowvale except for transfers
described in Code Section 368(a)(2)(C).
17. Following the Share Exchange, Meadowvale will continue its
historic business or use a significant portion of its historic
business assets in a business.
18. Acquiror does not own, directly or indirectly, and has not
owned during the past five years, directly or indirectly, any
Meadowvale shares, including any
<PAGE> 9
Board of Directors
May 19, 1995
Page 9
ownership by any Acquiror subsidiary. Acquiror will not
acquire, directly or indirectly, any Meadowvale Common Shares
prior to the Effective Time.
19. The payment of cash in lieu of fractional Vencor Common Shares
is solely for the purpose of avoiding the expense and
inconvenience to Vencor of issuing fractional Vencor Common
Shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid
in the Merger to the shareholders of Acquiror instead of
issuing fractional Vencor Common Shares will not
exceed one percent of the total consideration that will be
issued in the Merger for their Acquiror Common Shares. The
fractional share interest of each of the shareholders of
Acquiror will be aggregated and no shareholders of Acquiror
will receive cash in an amount equal to or greater than the
value of one full Vencor Common Share.
20. To the extent that a portion of the Acquiror Common Shares
issued in exchange for the Meadowvale Common Shares will be
placed in escrow by the Meadowvale shareholders and will be
made subject to a condition pursuant to the Reorganization
Agreement and the Escrow Agreement and Supplemental Escrow
Agreement, for possible return to Acquiror under specified
conditions: (a) there is a valid business reason for
establishing the arrangement in that the escrow is a mechanism
to accomplish an exchange price adjustment, bargained for at
arm's-length, in the event of a breach by Meadowvale; (b) the
Acquiror Common Shares subject to such arrangement will appear
as issued and outstanding on the balance sheet of Acquiror and
such Acquiror Common Shares will be legally outstanding under
applicable state law; (c) all dividends paid on such Acquiror
Common Shares will be distributed currently to Meadowvale
shareholders; (d) all voting rights of such Acquiror Common
Shares will be exercisable by or on behalf of Meadowvale
shareholders or their authorized agent; (e) no such Acquiror
Common Shares will be subject to restrictions requiring their
return to Acquiror because of death, failure to continue
employment, or similar restrictions; (f) all such Acquiror
Common Shares will be released from the arrangement within five
years from the date of consummation of the Share Exchange
(except where there is a bona fide dispute as to whom the
Acquiror Common Shares should be released); (g) at least 50
percent of the number of each class of Acquiror Common
Shares issued initially to Meadowvale shareholders will
not be subject to the arrangement; (h) the return of the
Acquiror Common Shares will not be triggered by an event the
occurrence or nonoccurrence of which is within the control of
Meadowvale shareholders; (i) the
<PAGE> 10
Board of Directors
May 19, 1995
Page 10
return of Acquiror Common Shares will not be triggered by the
payment of additional tax or reduction in tax paid as a result
of an Internal Revenue Service audit of Meadowvale
shareholders or the corporations either (i) with respect to
the Share Exchange, or (ii) when the Share Exchange involves
persons related within the meaning of Code Section 267(c)(4);
and (j) the mechanism for the calculation of the number of
Acquiror Common Shares to be returned is objective and readily
ascertainable.
21. The purpose of the Acquiror rights plan is to provide a
mechanism by which Acquiror, a publicly traded corporation,
can, in the future, provide shareholders with rights to
purchase Acquiror stock at substantially less than fair market
value as a means of responding to unsolicited offers to acquire
Acquiror. The plan provides that in the event of an unsolicited
offer in the future to acquire Acquiror under certain
circumstances (a "triggering event"), the Acquiror shareholders
will have the right to purchase Acquiror stock. The rights may
be redeemed at any time by Acquiror without Shareholder
approval until they become exercisable for one cent per right.
Until a triggering event, the rights are not exercisable or
separately tradeable, transferrable, or detachable, nor are
they represented by any certificate other than the Acquiror
Common Share certificate. Until a triggering event and then a
"flip-in" or "flip-over" event occur, the exercise price is
anticipated to exceed the value of the Acquiror stock at all
times during the life of the right. The likelihood that the
rights would, at any time, be exercised is both remote and
speculative. No event has occurred, or is anticipated to occur,
that would make the rights exercisable.
Opinion
Based upon and subject to the foregoing, and subject to the
qualifications, limitations, and assumptions set forth in this letter, we are
of the opinion that:
(a) the Share Exchange will constitute a reorganization within the
meaning of Code Section 368(a)(1)(B), in which Meadowvale and
Acquiror will each be a "party to a reorganization" within the
meaning of Code Section 368(b).
(b) No gain or loss will be recognized by the Meadowvale
shareholders to the extent Meadowvale Common Shares are
exchanged solely for Acquiror Common Shares pursuant to the
Share Exchange. Code Section 354(a)(1).
<PAGE> 11
Board of Directors
May 19, 1995
Page 11
(c) No gain or loss will be recognized by Meadowvale to the extent
Meadowvale Common Shares are exchanged by the Meadowvale
shareholders solely for Acquiror Common Shares pursuant to the
Share Exchange. Rev. Rul. 57-278, 1957-1 C.B. 124.
(d) The basis of the Acquiror Common Shares received by the
Meadowvale shareholders in exchange for their Meadowvale Common
Shares will be the same, in each instance, as the basis of the
Meadowvale Common Shares surrendered in exchange therefor.
Code Section 358(a)(1).
(e) The holding period of the Acquiror Common Shares received by
the Meadowvale shareholders in exchange for their Meadowvale
Common Shares will include, in each instance, the holding
period of the Meadowvale Common Shares surrendered in exchange
therefor, provided the Meadowvale Common Shares were held by
such shareholder as a capital asset on the date of the
exchange. Code Section 1223(1).
The opinions set forth in this letter are limited to the foregoing
federal income tax consequences of the Share Exchange and are based solely on,
and are limited to, the federal income tax laws of the United States of
America. We express no opinion as to any other federal laws, or any foreign,
state, or local laws, and we express no opinion as to any federal, state or
other tax consequences of the other aspects of the Share Exchange, including
without limitation the assignment of the Partnership Interests, the release of
any guarantees, the transfer of the Residence to Cheesman, the repayment of the
Cheesman Note, the extension or repayment of any loan by Nationwide to
Meadowvale, the payments, if any, to dissenters, and the return of escrowed
shares to Acquiror. We also express no opinion as to the effect of the Merger
on the Share Exchange.
The opinions expressed in this letter speak as to the documents, facts,
and the law in existence as of the date hereof and at no time subsequent
hereto. No opinion is expressed in this letter concerning the tax treatment of
the Share Exchange under other provisions of the Code and regulations adopted
thereunder or under foreign, state or local law, or as to the tax treatment of
any conditions existing at the time of, or the effects resulting from, the
Share Exchange that are not specifically covered above.
We assume no obligation to update our opinions for any deletions,
additions, or modifications to any laws applicable to the Share Exchange
subsequent to the date hereof. The opinions expressed herein are matters of
professional judgment and are not a guarantee of results.
<PAGE> 12
Board of Directors
May 19, 1995
Page 12
The opinions expressed in this letter are solely for the benefit of the
addressee hereof in connection with the transactions provided for in, or
contemplated by, the Transaction Documents. Because tax consequences can vary
among shareholders due to each shareholder's unique circumstances, each PEI
shareholder should consult such shareholder's own tax advisor for assurance as
to the particular tax consequences to such shareholder as a result of the Share
Exchange.
The opinions expressed in this letter are issued upon the condition and
understanding that the opinions expressed herein will be updated prior to
Closing, and that this letter will be superseded by such updated opinions and
this letter will thereby be rendered null and void.
The opinions expressed in this letter may not be used for any other
purpose or otherwise distributed or relied upon by any person. Except for
reproductions for inclusion in transcripts of the documentation relating to
the Transaction Documents, and for inclusion in the Registration Statement on
Form S-4 (Registration No. 33-58641) and the related Prospectus/Information
Statement of The Hillhaven Corporation for registration of 5,500,000 shares of
its common stock, to which such inclusion we hereby consent, this opinion may
not be quoted or reproduced, in whole or in part, in any other document without
our prior written consent.
Very truly yours,
/S/ ICE MILLER DONADIO & RYAN
<PAGE> 1
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Hillhaven Corporation:
We consent to incorporation by reference in the Registration Statement
No. 33-58641 on Form S-4 of The Hillhaven Corporation of our report dated July
8, 1994 relating to the consolidated balance sheets of The Hillhaven
Corporation and subsidiaries as of May 31, 1994 and 1993, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the years in the three-year period ended May 31, 1994, and all related
schedules, which report appears in the May 31, 1994 annual report on Form 10-K
of The Hillhaven Corporation and to the reference to our firm under the
headings "Experts," "Terms and Conditions of the Share Exchange
Agreement--Certain Federal Income Tax Consequences" and "Terms and Conditions
of the Share Exchange Agreement--Accounting Treatment" in the
prospectus/information statement.
Our report refers to a change in the method of accounting for income taxes
effective June 1, 1992.
KPMG Peat Marwick LLP
Seattle, Washington
May 19, 1995
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated November 10, 1994, except for Note 9 as to which the
date is February 27, 1995, with respect to the financial statements of
Nationwide Care, Inc. included in Amendment No. 1 to the Registration Statement
(Form S-4 No. 33-58641) and the related Prospectus/Information Statement of The
Hillhaven Corporation for the registration of 5,500,000 shares of its common
stock.
ERNST & YOUNG LLP
Indianapolis, Indiana
May 17, 1995
<PAGE> 1
EXHIBIT 23.06
[LETTERHEAD]
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
May 19, 1995
The Board of Directors
The Hillhaven Corporation
1148 Broadway Plaza, 4th floor
Tacoma, WA 98401-2264
Dear Members of the Board:
We hereby consent to the use of our opinion letter dated February 27, 1995, to
the Board of Directors of The Hillhaven Corporation ("Hillhaven"), included as
Annex A to the Prospectus/Information Statement of Nationwide Care, Inc. which
forms a part of the Registration Statement on Form S-4 of Hillhaven originally
filed on April 14, 1995, with the Securities and Exchange Commission and to the
references therein to such opinion under the caption "Background of and Reasons
for the Share Exchange-Hillhaven's Reasons for the Share Exchange." In giving
such consent, we do not admit and we hereby disclaim that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ Richard P. Johnson
---------------------------
Managing Director
